You are on page 1of 16

01 RUBY INDUSTRIAL CORPORATION and BENHAR INTERNATIONAL, INC. petitioners, vs.

COURT OF APPEALS, MIGUEL LIM, ALLIED LEASING and FINANCE


CORPORATION, and THE MANAGEMENT COMMITTEE OF RUBY INDUSTRIAL CORPORATION, respondents.
PUNO, J.:

Petitioners seek the reversal of the Court of Appeals Decision, [1] setting aside the Orders of the Securities and Exchange Commission (SEC), dated July 30, 1993 and
October 15, 1993, which approved the Revised Rehabilitation Plan of Ruby Industrial Corporation (RUBY) and appointed Benhar International, Inc. (BENHAR) as member of
RUBY's Management Committee.
The facts: Petitioner Ruby Industrial Corporation (RUBY) is a domestic corporation engaged in glass manufacturing, while petitioner Benhar International, Inc. (BENHAR)
is a domestic corporation engaged in importation and sale of vehicle spare parts. BENHAR is wholly-owned by the Yu family and headed by Henry Yu who is also a director
and majority stockholder of RUBY.
In 1983, RUBY suffered severe liquidity problems. Thus, on December 13, 1983, it filed a Petition for Suspension of Payments with the Securities and Exchange
Commission (SEC). [2]
On December 20, 1983, the SEC issued an Order [3] declaring RUBY under suspension of payments. Pending hearing of its petition, the SEC enjoined RUBY from
disposing its property,except insofar as necessary in its ordinary operations. It also enjoined RUBY from making payments outside of the necessary or legitimate expenses
of its business.
On August 10, 1984, the SEC Hearing Panel [4] created a management committee[5] for RUBY to: (1) undertake the management of RUBY; (2) take custody of and control
over all existing assets and liabilities of RUBY; (3) evaluate RUBY's existing assets and liabilities, earnings and operations; (4) determine the best way to salvage and
protect the interest of its investors and creditors; and (5) study, review and evaluate the proposed rehabilitation plan for RUBY. [6]
Subsequently, at RUBY's special stockholders meeting, its majority stockholders led by Yu Kim Giang presented the BENHAR/RUBY Rehabilitation Plan to be
submitted to SEC.Under the plan, BENHAR shall lend its P60 million credit line in China Bank to RUBY, payable within ten (10) years. Moreover, BENHAR shall purchase the
credits of RUBY's creditors and mortgage RUBY's properties to obtain credit facilities for RUBY. [7] Upon approval of the rehabilitation plan, BENHAR shall control and manage
RUBY'S operations. For its service, BENHAR shall receive a management fee equivalent to 7.5% of RUBY's net sales. [8]
Some 40% of the stockholders opposed the BENHAR/RUBY Plan, including private respondent MIGUEL LIM, a minority shareholder of RUBY. Private respondent Allied
Leasing and Finance Corporation, the biggest unsecured creditor of RUBY and chairman of the management committee, also objected to the plan as it would transfer
RUBY's assets beyond the reach and to the prejudice of its unsecured creditors. Despite the oppositions, the majority stockholders still submitted the BENHAR/RUBY Plan to
the SEC for approval.
Upon the other hand, RUBY's minority stockholders, represented by private respondent Lim, submitted their own rehabilitation plan (the ALTERNATIVE PLAN) to the SEC
where they proposed to: (1) pay all RUBY'S creditors without securing any bank loan; (2) run and operate RUBY without charging management fees; (3) buy-out the
majority shares or sell their shares to the majority stockholders; (4) rehabilitate RUBY's two plants; and (5) secure a loan at 25% interest, as against the 28% interest
charged in the loan under the BENHAR/RUBY Plan. [9]
Both plans were endorsed by the SEC to RUBY's management committee for evaluation.
On October 28, 1988, the SEC Hearing Panel approved the BENHAR/RUBY Plan. [10] The minority stockholders, thru private respondent Lim, appealed the approval to the
SEC enbanc. On November 15, 1988, the SEC en banc temporarily enjoined the implementation of the BENHAR/RUBY Plan. On December 20, 1988, after the expiration of
the TRO, the SEC enbanc granted the writ of preliminary injunction against the enforcement of the BENHAR/RUBY Plan. [11]
Thereafter, BENHAR and Henry Yu, later joined by RUBY and Yu Kim Giang, appealed to the Court of Appeals (CA-G.R. SP No. 16798) questioning the issuance of the
writ. Their appeal was denied.[12]
BENHAR and company elevated the matter to this Court. In a minute Resolution, [13] dated February 28, 1990, we denied the petition and upheld the injunction against
the implementation of the BENHAR/RUBY Plan.
However, it appears that before the SEC Hearing Panel approved the BENHAR/RUBY Plan on October 28, 1988, BENHAR had already implemented part of the plan by
paying off Far East Bank & Trust Company (FEBTC), one of RUBY's secured creditors. Thus, by May 30, 1988, FEBTC had already executed a deed of assignment of credit
and mortgage rights in favor of BENHAR. Moreover, despite the SEC en banc's TRO and injunction, BENHAR still paid RUBY's other secured creditors who, in turn, assigned
their credits in favor of BENHAR.
Hence, RUBY's biggest unsecured creditor, Allied Leasing and Finance Corporation, and private respondent Lim moved to nullify the deeds of assignment executed in
favor of BENHAR and cite the parties thereto in contempt for willful violation of the December 20, 1983 SEC Order enjoining RUBY from disposing its properties and making
payments pending the hearing of its petition for suspension of payments. Private respondents Lim and Allied Leasing charged that in paying off FEBTC's credits, FEBTC was
given undue preference over the other creditors of RUBY.
Acting on private respondents' motions, the SEC Hearing Panel nullified the deeds of assignment executed by RUBY's creditors in favor of BENHAR and declared the
parties thereto guilty of indirect contempt. [14]
Petitioners appealed to the SEC en banc. Their appeal was denied.[15] It was ruled that, pending approval of the BENHAR/RUBY plan, BENHAR had no authority to pay
off FEBTC, one of RUBY's creditors. In prematurely implementing the BENHAR/RUBY plan, BENHAR defied the SEC Order declaring RUBY under suspension of payments and
directing the management committee to preserve its assets.
Petitioners RUBY and BENHAR, joined by Henry Yu and Yu Kim Giang, appealed to the Court of Appeals (CA-G.R. SP No. 18310). On August 29, 1990, the Court of
Appeals affirmed the SEC ruling nullifying the deeds of assignment. [16] It also declared that its decision is final and executory as to RUBY and Yu Kim Giang for their failure
to file their pleadings within the reglementary period. This Court affirmed the Court of Appeals' decision in G.R. No. 96675. [17]
Earlier, on May 29, 1990, after the SEC en banc enjoined the implementation of BENHAR/RUBY Plan, RUBY filed with the SEC en banc an ex-parte petition to create a
new management committee and to approve its revised rehabilitation plan (Revised BENHAR/RUBY Plan). Under the revised plan, BENHAR shall receive P34.068 Million of
the P60.437 Million credit facility to be extended to RUBY, as reimbursement for BENHAR's payment to some of RUBY's creditors.
The SEC en banc directed RUBY to submit the Revised BENHAR/RUBY Plan to its creditors for comment and approval. The petition for the creation of a new
management committee was remanded for further proceedings to the SEC Hearing Panel. The Alternative Plan of RUBY's minority stockholders was also forwarded to the
hearing panel for evaluation.
On April 26, 1991, over ninety (90%) percent of RUBY's creditors objected to the Revised BENHAR/RUBY Plan and the creation of a new management
committee. Instead, they endorsed the minority stockholders' Alternative Plan.
At the hearing of the petition for the creation of a new management committee, three (3) members of the original management committee [18] opposed the Revised
BENHAR/RUBY Plan on the following grounds:

(1) the Revised BENHAR/RUBY Plan would legitimize the entry of BENHAR, a total stranger, to RUBY as BENHAR would become the biggest creditor of RUBY;

(2) the revised plan would put RUBY's assets beyond the reach of the unsecured creditors and the minority stockholders; and,

(3) the revised plan was not approved by RUBY's stockholders in a meeting called for the purpose.

However, on September 18, 1991, despite the objections of over 90% of RUBY's creditors and three (3) members of the management committee, the SEC Hearing
Panel approved the revised plan and dissolved the existing management committee. It also created a new management committee and appointed BENHAR as one of its
members.[19] In addition to the powers originally conferred to the management committee under P.D. No. 902-A, the new management committee was tasked to oversee
the implementation by the Board of Directors of the revised rehabilitation plan for RUBY.
Consequently, the original management committee, Lim, and the Allied Leasing Corporation appealed to the SEC en banc. On July 30, 1993, the SEC En Banc affirmed
the approval of the Revised BENHAR/RUBY Plan and the creation of a new management committee. [20] To avoid any group from controlling the management of RUBY, the
SEC appointed SEC lawyers Ruben C. Ladia and Teresita R. Siao as additional members of the new management committee. Further, it declared that BENHAR's membership
in the new management committee is subject to the condition that BENHAR will extend its credit facilities to RUBY without using the latter's assets as security or collateral.
Private respondents Lim, Allied Leasing Corporation and the original management committee moved for reconsideration. Petitioners, on the other hand, asked the SEC
to reconsider the portion of its Order prohibiting BENHAR from utilizing RUBY's assets as collateral.
On October 15, 1993, the SEC denied private respondents' motions for reconsideration. However, it granted petitioners' motion and allowed BENHAR to use RUBY's
assets as collateral for loans, subject to the approval of the majority of all the members of the new management committee. [21]
On appeal by private respondents, the Court of Appeals set aside [22] SEC's approval of the Revised BENHAR/RUBY plan and remanded the case to the SEC for further
proceedings. It ruled that the revised plan circumvented its earlier decision (CA-G.R. SP No. 18310) nullifying the deeds of assignment executed by RUBY's creditors in favor
of BENHAR. Under the revised plan, BENHAR was to receive P34.068 Million of the P60.437 Million credit facility to be extended to RUBY, as settlement for its advance
payment to RUBY's seven (7) secured creditors. In effect, the payments made by BENHAR under the void Deeds of Assignment were recognized as payable to BENHAR
under the revised plan. Petitioners' motion for reconsideration was denied.[23]

Hence, this petition where petitioners aver that:

"I. THE COURT OF APPEALS COMMITTED A REVERSIBLE ERROR, GRAVELY ABUSED ITS DISCRETION AND EXCEEDED ITS JURISDICTION WHEN IT WENT AGAINST THE
FACTS AS FOUND BY THE SEC AND, THEREAFTER, SUBSTITUTED ITS JUDGMENT FOR THAT OF THE SEC.

"II. THE COURT OF APPEALS COMMITTED AN ERROR REVIEWABLE ON APPEAL AND ALSO A PROPER SUBJECT OF CERTIORARI WHEN IT ALLOWED PRIVATE RESPONDENTS
TO FILE SEPARATE PETITIONS PREPARED BY LAWYERS REPRESENTING THEMSELVES AS BELONGING TO DIFFERENT LAW FIRMS."

We find no merit in the petition.

Petitioners first contend that, in reversing the SEC's approval of the Revised BENHAR/RUBY Plan, the Court of Appeals exceeded its jurisdiction and disregarded the
SEC's expertise in resolving corporate controversies.
The settled doctrine is that factual findings of an administrative agency are accorded respect and, at times, finality for they have acquired the expertise inasmuch as
their jurisdiction is confined to specific matters. [24] Nonetheless, these doctrines do not apply when the board or official has gone beyond his statutory authority, exercised
unconstitutional powers or clearly acted arbitrarily and without regard to his duty or with grave abuse of discretion. [25] In Leongson vs. Court of Appeals,[26] we held: "once
the actuation of the administrative official or administrative board or agency is tainted by a failure to abide by the command of the law, then it is incumbent on the courts
of justice to set matters right, with this Tribunal having the last say on the matter."
We hold that the SEC acted arbitrarily when it approved the Revised BENHAR/RUBY Plan. As found by the Court of Appeals, the plan contained provisions which
circumvented its final decision[27] in CA-G.R. SP No. 18310, nullifying the deeds of assignment of credits and mortgages executed by RUBY's creditors in favor of BENHAR, as
well as this Court's resolution in G.R. No. 96675, affirming said Court of Appeals' decision. Specifically, the Revised BENHAR/RUBY Plan considered as valid the advance
payments made by BENHAR in favor of some of RUBY'S creditors. The nullity of BENHAR's unauthorized dealings with RUBY's creditors is settled. The deeds of assignment
between BENHAR and RUBY's creditors had been categorically declared void by the SEC Hearing Panel in two (2) orders issued on January 12, 1989 and March 15, 1989.
[28]
The dispositive portion of the Order, dated January 12, 1989, held:

"WHEREFORE, the motion for reconsideration of the Order dated October 7, 1988, insofar as it relates to the motion of Allied Leasing and Finance Corporation to cite for
contempt and to annul deed of assignment is hereby GRANTED. ... The Deed of Assignment of Receivables and Mortgages, Rights, Credits and Interest Without Recourse
having been executed in violation of the Order dated December 20, 1988 is hereby declared NULL and VOID.

"SO ORDERED."
The dispositive portion of the Order dated March 15, 1989, similarly provided:

"WHEREFORE, Mr. Yu Kim Giang and others are hereby found guilty of indirect contempt and a penalty of P500.00 each is hereby imposed on them. The Deed of
Assignment of Receivables and Mortgages, Rights, Credits and Interest Without Recourse, in favor of Benhar International, Inc., by Florence Danon, Philippine Bank of
Communication, Philippine Commercial International Bank, Philippine Trust Company and PCI Leasing and Finance Incorporated, having been executed in violation of the
Order dated December 20, 1988 are hereby declared NULL and VOID.

These orders were upheld by the SEC en banc[29] and the Court of Appeals.[30] In CA-GR SP No. 18310, the Court of Appeals ruled as follows:

"xxx xxx xxx

"1) x x x when the Deed of Assignment was executed on May 30, 1988 by and between Ruby Industrial Corp., Benhar International Inc., and FEBTC, the Rehabilitation Plan
proposed by petitioner Ruby Industrial Corp. for Benhar International Inc. to assume all petitioner's obligation has not been approved by the SEC. The Rehabilitation Plan
was not approved until October 28, 1988. There was a willful and blatant violation of the SEC order dated December 20, 1983 on the part of petitioner Ruby Industrial
Corp., represented by Yu Kim Giang, by Benhar International Inc., represented by Henry Yu and by FEBTC ... .

"2) The magnitude and coverage of the transactions involved were such that Yu Kim Giang and the other signatories cannot feign ignorance or pretend lack of knowledge
thereto in view of the fact that they were all signatories to the transaction and privy to all the negotiations leading to the questioned transactions. In executing the Deeds
of Assignments, the petitioners totally disregarded the mandate contained in the SEC order not to dispose the properties of Ruby Industrial Corp. in any manner
whatsoever pending the approval of the Rehabilitation Plan and rendered illusory the SEC efforts to rehabilitate the petitioner corporation to the best interests of all the
creditors.

"3) The assignments were made without prior approval of the Management Committee created by the SEC in an Order dated August 10, 1984. Under Section 6, par. d, sub.
par. (2) of P.D. 902-A as amended by P.D. 1799, the Management Committee, rehabilitation receiver, board or body shall have the power to take custody and control over
all existing assets of such entities under management notwithstanding any provision of law, articles of incorporation or by-law to the contrary. The SEC therefore has the
power and authority, through a Management Committee composed of petitioner's creditors or through itself directly, to declare all assignment of assets of the petitioner
Corporation declared under suspension of payments, null and void, and to conserve the same in order to effect a fair, equitable and meaningful rehabilitation of the
insolvent corporation."

"4) x x x. The acts for which petitioners were held in indirect contempt by the SEC arose from the failure or willful refusal by petitioners to obey the lawful order of the SEC
not to dispose of any of its properties in any manner whatsoever without authority or approval of the SEC. The execution of the Deeds of Assignment tend to defeat or
obstruct the administration of justice.Such acts are offenses against the SEC because they are calculated to embarrass, hinder and obstruct the tribunal in the
administration of justice or lessen its authority.

"In view of the foregoing conclusion which has now been reached, it is not necessary to discuss at length or to determine other questions which are presented on record. It
is sufficient to say that the facts as established by the evidence on records warrant a finding that petitioners are guilty of indirect contempt. The Order of the SEC is hereby
AFFIRMED. This petition is DISMISSED with costs against the petitioners.

"SO ORDERED." (emphasis ours)

Petitioners insist that the Court of Appeals did not make a categorical statement in the dispositive portion of its decision in CA-G.R. SP No. 18310 that it was nullifying
the deeds of assignment in favor of BENHAR. Allegedly, it merely stated that it is affirming the decision of the SEC. Petitioners cite Olac vs. Court of Appeals [31] where we
held that the dispositive portion or the fallo constitutes the court's resolution in a given case, while the discussion in the body of the decision merely expresses the court's
opinion.
The contention has no merit. The principle laid down in Olac applies only when there is a conflict between the dispositive part (fallo) and the opinion of the court
contained in the decision. Hence, in the execution of the court's judgment, the fallo should be considered as the final disposition of the case before it. Such conflict does
not exist in the Court of Appeals' decision in CA-G.R. SP No. 18310. It is crystal clear that what the Court of Appeals affirmed in CA-GR SP No. 18310 was the nullity of the
deeds of assignment in favor of BENHAR. In a minute resolution in G.R. No. 96675, we even sustained the Court of Appeals' decision in CA-GR SP No. 18310. [32]
In any event, petitioners actively participated in the proceedings before the SEC and the Court of Appeals when private respondents sought the nullification of the
subject deeds.Petitioners are, therefore, estopped from questioning anew the validity of the deeds of assignment executed by RUBY's creditors in favor of BENHAR.
Petitioners should know that it is not for a party to participate in the proceedings, submit his case for decision, accept the judgment if it is favorable to him but attack it for
any reason when it is adverse.[33]
Even the SEC en banc, in its July 30, 1993 Order affirming the approval of the Revised BENHAR/RUBY Plan, has acknowledged the invalidity of the subject deeds of
assignment.However, to justify its approval of the plan and the appointment of BENHAR to the new management committee, it gave the lame excuse that BENHAR became
RUBY's creditor for having paid RUBY's debts. We quote the relevant portion of the SEC's ruling, thus:

"Anent the contention that BENHAR should not take an active participation in the management of petitioner corporation, the same deserves scant consideration.

"While the Deeds of Assignment executed by creditors of Ruby in favor of Benhar were all declared null and void, the Revised Rehabilitation Plan, as herein approved by the
Commission, shows that Benhar will assign its credit lines/loan proceeds or will act as financier whereby it re-lends the contracted loan to Ruby thereby converting Benhar
as a creditor of the petitioner corporation once the Rehabilitation Plan is implemented. In fact, as of March 31, 1990, it appears that Benhar had made some advance
payments to some creditors of Ruby further strengthening its status as a creditor. We cannot, therefore, see any reason why Benhar should not sit in the management
team to oversee the implementation of the Plan."

For its part, the Court of Appeals noted that the approved Revised BENHAR/RUBY Plan gave undue preference to BENHAR. The records, indeed, show that BENHAR's
offer to lend its credit facility in favor of RUBY is conditioned upon the payment of the amount it advanced to RUBY's creditors, thus:

"FUND SOURCING

xxx

1.1. Deed of Assignment of Credit Facility (or Loan Proceeds) to be executed by Benhar in favor of Ruby, under pre-arrangement with China Banking Corporation or by any
other creditor-banks, and upon payment by Ruby of such amount already advanced by Benhar."

In fact, BENHAR shall receive P34.068 Million out of the P60.437 Million credit facility to be extended to RUBY for the latter's rehabilitation.
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.[34] When a distressed company is placed under rehabilitation, the appointment of a management committee follows to avoid collusion between the
previous management and creditors it might favor, to the prejudice of the other creditors. All assets of a corporation under rehabilitation receivership are held in trust for
the equal benefit of all creditors to preclude one from obtaining an advantage or 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 under
receivership.[35]
Parenthetically, BENHAR is a domestic corporation engaged in importing and selling vehicle spare parts with an authorized capital stock of thirty million pesos. Yet, it
offered to lend its credit facility in the amount of sixty to eighty millions pesos to RUBY. It is to be noted that BENHAR is not a lending or financing corporation and lending
its credit facilities, worth more than double its authorized capitalization, is not one of the powers granted to it under its Articles of Incorporation. Significantly, Henry Yu, a
director and a majority stockholder of RUBY is, at the same time, a stockholder of BENHAR, a corporation owned and controlled by his family. These circumstances render
the deals between BENHAR and RUBY highly irregular.
To justify its appointment in the new management committee and to dispute that it will become a creditor of RUBY only on account of the proposed assignment of its
credit facility to RUBY, BENHAR avers that as early as December 27, 1988, it already lent one million pesos (P1,000,000.00) to RUBY for the latter's working capital.
The submission deserves scant consideration. To start with, this argument was raised by BENHAR for the first time in its motion for reconsideration before the Court of
Appeals. The settled rule is that issues not raised in the court a quo cannot be raised for the first time on appeal -- in this case, in a motion for reconsideration -- for being
offensive to the basic rules of fair play, justice and due process. [36]
Moreover, when RUBY initiated its petition for suspension of payments with the SEC, BENHAR was not listed as one of RUBY's creditors. BENHAR is a total stranger to
RUBY. If at all, BENHAR only served as a conduit of RUBY. As aptly stated in the challenged Court of Appeals decision: [37]

"Benhar's role in the Revised Benhar/Ruby Plan, as envisioned by the majority stockholders, is to contract the loan for Ruby and, serving the role of a financier, relend the
same to Ruby.Benhar is merely extending its credit line facility with China Bank, under which the bank agrees to advance funds to the company should the need arise. This
is unlikely a loan in which the entire amount is made available to the borrower so that it can be used and programmed for the benefit of the company's financial and
operational needs. Thus, it is actually China Bank which will be the source of the funds to be relent to Ruby. Benhar will not shell out a single centavo of its own funds. It is
the assets of Ruby which will be mortgaged in favor of Benhar.Benhar's participation will only make the rehabilitation plan more costly and, because of the mortgage of its
(Ruby's) assets to a new creditor, will create a situation which is worse than the present. x x x."

We need not say more.


On the second issue, petitioners charge that private respondents are guilty of forum-shopping. It appears that the three (3) private respondents filed separate petitions
before the Court of Appeals upon receipt of the adverse ruling of the SEC en banc. Private respondent Miguel Lim commenced CA-G.R. SP No. 32404, thru its counsel
Romulo Mabanta Beunaventura Sayoc and De los Angeles. For their part, private respondent Allied Leasing and the original management committee of RUBY, represented
by Attorney Walter T. Young, commenced CA-G.R. SP No. 32483 and CA-G.R. SP No. 32469, respectively. In CA-G.R. SP No. 32483, Atty. Young signed for and in behalf of the
law firm Ocampo Quiroz Pesayco and Associates, while in CA-G.R. SP No. 32469, Atty. Young signed for the law firm Quiroz and Young. In both petitions, he used the same
business address-- Allied Bank Center, 6754 Ayala Avenue, Makati City.
We hold that private respondents are not guilty of forum-shopping. In Ramos, Sr. vs. Court of Appeals, [38]
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 group 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 x x"

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.
IN VIEW OF THE FOREGOING, the instant petition is DISMISSED for lack of merit. The Court of Appeals' Decision, dated March 31, 1995, and its Resolution, dated
March 12, 1996, in CA-G.R. SP Nos. 32404, 42469 and 32483 are AFFIRMED. The case is remanded to the Securities and Exchange Commission for further
proceedings. Costs against petitioners.
SO ORDERED.
02 NEW FRONTIER SUGAR CORPORATION, Petitioner, vs. REGIONAL TRIAL COURT, BRANCH 39, ILOILO CITY and EQUITABLE PCI BANK. January 31, 2007

AUSTRIA-MARTINEZ, J.:

In the present petition for review under Rule 45 of the Rules of Court, petitioner assails the decision of the Court of Appeals (CA) [1] in CA-G.R. SP No. 78673, dismissing its
special civil action for certiorari and affirming the dismissal orders dated January 13, 2003 and April 14, 2003 issued by the Regional Trial Court (RTC) of Iloilo City, Branch
39, acting as a special commercial court, in Civil Case No. 02-27278.

As borne by the records, New Frontier Sugar Corporation (petitioner) is a domestic corporation engaged in the business of raw sugar milling. Foreseeing that it cannot meet
its obligations with its creditors as they fell due, petitioner filed a Petition for the Declaration of State of Suspension of Payments with Approval of Proposed Rehabilitation
Plan under the Interim Rules of Procedure on Corporate Rehabilitation (2000) some time in August 2002. [2] Finding the petition to be sufficient in form and substance, the
RTC issued a Stay Order dated August 20, 2002, appointing Manuel B. Clemente as rehabilitation receiver, ordering the latter to put up a bond, and setting the initial
hearing on the petition.[3]

One of petitioners creditors, the Equitable PCI Bank (respondent bank), filed a Comment/Opposition with Motion to Exclude Property, alleging that petitioner is not qualified
for corporate rehabilitation, as it can no longer operate because it has no assets left. Respondent bank also alleged that the financial statements, schedule of debts and
liabilities, inventory of assets, affidavit of general financial condition, and rehabilitation plan submitted by petitioner are misleading and inaccurate since its properties
have already been foreclosed and transferred to respondent bank before the petition for rehabilitation was filed, and petitioner, in fact, still owes respondent bank
deficiency liability.[4]

On January 13, 2003, the RTC issued an Omnibus Order terminating the proceedings and dismissing the case. [5] Petitioner filed an Omnibus Motion but this was denied by
the RTC in its Order dated April 14, 2003.[6]
Petitioner then filed with the CA a special civil action for certiorari, which was denied by the CA per assailed Decision dated July 19, 2004, the dispositive portion of which
reads:

WHEREFORE, in view of the foregoing premises, judgment is hereby rendered by us DISMISSING the petition filed in this case and AFFIRMING the orders
assailed by the petitioner.

SO ORDERED.[7]

In dismissing the petition, the CA sustained the findings of the RTC that since petitioner no longer has sufficient assets and properties to continue with its operations and
answer its corresponding liabilities, it is no longer eligible for rehabilitation. The CA also ruled that even if the RTC erred in dismissing the petition, the same could not be
corrected anymore because what petitioner filed before the CA was a special civil action for certiorari under Rule 65 of the Rules of Court instead of an ordinary appeal. [8]

Hence, herein petition based on the following reasons:


(a)

THE COURT OF APPEALS ERRED AND GRAVELY ABUSED ITS DISCRETION IN UPHOLDING THE FINDINGS OF THE SPECIAL COMMERCIAL COURT (RTC BR. 39,
ILOILO CITY), PREMATURELY EXCLUDING THE FORECLOSED PROPERTY OF PETITIONER AND DECLARING THAT PETITIONER HAS NO SUBSTANTIAL PROPERTY
LEFT TO MAKE CORPORATE REHABILITATION FEASIBLE AS THERE IS AN ONGOING LITIGATION FOR THE ANNULMENT OF SUCH FORECLOSURE IN ANOTHER
PROCEEDING.

(b)
THE COURT OF APPEALS ERRED IN DISMISSING THE PETITION FOR CERTIORARI FILED BEFORE IT AS IMPROPER, APPEAL BEING AN AVAILABLE REMEDY. [9]

The Court denies the petition.


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.[10] Presently, the applicable law on rehabilitation petitions filed by corporations, partnerships or associations, [11] including rehabilitation cases transferred from
the Securities and Exchange Commission to the RTCs pursuant to Republic Act No. 8799 or the Securities Regulation Code, [12] is the Interim Rules of Procedure on Corporate
Rehabilitation (2000).

Under the Interim Rules, the RTC, within five (5) days from the filing of the petition for rehabilitation and after finding that the petition is sufficient in form and substance,
shall issue a Stay Order appointing a Rehabilitation Receiver, suspending enforcement of all claims, prohibiting transfers or encumbrances of the debtors properties,
prohibiting payment of outstanding liabilities, and prohibiting the withholding of supply of goods and services from the debtor. [13] Any transfer of property or any other
conveyance, sale, payment, or agreement made in violation of the Stay Order or in violation of the Rules may be declared void by the court upon motion or motu proprio.
[14]

Further, the Stay Order is effective both against secure and unsecured creditors. This is in harmony with the principle of "equality is equity" first enunciated in Alemars
Sibal & Sons, Inc. v. Elbinias,[15] thus:

During rehabilitation receivership, the assets are held in trust for the equal benefit of all creditors to preclude one from obtaining an advantage or
preference over another by the expediency of an attachment, execution or otherwise. For what would prevent an alert creditor, upon learning of the
receivership, from rushing posthaste to the courts to secure judgments for the satisfaction of its claims to the prejudice of the less alert creditors.

As between creditors, the key phrase is "equality is equity." When a corporation threatened by bankruptcy is taken over by a receiver, all the
creditors should stand on an equal footing. Not anyone of them should be given any preference by paying one or some of them ahead of the others. This is
precisely the reason for the suspension of all pending claims against the corporation under receivership. Instead of creditors vexing the courts with suits
against the distressed firm, they are directed to file their claims with the receiver who is a duly appointed officer of the SEC. (Emphasis supplied)

Nevertheless, the suspension of the enforcement of all claims against the corporation is subject to the rule that it shall commence only from the time the
Rehabilitation Receiver is appointed. Thus, in Rizal Commercial Banking Corporation v. Intermediate Appellate Court,[16] the Court upheld the right of RCBC to
extrajudicially foreclose the mortgage on some of BF Homes properties, and reinstated the trial courts judgment ordering the sheriff to execute and deliver to RCBC the
certificate of auction sale involving the properties. The Court vacated its previous Decision rendered on September 14, 1992 in the same case, finding that RCBC can
rightfully move for the extrajudicial foreclosure of the mortgage since it was done on October 16, 1984, while the management committee was appointed only on March
18, 1985. The Court also took note of the SECs denial of the petitioners consolidated motion to cite the sheriff and RCBC for contempt and to annul the auction proceedings
and sale.

In this case, respondent bank instituted the foreclosure proceedings against petitioners properties on March 13, 2002 and a Certificate of Sale at Public Auction was issued
on May 6, 2002, with respondent bank as the highest bidder. The mortgage on petitioners chattels was likewise foreclosed and the Certificate of Sale was issued on May
14, 2002. It also appears that titles over the properties have already been transferred to respondent bank. [17]

On the other hand, the petition for corporate rehabilitation was filed only on August 14, 2002 and the Rehabilitation Receiver appointed on August 20,
2002. Respondent bank, therefore, acted within its prerogatives when it foreclosed and bought the property, and had title transferred to it since it was made prior to the
appointment of a rehabilitation receiver.

The fact that there is a pending case for the annulment of the foreclosure proceedings and auction sales [18] is of no moment. Until a court of competent jurisdiction,
which in this case is the RTC of Dumangas, Iloilo, Branch 68, annuls the foreclosure sale of the properties involved, petitioner is bereft of a valid title over the properties.
[19]
In fact, it is the trial courts ministerial duty to grant a possessory writ over the properties. [20]
Consequently, the CA was correct in upholding the RTCs dismissal of the petition for rehabilitation in view of the fact that the titles to petitioners properties have
already passed on to respondent bank and petitioner has no more assets to speak of, specially since petitioner does not dispute the fact that the properties which were
foreclosed by respondent bank comprise the bulk, if not the entirety, of its assets.

It should be stressed that the Interim Rules was enacted to provide for a summary and non-adversarial rehabilitation proceedings. [21] 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.
As provided in the Interim Rules, the basic procedure is as follows:

(1) The petition is filed with the appropriate Regional Trial Court; [22]

(2) If the petition is found to be sufficient in form and substance, the trial court shall issue a Stay Order, which shall provide, among others, for the
appointment of a Rehabilitation Receiver; the fixing of the initial hearing on the petition; a directive to the petitioner to publish the Order in a newspaper of
general circulation in the Philippines once a week for two (2) consecutive weeks; and a directive to all creditors and all interested parties (including the
Securities and Exchange Commission) to file and serve on the debtor a verified comment on or opposition to the petition, with supporting affidavits and
documents. [23]

3) Publication of the Stay Order;

4) Initial hearing on any matter relating to the petition or on any comment and/or opposition filed in connection therewith. If the trial court is
satisfied that there is merit in the petition, it shall give due course to the petition;[24]

5) Referral for evaluation of the rehabilitation plan to the rehabilitation receiver who shall submit his recommendations to the court; [25]

6) Modifications or revisions of the rehabilitation plan as necessary; [26]

7) Submission of final rehabilitation plan to the trial court for approval; [27]

8) Approval/disapproval of rehabilitation plan by the trial court;[28]

In the present case, the petition for rehabilitation did not run its full course but was dismissed by the RTC after due consideration of the pleadings filed before it. On
this score, the RTC cannot be faulted for its summary dismissal, as it is tantamount to a finding that there is no merit to the petition. This is in accord with the trial courts
authority to give due course to the petition or not under Rule 4, Section 9 of the Interim Rules. Letting the petition go through the process only to be dismissed later on
because there are no assets to be conserved will not only defeat the reason for the rules but will also be a waste of the trial courts time and resources.
The CA also correctly ruled that petitioner availed of the wrong remedy when it filed a special civil action for certiorari with the CA under Rule 65 of the Rules of
Court.
Certiorari is a remedy for the correction of errors of jurisdiction, not errors of judgment. It is an original and independent action that was not part of the trial that had
resulted in the rendition of the judgment or order complained of. More importantly, since the issue is jurisdiction, an original action for certiorari may 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. A petition
for certiorari should be filed not later than sixty days from the notice of judgment, order, or resolution, and a motion for reconsideration is generally required prior to the
filing of a petition for certiorari, in order to afford the tribunal an opportunity to correct the alleged errors. [29]

The Omnibus Order dated January 13, 2003 issued by the RTC is a final order since it terminated the proceedings and dismissed the case before the trial court; it
leaves nothing more to be done. As such, petitioners recourse is to file an appeal from the Omnibus Order.
In this regard, A.M. No. 00-8-10-SC promulgated by the Court on September 4, 2001 provides that a petition for rehabilitation is considered a special proceeding
given that it seeks to establish the status of a party or a particular fact. Accordingly, the period of appeal provided in paragraph 19 (b) of the Interim Rules Relative to the
Implementation of Batas Pambansa Blg. 129 for special proceedings shall apply. Under said paragraph 19 (b), the period of appeal shall be thirty (30) days, a record of
appeal being required.

However, it should be noted that the Court issued A.M. No. 04-9-07-SC on September 14, 2004, clarifying the proper mode of appeal in cases involving corporate
rehabilitation and intra-corporate controversies. It is provided therein that 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 appealed to the CA through a petition for review under
Rule 43 of the Rules of Court to be filed within fifteen (15) days from notice of the decision or final order of the RTC.

In any event, as previously stated, since what petitioner filed was a petition for certiorari under Rule 65 of the Rules, the CA rightly dismissed the petition and
affirmed the assailed Orders.

WHEREFORE, the petition is DENIED for lack of merit. Costs against petitioner. SO ORDERED.

03 PRYCE CORPORATION vs. COURT OF APPEALS

SANDOVAL-GUTIERREZ, J.:

For our resolution is a petition for review on certiorari seeking to reverse the Decision[1] of the Court of Appeals (Seventh Division) dated July 28, 2005 in CA-G.R. SP
No. 88479.
Pryce Corporation, petitioner, was incorporated under Philippine laws on September 7, 1989. Its primary purpose was to develop real estate in Mindanao. It engaged
in the development of memorial parks, operated a major hotel in Cagayan de Oro City, and produced industrial gases.

The 1997 Asian financial crisis, however, badly affected petitioners operations, resulting in heavy losses. It could not meet its obligations as they became due. It
incurred losses of P943.09 million in 2001, P479.05 million in 2002, and P125.86 million in 2003.

Thus, on July 12, 2004, petitioner filed with the Regional Trial Court (RTC), Branch 138, Makati City, acting as Commercial Court, a petition for rehabilitation,
[2]
docketed as Special Proceedings No. M-5901. Petitioner prayed for the appointment of a Rehabilitation Receiver from among the nominees named therein and the staying
of the enforcement of all claims, monetary or otherwise against it. Petitioner also prayed that after due hearing, its proposed Rehabilitation Plan be approved. The salient
features of the proposed Rehabilitation Plan[3] are:

[1] the bank creditors will be paid through dacion en pago of assets already mortgaged to them, to the extent sufficient to pay off the outstanding
obligations. The excess assets, if any, will be freed from liens and encumbrances and released to the petitioner.
[2] in case the value of the mortgaged assets for dacion is less than the amount of the obligation to be paid, the deficiency shall be settled by way
of dacion of memorial park lots owned by the petitioner.
[3] pricing of the assets for dacion shall be based on the average of two valuation appraisals from independent third-party appraisers accredited with
the Bangko Sentral ng Pilipinas (BSP) to be chosen by the creditors and acceptable to the petitioner, except for memorial park lots which shall be valued
at P16,000 per lot.
[4] all penalties shall be waived by the creditors.
[5] interest on the loans shall be accrued only up to June 30, 2003.
[6] titles of properties and sales documents held by the bank as additional security but without actual mortgage on the properties will also be
released to the petitioner after the dacion.
[7] memorial park mother titles mortgaged to a creditor bank shall be priced based on the value of individual memorial lots comprising those titles,
the mother titles shall be released to the petitioner.
[8] for purpose of the dacion, the foreign currency loan from China Banking Corporation, the only US Dollar-denominated obligation, will be converted
to peso based on the average exchange rate for the year 2003 (P54.2033 to US$1.00), being the mean of 12 monthly averages, as quoted on the statistics
web page of the Bangko Sentral ng Pilipinas.
[9] the bank creditors will avail of the tax exemption and benefits offered under the Special Purpose Vehicle (SPV) Law or R.A. No. 9182 to minimize
the dacion-related costs for all parties concerned. Any concerned bank or financial institution which does not avail of said tax exemption through its own
fault will shoulder the applicable taxes and related fees for the dacion transaction.
[10] trade creditors will be paid through dacion of memorial park lots.
[11] any other debt not covered by mortgaged (sic) of assets or not falling under the aforementioned categories shall be paid through dacion of
memorial park lots

On July 13, 2004, the RTC issued a Stay Order [4] directing that: all claims against petitioner be deferred; the initial hearing of the petition for rehabilitation be set
on September 1, 2004; and all creditors and interested parties should file their respective comments/oppositions to the petition. In the same Order, the RTC then appointed
Gener T. Mendoza as Rehabilitation Receiver.

The petition was opposed by petitioners bank-creditors. The Bank of the Philippine Islands claimed that the petition and the proposed Rehabilitation Plan are
coercive and violative of the contract. The Land Bank of the Philippines contended, among others, that the petition is unacceptable because of the unrealistic valuation of
the properties subject of the dacion en pago.

The China Banking Corporation, respondent herein, alleged in its opposition that petitioner is solvent and that it filed the petition to force its creditors to
accept dacion payments. In effect, petitioner passed on to the creditors the burden of marketing and financing unwanted memorial lots, while exempting it
(petitioner) from paying interests and penalties.
On September 13, 2004, the RTC issued an Order,[5] the dispositive portion of which reads:

WHEREFORE, the Petition is given due course. Let the Rehabilitation Plan, Annex J, Petition, be referred to Mr. Gener Mendoza, Rehabilitation Receiver,
for evaluation and recommendation to be submitted not later than December 15, 2004.

SO ORDERED.

On December 6, 2004, the Rehabilitation Receiver, in compliance with the above Order, submitted an Amended Rehabilitation Plan, recommending the following:
1. Payment of all bank loans and long-term commercial papers (LTCP) through dacion en pago of PCs real estate assets;

2. Payment of all non-bank, trade and other payables amounting to at least P500,000 each through a dacion of memorial park lots; and

3. Payment in cash over a three-year period, without interest, of all non-bank, trade and other payables amounting to less than P500,000 each. There
are 290 of these creditors but their aggregate exposure to PC is only P7.64 million.

The Rehabilitation Receiver further proposed the following amendments with respect to the dacion payments to petitioners bank creditors:
1. The asset base from which the creditors may choose to be paid has been broadened. Each creditor will no longer be limited to assets already
mortgaged to it and may elect to be paid from the many other assets of the company, including even those mortgaged to other creditors. Any secured
creditor, however, shall have priority to acquire the assets mortgaged to it.

2. A third appraiser has been added to the two proposed by PC to undertake valuation of assets earmarked for dacion. With three appraisers, more
representative values are likely to be obtained.

3. Valuation of the memorial lots has been configured to dovetail with values approved in the corporate rehabilitation of Pryce Gases, Inc. (PGI), a
subsidiary of PC. Thus, any memorial lot ceded to secured creditors shall be valued at P13,125 per lot, and P17,500/lot for unsecured creditors.
On January 17, 2005, the RTC issued an Order approving the Amended Rehabilitation Plan and finding petitioner eligible to be placed in a state of corporate
rehabilitation; and directing that its assets shall be held and disposed of and its liabilities paid and liquidated in the manner specified in the said Order.

Consequently, on February 23, 2005, respondent filed with the Court of Appeals a petition for review, docketed as CA-G.R. SP No. 88479. Respondent alleged that in
approving the Amended Rehabilitation Plan, the RTC impaired the obligations of contracts, voided contractual stipulation and contravened the avowed policy of the State to
maintain a competitive financial system.

On July 28, 2005, the Court of Appeals rendered its Decision granting respondents petition and reversing the assailed Orders of the RTC, thus:
WHEREFORE, premises considered, petition is hereby GRANTED. The assailed July 13, 2004, September 13, 2004 and January 17, 2005 Orders of the
Regional Trial Court of Makati City, Branch 138, are hereby REVERSED and SET ASIDE.

SO ORDERED.

Petitioner herein seasonably filed a motion for reconsideration but it was denied by the appellate court in its Resolution dated April 12, 2006.
Hence, the instant recourse raising the sole issue of whether the Court of Appeals erred in denying the petition for rehabilitation of petitioner Pryce Corporation.

Section 6 of the Interim Rules of Procedure on Corporate Rehabilitation [6] provides:


SEC. 6. Stay Order. If the court finds the petition to be sufficient in form and substance, it shall, not later than five (5) days from the filing of the
petition, issue an Order (a) appointing a Rehabilitation Receiver and fixing his bond; (b) staying enforcement of all claims, whether for money or otherwise
and whether such enforcement is by court action or otherwise, against the debtor, its guarantors and sureties not solidarily liable with the debtor; (c)
prohibiting the debtor from selling, encumbering, transferring, or disposing in any manner any of its properties except in the ordinary course of business; (d)
prohibiting the debtor from making any payment of its liabilities outstanding as of the date of filing of the petition; (e) prohibiting the debtors suppliers of
goods or services from withholding supply of goods and services in the ordinary course of business for as long as the debtor makes payments for the
services and goods supplied after the issuance of the stay order; (f) directing the payment in full of all administrative expenses incurred after the issuance of
the stay order; (g) fixing the initial hearing on the petition not earlier than forty five (45) days but not later than sixty (60) days from the
filing thereof; (h) directing the petitioner to publish the Order in a newspaper of general circulation in the Philippines once a week for two (2) consecutive
weeks; (i) directing all creditors and all interested parties (including the Securities and Exchange Commission) to file and serve on the debtor a verified
comment on or opposition to the petition, with supporting affidavits and documents, not later than ten (10) days before the date of the initial
hearing and putting them on notice that their failure to do so will bar them from participating in the proceedings; and (j) directing the creditors and
interested parties to secure from the court copies of the petition and its annexes within such time as to enable themselves to file their comment
on or opposition to the petition and to prepare for the initial hearing of the petition.

Section 6 provides that the petition must be sufficient in form and substance. In Rizal Commercial Banking Corporation v. Intermediate Appellate Court,[7] this Court
held that under Section 6(c) of P.D. No. 902-A, [8] receivers may be appointed whenever: (1) necessary in order to preserve the rights of the parties-
litigants; and/or (2) protect the interest of the investing public and creditors. The situations contemplated in these instances are serious in nature. There must
exist a clear and imminent danger of losing the corporate assets if a receiver is not appointed. Absent such danger, such as where there are sufficient assets
to sustain the rehabilitation plan and both investors and creditors are amply protected, the need for appointing a receiver does not exist. Simply put, the purpose of
the law in directing the appointment of receivers is to protect the interests of the corporate investors and creditors.

We agree with the Court of Appeals that the petition for rehabilitation does not allege that there is a clear and imminent danger that petitioner will lose its corporate
assets if a receiver is not appointed. In other words, the serious situation test laid down by Rizal Commercial Banking Corporation has not been met or at least
substantially complied with. Significantly, the Stay Order dated July 13, 2004 issued by the RTC does not state any serious situation affecting petitioners corporate
assets. We observe that in appointing Mr. Gener T. Mendoza as Rehabilitation Receiver, the only basis of the lower court was its finding that the petition is
sufficient in form and substance. However, it did not specify any reason or ground to sustain such finding. Clearly, the petition failed to comply with the serious
situation test.

As aptly held by the Court of Appeals:


There are serious requirements before rehabilitation can be ordered. That is why this stay order is issued only after a management committee or
receiver is appointed. Before a management committee or receiver is appointed, the law expressly states the serious requirements that must first exist: (1)
an imminent danger (National Development Company and New Agrix, Inc. v. Philippine Veterans Bank, G.R. Nos. 84132-33, December 10, 1990, 192 SCRA
257) of dissipation, loss, wastage or destruction of assets or of paralization of business operations of the liquid corporation which may be prejudicial to the
interest of minority stockholders, parties-litigants or to the general public, or (2) there is a necessity to preserve the rights and interests of the parties-
litigants, of the investing public and of creditors.
In the case at bench, when the commercial court appointed a rehabilitation receiver, the very next day after the filing of the Petition for
Rehabilitation, it is highly doubtful and well-nigh impossible, that, without any hearing yet held, the commercial court could have already
gathered enough evidence before it to determine whether there was any imminent danger of dissipation of assets or of paralization of
business operations to warrant the appointment of a rehabilitation receiver.[9]

In determining whether petitioners financial situation is serious and whether there is a clear and imminent danger that it will lose its corporate assets, the RTC,
acting as commercial court, should conduct a hearing wherein both parties can present their respective evidence. Hence, a remand of the records of this case to the RTC is
imperative.

WHEREFORE, we DENY the petition. The assailed Decision of the Court of Appeals in CA-G.R. SP No. 88479 is AFFIRMED with the modification discussed
above.Let the records of this case be REMANDED to the RTC, Branch 138, Makati City, sitting as Commercial Court, for further proceedings with dispatch to determine the
merits of the petition for rehabilitation. No costs.
SO ORDERED.

04 ROMBE EXIMTRADE (PHILS) vs. ASIATRUST DEVELOPMENT BANK. February 13, 2008

VELASCO, JR., J.:

There is no interference by one co-equal court with another when the case filed in one involves corporate rehabilitation and suspension of extrajudicial foreclosure
in the other.

The Case Background

Rombe Eximtrade (Phils.), Inc. (Rombe) is a corporation organized and existing under Philippine laws with its main office in the City of Mandaluyong. It is
represented in this petition by the spouses Romeo and Marrionette Peralta. It owned some real properties in Malolos, Bulacan.

Sometime in 2002, Rombe filed a Petition for the Declaration of a State of Suspension of Payments with Approval of Proposed Rehabilitation Plan docketed as Civil Case
No. 325-M-2002 with the Malolos, Bulacan Regional Trial Court (RTC), Branch 7.
On May 3, 2002, in accordance with Section 6, Rule 4 of the Interim Rules of Procedure on Corporate Rehabilitation (IRPCR), the RTC issued a Stay Order suspending the
enforcement of all claims whether for money or otherwise judicial or extrajudicial against Rombe.

The Securities and Exchange Commission and Rombes other creditors, the Bank of the Philippine Islands and creditor-respondent Asiatrust Development Bank (Asiatrust),
opposed the petition.
Thereafter, on September 24, 2002, the Malolos, Bulacan RTC, Branch 7 issued an Order dismissing Civil Case No. 325-M-2002, and the May 3, 2002 Stay Order suspending
all the claims against Rombe was lifted. According to the trial court, Rombe misrepresented its true financial status in its petition for suspension of payments. It found that:
(1) Rombe did not submit an audited financial statement as required by the IRPCR; (2) Rombe made it appear that it had sufficient assets to fully pay its outstanding
obligations when it submitted copies of certificates of title over real properties, but when examined, these were registered in the names of other persons and only two were
unencumbered; (3) Rombe misdeclared the value of its assets, violating the provisions of the IRPCR; (4) Rombe gave only general references to the location of its
properties without mention of the book values nor condition of the properties in its Inventory of Assets; (5) Rombe did not attach any evidence of title or ownership to the
properties enumerated in the Inventory of Assets contrary to the IRPCR; (6) Rombe did not attach nor provide a Schedule of Accounts Receivable indicating the amount of
each receivable, from whom due, the maturity date, and the degree of collectivity, as required by the IRPCR; (7) Rombe also had not been complying with its reportorial
duty in filing its General Information Sheet from 1992 to 2002, nor its Financial Statement (FS) from 1992 to 1995 and 2001, while its FSs for 1999 and 2000 were filed late;
(8) Rombes Balance Sheet claimed it had receivables but it did not indicate the nature, basis, and other information of the receivables; (9) Rombe grossly exaggerated
assets claiming properties it did not own; and (10) Rombe did not have a feasible rehabilitation plan. [1] The RTC concluded that Rombe made numerous material
misrepresentations and was insolvent.

Since Rombe did not appeal, Asiatrust initiated foreclosure proceedings against Rombes properties.

On December 17, 2002, anticipating the foreclosure, Rombe filed a Complaint for Annulment of Documents and Damages with Prayer for a Temporary Restraining
Order (TRO)and Injunction docketed as Civil Case No. 906-M-2002 and raffled to the Malolos, Bulacan RTC, Branch 15. In this case, Rombe asked that Asiatrust and the
Ex-Officio Provincial Sheriff of Bulacan be stopped from proceeding with the extra-judicial foreclosure of mortgage on its properties initiated by Asiatrust. The RTC, Branch
15 issued the January 8, 2003 Order granting the writ of preliminary injunction in favor of Rombe. Asiatrusts Motion for Reconsideration with Motion to Dissolve Writ of
Preliminary Injunction was rejected in the April 3, 2003 Order.

Aggrieved, Asiatrust filed before the Court of Appeals (CA) a Petition for Certiorari under Rule 65 docketed as CA-G.R. SP No. 77471 with the CA, alleging grave abuse of
discretion on the part of the RTC, Branch 15 in issuing the TRO.

The Court of Appeals ruled Rombe misrepresented itself

On March 29, 2004, the CA issued the Decision [2] in favor of Asiatrust stating, as follows:

IN VIEW OF ALL THE FOREGOING, finding merit in this Petition, the same is GRANTED and the assailed Orders dated January 8, 2003 and April 3,
2003 are hereby ANNULLED and SET ASIDE, for having been issued with grave abuse of discretion amounting to lack or excess of jurisdiction. Costs
against private respondents.

SO ORDERED.

The CA found that the May 3, 2002 Stay Order of the Malolos, Bulacan RTC, Branch 7 in Civil Case No. 325-M-2002 could not be clearer. The Stay Order was lifted by the
trial court because of Rombes insolvency, misrepresentations, and infeasible rehabilitation plan. The appellate court observed that the January 8, 2003 Order of the RTC,
Branch 15 granting the TRO in Civil Case No. 906-M-2002 interfered with and set aside the earlier September 24, 2002 Order of the RTC, Branch 7; and such intervention
thwarted the foreclosure of Rombes assets.

Rombes Motion for Reconsideration was denied on July 2, 2004.

Hence, this petition is filed with us. Rombe raises the following issues:
(a)
WHETHER OR NOT THE COURT OF APPEALS GRAVELY ERRED WHEN IT ORDERED THE ANNULMENT OF THE ORDERS OF THE TRIAL COURT FOR THE ISSUANCE
OF A WRIT OF PRELIMINARY INJUNCTION AGAINST HEREIN RESPONDENT DESPITE THE FACT THAT CIVIL CASE NO. 906-M-2002, A CASE FOR ANNULMENT OF
DOCUMENTS FILED BEFORE BRANCH 15 OF THE REGIONAL TRIAL COURT OF MALOLOS, BULACAN, INVOLVES A TOTALLY SEPARATE AND DISTINCT CAUSE OF
ACTION FROM THAT OF CIVIL CASE NO. 325-M-2002, A PETITION FOR DECLARATION OF STATE OF SUSPENSION OF PAYMENTS WITH APPROVAL OF PROPOSED
REHABILITATION FILED BEFORE BRANCH 7 OF THE REGIONAL TRIAL COURT OF MALOLOS, BULACAN
(b)

WHETHER OR NOT THE COURT OF APPEALS GRAVELY ERRED WHEN IT ORDERED THE ANNULMENT OF THE ORDERS OF THE TRIAL COURT FOR THE ISSUANCE
OF A WRIT OF PRELIMINARY INJUNCTION AGAINST HEREIN RESPONDENT DESPITE THE FACT THAT THE PURPOSE OF THE RESTRAINING ORDER ISSUED BY
BRANCH 15 REGIONAL TRIAL COURT OF MALOLOS, BULACAN IN CIVIL CASE NO. 906-M-2002 IS ENTIRELY SEPARATE AND DISTINCT FROM THE PURPOSE OF
THE STAY ORDER ISSUED BY BRANCH 7 OF THE REGIONAL TRIAL COURT OF MALOLOS, BULACAN IN CIVIL CASE NO. 325-M-2002
(c)

WHETHER OR NOT THE COURT OF APPEALS GRAVELY ERRED WHEN IT ORDERED THE ANNULMENT OF THE ORDERS OF THE TRIAL COURT FOR THE ISSUANCE
OF A WRIT OF PRELIMINARY INJUNCTION AGAINST HEREIN RESPONDENT DESPITE THE ABSENCE OF ANY FINDING OF GRAVE ABUSE OF DISCRETION
AMOUNTING TO LACK OR EXCESS OF JURISDICTION EXERCISED BY THE TRIAL COURT IN THE [ISSUANCE] OF THE SAID ORDER
(d)

WHETHER OR NOT THE COURT OF APPEALS GRAVELY ERRED WHEN IT DID NOT EVEN BOTHER TO ADDRESS THE FACT THAT THE PETITION FILED BEFORE IT IS
FATALLY DEFECTIVE

The Courts Ruling


We shall first address what Rombe claims are fatal defects in Asiatrusts petition before the CA. According to Rombe, the signatory of the petition, Esmael C. Ferrer,
Asiatrusts Manager and Head of the Acquired Assets Unit, was not authorized by Asiatrusts Board of Directors to sign Asiatrusts petition and the CA, therefore, should have
dismissed the petition outright. Citing Premium Marble Resources, Inc. v. Court of Appeals (Premium),[3] Rombe avers that the power of a corporation to sue and be sued in
any court is lodged with the board of directors and, absent any board resolution, no one can act on behalf of the corporation. Any action without this authorization cannot
bind the corporation.

Rombes reliance on Premium is misplaced. The issue in Premium is not the authority of the president of Premium to sign the verification and certification against
forum shopping in the absence of a valid authority from the board of directors. The real issue in Premium is, who between the two sets of officers, both claiming to be the
legal board of directors, had the authority to file the suit for and on behalf of the company. Premium is inapplicable to this case.

On the matter of verification, the purpose of the verification requirement is to assure that the allegations in a petition were made in good faith or are true and
correct, not merely speculative. The verification requirement is deemed substantially complied with when one who has ample knowledge to swear to the truth of the
allegations in the petition signed the verification attached to it, and when matters alleged in the petition have been made in good faith or are true and correct. [4] In this
case, we find that the position, knowledge, and experience of Ferrer as Manager and Head of the Acquired Assets Unit of Asiatrust, and his good faith, are sufficient
compliance with the verification and certification requirements. This is in line with our ruling in Iglesia ni Cristo v. Ponferrada,[5] where we said that it is deemed substantial
compliance when one with sufficient knowledge swears to the truth of the allegations in the complaint. However, to forestall any challenge to the authority of the signatory
to the verification, the better procedure is to attach a copy of the board resolution of the corporation empowering its official to sign the petition on its behalf.

Now, as to the core of the petition, Rombe vigorously asserts that the writ of preliminary injunction issued by Branch 15 does not affect in any way the earlier
September 24, 2002 Order of Branch 7 since the two cases involve separate and distinct causes of action.

Rombes thesis is correct but for a different reason.

The rehabilitation case (Civil Case No. 325-M-2002) is distinct and dissimilar from the annulment of foreclosure case (Civil Case No. 906-M-2002), in that the first
case is a special proceeding while the second is a civil action.
A civil action is one by which a party sues another for the enforcement or protection of a right or the prevention or redress of a wrong. [6] Strictly speaking, it is only
in civil actions that one speaks of a cause of action. A cause of action is defined as the act or omission by which a party violates a right of another. [7] Thus, in the annulment
of foreclosure case, the cause of action of Rombe is the act of Asiatrust in foreclosing the mortgage on Rombes properties by which the latters right to the properties was
allegedly violated.

On the other hand, the rehabilitation case is treated as a special proceeding. Initially, there was a difference in opinion as to what is the nature of a petition for
rehabilitation. The Court, on September 4, 2001, issued a Resolution in A.M. No. 00-8-10-SC to clarify the ambiguity, thus:

On the other hand, a petition for rehabilitation, the procedure for which is provided in the Interim Rules of Procedure on Corporate Recovery, should
be considered as a special proceeding. It is one that seeks to establish the status of a party or a particular fact. As provided in section 1, Rule 4 of the Interim
Rules on Corporate Recovery, the status or fact sought to be established is the inability of the corporate debtor to pay its debts when they fall due so that a
rehabilitation plan, containing the formula for the successful recovery of the corporation, may be approved in the end. It does not seek a relief from an injury
caused by another party.

Thus, a petition for rehabilitation need not state a cause of action and, hence, Rombes contention that the two cases have distinct causes of action is incorrect.
Indeed, the two cases are different with respect to their nature, purpose, and the reliefs sought such that the injunctive writ issued in the annulment of foreclosure
case did not interfere with the September 24, 2002 Order in the rehabilitation case.

The rehabilitation case is a special proceeding which is summary and non-adversarial in nature. The annulment of foreclosure case is an ordinary civil action
governed by the regular rules of procedure under the 1997 Rules of Civil Procedure.

The purpose of the rehabilitation case and the reliefs prayed for by Rombe are the suspension of payments because it foresees the impossibility of meeting its debts
when they respectively fall due, [8] and the approval of its proposed rehabilitation plan. The objective and the reliefs sought by Rombe in the annulment of foreclosure case
are, among others, to annul the unilateral increase in the interest rate and to cancel the auction of the mortgaged properties.

Being dissimilar as to nature, purpose, and reliefs sought, the January 8, 2003 Order granting the injunctive writ in the annulment of foreclosure case, therefore, did
not interfere with the September 24, 2002 Order dismissing the rehabilitation petition and lifting the May 3, 2002 Stay Order.

More importantly, it cannot be argued that the RTC, Branch 15 intervened with the rehabilitation case before the RTC, Branch 7 when the former issued the January
8, 2003 injunctive writ since the rehabilitation petition was already dismissed on September 24, 2002, which eventually attained finality. After September 2002, there was
no rehabilitation case pending before any court to speak of. Hence, the Malolos, Bulacan RTC, Branch 15 did not commit grave abuse of discretion in issuing the January 8,
2003 Order.

WHEREFORE, the petition is GRANTED. The CA Decision in CA-G.R. SP No. 77471, annulling and setting aside the January 8, 2003 and April 3, 2003 Orders of the Malolos
Bulacan RTC, Branch 15, is hereby REVERSED and SET ASIDE. The Malolos, Bulacan RTC, Branch 15 is ordered to conduct further proceedings in Civil Case No. 906-M-
2002 with dispatch.

SO ORDERED.