FIRST DIVISION

PRYCE CORPORATION,

G.R. No. 172302

Petitioner,
Present:
PUNO, C.J., Chairperson,
SANDOVAL-GUTIERREZ,
CORONA,
AZCUNA, and
LEONARDO-DE CASTRO, JJ.

-versus-

THE COURT OF APPEALS and

CHINA
BANKING
CORPORATION,
Respondents.

Promulgated:
February 4, 2008

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DECISION
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 CAG.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 daciontransaction.
[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 onSeptember 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 dacio npayments. 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
Rehabilitation[6] provides:

Interim

Rules

of

Procedure

on

Corporate

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 annexeswithin 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 partieslitigants, 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.