Republic of the Philippines
6 Respondent thus clarified from MLHI the
SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 181416 November 11, 2013
MEDICAL PLAZA MAKATI CONDOMINIUM CORPORATION, Petitioner,
vs.
ROBERT H. CULLEN, Respondent.
DECISION
PERALTA, J.:
This is a petition for review on certiorari under Rule 45 of the Rules
of Court assailing the Court of Appeals (CA) Decision1 dated July
10, 2007 and Resolution2 dated January 25, 2008 in CA-G.R. CV No.
86614. The assailed decision reversed and set aside the September
9, 2005 Order3 of the Regional Trial Court (RTC) of Makati, Branch
58 in Civil Case No. 03-1018; while the assailed resolution denied
the separate motions for reconsideration filed by petitioner Medical
Plaza Makati Condominium Corporation (MPMCC) and Meridien Land
Holding, Inc. (MLHI).
The factual and procedural antecedents are as follows:
Respondent Robert H. Cullen purchased from MLHI condominium
Unit No. 1201 of the Medical Plaza Makati covered by Condominium
Certificate of Title No. 45808 of the Register of Deeds of Makati.
Said title was later cancelled and Condominium Certificate of Title
No. 64218 was issued in the name of respondent.
On September 19, 2002, petitioner, through its corporate secretary,
Dr. Jose Giovanni E. Dimayuga, demanded from respondent
payment for alleged unpaid association dues and assessments
amounting to ₱145,567.42. Respondent disputed this demand
claiming that he had been religiously paying his dues shown by the
fact that he was previously elected president and director of
petitioner.4 Petitioner, on the other hand, claimed that
respondent’s obligation was a carry-over of that of MLHI.5
Consequently, respondent was prevented from exercising his right
to vote and be voted for during the 2002 election of petitioner’s
Board of Directors.
veracity of petitioner’s claim, but MLHI allegedly claimed that the
same had already been settled.7 This prompted respondent to
demand from petitioner an explanation why he was considered a
delinquent payer despite the settlement of the obligation. Petitioner
failed to make such explanation. Hence, the Complaint for
Damages8 filed by respondent against petitioner and MLHI, the
pertinent portions of which read:
xxxx
6. Thereafter, plaintiff occupied the said condominium unit no. 1201
and religiously paid all the corresponding monthly
contributions/association dues and other assessments imposed on
the same. For the years 2000 and 2001, plaintiff served as
President and Director of the Medical Plaza Makati Condominium
Corporation;
7. Nonetheless, on September 19, 2002, plaintiff was
shocked/surprised to receive a letter from the incumbent Corporate
Secretary of the defendant Medical Plaza Makati, demanding
payment of alleged unpaid association dues and assessments
arising from plaintiff’s condominium unit no. 1201. The said letter
further stressed that plaintiff is considered a delinquent member of
the defendant Medical Plaza Makati.
x x x;
8. As a consequence, plaintiff was not allowed to file his certificate
of candidacy as director. Being considered a delinquent, plaintiff
was also barred from exercising his right to vote in the election of
new members of the Board of Directors x x x;
9. x x x Again, prior to the said election date, x x x counsel for the
defendant [MPMCC] sent a demand letter to plaintiff, anent the said
delinquency, explaining that the said unpaid amount is a carry-over
from the obligation of defendant Meridien. x x x;
10. Verification with the defendant [MPMCC] resulted to the
issuance of a certification stating that Condominium Unit 1201 has
an outstanding unpaid obligation in the total amount of
₱145,567.42 as of November 30, 2002, which again, was attributed
by defendant [MPMCC] to defendant Meridien. x x x;
1
11. Due to the seriousness of the matter, and the feeling that
defendant Meridien made false representations considering that it
fully warranted to plaintiff that condominium unit 1201 is free and
clear from all liens and encumbrances, the matter was referred to
counsel, who accordingly sent a letter to defendant Meridien, to
demand for the payment of said unpaid association dues and other
assessments imposed on the condominium unit and being claimed
by defendant [MPMCC]. x x x;
12. x x x defendant Meridien claimed however, that the obligation
does not exist considering that the matter was already settled and
paid by defendant Meridien to defendant [MPMCC]. x x x;
13. Plaintiff thus caused to be sent a letter to defendant [MPMCC] x
x x. The said letter x x x sought an explanation on the fact that, as
per the letter of defendant Meridien, the delinquency of unit 1201
was already fully paid and settled, contrary to the claim of
defendant [MPMCC]. x x x;
14. Despite receipt of said letter on April 24, 2003, and to date
however, no explanation was given by defendant [MPMCC], to the
damage and prejudice of plaintiff who is again obviously being
barred from voting/participating in the election of members of the
board of directors for the year 2003;
15. Clearly, defendant [MPMCC] acted maliciously by insisting that
plaintiff is a delinquent member when in fact, defendant Meridien
had already paid the said delinquency, if any. The branding of
plaintiff as delinquent member was willfully and deceitfully
employed so as to prevent plaintiff from exercising his right to vote
or be voted as director of the condominium corporation; 16.
Defendant [MPMCC]’s ominous silence when confronted with claim
of payment made by defendant Meridien is tantamount to
admission that indeed, plaintiff is not really a delinquent member;
17. Accordingly, as a direct and proximate result of the said acts of
defendant [MPMCC], plaintiff experienced/suffered from mental
anguish, moral shock, and serious anxiety. Plaintiff, being a doctor
of medicine and respected in the community further suffered from
social humiliation and besmirched reputation thereby warranting
the grant of moral damages in the amount of ₱500,000.00 and for
which defendant [MPMCC] should be held liable;
18. By way of example or correction for the public good, and as a
stern warning to all similarly situated, defendant [MPMCC] should
be ordered to pay plaintiff exemplary damages in the amount of
₱200,000.00;
19. As a consequence, and so as to protect his rights and interests,
plaintiff was constrained to hire the services of counsel, for an
acceptance fee of ₱100,000.00 plus ₱2,500.00 per every court
hearing attended by counsel;
20. In the event that the claim of defendant [MPMCC] turned out to
be true, however, the herein defendant Meridien should be held
liable instead, by ordering the same to pay the said delinquency of
condominium unit 1201 in the amount of ₱145,567.42 as of
November 30, 2002 as well as the above damages, considering
that the non-payment thereof would be the proximate cause of the
damages suffered by plaintiff;9
Petitioner and MLHI filed their separate motions to dismiss the
complaint on the ground of lack of jurisdiction.10 MLHI claims that
it is the Housing and Land Use Regulatory Board (HLURB) which is
vested with the exclusive jurisdiction to hear and decide the case.
Petitioner, on the other hand, raises the following specific grounds
for the dismissal of the complaint: (1) estoppel as respondent
himself approved the assessment when he was the president; (2)
lack of jurisdiction as the case involves an intra-corporate
controversy; (3) prematurity for failure of respondent to exhaust all
intra-corporate remedies; and (4) the case is already moot and
academic, the obligation having been settled between petitioner
and MLHI.11
On September 9, 2005, the RTC rendered a Decision granting
petitioner’s and MLHI’s motions to dismiss and, consequently,
dismissing respondent’s complaint.
The trial court agreed with MLHI that the action for specific
performance filed by respondent clearly falls within the exclusive
jurisdiction of the HLURB.12 As to petitioner, the court held that the
complaint states no cause of action, considering that respondent’s
obligation had already been settled by MLHI. It, likewise, ruled that
the issues raised are intra-corporate between the corporation and
member.13
2
On appeal, the CA reversed and set aside the trial court’s decision
and remanded the case to the RTC for further proceedings.
Contrary to the RTC conclusion, the CA held that the controversy is
an ordinary civil action for damages which falls within the
jurisdiction of regular courts.14 It explained that the case hinged on
petitioner’s refusal to confirm MLHI’s claim that the subject
obligation had already been settled as early as 1998 causing
damage to respondent.15 Petitioner’s and MLHI’s motions for
reconsideration had also been denied.16
Aggrieved, petitioner comes before the Court based on the
following grounds:
I.
THE COURT A QUO HAS DECIDED A QUESTION OF SUBSTANCE, NOT
THERETOFORE DETERMINED BY THE SUPREME COURT, OR HAS
DECIDED IT IN A WAY NOT IN ACCORD WITH LAW OR WITH THE
APPLICABLE DECISIONS OF THE SUPREME COURT WHEN IT
DECLARED THE INSTANT CASE AN ORDINARY ACTION FOR
DAMAGES INSTEAD OF AN INTRA-CORPORATE CONTROVERSY
COGNIZABLE BY A SPECIAL COMMERCIAL COURT.
II.
THE COURT A QUO HAS DECIDED THE INSTANT CASE IN A WAY NOT
IN ACCORD WITH LAW OR WITH THE APPLICABLE DECISIONS OF
THE SUPREME COURT WHEN IT TOOK COGNIZANCE OF THE APPEAL
WHILE RAISING ONLY PURE QUESTIONS OF LAW.17
The petition is meritorious.
It is a settled rule that jurisdiction over the subject matter is
determined by the allegations in the complaint. It is not affected by
the pleas or the theories set up by the defendant in an answer or a
motion to dismiss. Otherwise, jurisdiction would become dependent
almost entirely upon the whims of the defendant.18 Also
illuminating is the Court’s pronouncement in Go v. Distinction
Properties Development and Construction, Inc.:19
Basic as a hornbook principle is that jurisdiction over the subject
matter of a case is conferred by law and determined by the
allegations in the complaint which comprise a concise statement of
the ultimate facts constituting the plaintiff’s cause of action. The
nature of an action, as well as which court or body has jurisdiction
over it, is determined based on the allegations contained in the
complaint of the plaintiff, irrespective of whether or not the plaintiff
is entitled to recover upon all or some of the claims asserted
therein. The averments in the complaint and the character of the
relief sought are the ones to be consulted. Once vested by the
allegations in the complaint, jurisdiction also remains vested
irrespective of whether or not the plaintiff is entitled to recover
upon all or some of the claims asserted therein. x x x20
Based on the allegations made by respondent in his complaint,
does the controversy involve intra-corporate issues as would fall
within the jurisdiction of the RTC sitting as a special commercial
court or an ordinary action for damages within the jurisdiction of
regular courts?
In determining whether a dispute constitutes an intra-corporate
controversy, the Court uses two tests, namely, the relationship test
and the nature of the controversy test.21
An intra-corporate controversy is one which pertains to any of the
following relationships: (1) between the corporation, partnership or
association and the public; (2) between the corporation,
partnership or association and the State insofar as its franchise,
permit or license to operate is concerned; (3) between the
corporation, partnership or association and its stockholders,
partners, members or officers; and (4) among the stockholders,
partners or associates themselves.22 Thus, under the relationship
test, the existence of any of the above intra-corporate relations
makes the case intra-corporate.23
Under the nature of the controversy test, "the controversy must not
only be rooted in the existence of an intra-corporate relationship,
but must as well pertain to the enforcement of the parties’
correlative rights and obligations under the Corporation Code and
the internal and intra-corporate regulatory rules of the
corporation."24 In other words, jurisdiction should be determined
by considering both the relationship of the parties as well as the
nature of the question involved.25
Applying the two tests, we find and so hold that the case involves
intra-corporate controversy. It obviously arose from the intra-
corporate relations between the parties, and the questions involved
3
pertain to their rights and obligations under the Corporation Code
and matters relating to the regulation of the corporation.26
Admittedly, petitioner is a condominium corporation duly organized
and existing under Philippine laws, charged with the management
of the Medical Plaza Makati. Respondent, on the other hand, is the
registered owner of Unit No. 1201 and is thus a
stockholder/member of the condominium corporation. Clearly,
there is an intra-corporate relationship between the corporation
and a stockholder/member.
The nature of the action is determined by the body rather than the
title of the complaint.1âwphi1 Though denominated as an action for
damages, an examination of the allegations made by respondent in
his complaint shows that the case principally dwells on the
propriety of the assessment made by petitioner against respondent
as well as the validity of petitioner’s act in preventing respondent
from participating in the election of the corporation’s Board of
Directors. Respondent contested the alleged unpaid dues and
assessments demanded by petitioner.
The issue is not novel. The nature of an action involving any
dispute as to the validity of the assessment of association dues has
been settled by the Court in Chateau de Baie Condominium
Corporation v. Moreno.27 In that case, respondents therein filed a
complaint for intra-corporate dispute against the petitioner therein
to question how it calculated the dues assessed against them, and
to ask an accounting of association dues. Petitioner, however,
moved for the dismissal of the case on the ground of lack of
jurisdiction alleging that since the complaint was against the
owner/developer of a condominium whose condominium project
was registered with and licensed by the HLURB, the latter has the
exclusive jurisdiction. In sustaining the denial of the motion to
dismiss, the Court held that the dispute as to the validity of the
assessments is purely an intra-corporate matter between petitioner
and respondent and is thus within the exclusive jurisdiction of the
RTC sitting as a special commercial court. More so in this case as
respondent repeatedly questioned his characterization as a
delinquent member and, consequently, petitioner’s decision to bar
him from exercising his rights to vote and be voted for. These
issues are clearly corporate and the demand for damages is just
incidental. Being corporate in nature, the issues should be threshed
out before the RTC sitting as a special commercial court. The issues
on damages can still be resolved in the same special commercial
court just like a regular RTC which is still competent to tackle civil
law issues incidental to intra-corporate disputes filed before it.28
Moreover, Presidential Decree No. 902-A enumerates the cases
over which the Securities and Exchange Commission (SEC)
exercises exclusive jurisdiction:
xxxx
b) Controversies arising out of intra-corporate or partnership
relations, between and among stockholders, members or
associates; between any or all of them and the corporation,
partnership or association of which they are stockholders,
members, or associates, respectively; and between such
corporation, partnership or association and the State insofar as it
concerns their individual franchise or right to exist as such entity;
and
c) Controversies in the election or appointment of directors,
trustees, officers, or managers of such corporations, partnerships,
or associations.29
To be sure, this action partakes of the nature of an intra-corporate
controversy, the jurisdiction over which pertains to the SEC.
Pursuant to Section 5.2 of Republic Act No. 8799, otherwise known
as the Securities Regulation Code, the jurisdiction of the SEC over
all cases enumerated under Section 5 of Presidential Decree No.
902-A has been transferred to RTCs designated by this Court as
Special Commercial Courts.30 While the CA may be correct that the
RTC has jurisdiction, the case should have been filed not with the
regular court but with the branch of the RTC designated as a special
commercial court. Considering that the RTC of Makati City, Branch
58 was not designated as a special commercial court, it was not
vested with jurisdiction over cases previously cognizable by the
SEC.31 The CA, therefore, gravely erred in remanding the case to
the RTC for further proceedings.
Indeed, Republic Act (RA) No. 9904, or the Magna Carta for
Homeowners and Homeowners’ Associations, approved on January
7, 2010 and became effective on July 10, 2010, empowers the
HLURB to hear and decide inter-association and/or intra-association
controversies or conflicts concerning homeowners’ associations.
However, we cannot apply the same in the present case as it
involves a controversy between a condominium unit owner and a
4
condominium corporation. While the term association as defined in
the law covers homeowners’ associations of other residential real
property which is broad enough to cover a condominium
corporation, it does not seem to be the legislative intent. A
thorough review of the deliberations of the bicameral conference
committee would show that the lawmakers did not intend to extend
the coverage of the law to such kind of association. We quote
hereunder the pertinent portion of the Bicameral Conference
Committee’s deliberation, to wit:
THE CHAIRMAN (SEN. ZUBIRI). Let’s go back, Mr. Chair, very quickly
on homeowners.
THE ACTING CHAIRMAN (REP. ZIALCITA). Ang sa akin lang, I think
our views are similar, Your Honor, Senator Zubiri, the entry of the
condominium units might just complicate the whole matters. So
we’d like to put it on record that we’re very much concerned about
the plight of the Condominium Unit Homeowners’ Association. But
this could very well be addressed on a separate bill that I’m willing
to co-sponsor with the distinguished Senator Zubiri, to address in
the Condominium Act of the Philippines, rather than address it here
because it might just create a red herring into the entire thing and
it will just complicate matters, hindi ba?
THE CHAIRMAN (SEN. ZUBIRI). I also agree with you although I
sympathize with them---although we sympathize with them and we
feel that many times their rights have been also violated by
abusive condominium corporations. However, there are certain
things that we have to reconcile. There are certain issues that we
have to reconcile with this version.
In the Condominium Code, for example, they just raised a very
peculiar situation under the Condominium Code --- Condominium
Corporation Act. It’s five years the proxy, whereas here, it’s three
years. So there would already be violation or there will be already a
problem with their version and our version. Sino ang matutupad
doon? Will it be our version or their version?
So I agree that has to be studied further. And because they have a
law pertaining to the condominium housing units, I personally feel
that it would complicate matters if we include them. Although I
agree that they should be looked after and their problems be
looked into.
Probably we can ask our staff, Your Honor, to come up already with
the bill although we have no more time. Hopefully we can tackle
this again on the 15th Congress. But I agree with the sentiments
and the inputs of the Honorable Chair of the House panel.
May we ask our resource persons to also probably give comments?
Atty. Dayrit.
MR. DAYRIT.
Yes I agree with you. There are many, I think, practices in their
provisions in the Condominium Law that may be conflicting with
this version of ours.
For instance, in the case of, let’s say, the condominium, the so-
called common areas and/or maybe so called open spaces that
they may have, especially common areas, they are usually owned
by the condominium corporation. Unlike a subdivision where the
open spaces and/or the common areas are not necessarily owned
by the association. Because sometimes --- generally these are
donated to the municipality or to the city. And it is only when the
city or municipality gives the approval or the conformity that this is
donated to the homeowners’ association. But generally, under PD
[Presidential Decree] 957, it’s donated. In the Condominium
Corporation, hindi. Lahat ng mga open spaces and common areas
like corridors, the function rooms and everything, are owned by the
corporation. So that’s one main issue that can be conflicting.
THE CHAIRMAN (SEN. ZUBIRI). I’ll just ask for a one-minute
suspension so we can talk.
THE ACTING CHAIRMAN (REP. ZIALCITA). Unless you want to put a
catchall phrase like what we did in the Senior Citizen’s Act.
Something like, to the extent --- paano ba iyon? To the extent that it
is practicable and applicable, the rights and benefits of the
homeowners, are hereby extended to the --- mayroon kaming
ginamit na phrase eh...to the extent that it be practicable and
applicable to the unit homeoweners, is hereby extended,
something like that. It’s a catchall phrase. But then again, it might
create a...
MR. JALANDONI. It will become complicated. There will be a lot of
conflict of laws between the two laws.
5

THE ACTING CHAIRMAN (REP. ZIALCITA). Kaya nga eh. At saka, I
don’t know. I think the --- mayroon naman silang protection sa ano
eh, di ba? Buyers decree doon sa Condominium Act. I’m sure there
are provisions there eh. Huwag na lang, huwag na lang.
MR. JALANDONI. Mr. Chairman, I think it would be best if your
previous comments that you’d be supporting an
amendment.1âwphi1 I think that would be --- Well, that would be
the best course of action with all due respect.
THE ACTING CHAIRMAN (REP. ZIALCITA). Yeah. Okay. Thank you. So
iyon na lang final proposal naming ‘yung catchall phrase, "With
respect to the..."32
xxxx
THE CHAIRMAN (SEN. ZUBIRI). xxx And so, what is their final
decision on the definition of homeowners?
THE ACTING CHAIRMAN (REP. ZIALCITA).
We stick to the original, Mr. Chairman. We’ll just open up a whole
can of worms and a whole new ball game will come into play.
Besides, I am not authorized, neither are you, by our counterparts
to include the condominium owners.
THE CHAIRMAN (SEN. ZUBIRI).
Basically that is correct. We are not authorized by the Senate nor –
because we have discussed this lengthily on the floor, actually,
several months on the floor. And we don’t have the authority as
well for other Bicam members to add a provision to include a
separate entity that has already their legal or their established
Republic Act tackling on that particular issue. But we just like to put
on record, we sympathize with the plight of our friends in the
condominium associations and we will just guarantee them that we
will work on an amendment to the Condominium Corporation Code.
So with that – we skipped, that is correct, we have to go back to
homeowners’ association definition, Your Honor, because we had
skipped it altogether. So just quickly going back to Page 7 because
there are amendments to the definition of homeowners. If it is
alright with the House Panel, adopt the opening phrase of
Subsection 7 of the Senate version as opening phrase of Subsection
10 of the reconciled version.
x x x x33
To be sure, RA 4726 or the Condominium Act was enacted to
specifically govern a condominium. Said law sanctions the creation
of the condominium corporation which is especially formed for the
purpose of holding title to the common area, in which the holders of
separate interests shall automatically be members or shareholders,
to the exclusion of others, in proportion to the appurtenant interest
of their respective units.34 The rights and obligations of the
condominium unit owners and the condominium corporation are set
forth in the above Act.
Clearly, condominium corporations are not covered by the
amendment. Thus, the intra-corporate dispute between petitioner
and respondent is still within the jurisdiction of the RTC sitting as a
special commercial court and not the HLURB. The doctrine laid
down by the Court in Chateau de Baie Condominium Corporation v.
Moreno35 which in turn cited Wack Wack Condominium
Corporation, et al v. CA36 is still a good law.
WHEREFORE, we hereby GRANT the petition and REVERSE the
Court of Appeals Decision dated July 10, 2007 and Resolution dated
January 25, 2008 in CA-G.R. CV No. 86614. The Complaint before
the Regional Trial Court of Makati City, Branch 58, which is not a
special commercial court, docketed as Civil Case No. 03-1018 is
ordered DISMISSED for lack of jurisdiction. Let the case be
REMANDED to the Executive Judge of the Regional Trial Court of
Makati City for re-raffle purposes among the designated special
commercial courts.
SO ORDERED.
FIRST DIVISION
G.R. No. 187702, October 22, 2014
6
SECURITIES AND EXCHANGE COMMISSION, Petitioner, v. THE
HONORABLE COURT OF APPEALS, OMICO CORPORATION, EMILIO S.
TENG AND TOMMY KIN HING TIA, Respondents.
G.R. NO. 189014
ASTRA SECURITIES CORPORATION, Petitioner, v. OMICO
CORPORATION, EMILIO S. TENG AND TOMMY KIN HING TIA,
Respondents.
DECISION
SERENO, C.J.:
G.R. No. 187702 is a Petition for Certiorari under Rule 65 of the
Rules of Court seeking to nullify the Court of Appeals (CA) Decision1
dated 18 March 2009 in CA-G.R. SP No. 106006. G.R. No. 189014 is
a Petition for Review on Certiorari under Rule 45 of the Rules of
Court assailing the same Decision, as well as the CA Resolution2
dated 9 July 2009. On 12 October 2009, the Court resolved to
consolidate the two cases. 3
The CA Decision ruled that because controversies involving the
validation of proxies are considered election contests under the
Interim Rules of Procedure Governing Intra-Corporate
Controversies, they are properly cognizable by the regular courts,
not by the Securities and Exchange Commission. The CA Resolution
denied the motion for reconsideration filed by Astra Securities
Corporation.
FACTS
Omico Corporation (Omico) is a company whose shares of stock are
listed and traded in the Philippine Stock Exchange, Inc.4 Astra
Securities Corporation (Astra) is one of the stockholders of Omico
owning about 18% of the latter’s outstanding capital stock.5
Omico scheduled its annual stockholders’ meeting on 3 November
2008.6 It set the deadline for submission of proxies on 23 October
2008 and the validation of proxies on 25 October 2008.
Astra objected to the validation of the proxies issued in favor of
Tommy Kin Hing Tia (Tia), representing about 38% of the
outstanding capital stock of Omico.7 Astra also objected to the
inclusion of the proxies issued in favor of Tia and/or Martin Buncio,
representing about 2% of the outstanding capital stock of Omico.8
Astra maintained that the proxy issuers, who were brokers, did not
obtain the required express written authorization of their clients
when they issued the proxies in favor of Tia. In so doing, the issuers
were allegedly in violation of SRC Rule 20(11)(b)(xviii)9 of the
Amended Securities Regulation Code (SRC or Republic Act No.
8799) Rules.10 Furthermore, the proxies issued in favor of Tia
exceeded 19, thereby giving rise to the presumption of solicitation
thereof under SRC Rule 20(2)(B)(ii)(b)11 of the Amended SRC Rules.
Tia did not comply with the rules on proxy solicitation, in violation
of Section 20.112 of the SRC.
Despite the objections of Astra, Omico’s Board of Inspectors
declared that the proxies issued in favor of Tia were valid.13
On 27 October 2008, Astra filed a Complaint14 before the
Securities and Exchange Commission (SEC) praying for the
invalidation of the proxies issued in favor of Tia. Astra also prayed
for the issuance of a cease and desist order (CDO) enjoining the
holding of Omico’s annual stockholders’ meeting until the SEC had
resolved the issues pertaining to the validation of proxies.
On 30 October 2008, SEC issued the CDO enjoining Omico from
accepting and including the questioned proxies in determining a
quorum and in electing the members of the board of directors
during the annual stockholders’ meeting on 3 November 2008.15
Attempts to serve the CDO on 3 November 2008 failed, and the
stockholders’ meeting proceeded as scheduled with 52.3% of the
outstanding capital stock of Omico present in person or by proxy.16
The nominees for the board of directors were elected upon
motion.17
Astra instituted before the SEC a Complaint18 for indirect contempt
against Omico for disobedience of the CDO. On the other hand,
Omico filed before the CA a Petition for Certiorari and Prohibition19
imputing grave abuse of discretion on the part of the SEC for
issuing the CDO.
RULING OF THE CA
7
In the assailed Decision dated 18 March 2009, the CA declared the
CDO null and void.20
The CA held that the controversy was an intra-corporate dispute.21
The SRC expressly transferred the jurisdiction over actions involving
intra-corporate controversies from the SEC to the regional trial
courts.22 Furthermore, Section 2, Rule 623 of the Interim Rules of
Procedure Governing Intra-Corporate Disputes,24 provides that any
controversy or dispute involving the validation of proxies is an
election contest, the jurisdiction over which has also been
transferred by the SRC to the regular courts.25cralawred
Thus, according to the CA, the SEC committed grave abuse of
discretion in taking cognizance of Astra’s complaint.26 The CDO
was a patent nullity, for an order issued without jurisdiction is no
order at all.
Aggrieved by the CA Decision, the SEC filed before us the instant
Petition for Certiorari docketed as G.R. No. 187702.27 Meanwhile,
Astra filed a Motion for Reconsideration before the CA,28 which
subsequently denied the motion in the assailed Resolution dated 9
July 2009.
On 14 September 2009, Astra filed the instant Petition for Review
on Certiorari docketed as G.R. No. 189014.29 The Court
consolidated the two petitions on 12 October 2009.30
ISSUE
Whether the SEC has jurisdiction over controversies arising from
the validation of proxies for the election of the directors of a
corporation.
OUR RULING
About a month after the CA issued the assailed Decision, this Court
promulgated GSIS v. CA,31 which squarely answered the above
issue in the negative.
In that case, we observed that Section 632(g) of Presidential
Decree No. (P.D.) 902-A dated 11 March 1976 conferred on SEC the
power “[t]o pass upon the validity of the issuance and use of
proxies and voting trust agreements for absent stockholders or
members.” Section 6, however, opens thus: “In order to effectively
exercise such jurisdiction x x x.” This opening clearly refers to the
preceding Section 5.33 The Court pointed out therein that the
power to pass upon the validity of proxies was merely incidental or
ancillary to the powers conferred on the SEC under Section 5 of the
same decree. With the passage of the SRC, the powers granted to
SEC under Section 5 were withdrawn, together with the incidental
and ancillary powers enumerated in Section 6.
While the regular courts now had the power to hear and decide
cases involving controversies in the election of directors, it was not
clear whether the SRC also transferred to these courts the
incidental and ancillary powers of the SEC as enumerated in
Section 6 of P.D. 902-A. Thus, in GSIS v. CA, it was necessary for the
Court to determine whether the action to invalidate the proxies was
intimately tied to an election controversy. Hence, the Court
pronounced:chanRoblesvirtualLawlibrary
Under Section 5(c) of Presidential Decree No. 902-A, in relation to
the SRC, the jurisdiction of the regular trial courts with respect to
election-related controversies is specifically confined to
“controversies in the election or appointment of directors, trustees,
officers or managers of corporations, partnerships, or associations.”
Evidently, the jurisdiction of the regular courts over so-called
election contests or controversies under Section 5 (c) does not
extend to every potential subject that may be voted on by
shareholders, but only to the election of directors or trustees, in
which stockholders are authorized to participate under Section 24
of the Corporation Code.
This qualification allows for a useful distinction that gives due effect
to the statutory right of the SEC to regulate proxy solicitation, and
the statutory jurisdiction of regular courts over election contests or
controversies. The power of the SEC to investigate violations of its
rules on proxy solicitation is unquestioned when proxies are
obtained to vote on matters unrelated to the cases enumerated
under Section 5 of Presidential Decree No. 902-A. However, when
proxies are solicited in relation to the election of corporate
directors, the resulting controversy, even if it ostensibly raised the
violation of the SEC rules on proxy solicitation, should be properly
seen as an election controversy within the original and exclusive
jurisdiction of the trial courts by virtue of Section 5.2 of the SRC in
relation to Section 5 (c) of Presidential Decree No. 902-A.
8
The conferment of original and exclusive jurisdiction on the regular
courts over such controversies in the election of corporate directors
must be seen as intended to confine to one body the adjudication
of all related claims and controversy arising from the election of
such directors. For that reason, the aforequoted Section 2, Rule 6 of
the Interim Rules broadly defines the term “election contest” as
encompassing all plausible incidents arising from the election of
corporate directors, including: (1) any controversy or dispute
involving title or claim to any elective office in a stock or nonstock
corporation, (2) the validation of proxies, (3) the manner and
validity of elections and (4) the qualifications of candidates,
including the proclamation of winners. If all matters anteceding the
holding of such election which affect its manner and conduct, such
as the proxy solicitation process, are deemed within the original
and exclusive jurisdiction of the SEC, then the prospect of
overlapping and competing jurisdictions between that body and the
regular courts becomes frighteningly real. From the language of
Section 5 (c) of Presidential Decree No. 902-A, it is indubitable that
controversies as to the qualification of voting shares, or the validity
of votes cast in favor of a candidate for election to the board of
directors are properly cognizable and adjudicable by the regular
courts exercising original and exclusive jurisdiction over election
cases.34 x x x.
The ruling harmonizes the seeming conflict between the Amended
SRC Rules promulgated by the SEC and the Interim Rules of
Procedure Governing Intra-Corporate Disputes promulgated by the
Court.
SRC Rule 20(11)(b)(xxi) of the Amended SRC Rules
provides:chanRoblesvirtualLawlibrary
SRC RULE 20.
Disclosures to Stockholders Prior to Meeting
(formerly, SRC Rule 20 – The Proxy Rule)
xxxx
11. Other Procedural Requirements
xxxx
b. Proxy
xxxx
xxi. In the validation of proxies, a special committee of inspectors
shall be designated or appointed by the Board of Directors which
shall be empowered to pass on the validity of proxies. Any dispute
that may arise pertaining thereto, shall be resolved by the
Securities and Exchange Commission upon formal complaint filed
by the aggrieved party, or by the SEC officer supervising the proxy
validation process. (Emphasis supplied)
On the other hand, these are the provisions of Section 1, Rule 1;
and Section 2, Rule 6 of the Interim Rules of Procedure Governing
Intra-Corporate Disputes:chanRoblesvirtualLawlibrary
RULE 1
General Provisions
SECTION 1. (a) Cases Covered – These Rules shall govern the
procedure to be observed in civil cases involving the following:
a) Devices or schemes employed by, or any act of, the board of
directors, business associates, officers or partners, amounting to
fraud or misrepresentation which may be detrimental to the
interest of the public and/or of the stockholders, partners, or
members of any corporation, partnership, or
association;cralawlawlibrary
b) Controversies arising out of intra-corporate, partnership, or
association relations, between and among stockholders, members,
or associates; and between, any or all of them and the corporation,
partnership, or association of which they are stockholders,
members, or associates, respectively;cralawlawlibrary
c) Controversies in the election or appointment of directors,
trustees, officers, or managers of corporations, partnerships, or
associations;
d) Derivative suits; and
e) Inspection of corporate books.
xxxx
RULE 6
9
Election Contests
xxxx
SECTION 2. Definition. – An election contest refers to any
controversy or dispute involving title or claim to any elective office
in a stock or non-stock corporation, the validation of proxies, the
manner and validity of elections, and the qualifications of
candidates, including the proclamation of winners, to the office of
director, trustee or other officer directly elected by the stockholders
in a close corporation or by members of a non-stock corporation
where the articles of incorporation or by-laws so provide.
(Emphases supplied)
The Court explained that the power of the SEC to regulate proxies
remains in place in instances when stockholders vote on matters
other than the election of directors.35 The test is whether the
controversy relates to such election. All matters affecting the
manner and conduct of the election of directors are properly
cognizable by the regular courts. Otherwise, these matters may be
brought before the SEC for resolution based on the regulatory
powers it exercises over corporations, partnerships and
associations.
Astra endeavors to remove the instant case from the ambit of GSIS
v. CA by arguing that 1) the validation of proxies in this case relates
to the determination of the existence of a quorum; and 2) no actual
voting for the members of the board of directors was conducted, as
the directors were merely elected by motion.
Indeed, the validation of proxies in this case relates to the
determination of the existence of a quorum. Nonetheless, it is a
quorum for the election of the directors, and, as such, which
requires the presence – in person or by proxy – of the owners of the
majority of the outstanding capital stock of Omico.36 Also, the fact
that there was no actual voting did not make the election any less
so, especially since Astra had never denied that an election of
directors took place.
We find no merit either in the proposal of Astra regarding the “two
(2) viable, non-exclusive and successive legal remedies to question
the validity of proxies.”37 It suggests that the power to pass upon
the validity of proxies to determine the existence of a quorum prior
to the conduct of the stockholders’ meeting should lie with the SEC;
but, after the stockholders’ meeting, questions regarding the use of
invalid proxies in the election of directors should be cognizable by
the regular courts, since there was already an election to speak of.
First, this interpretation is akin to the argument struck down by the
Court in GSIS v. CA. If the Court adopts the suggestion, “we would
be perpetually confronted with the spectacle of election
controversies being heard and adjudicated by both the SEC and the
regular courts, made possible through a mere allegation that the
anteceding x x x process was errant, but the competing cases
[were] filed with one objective in mind – to affect the outcome of
the election of the board of directors.”38
Second, the validation of proxies serves a number of purposes,
including determining the existence of a quorum and ascertaining
the authenticity of proxies to be used for the election of directors at
the stockholders’ meeting. Section 2, Rule 6, of the Interim Rules of
Procedure Governing Intra-Corporate Disputes provides that an
election contest covers any controversy or dispute involving the
validation of proxies, in general. Thus, it can only refer to all the
beneficial purposes that validation of proxies can bring about when
made in connection with a forthcoming election of directors. Thus,
there is no point in making distinctions between who has
jurisdiction before and who has jurisdiction after the election of
directors, as all controversies related thereto – whether before,
during or after – shall be passed upon by regular courts as provided
by law.
The Court closes with an observation.
As in the instant cases, GSIS v. CA is a consolidation of two cases,
one of which was filed by a private party and the other by the SEC
itself. In both cases, the parties were aggrieved by the CA ruling, so
they filed the cases seeking a pronouncement from the Court that it
recognizes the jurisdiction of the SEC over the controversy.
Calling to mind established jurisprudential principles, the Court
therein ruled that quasi-judicial agencies do not have the right to
seek the review of an appellate court decision reversing any of their
rulings.39 This is because they are not real parties-in-interest.
Thus, the Court expunged the petition filed by the SEC for the
latter’s lack of capacity to file the suit. So it must be in the instant
cases.
10
WHEREFORE, the petition in G.R. No. 187702 is EXPUNGED for lack
of capacity of petitioner to file the suit.
The petition in G.R. No. 189014 is DENIED. The Court of Appeals
Decision dated 18 March 2009 and Resolution dated 9 July 2009 in
CA-G.R. SP No. 106006 are AFFIRMED.
SO ORDERED.chanroblesvirtuallawlibrary
Leonardo-De Castro, Bersamin, Perez, and Perlas-Bernabe, JJ.,
concur.
Endnotes:
1Rollo (G.R. No. 187702), pp. 43-55; penned by Associate Justice
Myrna Dimaranan Vidal, with Associate Justices Martin S. Villarama,
Jr. (now a Member of this Court) and Rosalinda Asuncion-Vicente
concurring.
2Rollo (G.R. No. 189014), p. 42; penned by Associate Justice Myrna
Dimaranan Vidal, with Associate Justices Martin S. Villarama, Jr.
(now a Member of this Court) and Magdangal M. de Leon
concurring.
3 Id. at 388-389.
4 Rollo (G.R. No. 187702), p. 110.
5 Id. at 60.
6 Id. at 44.
7 Id. at 46, 133.
8 Id.
9 SRC RULE 20. Disclosures to Stockholders Prior to Meeting
(formerly, SRC Rule 20 — The Proxy Rule)
xxxx
11. Other Procedural Requirements
xxxx
b. Proxy
xxxx
xviii. No member of the Stock Exchange and no broker/dealer shall
give any proxy, consent or authorization, in respect of any security
carried for the account of a customer to a person other than the
customer, without the express written authorization of such
customer. The proxy executed by the broker shall be accompanied
by a certification under oath stating that before the proxy was
given to the broker, he had duly obtained the written consent of the
persons in whose account the shares are held. (Emphasis supplied.)
10Rollo (G.R. No. 187702), p. 46.
11 SRC RULE 20. Disclosures to Stockholders Prior to Meeting
(formerly, SRC Rule 20 — The Proxy Rule)
xxxx
2. Definitions
xxxx
B. Solicitation
The terms solicit and solicitation shall include:
any request for a proxy or authorization;
any request to execute or not to execute, or to revoke, a proxy or
authorization; or
the furnishing of a form of proxy or other communication to
security holders under a circumstance reasonably calculated to
result in the procurement, withholding or revocation of a proxy.
The terms shall not apply to:
the performance by any person of ministerial acts on behalf of a
person soliciting a proxy; or
any solicitation made otherwise than on behalf of the registrant
where the total number of persons solicited is not more than
nineteen (19). (Emphasis supplied.)
12 SECTION 20. Proxy Solicitations. — 20.1. Proxies must be issued
and proxy solicitation must be made in accordance with rules and
regulations to be issued by the Commission.
13Rollo (G.R. No. 187702), p. 46.
11
14 Id. at 59-71. 32 SECTION 6. In order to effectively exercise such jurisdiction, the
Commission shall possess the following
15 Id. at 110-113. powers:chanRoblesvirtualLawlibrary

16 Id. at 47; rollo (G.R. No. 189014), p. 176. a) To issue preliminary or permanent injunctions, whether
prohibitory or mandatory, in all cases in which it has jurisdiction,
17Rollo (G.R. No. 189014), p. 177. and in which cases the pertinent provisions of the Rules of Court
shall apply;cralawlawlibrary
18 Id. at 170-185.
b) To issue writs of attachment in cases in which it has jurisdiction,
19 Rollo (G.R. No. 187702), pp. 73-109. in order to preserve the rights of parties and in such cases the
pertinent provisions of the Rules of Court shall
20 Id. at 54. apply;cralawlawlibrary

21 Id. at 49.
22 Id. at 49-50.
23 SECTION 2. Definition. — An election contest refers to any
controversy or dispute involving title or claim to any elective office
in a stock or non-stock corporation, the validation of proxies, the
manner and validity of elections, and the qualifications of
candidates, including the proclamation of winners, to the office of
director, trustee or other officer directly elected by the stockholders
in a close corporation or by members of a non-stock corporation
where the articles of incorporation or by-laws so provide. (Emphasis
supplied)
24 A.M. No. 01-2-04-SC, 13 March 2001.
25cralawred Rollo (G.R. No. 187702), p. 51.
26 Id. at 52.
27 Id. at 2-41.
28Rollo (G.R. No. 189014), pp. 23-41.
29 Id. at 45-92.
30 Id. at 388.
31 603 Phil. 676 (2009).
c) To appoint one or more receivers of the property, real and
personal, which is the subject of the action pending before the
Commission in accordance with the pertinent provisions of the
Rules of Court in such other cases whenever necessary in order to
preserve the rights of the parties-litigants and/or protect the
interest of the investing public and creditors: Provided, however,
That the Commission may, in appropriate cases, appoint a
rehabilitation receiver of corporations, partnerships or other
associations not supervised or regulated by other government
agencies who shall have, in addition to the powers of a regular
receiver under the provisions of the Rules of Court, such functions
and powers as are provided for in the succeeding paragraph d)
hereof: Provided, further, That the Commission may appoint a
rehabilitation receiver of corporations, partnerships or other
associations supervised or regulated by other government
agencies, such as banks and insurance companies, upon request of
the government agency concerned: Provided, finally, That upon
appointment of a management committee, rehabilitation receiver,
board or body, pursuant to this Decree, all actions for claims
against corporations, partnerships or associations under
management or receivership pending before any court, tribunal,
board or body shall be suspended accordingly.
d) To create and appoint a management committee, board, or body
upon petition or motu proprio to undertake the management of
corporations, partnerships or other associations not supervised or
regulated by other government agencies in appropriate cases when
there is imminent danger of dissipation, loss, wastage or
destruction of assets or other properties of paralization of business
12
operations of such corporations or entities which may be prejudicial
to the interest of minority stockholders, parties-litigants or the
general public: Provided, further, That the Commission may create
or appoint a management committee, board or body to undertake
the management of corporations, partnerships or other
associations supervised or regulated by other government
agencies, such as banks and insurance companies, upon request of
the government agency concerned.
The management committee or rehabilitation receiver, board or
body shall have the power to take custody of, and control over, all
the existing assets and property of such entities under
management; to evaluate the existing assets and liabilities,
earnings and operations of such corporations, partnerships or other
associations; to determine the best way to salvage and protect the
interest of the investors and creditors; to study, review and
evaluate the feasibility of continuing operations and restructure
and rehabilitate such entities if determined to be feasible by the
Commission. It shall report and be responsible to the Commission
until dissolved by order of the Commission: Provided, however,
That the Commission may, on the basis of the findings and
recommendation of the management committee, or rehabilitation
receiver, board or body, or on its own findings, determine that the
continuance in business of such corporation or entity would not be
feasible or profitable nor work to the best interest of the
stockholders, parties-litigants, creditors, or the general public,
order the dissolution of such corporation entity and its remaining
assets liquidated accordingly. The management committee or
rehabilitation receiver, board or body may overrule or revoke the
actions of the previous management and board of directors of the
entity or entities under management notwithstanding any provision
of law, articles of incorporation or by-laws to the contrary.
The management committee, or rehabilitation receiver, board or
body shall not be subject to any action, claim or demand for, or in
connection with, any act done or omitted to be done by it in good
faith in the exercise of its functions, or in connection with the
exercise of its power herein conferred.
e) To punish for contempt of the Commission, both direct and
indirect, in accordance with the pertinent provisions of, and
penalties prescribed by, the Rules of Court;cralawlawlibrary
f) To compel the officers of any corporation or association
registered by it to call meetings of stockholders or members
thereof under its supervision;cralawlawlibrary
g) To pass upon the validity of the issuance and use of proxies and
voting trust agreements for absent stockholders or
members;cralawlawlibrary
h) To issue subpoena duces tecum and summon witnesses to
appear in any proceedings of the Commission and in appropriate
cases order the examination, search and seizure of all documents,
papers, files and records, tax returns, and books of accounts of any
entity or person under investigation as may be necessary for the
proper disposition of the cases before it, notwithstanding the
provisions of any law to the contrary.
i) To impose fines and/or penalties for violation of this Decree or
any other laws being implemented by the Commission, the
pertinent rules and regulations, its orders, decisions and/or
rulings;cralawlawlibrary
j) To authorize the establishment and operation of stock exchanges,
commodity exchanges and such other similar organization and to
supervise and regulate the same; including the authority to
determine their number, size and location, in the light of national or
regional requirements for such activities with the view to promote,
conserve or rationalize investment;cralawlawlibrary
k) To pass upon, refuse or deny, after consultation with the Board of
Investments, Department of Industry, National Economic and
Development Authority or any other appropriate government
agency, the application for registration of any corporation,
partnership or association or any form of organization falling within
its jurisdiction, if their establishment, organization or operation will
not be consistent with the declared national economic
policies;cralawlawlibrary
l) To suspend, or revoke, after proper notice and hearing, the
franchise or certificate of registration of corporations, partnerships
or associations, upon any of the grounds provided by law, including
the following:chanRoblesvirtualLawlibrary
Fraud in procuring its certificate of registration;
13
Serious misrepresentation as to what the corporation can do or is
doing to the great prejudice of or damage to the general public;
Refusal to comply or defiance of any lawful order of the
Commission restraining commission of acts which would amount to
a grave violation of its franchise;
Continuous inoperation for a period of at least five (5) years;
Failure to file by-laws within the required period;
Failure to file required reports in appropriate forms as determined
by the Commission within the prescribed period;
m) To exercise such powers as may be provided by law as well as
those which may be implied from, or which are necessary or
incidental to the carrying out of, the express powers granted to the
Commission to achieve the objectives and purposes of this Decree.
of associations or organizations registered with the
Commission;cralawlawlibrary
b) Controversies arising out of intra-corporate or partnership
relations, between and among stockholders, members, or
associates; between any or all of them and the corporation,
partnership or association of which they are stockholders, members
or associates, respectively; and between such corporation,
partnership or association and the state insofar as it concerns their
individual franchise or right to exist as such entity;cralawlawlibrary
c) Controversies in the election or appointments of directors,
trustees, officers or managers of such corporations, partnerships or
associations.

In the exercise of the foregoing authority and jurisdiction of the
Commission, hearings shall be conducted by the Commission or by
a Commissioner or by such other bodies, boards, committees
and/or any officer as may be created or designated by the
Commission for the purpose. The decision, ruling or order of any
such Commissioner, bodies, boards, committees and/or officer may
be appealed to the Commission sitting en banc within thirty (30)
days after receipt by the appellant of notice of such decision, ruling
or order. The Commission shall promulgate rules of procedures to
govern the proceedings, hearings and appeals of cases falling
within its jurisdiction.
d) Petitions of corporations, partnerships or associations to be
declared in the state of suspension of payments in cases where the
corporation, partnership or association possesses sufficient
property to cover all its debts but foresees the impossibility of
meeting them when they respectively fall due or in cases where the
corporation, partnership or association has no sufficient assets to
cover its liabilities, but is under the management of a Rehabilitation
Receiver or Management Committee created pursuant to this
Decree.

The aggrieved party may appeal the order, decision or ruling of the
Commission sitting en banc to the Supreme Court by petition for
review in accordance with the pertinent provisions of the Rules of
Court. (Emphasis supplied.)

33 SECTION 5. In addition to the regulatory and adjudicative

functions of the Securities and Exchange Commission over
corporations, partnerships and other forms of associations
registered with it as expressly granted under existing laws and
decrees, it shall have original and exclusive jurisdiction to hear and
decide cases involving:chanRoblesvirtualLawlibrary

a) Devices or schemes employed by or any acts, of the board of

directors, business associates, its officers or partners, amounting to
fraud and misrepresentation which may be detrimental to the
interest of the public and/or of the stockholder, partners, members

14

FIRST DIVISION
G.R. No. 205469, March 25, 2015
BPI FAMILY SAVINGS BANK, INC., Petitioner, v. ST. MICHAEL MEDICAL
CENTER, INC., Respondent.
DECISION
PERLAS-BERNABE, J.:
Before the Court is a petition for review on certiorari1 assailing the
Decision2 dated August 30, 2012 and the Resolution3 dated
January 18, 2013 of the Court of Appeals (CA) in CA-G.R. SP No.
121004 which affirmed the approval of the Rehabilitation Plan of
respondent St. Michael Medical Center, Inc. (SMMCI) by the
Regional Trial Court of Imus, Cavite, Branch 21 (RTC) through its
Order4 dated August 4, 2011 in SEC Case No. 086-
10.chanroblesvirtuallawlibrary
The Facts
Spouses Virgilio and Yolanda Rodil (Sps. Rodil) are the owners and
sole proprietors of St. Michael Diagnostic and Skin Care Laboratory
Services and Hospital (St. Michael Hospital), a 5-storey secondary
level hospital built on their property located in Molino 2, Bacoor,
Cavite. With a vision to upgrade St. Michael Hospital into a modern,
well-equipped and full service tertiary 11-storey hospital, Sps. Rodil
purchased two (2) parcels of land adjoining their existing property
and, on May 22, 2003, incorporated SMMCI, with which entity they
planned to eventually consolidate St. Michael Hospital’s operations.
SMMCI had an initial capital of P2,000,000.00 which was later
increased to P53,500,000.00, 94.49% of which outstanding capital
stock, or P50,553,000.00, was subscribed and paid by Sps.
Rodil.5cralawred
In May 2004, construction of a new hospital building on the
adjoining properties commenced, with Sps. Rodil contributing
personal funds as initial capital for the project which was estimated
to cost at least P100,000,000.00.6 To finance the costs of
construction, SMMCI applied for a loan with petitioner BPI Family
Savings Bank, Inc. (BPI Family) which gave a credit line of up to
P35,000,000.00,7 secured by a Real Estate Mortgage8 (mortgage)
over three (3) parcels of land9 belonging to Sps. Rodil, on a portion
of which stands the hospital building being constructed. SMMCI was
able to draw the aggregate amount of P23,700,000.00,10 with
interest at the rate of 10.25% per annum (p.a.) and a late payment
charge of 3% per month accruing on the overdue amount, for which
Sps. Rodil, who agreed to be co-borrowers on the loan, executed
and signed a Promissory Note.11cralawred
In the meantime, after suffering financial losses due to problems
with the first building contractor,12 Sps. Rodil temporarily deferred
the original construction plans for the 11-storey hospital building
and, instead, engaged the services of another contractor for the
completion of the remaining structural works of the unfinished
building up to the 5th floor. In this regard, they spent an additional
P25,000,000.00, or a total of P55,000,000.00 for the construction.
The lack of funds for the finishing works of the 3rd, 4th and 5th
floors, however, kept the new building from becoming completely
functional and, in turn, hampered the plans for the physical transfer
of St. Michael Hospital’s operations to SMMCI. Nevertheless, using
hospital-generated revenues, Sps. Rodil were still able to purchase
new equipment and machinery for St. Michael Hospital valued in
excess of P20,000,000.00.13cralawred
Although the finishing works were later resumed and some of the
hospital operations were eventually transferred to the completed
first two floors of the new building, as of May 2006, SMMCI was still
neither operational nor earning revenues. Hence, it was only able to
pay the interest on its BPI Family loan, or the amount of
P3,000,000.00 over a two-year period, from the income of St.
Michael Hospital.14cralawred
On September 25, 2009, BPI Family demanded immediate payment
of the entire loan obligation15 and, soon after, filed a petition for
extrajudicial foreclosure16 of the real properties covered by the
mortgage. The auction sale was scheduled on December 11, 2009,
which was postponed to February 15, 2010 with the conformity of
BPI Family.17cralawred
On August 11, 2010, SMMCI filed a Petition for Corporate
Rehabilitation18 (Rehabilitation Petition), docketed as SEC Case No.
086-10, before the RTC, with prayer for the issuance of a Stay Order
as it foresaw the impossibility of meeting its obligation to BPI
Family, its purported sole creditor.19cralawred
15

In the said petition, SMMCI claimed that it had to defer the
construction of the projected 11-storey hospital building due to the
problems it had with its first contractor as well as the rise of the
cost of construction materials. As of date, only two (2) floors of the
new building are functional, in which some of the operations of St.
Michael had already been transferred.20cralawred
Also, it was alleged that more than P66,000,000.00 had been spent
for the construction of the existing structure (in excess of its
proportionate share of the original estimated cost for the entire
project), said amount having come from the personal funds of Sps.
Rodil and/or income generated by St. Michael Hospital, aside from
the drawings from the credit line with BPI Family. At the same time,
Sps. Rodil continued to shoulder the costs of equipment and
machinery amounting to P20,000,000.00, in order to build up the
hospital’s medical capabilities. However, since SMMCI was neither
operational nor earning revenues, it could only pay interest on the
BPI Family loan, using St. Michael Hospital’s income, over a two-
year period.21cralawred
Further, it was averred that while St. Michael Hospital – whose
operations were to be eventually absorbed by SMMCI – was
operating profitably, it was saddled with the burden of paying the
loan obligation of SMMCI and Sps. Rodil to BPI Family, which it
cannot service together with its current obligations to other
persons and/or entities. The situation became even more difficult
when the bank called the entire loan obligation which, as of
November 16, 2009, amounted to P52,784,589.34 (net of unapplied
payment), consisting of: (a) the principal of P23,700,000.00; (b)
accrued interest of P7,048,152.74; and (c) late payment charges
amounting to P23,510,400.00. While several persons approached
Sps. Rodil signifying their interest to invest in the corporation, they
needed enough time to complete their audit and due diligence of
the company,22 hence, the Rehabilitation Petition.
In its proposed Rehabilitation Plan,23 SMMCI merely sought for BPI
Family (a) to defer foreclosing on the mortgage and (b) to agree to
a moratorium of at least two (2) years during which SMMCI – either
through St. Michael Hospital or its successor – will retire all other
obligations. After which, SMMCI can then start servicing its loan
obligation to the bank under a mutually acceptable restructuring
agreement.24 SMMCI declared that it intends to conclude pending
negotiations for investments offered by a group of medical doctors
whose capital infusion shall be used (a) to complete the finishing
requirements for the 3rd and 5th floors of the new building; (b) to
renovate the old 5-storey building where St. Michael Hospital
operates; and (c) to pay, in whole or in part, the bank loan with the
view of finally integrating St. Michael Hospital with
SMMCI.25cralawred
The Proceedings Before the RTC
Finding the Rehabilitation Petition to be sufficient in form and
substance, the RTC issued a Stay Order26 on August 16, 2010. After
the initial hearing on October 5, 2010, and the filing of comments
to the said petition,27 the same was referred to the court-
appointed Rehabilitation Receiver, Dr. Uriel S. Halum (Dr. Halum),
who submitted in due time his Report and Recommendations28
(Receiver’s Report) to the RTC on February 17, 2011.29cralawred
In the said report, Dr. Halum gave credence to the feasibility study
conducted by Mrs. Nenita Alibangbang (Mrs. Alibangbang), a
certified public accountant and Dean of the College of Accountancy
at the University of Perpetual Help Dalta, who was commissioned in
2008 to do a study on the viability of the project, finding that the
same was feasible given that St. Michael Hospital, whose
operations SMMCI will eventually absorb, registered outstanding
revenue performance for the last seven years of its operation with
an average growth rate of 42.21% annually.30 Accordingly, Dr.
Halum found that SMMCI may be rehabilitated because it is a viable
option but, nevertheless, opined that it will take more than what it
had proposed to successfully bring the company back to good
financial health considering the finding that its obligation actually
extends beyond the bank, and also includes accounts payable due
to suppliers and informal lenders.31 Thus, he made the following
recommendations:chanRoblesvirtualLawlibrary
The two-year moratorium period to pay the bank is not enough. The
Court should seriously consider extending it by another three years
or a total of five (5) years, at least. The bank, whose loan is secured
by mortgages on three prime parcels of land with improvements
should discuss restructuring the loan with the creditors with the
end in view of stretching the term and allowing for more flexible
rate.
Obligations to other creditors such as the suppliers and lenders can
be serviced at once. Given the performance of the hospital, the
16
undersigned reasonably believes that these obligations can be
settled in next three (3) years. These accounts can be paid
proportionately provided that [SMMCI] should be allowed to re-
structure these accounts to allow for longer and more convenient
payment terms.
[SMMCI] should be allowed to spend for the improvement of the
building but not necessarily continuing with the planned 11-storey
building. It should make do with what it has but should be
permitted to spend reasonable part of the hospital’s revenues to
improve the facilities. For instance, we recommend that the fifth
floor of the building should be finished to provide for an intensive
care unit or ICU with equipments (sic) and required facilities.
[SMMCI] should also consider spending (sic) an elevator to make
access to and from the higher floors convenient to patients,
doctors, nurses and guests. Incidentally, these improvements
should be programmed for the next two to three years. Given the
budgetary constraints of the hospital, doing all these improvements
all at once would be impossible.
Finally, [SMMCI] should provide for details on its statements
regarding the prospective investors. It (sic) true, or in case it
happens, then this fresh capital should be used partly to pay the
bank and the rest to improve the hospital to make it more
competitive with the nearby medical service providers.32cralawred
cralawlawlibrary
On May 26, 2011, the RTC issued an order requiring the counsels of
the creditors/oppositors to file their comments to the Receiver’s
Report within ten (10) days from notice, but only counsel for South
East Star Enterprises complied. 33cralawred
The RTC Ruling
In an Order34dated August 4, 2011, the RTC approved the
Rehabilitation Plan with the modifications recommended by the
Rehabilitation Receiver and thus, ordered: (a) a five-year
moratorium on SMMCI’s bank loan; (b) a restructuring and payment
of obligations to other creditors such as suppliers and lenders; (c) a
programmed spending of a reasonable part of the hospital’s
revenues for the finishing of the 5th floor and the improvement of
hospital facilities in the next two or three years; and (d) use of fresh
capital from prospective investors to partly pay SMMCI’s bank loan
and improve St. Michael Hospital’s competitiveness.35cralawred
It cited the following considerations which had justified its approval:
(1) the Rehabilitation Plan is endorsed by the Rehabilitation
Receiver subject to certain recommendations; (2) the plan ensures
preservation of assets and orderly payment of debts; (3) the plan
provides for recovery rates on operating mode as opposed to
liquidation values; (4) it contains details for a business plan which
will restore profitability and solvency of petitioner; (5) the projected
cash flow can support the continuous operation of the debtor as a
going concern; (6) the plan did not ask for a waiver of the principal;
(7) the plan preserves the security of the secured creditor; (8) the
plan has provisions to ensure that future income will inure to the
benefit of the creditors; and (9) the rehabilitation of the debtor
benefits its employees, creditors, stockholders and, in a large
sense, the general public as it will generate employment and is a
potential source of revenue for the government.36cralawred
Aggrieved, BPI Family elevated the matter before the CA, mainly
arguing that the approval of the Rehabilitation Plan violated its
rights as an unpaid creditor/mortgagee and that the same was
submitted without prior consultation with creditors.37cralawred
The CA Ruling
In a Decision38 dated August 30, 2012, the CA affirmed the RTC’s
approval of the Rehabilitation Plan.39cralawred
It found that: (a) the rehabilitation of SMMCI is feasible considering
the outstanding revenue performance of St. Michael Hospital, which
it shall absorb, showing its gross profit exceeding its operating
expenses and the large probability of increased profitability due to
the favorable economic conditions of the locality; (b) the approval
of the Rehabilitation Plan did not amount to an impairment of
contract since there was no directive for the release of the
mortgaged properties to which BPI Family is entitled to as a secured
creditor but only a suspension of the provisions of the loan
agreements; (c) it is not mandatory for the validity of the
Rehabilitation Plan that the Rehabilitation Receiver should consult
with the creditors; and (d) the approval of the Rehabilitation Plan
was not made arbitrarily since it was done only after a review of the
pleadings filed and the report submitted by the Rehabilitation
Receiver, and its approval was anchored on valid
considerations.40cralawred
17
Dissatisfied, BPI Family moved for reconsideration which was
denied in a Resolution41 dated January 18, 2013, hence, this
petition.
The Issue Before the Court
The essential issue in this case is whether or not the CA correctly
affirmed SMMCI’s Rehabilitation Plan as approved by the RTC.
The Court’s Ruling
The petition is meritorious.
I.
Restoration is the central idea behind the remedy of corporate
rehabilitation. In common parlance, to “restore” means “to bring
back to or put back into a former or original state.”42 Case law
explains that corporate rehabilitation contemplates a continuance
of corporate life and activities in an effort to restore and reinstate
the corporation to its former position of successful operation and
solvency, the purpose being to enable the company to gain a new
lease on life and allow its creditors to be paid their claims out of its
earnings.43 Consistent therewith is the term’s statutory definition
under Republic Act No. 10142,44 otherwise known as the “Financial
Rehabilitation and Insolvency Act of 2010” (FRIA), which
provides:chanRoblesvirtualLawlibrary
Section 4. Definition of Terms. – As used in this Act, the term:
xxxx
(gg) Rehabilitation shall refer to the restoration of the debtor to a
condition of successful operation and solvency, if it is shown that its
continuance of operation is economically feasible and its creditors
can recover by way of the present value of payments projected in
the plan, more if the debtor continues as a going concern than if it
is immediately liquidated.chanrobleslaw
x x x x (Emphasis supplied)cralawlawlibrary
In other words, rehabilitation assumes that the corporation has
been operational but for some reasons like economic crisis or
mismanagement had become distressed or insolvent, i.e., that it is
generally unable to pay its debts as they fall due in the ordinary
course of business or has liability that are greater than its assets.45
Thus, the basic issues in rehabilitation proceedings concern the
viability and desirability of continuing the business operations of
the distressed corporation,46 all with a view of effectively restoring
it to a state of solvency or to its former healthy financial condition
through the adoption of a rehabilitation plan.
In this case, it cannot be said that the petitioning corporation,
SMMCI, had been in a position of successful operation and solvency
at the time the Rehabilitation Petition was filed on August 11, 2010.
While it had indeed “commenced business” through the
preparatory act of opening a credit line with BPI Family to finance
the construction of a new hospital building for its future operations,
SMMCI itself admits that it has not formally operated nor earned
any income since its incorporation. This simply means that there
exists no viable business concern to be restored. Perforce, the
remedy of corporate rehabilitation is improper, thus rendering the
dispositions of the courts a quo infirm.chanroblesvirtuallawlibrary
II.
In fact, for the same reasons, the Court observes that SMMCI could
not have even complied with the form and substance of a proper
rehabilitation petition, and submit its accompanying documents,
among others, the required financial statements of a going
concern. Section 2, Rule 4 of the 2008 Rules of Procedure on
Corporate Rehabilitation47 (Rules), which were in force at the time
SMMCI’s rehabilitation petition was filed on August 11, 2010,
pertinently provides:chanRoblesvirtualLawlibrary
SEC. 2. Contents of Petition. -
xxxx
(b) The petition shall be accompanied by the following documents:
(1) An audited financial statement of the debtor at the end of its
last fiscal year;ChanRoblesVirtualawlibrary
(2) Interim financial statements as of the end of the month prior to
the filing of the petition;ChanRoblesVirtualawlibrary
18
x x x xcralawlawlibrary
Note that this defect is not negated by the submission of the
financial documents pertaining to St. Michael Hospital, which is a
separate and distinct entity from SMMCI. While the CA gave
considerable weight to St. Michael Hospital’s supposed
“profitability,” as explicated in its own financial statements, as well
as the feasibility study conducted by Mrs. Alibangbang,48 in
affirming the RTC, it has unwittingly lost sight of the essential fact
that SMMCI stands as the sole petitioning debtor in this case; as
such, its rehabilitation should have been primarily examined from
the lens of its own financial history. While SMMCI claims that it
would absorb St. Michael Hospital’s operations, there was dearth of
evidence to show that a merger was already agreed upon between
them. Accordingly, St. Michael Hospital’s financials cannot be
utilized as basis to determine the feasibility of SMMCI’s
rehabilitation.
Note further that while it appears that Sps. Rodil effectively owned
and exercised control over the two entities, such fact does not, by
and of itself, warrant their singular treatment for to do so would
only confuse the objective of the proceedings which is to ascertain
whether the petitioning corporation, and not any other entity
related thereto (except if joining as a co-petitioning debtor), may be
rehabilitated. Neither is the proceeding the proper forum to pierce
the corporate fictions of both entities for it involves no creditor
claiming to be a victim of fraud, an essential requisite for the
application of such doctrine.49cralawred
In fine, the petition should not have been given due course, nor
should a Stay Order have been issued.
III.
To compound its error, the CA even disregarded the fact that
SMMCI’s Rehabilitation Plan, an indispensable requisite in corporate
rehabilitation proceedings, failed to comply with the fundamental
requisites outlined in Section 18, Rule 3 of the Rules, particularly,
that of a material financial commitment to support the
rehabilitation and an accompanying liquidation analysis, all of the
petitioning debtor:chanRoblesvirtualLawlibrary
SEC. 18. Rehabilitation Plan. - The rehabilitation plan shall include
(a) the desired business targets or goals and the duration and
coverage of the rehabilitation; (b) the terms and conditions of such
rehabilitation which shall include the manner of its implementation,
giving due regard to the interests of secured creditors such as, but
not limited, to the non-impairment of their security liens or
interests; (c) the material financial commitments to support the
rehabilitation plan; (d) the means for the execution of the
rehabilitation plan, which may include debt to equity conversion,
restructuring of the debts, dacion en pago or sale exchange or any
disposition of assets or of the interest of shareholders, partners or
members; (e) a liquidation analysis setting out for each creditor
that the present value of payments it would receive under the plan
is more than that which it would receive if the assets of the debtor
were sold by a liquidator within a six-month period from the
estimated date of filing of the petition; and (f) such other relevant
information to enable a reasonable investor to make an informed
decision on the feasibility of the rehabilitation plan. (Emphases
supplied)cralawlawlibrary
A. Lack of Material Financial Commitment
to Support the Rehabilitation Plan.
A material financial commitment becomes significant in gauging
the resolve, determination, earnestness and good faith of the
distressed corporation in financing the proposed rehabilitation plan.
This commitment may include the voluntary undertakings of the
stockholders or the would-be investors of the debtor-corporation
indicating their readiness, willingness and ability to contribute
funds or property to guarantee the continued successful operation
of the debtor corporation during the period of
rehabilitation.50cralawred
In this case, aside from the harped on merger of St. Michael
Hospital with SMMCI, the only proposed source of revenue the
Rehabilitation Plan suggests is the capital which would come from
SMMCI’s potential investors, which negotiations are merely
pending. Evidently, both propositions commonly border on the
speculative and, hence, hardly fit the description of a material
financial commitment which would inspire confidence that the
rehabilitation would turn out to be successful. In fact, the
Rehabilitation Receiver himself recognizes the ambiguity of the
proposition when he recommended
that:chanRoblesvirtualLawlibrary
19
[T]he petitioner should provide for details on its statements
regarding the prospective investors. If true or in case it happens,
then this fresh capital should be used partly to pay the bank and
the rest, to improve the hospital to make it more competitive with
the nearby medical service providers.51cralawred
cralawlawlibrary
In the same manner, the fact that St. Michael Hospital had
previously made payments for the benefit of SMMCI is not enough
assurance that the arrangement would prospectively apply in the
event that rehabilitation is granted. As case law intimates, nothing
short of legally binding investment commitment/s from third parties
is required to qualify as a material financial commitment.52
However, no such binding investment was presented in this case.
B. Lack of Liquidation Analysis.
SMMCI likewise failed to include any liquidation analysis in its
Rehabilitation Plan. The Court observes that as of November 16,
2009, or about 9 months prior to the filing of the petition for
rehabilitation, the loan with BPI Family had already amounted to
P52,784,589.34, with interest at 10.25% p.a. or a daily interest of
about P6,655.48 and late payment charge of 36% p.a.53 However,
with no SMMCI financial statement on record, it is unclear to the
Court what assets it possesses in order to determine the values to
be derived if liquidation has to be had thereby. Accordingly, this
prevents the Court from ascertaining if the petitioning debtor’s
creditors can recover by way of the present value of payments
projected in the plan, more if the debtor continues as a going
concern than if it is immediately liquidated, a crucial factor in a
corporate rehabilitation case. Again, the financial records of St.
Michael Hospital, being a separate and distinct entity whose
merger with SMMCI only exists in the realm of probability, cannot
be taken as a substitute to fulfill the requirement. What remains
pertinent are the financial statements of SMMCI for it solely stands
as the debtor to be rehabilitated, or liquidated in this case.
At any rate, records disclose that St. Michael Hospital’s current cash
operating position54 is just enough to meet its own maturing
obligations.55 While it has substantial total assets, a large portion
thereof is comprised of fixed assets, while its current assets56
consist mostly of inventory.57 Still, the total liquidation assets and
the estimated liquidation return to the creditors, as well as the fair
market value vis-à-vis the forced liquidation value of the fixed
assets that would guide the Court in assessing the feasibility of the
Rehabilitation Plan were not shown.
C. Effect of Non-Compliance.
The failure of the Rehabilitation Plan to state any material financial
commitment to support rehabilitation, as well as to include a
liquidation analysis, translates to the conclusion that the RTC’s
stated considerations for approval, i.e., that (a) the plan provides
for recovery rates on operating mode as opposed to liquidation
values; (b) it contains details for a business plan which will restore
profitability and solvency on petitioner; (c) the projected cash flow
can support the continuous operation of the debtor as a going
concern; and (d) the plan has provisions to ensure that future
income will inure to the benefit of the creditors,58 are actually
unsubstantiated, and hence, insufficient to decree SMMCI’s
rehabilitation. It is well to emphasize that the remedy of
rehabilitation should be denied to corporations that do not qualify
under the Rules. Neither should it be allowed to corporations whose
sole purpose is to delay the enforcement of any of the rights of the
creditors, which is rendered obvious by: (a) the absence of a sound
and workable business plan; (b) baseless and unexplained
assumptions, targets, and goals; and (c) speculative capital infusion
or complete lack thereof for the execution of the business plan.59
Unfortunately, these negative indicators have all surfaced to the
fore, much to SMMCI’s chagrin.
IV.
While the Court recognizes the financial predicaments of upstart
corporations under the prevailing economic climate, it must
nonetheless remain forthright in limiting the remedy of
rehabilitation only to meritorious cases. As above-mentioned, the
purpose of rehabilitation proceedings is not only to enable the
company to gain a new lease on life but also to allow creditors to
be paid their claims from its earnings, when so rehabilitated.
Hence, the remedy must be accorded only after a judicious regard
of all stakeholders’ interests; it is not a one-sided tool that may be
graciously invoked to escape every position of distress.
In this case, not only has the petitioning debtor failed to show that
it has formally began its operations which would warrant
restoration, but also it has failed to show compliance with the key
requirements under the Rules, the purpose of which are vital in
20
determining the propriety of rehabilitation. Thus, for all the reasons
hereinabove explained, the Court is constrained to rule in favor of
BPI Family and hereby dismiss SMMCI’s Rehabilitation Petition. With
this pronouncement, it is now unnecessary to delve on the other
ancillary issues raised herein.
WHEREFORE, the petition is GRANTED. The Decision dated August
30, 2012 and the Resolution dated January 18, 2013 of the Court of
Appeals in CA-G.R. SP No. 121004 upholding the Order dated
August 4, 2011 of the Regional Trial Court of Imus, Cavite, Branch
21 approving the Rehabilitation Plan of respondent St. Michael
Medical Center, Inc. (SMMCI) are hereby REVERSED and SET ASIDE.
Accordingly, SMMCI’s Petition for Corporate Rehabilitation is
DISMISSED.
SO ORDERED.
Bank of the Philippine Islands Vs. Sps. Johnson & Evelyn Co &
Jupiter Real Estate Ventures, Inc.; Sps. Johnson & Evelyn Co Vs.
Bank of the Philippine Islands; G.R. No. 171172; G.R. No. 200061;
November 9, 2015
DECISION
JARDELEZA, J.:
Before this Court are two consolidated petitions for review on
certiorari. In G.R. No. 171172, the Bank of the Philippine Islands
(“BPI”) assails the orders of the Regional Trial Court (RTC) of
Parañaque City, Branch 196 in LRC Case No. 03-0063 dated
December 15, 2005[1] and January 13, 2006;[2] whereas in G.R.
No. 200061, the Spouses Johnson and Evelyn Co (“Spouses Co”)
question the Decision[3] of the Court of Appeals (CA) in CA-G.R. CV
No. 86986 dated June 27, 2011, and its Resolution[4] dated January
9, 2012.
The Antecedents
On November 13, 1997, Jupiter Real Estate Ventures, Inc. (“Jupiter”)
and Spouses Co obtained a loan from Far East Bank and Trust
Company (“FEBTC”) in the amount of P9,434,200.00.[5] As security
for the loan, Jupiter and Spouses Co mortgaged in favor of FEBTC
eight parcels of land including their improvements covered by
Transfer Certificates of Title (TCT) Nos. 94204, 94205, 94206,
94207, 94208, 94209, (91437) 39728, and (91438) 39729.[6]
Meanwhile, BPI and FEBTC merged, with BPI as the surviving
corporation.[7]
Jupiter and Spouses Co defaulted on the payment of the loan. BPI,
as successor-in-interest of FEBTC, foreclosed the real estate
mortgage pursuant to Act No. 3135, as amended.[8] An auction
sale was held on July 12, 2000 where the mortgaged properties
were sold to BPI as the highest bidder for P3,567,000.00. The
Certificate of Sale was registered and annotated at the back of the
certificates of title on August 22, 2000.[9] After the expiration of
the period of redemption, BPI consolidated its ownership over the
real properties, and new titles were issued in its name.[10]
On August 7, 2002, Spouses Co and Jupiter filed a complaint for the
nullification of foreclosure proceedings and damages before the
Regional Trial Court of Parañaque City, Branch 257 (“RTC Br. 257”),
docketed as Civil Case No. 02-0331.[11]
On April 29, 2003, BPI filed a petition for the issuance of a writ of
possession before the Regional Trial Court of Parañaque City,
Branch 196 (“RTC Br. 196”), docketed as LRC Case No. 03-0063.[12]
On June 12, 2003, Spouses Co and Jupiter moved for the
consolidation of LRC Case No. 03-0063 with Civil Case No. 02-0331.
[13] In an Order[14] dated August 7, 2003, the RTC Br. 196 denied
the motion, to wit:
Given the distinctiveness of the causes of action available to the
parties herein a proceeding for issuance for a writ of possession can
be maintained independently in relation to an action for annulment
of document, without prejudice to the outcome of the latter. [Ong
vs. Court of Appeals, 333 SCRA 189 (2000); Vaca vs. Court of
Appeals, 234 SCRA 146 (1994); de Jacob vs. Court of Appeals, 184
SCRA 294 (1990)].
WHEREFORE, premises considered, the motion for consolidation
dated June 9, 2002 is hereby DENIED for lack of merit.
SO ORDERED.
The motion for reconsideration of Spouses Co and Jupiter was also
denied.[15]
21
On September 22, 2003, Jupiter filed a petition for corporate
rehabilitation[16] dated September 9, 2003 with the RTC of Pasay
City Br. 231 (“RTC Br. 231”) docketed as RTC SEC No. 03-0006-CFM.
On October 6, 2003, Spouses Co and Jupiter moved for the
suspension of the proceedings before the RTC Br. 196.[17] They
alleged that on September 24, 2003, the RTC Br. 231 issued a Stay
Order after Jupiter filed its petition for rehabilitation and among the
properties covered were those subject of the real estate mortgage.
Spouses Co and Jupiter alleged that because of the Stay Order, the
writ of possession may not be issued.[18] Spouses Co, however,
admitted in their pleadings that the Stay Order was later lifted.[19]
In an Order dated March 30, 2004, the RTC Br. 196 denied the
Motion to Suspend Proceedings.[20]
In an Order[21] dated September 30, 2005, the RTC Br. 196 issued
a writ of possession in favor of BPI. However, the order was
mistakenly addressed to spouses Trinidad P. Salazar and Ranulfo M.
Salazar and not to Spouses Co.[22]Thus, BPI filed a motion to
amend the order,[23] which was granted.[24] In an Amended
Order[25] dated December 8, 2005, the RTC Br. 196 held:
WHEREFORE, premises considered, the Petition dated March 10,
2003 is hereby GRANTED, and, let a Writ of Possession be issued in
favor of petitioner, Bank of the Philippine Islands, which writ, be
made effective upon respondent, respondent Spouses Johnson A.
Co & Evelyn Sy-Co, their assigns, heirs and any person deriving any
interest from the latter, over the properties identified as Eot Nos. 1
to 8 of Block 3 of the subd. plan (LRC) Psd-1643, being a portion of
Lot 5-A (ERC) Psd-187700, LRC Record No. 54982, situated in Barrio
Ibayo, Municipality of Parañaque and covered by Transfer
Certificates of Title Nos. TCT Nos. 150405 to 150412 issued by the
Register of Deeds of Pasay City.
SO ORDERED. (Underscoring in the original)
On October 21, 2005, Spouses Co and Jupiter filed a notice of
appeal of the Order dated September 30, 2005.[26] In its comment,
BPI argued that the order of the trial court granting a writ of
possession is merely interlocutory from which no appeal is taken.
[27] Spouses Co and Jupiter countered that based on the case of
Samson v. Rivera,[28] the remedy from an order granting a writ of
possession is an ordinary appeal.[29]
In an Order dated December 15, 2005, the RTC Br. 196 granted the
notice of appeal of Spouses Co and Jupiter and ordered the
elevation of the records of the case to the CA.[30]
BPI filed a motion for reconsideration to set aside the Order dated
December 15, 2005, but the RTC Br. 196 denied the motion for lack
of merit in an Order dated January 13, 2006.[31] The trial court
held:
Considering an appeal is a substantive right of a party herein to
undertake an appellate proceeding, petitioner’s insistence on the
nature of a writ of possession granted in its favor cannot override
the substantive right of an oppositors-mortgagors to appeal.
WHEREFORE, premises considered, petitioner’s Motion for
Reconsideration dated January 3, 2006 is denied for lack of merit.
Let the records of this case be elevated immediately to the
appellate court.
SO ORDERED.
On March 10, 2006, BPI filed a petition for review on certiorari
under Rule 45 with this; Court to set aside the Orders of the RTC Br.
196 dated December 15, 2006 and January 13, 2006.[32] BPI
alleged that Spouses Co and Jupiter cannot appeal the order
granting the writ of possession because the same is not
appealable, the proceedings being merely ex parte from which no
appeal may be taken. BPI also alleged that as registered owner of
the properties subject of the foreclosure, it has the right to the
immediate possession of the property and its right to immediate
possession is impaired by the grant of the appeal.
On the other hand, Spouses Co and Jupiter maintained that the
proper remedy is an ordinary appeal, instead of a petition for
certiorari, because there is no grave abuse of discretion when the
court issues a writ of possession.[33]They added that the
possession of a third party in a writ of possession is an exemption
to the ministerial and non-judicial proceedings in a petition for writ
of possession.[34]
Meanwhile, the CA rendered a Decision[35] on June 27, 2011
denying the appeal of Spouses Co and Jupiter filed on October 21,
2005, and affirming the Amended Order dated December 8, 2005.
22
The CA held that the RTC Br. 196 acted with sound discretion when
it denied appellants’ motion for consolidation.[36] It further held
that when the ownership over the properties was consolidated and
new certificates of title were issued in BPI’s name, the possession
of the real properties became an absolute right of BPI as confirmed
owner. Thus, BPI was entitled to the writ of possession as a matter
of right.[37] Finally, the CA denied the appeal because the issue of
consolidation had become moot and academic with the RTC Br.
196’s issuance of an order granting the writ of possession in favor
of BPI.[38]
In a Resolution dated January 9, 2012, the CA denied the motion for
reconsideration of Spouses Co and Jupiter.[39]Only Spouses Co filed
a Petition for Review on Certiorari with Motion to Consolidate this
Petition (G.R. No. 200061) with G.R. No. 171172 dated February 8,
2012.[40] Spouses Co alleged that the cases of Philippine Savings
Bank v. Mañalac, Jr.,[41] Bank of Commerce v. Perlas-Bernabe[42]
Sulit v. Court of Appeals,[43] and Barican v. Intermediate Appellate
Court[44] should apply and the CA should have considered the
peculiar circumstances of the case.[45]They claimed that there was
then a petition for corporate rehabilitation pending with another
court that issued a stay order.[46] Thus, the foreclosure was null
and void.[47] Spouses Co further alleged that Act No. 3135 violates
the Constitution since the law gives unbridled license to the court
and purchaser to deprive the owner of the property without the
opportunity to be heard.[48]
On February 29, 2012, we issued a Resolution[49] consolidating
G.R. No. 200061 with G.R. No. 171172 since they involve similar
parties and raise interrelated issues that arose from the same set of
facts.
In its Comment/Opposition,[50] BPI alleged that the petition for
rehabilitation is not a ground to consolidate the writ of possession
case and the annulment of mortgage case, as to justify the
suspension of the writ of possession’s implementation. Further, the
petition for rehabilitation was filed later than the petition for writ of
possession. BPI also claimed that the rulings in Bank of Commerce
and Sulit do not apply to this case.
On February 5, 2014, BPI manifested[51] that the properties are
still in the possession of Spouses Co and the writ of possession is
necessary to deliver their possession to BPI.
The Issues
The issues for resolution are:
Whether the writ of possession was validly issued;
Whether the RTC Br. 196 erred in giving due course to the Notice of
Appeal of Spouses Co and Jupiter from its Order dated September
30, 2005 and Amended Order dated December 8, 2005 granting
the writ of possession in favor of BPI;
Whether or not Act No. 3135, as amended, violates the
Constitution; and
Whether the CA erred in denying the consolidation of LRC Case No.
03-0063 with Civil Case No. 02-0331.
Our Ruling
Validity of the Issuance of the Writ of Possession
Under Section 7[52] of Act No. 3135, as amended by Act No. 4118,
the purchaser in a foreclosure sale may apply for a writ of
possession during the redemption period. Upon the purchaser’s
filing of an ex parte petition and posting of the appropriate bond,
the RTC shall, as a matter of course, order the issuance of the writ
of possession in the purchaser’s favor. But equally well settled is
the rule that a writ of possession will issue as a matter of course,
even without the filing and approval of a bond, after consolidation
of ownership and the issuance of a new TCT in the name of the
purchaser.[53]
Upon expiration of the redemption period, the right of the
purchaser to the possession of the foreclosed property becomes
absolute. This right to possession is based on the purchaser’s
ownership of the property.[54] In like manner, the mere filing of an
ex parte motion for the issuance of the writ of possession would
suffice and the filing of a bond is no longer necessary. This is
because possession has become the absolute right of the purchaser
as the confirmed owner.[55]
Spouses Co and Jupiter do not deny that they failed to redeem the
properties mortgaged within the redemption period. Consequently,
ownership over the properties was consolidated in the name of BPI
and new titles were issued in its name. Thus, as the new registered
owner, BPI is even more entitled to the possession of the properties
and has the unmistakable right to file an ex parte motion for the
issuance of a writ of possession.
23
Spouses Co insist that the petition for issuance of a writ of
possession should have been denied because of the pendency of
the petition for nullification of the foreclosure sale, and the petition
for rehabilitation, and the stay order. We are not persuaded.
The mere pendency of a petition for corporate rehabilitation and
the issuance of a stay order do not and cannot enjoin the courts
from the enforcement of claims; neither does it make the case
unique and peculiar. In Equitable PCI Bank, Inc. v. DNG Realty and
Development Corporation,[56] we reiterated the rule in New
Frontier Sugar Corporation v. Regional Trial Court, Branch 39, Iloilo
City[57] that a stay order or the suspension of the enforcement of
all claims against the corporation shall commence only from the
time the rehabilitation receiver is appointed and a stay order is
issued.
In Town and Country Enterprises, Inc. v. Qinsumbing, Jr.,[58] which
presents the same set of facts with this case, we held:
Considering that Metrobank acquired ownership over the
mortgaged properties upon the expiration of the redemption period
on 6 February 2002, TCEI is also out on a limb in invoking the Stay
Order issued by the Rehabilitation Court on 8 October 2002 and the
approval of its rehabilitation plan on 29 March 2004. An essential
function of corporate rehabilitation is, admittedly, the Stay Order
which is a mechanism of suspension of all actions and claims
against the distressed corporation upon the disappointment of a
management committee or rehabilitation receiver. The Stay Order
issued by the Rehabilitation Court in SMC Case No. 023-02 cannot,
however, apply to the mortgage obligations owing to Metrobank
which had already been enforced even before TCEI’s filing of its
petition for corporate rehabilitation on 1 October 2002.
In Equitable PCI Bank, Inc. v. DNG Really and Development
Corporation, the Court upheld the validity of the writ of possession
procured by the creditor despite the subsequent issuance of a stay
order in the rehabilitation proceedings instituted by the debtor. In
said case. Equitable PCI Bank (Equitable) foreclosed on 30 June
2003 the mortgage executed in its favor by DNG Realty and
Development Corporation (DNG) and was declared the highest
bidder at the 4 September 2003 public auction of the property. On
21 October 2003, DNG also instituted a petition for corporate
rehabilitation which resulted in the issuance of a Stay Order on 27
October 2003. Having caused the recording of the Certificate of
Sale on 3 December 2003, on the other hand, Equitable executed
an affidavit of consolidation of its ownership which served as basis
for the issuance of a new title in its favor on 10 December 2003.
Equitable subsequently filed an action for the issuance of a writ of
possession on 17 March 2004 which was eventually granted on 6
September 2004. In affirming the validity of the certificate of sale,
certificate of title and writ of possession issued in favor of
Equitable, the Court ruled as follows:
In RCBC, we upheld the extrajudicial foreclosure sale of the
mortgage properties of BF Homes wherein RCBC emerged as the
highest bidder as it was done before the appointment of the
management committee. Noteworthy to mention was the fact that
the issuance of the certificate of sale in RCBC’s favor, the
consolidation of title, and the issuance of the new titles in RCBC’s
name had also been upheld notwithstanding that the same were all
done after the management committee had already been
appointed and there was already a suspension of claims. Thus,
applying RCBC v. IAC in this case, since the foreclosure of
respondent DNG’s mortgage and the issuance of the certificate of
sale in petitioner EPCIB’s favor were done prior to the appointment
of a Rehabilitation Receiver and the Stay Order, all the actions
taken with respect to the foreclosed mortgage property which were
subsequent to the issuance of the Stay Order were not affected by
the Stay Order. Thus, after the redemption period expired without
respondent redeeming the foreclosed properly, petitioner becomes
the absolute owner of the property and it was within its right to ask
for the consolidation of title and the issuance of new title in its
name as a consequence of ownership; thus, it is entitled to the
possession and enjoyment of the property.[59] (Citations omitted)
(Emphasis in the original)
In this case, the auction sale on July 12, 2000, the registration and
annotation of the certificate of sale on August 22, 2000 and the
issuance of new titles in favor of BPI in 2001,[60] as well as the
petition for issuance of the writ of possession were all completed
before the filing of the petition for rehabilitation and the issuance of
the stay order in September 2003. Thus, after the redemption
period expired without respondent redeeming the foreclosed
property, BPI became the absolute owner of the property and it was
within its right to move for the consolidation of title and the
issuance of new title in its name as a consequence of ownership;
thus, it is entitled to the possession and enjoyment of the property.
[61]
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Remedy to assail an order granting a writ of possession
We find no merit in BPI’s argument that the order of the RTC Br. 196
granting a writ of possession is merely interlocutory from which no
appeal may be taken.
In Mallari v. Banco Filipino Savings and Mortgage Bank,[62] we
ruled that it is the ministerial duty of the trial court to issue a writ
of possession in favor of the purchaser who has already
consolidated its title. After the consolidation of title in the buyer’s
name for failure of the mortgagor to redeem the property, the writ
of possession becomes a matter of right. Its issuance to a
purchaser in an extrajudicial foreclosure sale is merely a ministerial
function. The trial court has no discretion on this matter. Hence,
any assertion of discretion in connection with such issuance is
misplaced, and a petition for certiorari is not a proper remedy.[63]
The order for the issuance of a writ of possession being final, it is a
proper subject for appeal.
We clarify, however, that this remedy of appeal is different from the
remedy provided in Section 8 of Act No. 3135, as amended by Act
No. 4118.[64] An error of judgment committed by a court in the
exercise of its legitimate jurisdiction is not the same as grave abuse
of discretion. Errors of judgment are correctible by appeal while
those of jurisdiction are reviewable by certiorari.[65] In 680 Home
Appliances, Inc. v. Court of Appeals,[66] we explained that Act No.
3135 finds no application after the lapse of the redemption period,
and the remedy of a debtor to contest the possession of the
property is a separate action, and not the appeal provided for in
Section 8 of the Act. We explained:
In a number of cases, the Court declared that Section 8 of Act No.
3135 is the available remedy to set aside a writ of possession,
without considering whether the writ involved in each of these
cases was issued during or after the lapse of the redemption
period. Upon revaluation, we find it necessary to make a distinction
and clarify when the remedy under Section 8 of Act No. 3135 may
be availed of.
xxx
Act No. 3135 governs only the manner of the sale and redemption
of the mortgaged real property in an extrajudicial foreclosure;
proceedings beyond these, i.e., upon the lapse of the redemption
period and the consolidation of the purchaser’s title, are no longer
within its scope. xxx
As pointed out, the remedy provided under Section 8 of Act No.
3135 to the debtor becomes available only after the purchaser
acquires actual possession of the property. This is required because
until then the debtor, as the owner of the property, does not lose
his right to possess.
However, upon the lapse of the redemption period without the
debtor exercising his right of redemption and the purchaser
consolidates his title, it becomes unnecessary to require the
purchaser to assume actual possession thereof before the debtor
may contest it. Possession of the land becomes an absolute right of
the purchaser, as this is merely an incident of his ownership. In
fact, the issuance of the writ of possession at this point becomes
ministerial for the court. The debtor contesting the purchaser’s
possession may no longer avail of the remedy under Section 8 of
Act No. 3135, but should pursue a separate action e.g., action for
recovery of ownership, for annulment of mortgage and/or
annulment of foreclosure. FSAMI’s consolidation of ownership
therefore makes the remedy under Section 8 of Act No. 3135
unavailable for 680 Home. 680 Home cannot assail the writ of
possession by filing a petition in LRC No. M-5444.[67] (Citations
omitted) (Emphasis in the original)
Constitutionality of Act No. 3135, as amended
Spouses Co alleged that the ex parte nature of the proceedings
under Section 7 of Act No. 3135 violates the due process clause of
the Constitution. In Rayo v. Metropolitan Bank and Trust Company,
we already ruled that the issuance of the writ of possession in
extrajudicial foreclosure proceedings docs not violate the
mortgagor’s right to constitutional due process, thus:
First, there was no violation of petitioner’s right to constitutional
due process. In a long line of cases, we have consistently ruled that
the issuance of a writ of possession in favor of the purchaser in a
foreclosure sale of a mortgaged property under Section 7 of Act No.
3135, as amended is a ministerial duty of the court. The purchaser
of the foreclosed property, upon ex parte application and the
posting of the required bond, has the right to acquire possession of
the foreclosed property during the 12-month redemption period
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and with more reason, after the expiration of the redemption
period.
An ex parte petition for the issuance of a writ of possession under
Section 7 of Act No. 3135 is not, strictly speaking, a “judicial
process” as contemplated in Article 433 of the Civil Code. It is a
judicial proceeding for the enforcement of one’s right of possession
as purchaser in a foreclosure sale. It is not an ordinary suit filed in
court, by which one party “sues another for the enforcement of a
wrong or protection of a right, or the prevention or redress of a
wrong.” It is a non-litigious proceeding authorized in an
extrajudicial foreclosure of mortgage pursuant to Act No. 3135, as
amended, and is brought for the benefit of one party only, and
without notice to, or consent by any person adversely interested. It
is a proceeding where the relief is granted without requiring an
opportunity for the person against whom the relief is sought to be
heard. No notice is needed to be served upon persons interested in
the subject property.
xxx
Now, petitioner is challenging the constitutionality of Section 7 of
Act No. 3135, as amended, lie avers that Section 7 violates the clue
process clause because, by the mere filing of an ex parte motion in
the proper cadastral court, the purchaser in a foreclosure sale is
allowed to obtain possession of the foreclosed property during the
redemption period.
The Court of Appeals ruled that petitioners attempt to challenge
the constitutionality of Section 7 of Act No. 3135, as amended,
constitutes a collateral attack that is not allowed. We fully agree
with the appellate court’s ruling, for reasons of public policy, the
constitutionality of a law cannot be attacked collaterally.[68]
(Emphasis and citations omitted)
On the propriety of consolidation
Spouses Co claim that based on our rulings in Philippine Savings
Bank v. Mañalac, Jr.,[69] Bank of Commerce v. Perlas-Bernabe,[70]
Sulit v. Court of Appeals,[71] and Barican v. Intermediate Appellate
Court,[72] the proceedings for the issuance of a writ of possession
should have been consolidated with their action for annulment of
the foreclosure proceedings, and that the issuance of the writ of
possession should be withheld.
They alleged the existence of “unique and peculiar set of facts”[73]
that call for the application of the cited cases. We disagree.
In Philippine Savings Bank, we upheld the consolidation of a
petition for the issuance of a writ of possession with an ordinary
civil action in order to achieve a more expeditious resolution of the
cases. However, in the more recent case of Espinoza v. United
Overseas Bank Phils.,[74] we held that the consolidation of a
petition for the issuance of a writ of possession with the
proceedings for nullification of foreclosure would be highly improper
when title to the litigated property had already been consolidated
in the name of the mortgagee-purchaser, as in the case of BPI.
“Otherwise, not only will the very purpose of consolidation (which is
to avoid unnecessary delay) be defeated but the procedural matter
of consolidation will also adversely affect the substantive right of
possession as an incident of ownership.”[75]
In Bank of Commerce, we ordered the consolidation of a
receivership case with the petition for certiorari after a finding that
the certiorari petition therein is only a pending incident in the
receivership case, and that the outcome of the certiorari
proceeding will have a bearing on the receivership case. In this
case, the issuance of the writ of possession is not a pending
incident to the action for nullity of foreclosure.
In Barican, we held that the obligation of a court to issue a writ of
possession ceases to be ministerial if there is a third party holding
the property adversely to the judgment debtor.[76] In this case,
there is no third party holding the property adversely to the
judgment debtor.
In Sulit, we withheld the issuance of a writ of possession in favor of
the mortgagee or purchaser in an extrajudicial foreclosure sale for
failure of the mortgagee to pay a substantial amount of the surplus
proceeds of the sale to the mortgagor. In this case, the issue of
payment of the foreclosure proceeds was never raised. In fact, BPI
already consolidated title and ownership of the subject properties
and new titles issued in its name after the expiration of the
redemption period.
In view of the foregoing, both petitions must fail.
26
WHEREFORE, the petitions are DENIED for lack of merit. The orders
of the RTC Br. 196 dated December 15, 2005 and January 13, 2006
assailed in G.R. No. 171172, as well as the Decision of the Court of
Appeals (CA) dated June 27, 2011 and its Resolution dated January
9, 2012 assailed in G.R. No. 200061 are hereby AFFIRMED. The
sheriff of the RTC Br. 196 is ordered to PROCEED with the
implementation of the writ of possession without prejudice to the
outcome of Civil Case No. 02-0331.

SO ORDERED.

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