FIRST DIVISION
G.R. Nos. 200934-35, June 19, 2019
LA SAVOIE DEVELOPMENT CORPORATION, PETITIONER, v. BUENAVISTA PROPERTIES, INC., RESPONDENT.
D E C I S I O N
JARDELEZA, J.:
This is a petition for review on certiorari1 assailing the November 4, 2011 Decision2 and February 24, 2012 Resolution3 of the Court of Appeals (CA) in the consolidated cases of CA-G.R. SP Nos. 102114 and 104413. The assailed Decision and Resolution: (1) annulled the Resolution4 of the Regional Trial Court of Makati-Branch 149 (Rehabilitation Court) reducing the penalty imposed against petitioner; and (2) annulled the Order5 of the Rehabilitation Court preventing the implementation of the Decision of the Regional Trial Court of Quezon City-Branch 217 (QC RTC).
We partly modify the Decision of the CA and restate that a court-approved rehabilitation plan may provide for a reduction in the liability for contractual penalties incurred by the distressed corporation.
On May 7, 1992, Spouses Frisco and Amelia San Juan, and Spouses Felipe and Blesilda Buencamino (collectively, the landowners), through their attorney-in-fact Delfin Cruz, Jr., entered into a Joint Venture Agreement (JVA) with La Savoie Development Corporation (petitioner) over three parcels of land (the properties) located at San Rafael, Bulacan. Under the JVA, petitioner undertook to completely develop the properties into a commercial and residential subdivision (project) on or before May 5, 1995. If petitioner fails to do so within the schedule, it shall pay the landowners a penalty of P10,000.00 a day until completion of the project.6 On May 26, 1994, the landowners sold the properties to Josephine Conde, who later assigned all her rights and interest therein to Buenavista Properties, Inc. (respondent).7 Unfortunately, petitioner did not finish the project on time. Thus, it executed an Addendum to the JVA with respondent, extending the completion of the project until May 5, 1997.8 However, petitioner still failed to meet the deadline.
On February 28, 1998, respondent filed a complaint for termination of contract and recovery of property with damages against petitioner before the QC RTC. The case was docketed as Civil Case No. Q-98-33682.9 Petitioner failed to appear during pre-trial, and was declared in default.10 Respondent presented its evidence ex-parte.11
Meanwhile, due to the 1997 Asian financial crisis, petitioner anticipated its inability to pay its obligations as they fall due; thus, on April 25, 2003, it filed a petition for rehabilitation before the Regional Trial Court of Makati (Makati RTC).12 On June 4, 2003, the Makati RTC issued an Order (Stay Order),13 staying the enforcement of all claims, whether for money or otherwise, and whether such enforcement is by court action or otherwise, against petitioner. It appointed Rito C. Manzana as rehabilitation receiver.
Subsequently, petitioner filed a manifestation14 dated June 21, 2003 before the QC RTC. It informed the court that a Stay Order was issued by the Makati RTC, and that respondent was included as one of the creditors in the petition for rehabilitation. It accordingly asked the QC RTC to suspend its proceedings.
It appears, however, that the QC RTC already rendered a Decision15 on June 12, 2003 (QC RTC Decision), the dispositive portion of which reads:
WHEREFORE, judgment is hereby rendered in favor of the plaintiff [herein respondent] and against the defendant [herein petitioner]:Meantime, in its Order dated October 1, 2003, the Makati RTC lifted the Stay Order and dismissed the petition for rehabilitation. However, on appeal, the CA, in its Decision dated June 21, 2005, reversed the Makati RTC.17 It remanded the case to the trial court for further proceedings.Costs against the defendant.
- Terminating the Joint Venture Agreement and the Addendum to [the] Joint Venture Agreement x x x;
- Ordering the defendant to deliver to the plaintiff possession of the Buenavista Park Subdivision together with all improvements thereon;
- Ordering the defendant to pay the plaintiff the amount of Ten Thousand Pesos (P10,000.00) a day representing the penalty for each day of delay computed from March 3, 1998 (when this case was filed) and until paid.
- Ordering the defendant to pay plaintiff the amount of One Hundred Thousand Pesos (P100,000.00) as and for attorney's fees.
SO ORDERED.16
Respondent questioned the June 30, 2008 Resolution of the Rehabilitation Court in its petition for review before the CA, docketed as CA-G.R. SP No. 104413. The CA consolidated CA-G.R. SP Nos. 102114 and 104413 in a Resolution dated August 12, 2008.27
4. x x x d. It appears that the impose (sic) penalty of P10,000.00 for each day of delay, from the time this petition was filed on April 25, 2003 up to the conclusion of this rehabilitation plan is quite unconscionable and unreasonable considering that petitioner is under rehabilitation, hence the same shall not be considered for payment under this rehabilitation plan. Moreover, under the wisdom of the Supreme Court in the case of Filinvest Land, Inc. vs. Court of Appeals, (G.R. No. 138980, September 20,2005), it reduced the penalty from P3.99 million to P1.881 million. (Also in the case of Domel Trading Corporation vs. Court of Appeals, G.R. No. 84848, September 22, 1999; and Antonio Lo vs. Court of Appeals, G.R. No. 141434, February 9, 1998). Thus, the penalty for payment under this plan for Buenavista Properties is P5,000.00 per day of delay from March 3,1998 up to June 4,2003 only (date of Stay Order).26 (Emphasis supplied.)
[C]orporate 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. Thus, the basic issues in rehabilitation proceedings concern the viability and desirability of continuing the business operations of the distressed corporation, 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.41 (Emphasis in the original; citations omitted.)Corporate rehabilitation traces its roots to Act No. 1956 or the Insolvency Law of 1909. The amendatory provisions of PD 902-A, clothed the Securities and Exchange Commission (SEC) with jurisdiction to hear petitions of corporations for declaration of state of suspension of payments. Such jurisdiction was, however, transferred to the Regional Trial Court in 2000. Presently, the FRIA is the prevailing law on corporate rehabilitation.42 In this case, since the petition for rehabilitation was filed on April 25, 2003, the provisions of PD 902-A, as amended, and the Interim Rules apply.
Given the factual milieu obtaining in this case, it cannot be said that the decision of the Labor Arbiter, or the decision/dismissal order and writ of execution issued by the NLRC, could ever attain final and executory status. The Labor Arbiter completely disregarded and violated Section 6(c) of Presidential Decree 902-A, as amended, which categorically mandates the suspension of all actions for claims against a corporation placed under a management committee by the SEC. Thus, the proceedings before the Labor Arbiter and the order and writ subsequently issued by the NLRC are all null and void for having been undertaken or issued in violation of the SEC suspension Order dated December 28, 1994. As such, the Labor Arbiter's decision, including the dismissal by the NLRC of Rubberworld's appeal, could not have achieved a final and executory status.We see no reason not to apply the rule in Lingkod in case of violation of a stay order under the Interim Rules. Having been executed against the provisions of a mandatory law, the QC RTC Decision did not attain finality.
Acts executed against the provisions of mandatory or prohibitory laws shall be void, except when the law itself authorizes their validity. The Labor Arbiter's decision in this case is void ab initio, and therefore, non-existent. A void judgment is in effect no judgment at all. No rights are divested by it nor obtained from it. Being worthless in itself, all proceedings upon which the judgment is founded are equally worthless. It neither binds nor bars anyone. All acts performed under it and all claims flowing out of it are void. In other words, a void judgment is regarded as a nullity, and the situation is the same as it would be if there were no judgment. It accordingly leaves the party-litigants in the same position they were in before the trial.47 (Emphasis supplied; citations omitted.)
We also find no merit in PWRDC's [Pacific Wide Realty and Development Corporation] contention that there is a violation of the [non-]impairment clause. Section 10, Article III of the Constitution mandates that no law impairing the obligations of contract shall be passed. This case does not involve a law or an executive issuance declaring the modification of the contract among debtor PALI, its creditors and its accommodation mortgagors. Thus, the non-impairment clause may not be invoked. Furthermore, as held in Oposa v. Factoran, Jr. even assuming that the same may be invoked, the non-impairment clause must yield to the police power of the State. Property rights and contractual rights are not absolute. The constitutional guaranty of non-impairment of obligations is limited by the exercise of the police power of the State for the common good of the general public.51 (Emphasis supplied; citation omitted.)The prevailing principle is that the order or judgment of the courts, not being a law, is not within the ambit of the non-impairment clause. Further, it is more in keeping with the spirit of rehabilitation that courts are given the leeway to decide how distressed corporations can best and fairly address their financial issues. Necessarily, a business in the red and about to incur tremendous losses may not be able to pay all its creditors. Rather than leave it to the strongest or most resourceful amongst all of them, the state steps in to equitably distribute the corporation's limited resources.52
The rehabilitation court in issuing the said [December 28, 2007] order arrogated upon itself the function of a higher court and issued the same even if it does not have any jurisdiction to do so. Therefore, we accept the view that the rehabilitation court indeed gravely abused its discretion in issuing the assailed order, the annulment of said order is warranted in the foregoing circumstances.54To recapitulate, we rule that the Order of the Rehabilitation Court reducing the penalties awarded to respondent is valid; and that the Order of the Rehabilitation Court preventing the implementation of the QC RTC Decision is invalid for being issued with grave abuse of discretion amounting to lack of jurisdiction.
Endnotes:
1Rollo (G.R. Nos. 200934-35), pp. 10-62.
2Id. at 64-81. Penned by Associate Justice Florito S. Macalino with Associate Justices Ramon M. Bato, Jr. and Elihu A. Ybañez, concurring.
3Id. at 83-84.
4Id. at 180-189. Penned by Presiding Judge Cesar O. Untalan.
5Id. at 1184-1186.
6Id. at 190-193.
7Id. at 193.
8Id. at 65, 193.
9Id. at 65.
10 Petitioner assailed the judgment by default but the CA sustained the QC RTC Decision. It elevated the case to us, and we affirmed the CA. Id. at 67.
11Rollo (G.R. No. 175615), pp. 14-15.
12Rollo (G.R. Nos. 200934-35), pp. 65-66. The case was raffled to Branch 142 and docketed as SP. Proc No. M-5664.
13Id. at 611-612. The Stay Order was issued by then Judge Estela Perlas-Bernabe (now a Member of this Court).
14Id. at 1258-1259.
15Id. at 190-196.
16Id. at 196.
17Id. at 66.
18Id. at 67.
19Id. at 67-68.
20Id. at 1133-1144.
21Id. at 1184-1186.
22Id. at 1186.
23Id. at 68.
24Id. at 68-69.
25Supra note 4.
26Rollo (G.R. Nos. 200934-35), p. 188.
27Id. at 71.
28Id. at 75; Reorganization of the Securities and Exchange Commission with Additional Powers and Placing the Said Agency under the Administrative Supervision of the Office of the President (1976).
29Id. at 76.
30 A.M. No. 00-8-10-SC, November 21, 2000.
31Rollo (G.R. Nos. 200934-95), pp. 77-78.
32Id. at 80-81.
33Id. at 1465.
34 While this is not raised as an error before us, we deem it necessary to rule upon it because the resolution of the first issue is dependent upon it. Demafelis v. Court of Appeals teaches that an appellate court has an inherent authority to review unassigned errors: e.g. (1) which are closely related to an error properly raised; (2) upon which the determination of the error properly assigned is dependent; or (3) where the Court finds that consideration of them is necessary in arriving at a just decision of the case. [G.R. No. 152164 (Resolution), November 23, 2007, 538 SCRA 305, 311, citing Sesbreño v. Central Board of Assessment Appeals, G.R. No. 106588, March 24, 1997, 270 SCRA 360.]
35Rollo (G.R. Nos. 200934-35), pp. 47-52.
36Rollo (G.R. No. 175615), p. 584.
37Rollo (G.R. Nos. 200934-35), pp. 1458-1459.
38Id. at 1462.
39 See Section 4(gg) of the FRIA.
40 G.R. No. 206528, June 28, 2016, 794 SCRA 625.
41Id. at 639-640.
42Viva Shipping Lines, Inc. v. Keppel Philippines Mining, Inc., G.R. No. 177382, February 17, 2016, 784 SCRA 173, 197-199.
43Metropolitan Bank and Trust Company v. Liberty Corrugated Boxes Manufacturing Corporation, G.R. No. 184317, January 25, 2017, 815 SCRA 458, 472-473, citing Sobrejuanite v. ASB Development Corporation, G.R. No. 165675, September 30, 2005, 471 SCRA 763, 770.
44 See Philippine Airlines, Inc. v. Court of Appeals, G.R. No. 150592, January 20, 2009, 576 SCRA 471, 475-476.
45Rollo (G.R. No. 175615), p. 725.
46 G.R. No. 153882, January 29, 2007, 513 SCRA 208.
47Id. at 218-219.
48Rollo (G.R. No. 175615), pp. 12-25.
49 G.R. No. 178768, November 25, 2009, 605 SCRA 502.
50Id. at 516.
51Id. at 516-517.
52Pryce Corporation v. China Banking Corporation, G.R. No. 172302, February 18, 2014, 716 SCRA 207, 233.
53Cabili v. Balindong, A.M. No. RTJ-10-2225, September 6, 2011, 656 SCRA 747, 753. Citation omitted.
54Rollo (G.R. Nos. 200934-35), p. 75.