J.A.B. Bulao & Associates

CASE 2011-0144: FEB LEASING AND FINANCE CORPORATION (NOW BPI LEASING CORPORATION) VS. SPOUSES SERGIO P. BAYLON AND MARITESS VILLENA-BAYLON, BG HAULER, INC., AND MANUEL Y. ESTILLOSO (G.R. NO. 181398, 29 JUNE 2011, CARPIO, J.) SUBJECTS: LIABILITY OF A REGISTERED OWNER OF VEHICLE; ATTORNEY’S FEES. (BRIEF TITLE: FEB FINANCE VS. SPOUSES BAYLON)

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SUBJECTS/DOCTRINES/DIGEST

DIGEST:

FACTS:

AN OIL TANKER REGISTERED IN THE NAME OF BPI LEASING AND LEASED AND OPERATED BY BG HAULER AND DRIVEN BY ESTILLOSO HIT A PEDESTRIAN.

RTC HELD ALL 3 JOINTLY LIABLE. CA AFFIRMED BUT DELETED ATTORNEY’S FEES FOR BEING SPECULATIVE. BPI LEASING CONTENDED THAT IT IS NOT LIABLE BECAUSE IT WAS NOT ACTUALLY OPERATING THE OIL TANKER.

ISSUES:

IS BPI LEASING’S CONTENTION VALID?

WAS CA CORRECT IN DELETING ATTORNEY’S FEES?

RULING:

BPI LEASING, BEING THE REGISTERED OWNER, IS LIABLE UNDER THE LAW ON COMPULSORY VEHICLE REGISTRATION AND JURISPRUDENCE. THE POLICY BEHIND THE RULE IS TO ENABLE THE VICTIM TO FIND REDRESS BY THE EXPEDIENT RECOURSE OF IDENTIFYING THE REGISTERED VEHICLE OWNER IN THE RECORDS OF THE LAND TRANSPORTATION OFFICE.

In accordance with the law on compulsory motor vehicle registration, this Court has consistently ruled that, with respect to the public and third persons, the registered owner of a motor vehicle is directly and primarily responsible for the consequences of its operation regardless of who the actual vehicle owner might be.²¹ Well-settled is the rule that the registered owner of the vehicle is liable for quasi-delicts resulting from its use. Thus, even if the vehicle has already been sold, leased, or transferred to another person at the time the vehicle figured in an accident, the registered vehicle owner would still be liable for damages caused by the accident. The sale, transfer or lease of the vehicle, which is not registered with the Land Transportation Office, will not bind third persons aggrieved in an accident involving the vehicle. The compulsory motor vehicle registration underscores the importance of registering the vehicle in the name of the actual owner.

The policy behind the rule is to enable the victim to find redress by the expedient recourse of identifying the registered vehicle owner in the records of the Land Transportation Office. The registered owner can be reimbursed by the actual owner, lessee or transferee who is known to him. Unlike the registered owner, the innocent victim is not privy to the lease, sale, transfer or encumbrance of the vehicle. Hence, the victim should not be prejudiced by the failure to register such transaction or encumbrance.

CA WAS CORRECT IN DELETING ATTORNEY’S FEES FOR BEING SPECULATIVE. ATTORNEY’S FEES MUST BE PROVEN. THE RULE IS NOT TO GRANT ATTORNEY’S FEES FOR THE REASON THAT NE O PREMIUM SHOULD BE PLACED ON THE RIGHT TO LITIGATE.

As a final point, we agree with the Court of Appeals that the award of attorney’s fees by the RTC must be deleted for lack of basis. The RTC failed to justify the award of P50,000 attorney’s fees to respondent spouses Baylon. The award of attorney’s fees must have some factual, legal and equitable bases and cannot be left to speculations and conjectures.²⁵ Consistent with prevailing jurisprudence,²⁶ attorney’s fees as part of damages are awarded only in the instances enumerated in Article 2208 of the Civil Code.²⁷ Thus, the award of attorney’s fees is the exception rather than the rule. Attorney’s fees are not awarded every time a party prevails in a suit because of the policy that no premium should be placed on the right to litigate.²⁸

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SECOND DIVISION

FEB LEASING AND FINANCE                           G.R. No. 181398

CORPORATION (now BPI

LEASING CORPORATION) ,                             Present:

Petitioner,

CARPIO, J., Chairperson,

LEONARDO-DE CASTRO,^*

BRION,

– versus –                                                               PEREZ, and

SERENO, JJ.

SPOUSES SERGIO P. BAYLON

and MARITESS VILLENA-BAYLON,

BG HAULER, INC., and                                      Promulgated:

MANUEL Y. ESTILLOSO,

Respondents.                                                         June 29, 2011

x- – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – x

D E C I S I O N

CARPIO, J.:

The Case

This is a petition for review on certiorari¹ of the 9 October 2007 Decision² and the 18 January 2008 Resolution³ of the Court of Appeals in CA-G.R. CV No. 81446. The 9 October 2007 Decision affirmed the 30 October 2003 Decision⁴ of the Regional Trial Court (Branch 35) ofGapanCity in Civil Case No. 2334 ordering petitioner to pay respondents damages. The 18 January 2008 Resolution denied petitioner’s motion for reconsideration.

The Facts

On 2 September 2000, an Isuzu oil tanker running along Del Monte Avenue in Quezon City and bearing plate number TDY 712 hit Loretta V. Baylon (Loretta), daughter of respondent spouses Sergio P. Baylon and Maritess Villena-Baylon (spouses Baylon). At the time of the accident, the oil tanker was registered⁵ in the name of petitioner FEB Leasing and Finance Corporation⁶ (petitioner). The oil tanker was leased⁷ to BG Hauler, Inc. (BG Hauler) and was being driven by the latter’s driver, Manuel Y. Estilloso. The oil tanker was insured⁸ by FGU Insurance Corp. (FGU Insurance).

The accident took place at around 2:00 p.m. as the oil tanker was coming from Balintawak and heading towards Manila. Upon reaching the intersection of Bonifacio Streetand Del Monte Avenue, the oil tanker turned left. While the driver of the oil tanker was executing a left turn side by side with another vehicle towards Del Monte Avenue, the oil tanker hit Loretta who was then crossing Del Monte Avenuecoming from Mayon Street. Due to the strong impact, Loretta was violently thrown away about three to five meters from the point of impact. She fell to the ground unconscious. She was brought for treatment to the Chinese GeneralHospitalwhere she remained in a coma until her death two days after.⁹

The spouses Baylon filed with the RTC (Branch 35) of GapanCitya Complaint¹⁰ for damages against petitioner, BG Hauler, the driver, and FGU Insurance. Petitioner filed its answer with compulsory counterclaim while FGU Insurance filed its answer with counterclaim. On the other hand, BG Hauler filed its answer with compulsory counterclaim and cross-claim against FGU Insurance.

Petitioner claimed that the spouses Baylon had no cause of action against it because under its lease contract with BG Hauler, petitioner was not liable for any loss, damage, or injury that the leased oil tanker might cause. Petitioner claimed that no employer-employee relationship existed between petitioner and the driver.

BG Hauler alleged that neither do the spouses Baylon have a cause of action against it since the oil tanker was not registered in its name. BG Hauler contended that the victim was guilty of contributory negligence in crossing the street. BG Hauler claimed that even if its driver was at fault, BG Hauler exercised the diligence of a good father of a family in the selection and supervision of its driver. BG Hauler also contended that FGU Insurance is obliged to assume all liabilities arising from the use of the insured oil tanker.

For its part, FGU Insurance averred that the victim was guilty of contributory negligence. FGU Insurance concluded that the spouses Baylon could not expect to be paid the full amount of their claims. FGU Insurance pointed out that the insurance policy covering the oil tanker limited any claim to a maximum of P400,000.00.

During trial, FGU Insurance moved that (1) it be allowed to deposit in court the amount of P450,000.00 in the joint names of the spouses Baylon, petitioner, and BG Hauler and (2) it be released from further participating in the proceedings. After the RTC granted the motion, FGU Insurance deposited in the Branch Clerk of Court a check in the names of the spouses Baylon, petitioner, and BG Hauler. The RTC then released FGU Insurance from its contractual obligations under the insurance policy.

The Ruling of the RTC

After weighing the evidence submitted by the parties, the RTC found that the death of Loretta was due to the negligent act of the driver. The RTC held that BG Hauler, as the employer, was solidarily liable with the driver. The RTC further held that petitioner, as the registered owner of the oil tanker, was also solidarily liable.

The RTC found that since FGU Insurance already paid the amount of P450,000.00 to the spouses Baylon, BG Hauler, and petitioner, the insurer’s obligation has been satisfactorily fulfilled. The RTC thus dismissed the cross-claim of BG Hauler against FGU Insurance. The decretal part of the RTC’s decision reads:

Wherefore, premises considered, judgment is hereby rendered in favor of the plaintiffs and against defendants FEB Leasing (now BPI Leasing), BG Hauler, and Manuel Estilloso, to wit:

1. Ordering the defendants, jointly and severally, to pay plaintiffs the following:

a. the amount of P62,000.00 representing actual expenses incurred by the plaintiffs;

b. the amount of P50,000.00 as moral damages;

c. the amount of P2,400,000.00 for loss of earning capacity of the deceased victim, Loretta V. Baylon;

d. the sum of P50,000.00 for death indemnity;

e. the sum of P50,000.00 for and as attorney’s fees; and

f. with costs against the defendants.

2. Ordering the dismissal of defendants’ counter-claim for lack of merit and the cross claim of defendant BG Hauler against defendant FGU Insurance.

SO ORDERED.¹¹

Petitioner, BG Hauler, and the driver appealed the RTC Decision to the Court of Appeals. Petitioner claimed that as financial lessor, it is exempt from liability resulting from any loss, damage, or injury the oil tanker may cause while being operated by BG Hauler as financial lessee.

On the other hand, BG Hauler and the driver alleged that no sufficient evidence existed proving the driver to be at fault. They claimed that the RTC erred in finding BG Hauler negligent despite the fact that it had exercised the diligence of a good father of a family in the selection and supervision of its driver and in the maintenance of its vehicles. They contended that petitioner, as the registered owner of the oil tanker, should be solely liable for Loretta’s death.

The Ruling of the Court of Appeals

The Court of Appeals held that petitioner, BG Hauler, and the driver are solidarily liable for damages arising from Loretta’s death. Petitioner’s liability arose from the fact that it was the registered owner of the oil tanker while BG Hauler’s liability emanated from a provision in the lease contract providing that the lessee shall be liable in case of any loss, damage, or injury the leased oil tanker may cause.

Thus, the Court of Appeals affirmed the RTC Decision but with the modification that the award of attorney’s fees be deleted for being speculative. The dispositive part of the appellate court’s Decision reads:

WHEREFORE, in the light of the foregoing, the instant appeal is DENIED. Consequently, the assailed Decision of the lower court is AFFIRMED with the MODIFICATION that the award of attorney’s fees is DELETED.

IT IS SO ORDERED.¹²

Dissatisfied, petitioner and BG Hauler, joined by the driver, filed two separate motions for reconsideration. In its 18 January 2008 Resolution, the Court of Appeals denied both motions for lack of merit.

Unconvinced, petitioner alone filed with this Court the present petition for review on certiorari impleading the spouses Baylon, BG Hauler, and the driver as respondents.¹³

The Issue

The sole issue submitted for resolution is whether the registered owner of a financially leased vehicle remains liable for loss, damage, or injury caused by the vehicle notwithstanding an exemption provision in the financial lease contract.

The Court’s Ruling

Petitioner contends that the lease contract between BG Hauler and petitioner specifically provides that BG Hauler shall be liable for any loss, damage, or injury the leased oil tanker may cause even if petitioner is the registered owner of the said oil tanker. Petitioner claims that the Court of Appeals erred in holding petitioner solidarily liable with BG Hauler despite having found the latter liable under the lease contract.

For their part, the spouses Baylon counter that the lease contract between petitioner and BG Hauler cannot bind third parties like them. The spouses Baylon maintain that the existence of the lease contract does not relieve petitioner of direct responsibility as the registered owner of the oil tanker that caused the death of their daughter.

On the other hand, BG Hauler and the driver argue that at the time petitioner and BG Hauler entered into the lease contract, Republic Act No. 5980¹⁴ was still in effect. They point out that the amendatory law, Republic Act No. 8556,¹⁵ which exempts from liability in case of any loss, damage, or injury to third persons the registered owners of vehicles financially leased to another, was not yet enacted at that time.

In point is the 2008 case of PCI Leasing and Finance, Inc. v. UCPB General Insurance Co., Inc.¹⁶ There, we held liable PCI Leasing and Finance, Inc., the registered owner of an 18-wheeler Fuso Tanker Truck leased to Superior Gas & Equitable Co., Inc. (SUGECO) and being driven by the latter’s driver, for damages arising from a collision. This despite an express provision in the lease contract to the effect that the lessee, SUGECO, shall indemnify and hold the registered owner free from any liabilities, damages, suits, claims, or judgments arising from SUGECO’s use of the leased motor vehicle.

In the instant case, Section 5.1 of the lease contract between petitioner and BG Hauler provides:

Sec. 5.1. It is the principle of this Lease that while the title or ownership of the EQUIPMENT, with all the rights consequent thereof, are retained by the LESSOR, the risk of loss or damage of the EQUIPMENT from whatever source arising, as well as any liability resulting from the ownership, operation and/or possession thereof, over and above those actually compensated by insurance, are hereby transferred to and assumed by the LESSEE hereunder which shall continue in full force and effect.¹⁷ (Emphasis supplied)

If it so wishes, petitioner may proceed against BG Hauler to seek enforcement of the latter’s contractual obligation under Section 5.1 of the lease contract. In the present case, petitioner did not file a cross-claim against BG Hauler. Hence, this Court cannot require BG Hauler to reimburse petitioner for the latter’s liability to the spouses Baylon. However, as the registered owner of the oil tanker, petitioner may not escape its liability to third persons.

Under Section 5 of Republic Act No. 4136,¹⁸ as amended, all motor vehicles used or operated on or upon any highway of the Philippines must be registered with the Bureau of Land Transportation (now Land Transportation Office) for the current year.¹⁹ Furthermore, any encumbrances of motor vehicles must be recorded with the Land Transportation Office in order to be valid against third parties.²⁰

In accordance with the law on compulsory motor vehicle registration, this Court has consistently ruled that, with respect to the public and third persons, the registered owner of a motor vehicle is directly and primarily responsible for the consequences of its operation regardless of who the actual vehicle owner might be.²¹ Well-settled is the rule that the registered owner of the vehicle is liable for quasi-delicts resulting from its use. Thus, even if the vehicle has already been sold, leased, or transferred to another person at the time the vehicle figured in an accident, the registered vehicle owner would still be liable for damages caused by the accident. The sale, transfer or lease of the vehicle, which is not registered with the Land Transportation Office, will not bind third persons aggrieved in an accident involving the vehicle. The compulsory motor vehicle registration underscores the importance of registering the vehicle in the name of the actual owner.

The policy behind the rule is to enable the victim to find redress by the expedient recourse of identifying the registered vehicle owner in the records of the Land Transportation Office. The registered owner can be reimbursed by the actual owner, lessee or transferee who is known to him. Unlike the registered owner, the innocent victim is not privy to the lease, sale, transfer or encumbrance of the vehicle. Hence, the victim should not be prejudiced by the failure to register such transaction or encumbrance. As the Court held in PCI Leasing:

The burden of registration of the lease contract is minuscule compared to the chaos that may result if registered owners or operators of vehicles are freed from such responsibility. Petitioner pays the price for its failure to obey the law on compulsory registration of motor vehicles for registration is a pre-requisite for any person to even enjoy the privilege of putting a vehicle on public roads.²²

In the landmark case of Erezo v. Jepte,²³ the Court succinctly laid down the public policy behind the rule, thus:

The main aim of motor vehicle registration is to identify the owner so that if any accident happens, or that any damage or injury is caused by the vehicle on the public highways, responsibility therefor can be fixed on a definite individual, the registered owner. Instances are numerous where vehicles running on public highways caused accidents or injuries to pedestrians or other vehicles without positive identification of the owner or drivers, or with very scant means of identification. It is to forestall these circumstances, so inconvenient or prejudicial to the public, that the motor vehicle registration is primarily ordained, in the interest of the determination of persons responsible for damages or injuries caused on public highways.

x x x

Were a registered owner allowed to evade responsibility by proving who the supposed transferee or owner is, it would be easy for him, by collusion with others or, or otherwise, to escape said responsibility and transfer the same to an indefinite person, or to one who possesses no property with which to respond financially for the damage or injury done. A victim of recklessness on the public highways is usually without means to discover or identify the person actually causing the injury or damage. He has no means other than by a recourse to the registration in the Motor Vehicles Office to determine who is the owner. The protection that the law aims to extend to him would become illusory were the registered owner given the opportunity to escape liability by disproving his ownership. If the policy of the law is to be enforced and carried out, the registered owner should not be allowed to prove the contrary to the prejudice of the person injured, that is to prove that a third person or another has become the owner, so that he may be thereby be relieved of the responsibility to the injured person.²⁴

In this case, petitioner admits that it is the registered owner of the oil tanker that figured in an accident causing the death of Loretta. As the registered owner, it cannot escape liability for the loss arising out of negligence in the operation of the oil tanker. Its liability remains even if at the time of the accident, the oil tanker was leased to BG Hauler and was being driven by the latter’s driver, and despite a provision in the lease contract exonerating the registered owner from liability.

As a final point, we agree with the Court of Appeals that the award of attorney’s fees by the RTC must be deleted for lack of basis. The RTC failed to justify the award of P50,000 attorney’s fees to respondent spouses Baylon. The award of attorney’s fees must have some factual, legal and equitable bases and cannot be left to speculations and conjectures.²⁵ Consistent with prevailing jurisprudence,²⁶ attorney’s fees as part of damages are awarded only in the instances enumerated in Article 2208 of the Civil Code.²⁷ Thus, the award of attorney’s fees is the exception rather than the rule. Attorney’s fees are not awarded every time a party prevails in a suit because of the policy that no premium should be placed on the right to litigate.²⁸

WHEREFORE, we DENY the petition. We AFFIRM the 9 October 2007 Decision and the 18 January 2008 Resolution of the Court of Appeals in CA-G.R. CV No. 81446 affirming with modification the 30 October 2003 Decision of the Regional Trial Court (Branch 35) of Gapan City in Civil Case No. 2334 ordering petitioner FEB Leasing and Finance Corporation, BG Hauler, Inc., and driver Manuel Y. Estilloso to solidarily pay respondent spouses Sergio P. Baylon and Maritess Villena-Baylon the following amounts:

a. P62,000.00 representing actual expenses incurred by the plaintiffs;

b. P50,000.00 as moral damages;

c. P2,400,000.00 for loss of earning capacity of the deceased victim, Loretta V. Baylon; and

d. P50,000.00 for death indemnity.

Costs against petitioner.

SO ORDERED.

ANTONIO T. CARPIO

Associate Justice

WE CONCUR:

TERESITA J. LEONARDO-DE CASTRO

Associate Justice

ARTURO D. BRION JOSE PORTUGAL PEREZ

Associate Justice Associate Justice

MARIA LOURDES P.A. SERENO

Associate Justice

ATTESTATION

I attest that the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the opinion of the Court’s Division.

ANTONIO T. CARPIO

Associate Justice

Chairperson

CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution, and the Division Chairperson’s Attestation, I certify that the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the opinion of the Court’s Division.

RENATO C. CORONA

Chief Justice

* Designated acting member per Special Order No. 1006 dated 10 June 2011.

1 Under Rule 45 of the Rules of Court.

2Rollo, pp. 31-48. Penned by Associate Justice Apolinario D. Bruselas, Jr., with Associate Justices Bienvenido L. Reyes and Aurora Santiago-Lagman, concurring.

3Id. at 50-52. Penned by Associate Justice Apolinario D. Bruselas, Jr., with Associate Justices Bienvenido L. Reyes and Monina Arevalo Zenarosa, concurring.

4Id. at 53-65. Penned by Judge Dorentino Z. Floresta.

5 Records (Vol. I), p. 8.

6Now BPI Leasing Corporation; records (Vol. II), pp. 14-24.

7 Rollo, pp. 86-89.

8 Records (Vol. I), p. 33.

9Id. at 10.

10Id. at 1-7.

11 Rollo, pp. 64-65.

12Id. at 47.

13Rollo, p. 99. BG Hauler and the driver filed in this Court (Third Division) a separate petition for review, which the Court denied in its Resolution dated 9 April 2008. The subsequent motion for reconsideration was likewise denied with finality.

14AN ACT REGULATING THE ORGANIZATION AND OPERATION OF FINANCING COMPANIES. Approved on 4 August 1969.

15AN ACT AMENDING REPUBLIC ACT NO. 5980, AS AMENDED, OTHERWISE KNOWN AS THE FINANCING COMPANY ACT. Approved on 26 February 1998. Section 10 of Republic Act No. 8556 states:

SEC. 10. There is hereby inserted after Section 8 as renumbered, new Sections 9, 10, 11, 12 and 13 to read as follows:

x x x

“SEC. 12. Liability of Lessors. ‒ Financing companies shall not be liable for loss, damage or injury caused by a motor vehicle, aircraft, vessel, equipment or other property leased to a third person or entity except where the motor vehicle, aircraft, vessel, equipment or other property is operated by the financing company, its employees or agents at the time of the loss, damage or injury.

x x x

16 G.R. No. 162267, 4 July 2008, 557 SCRA 141.

17 Rollo, p. 86 (back page); records (Vol. I), p. 123 (back page).

18Otherwise known as the “Land Transportation and Traffic Code.”

19Section 5 of RA 4136 reads:

SEC. 5. Compulsory registration of motor vehicles. ‒ (a) All motor vehicles and trailers of any type used or operated on or upon any highway of thePhilippines must be registered with the bureau of Land Transportation for the current year in accordance with the provisions of this Act.

x x x

(e) Encumbrances of motor vehicles.‒Mortgages, attachments, and other encumbrances of motor vehicles, in order to be valid against third parties must be recorded in the bureau. Voluntary transactions or voluntary encumbrances shall likewise be properly recorded on the face of all outstanding copies of the certificates of registration of the vehicle concerned.

Cancellation or foreclosure of such mortgages, attachments, and other encumbrances shall likewise be recorded, and in the absence of such cancellation, no certificate of registration shall be issued without the corresponding notation of mortgage, attachment and/or other encumbrances.

x x x

20Id.

21PCI Leasing and Finance, Inc. v. UCPB General Insurance Co., Inc., G.R. No. 162267, 4 July 2008, 557 SCRA 141; Equitable Leasing Corporation v. Suyom, 437 Phil. 244 (2002); First Malayan Leasing and Finance Corporation v. Court of Appeals, G.R. No. 91378, 9 June 1992, 209 SCRA 660.

22PCI Leasing and Finance, Inc. v. UCPB General Insurance Co., Inc., G.R. No. 162267, 4 July 2008, 557 SCRA 141, 154.

23 102 Phil. 103 (1957).

24Id. at 108-109.

25V.V. Soliven Realty Corp. v. Ong, 490 Phil. 229 (2005).

26Delos Santos v. Papa, G.R. No. 154427, 8 May 2009, 587 SCRA 385; Filipinas Broadcasting Network, Inc. v. Ago Medical & Educational Center – Bicol Christian College of Medicine, 489 Phil. 380 (2005); Pajuyo v. Court of Appeals, G.R. No. 146364, 3 June 2004, 430 SCRA 492.

27 Art. 2208. In the absence of stipulation, attorney’s fees and expenses of litigation, other than judicial costs, cannot be recovered, except:

(1) When exemplary damages are awarded;

(2) When the defendant’s act or omission has compelled the plaintiff to litigate with third persons or to incur expenses to protect his interest;

(3) In criminal cases of malicious prosecution against the plaintiff;

(4) In case of a clearly unfounded civil action or proceeding against the plaintiff;

(5) Where the defendant acted in gross and evident bad faith in refusing to satisfy the plaintiff’s plainly valid, just and demandable claim;

(6) In actions for legal support;

(7) In actions for the recovery of wages of household helpers, laborers and skilled workers;

(8) In actions for indemnity under workmen’s compensation and employer’s liability laws;

(9) In a separate civil action to recover civil liability arising from a crime;

(10) When at least double judicial costs are awarded;

(11) In any other case where the court deems it just and equitable that attorney’s fees and expenses of litigation should be recovered.

In all cases, the attorney’s fees and expenses of litigation must be reasonable.

28Lapanday Agricultural and Development Corporation (LADECO) v. Angala, G.R. No. 153076, 21 June 2007, 525 SCRA 229.

CASE 2011-0143: BPI FAMILY SAVINGS BANK INC. VS. PRYCE GASES, INC., INTERNATIONAL FINANCE CORPORATION, and NEDERLANDSE FINANCIERINGS-MAATSCHAPPIJ VOOR ONTWIKKELINGSLANDEN N.V. (G.R. NO. 188365, 29 JUNE 2011, CARPIO, J. (BRIEF TITLE: BPI FAMILY VS. PRYCE GASES)

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SUBJECTS/DOCTRINES/DIGEST

DIGEST

IN A PETITION FOR REHABILITATION, RTC APPROVED THE REHABILITATION PLAN WHICH CALLS FOR SETTLEMENT OF DEBTS BY WAY OF DACION EN PAGO OF COLLATERALS. BPI FAMILY FILED NOTICE OF APPEAL BECAUSE THE COLLATERALS IT HAS ARE NON-PERFORMING. RTC DISMISSED THE APPEAL ON THE GROUND THAT  IN SPECIAL PROCEEDINGS, RECORD ON APPEAL IS REQUIRED TO PERFECT THE APPEAL NOT JUST NOTICE OF APPEAL. CA SUSTAINED RTC.

WAS BPI’S APPEAL PROPER?

NO. RECORD OF APPEAL IS REQUIRED IN A PETITION FOR CORPORATE REHABILITATION WHICH IS CONSIDERED A SPECIAL PROCEEDINGS.

Section 5 of the Interim Rules on Corporate Rehabilitation provides that “(t)he review of any order or decision of the court or an appeal therefrom shall be in accordance with the Rules of Court x x x.” Under A.M. No. 00-8-10-SC, a petition for corporate rehabilitation is considered a special proceeding.²⁰ Thus, the period of appeal provided in paragraph 19(b) of the Interim Rules Relative to the Implementation of Batas Pambansa Blg. 129 for special proceedings shall apply,²¹ that is, the period of appeal shall be 30 days since a record of appeal is required.²² Thus:

19. Period of Appeal. –

(a) x x x

(b) In appeals in special proceedings in accordance with Rule 109 of the Rules of Court and other cases wherein multiple appeals are allowed, the period of appeal shall be thirty (30) days, a record of appeal being required.

WOULD A LIBERAL CONSTRUCTION OF SUCH RULE,  UNDER THE CIRCUMSTANCES, BE PROPER?

NO. APPEAL IS NOT A MATTER OF RIGHT. ONE WHO APPEALS MUST COMPLY WITH THE RULES. LIBERAL CONSTRUCTION MAY BE INVOKED ONLY IN SITUATIONS WHERE THERE IS SOME EXCUSABLE FORMAL DEFICIENCY OR ERROR IN PLEADING.

Appeal is not a matter of right but a mere statutory privilege.²⁴ The party who seeks to exercise the right to appeal must comply with the requirements of the rules, failing in which the right to appeal is lost.²⁵ While the Court, in certain cases, applies the policy of liberal construction, it may be invoked only in situations where there is some excusable formal deficiency or error in a pleading, but not where its application subverts the essence of the proceeding or results in the utter disregard of the Rules of Court.²⁶

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SECOND DIVISION

BPI FAMILY SAVINGS                             G.R. No. 188365

BANK, INC.,

Petitioner,                                                    Present:

CARPIO, J., Chairperson,

LEONARDO-DE CASTRO,^*

– versus –                                                      BRION,

PEREZ, and

SERENO, JJ.

PRYCE GASES, INC.,

INTERNATIONAL FINANCE

CORPORATION, and NEDERLANDSE

FINANCIERINGS-MAATSCHAPPIJ

VOOR ONTWIKKELINGSLANDEN N.V.,         Promulgated:

Respondents.                                                         June 29, 2011

x- – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – x

D E C I S I O N

CARPIO, J.:

The Case

Before the Court is a petition for review¹ assailing the Decision² promulgated on 26 February 2008 and the Resolution³ promulgated on 11 June 2009 of the Court of Appeals in CA-G.R. SP No. 98626.

The Antecedent Facts

Pryce Gases, Inc. (PGI) is a corporation engaged in the business of producing, selling and trading in all kinds of liquids, gases, and other chemicals, including but not limited to oxygen, acetylene, hydrogen, nitrogen, argon, carbon dioxide, carbonex, nitrous oxide, compressed air, helium, and other allied or related products. PGI is a debtor of the International Finance Corporation (IFC), an international organization and an affiliate of the International Bank of Reconstruction and Development (World Bank), and the Nederlandse Financierings-Maatschappij Voor Ontwikkelingslanden N.V. (FMO), a Dutch development bank engaged in promoting the expansion of private enterprise in emerging markets.

On 27 August 2002, IFC and FMO filed a Petition for Rehabilitation⁴ with the Regional Trial Court of Makati due to the failure of PGI to service its debts as well as the refusal of PGI’s parent company, the Pryce Corporation, to provide financial support to PGI. The case was raffled to Branch 142 and was docketed as SP Proc. No. 02-1016. The petition for rehabilitation was meant to preserve PGI’s workforce and ensure that its cash flow would not be diverted to ill-advised ventures but would instead be channeled back to its operating capital to generate profits to pay off and retire debts. IFC and FMO proposed a financial restructuring that called for the conversion of dollar-denominated loans to peso and the splitting of the whole debt instrument into two categories: (1) the sustainable debt which would be rescheduled as a senior loan and secured by PGI’s assets; and (2) the unsustainable portion to be transformed into redeemable preferred shares with voting rights. Under the proposal, senior loans shall be paid in five years while the shares are forecast to be redeemed in ten years. Based on the proposed financial restructuring, PGI’s loan from BPI Family Savings Bank, Inc. (BFB) shall be paid in ten years as it was a non-MTI⁵ creditor.

Presiding Judge Estela Perlas-Bernabe of RTC, Branch 142, inhibited herself from further hearing the case. The case was re-raffled to RTC, Branch 138.

The Ruling of the Trial Court

In an Order⁶ dated 24 January 2003, the RTC, Branch 138, gave due course to the petition. The RTC, Branch 138, appointed Mr. Gener Mendoza (Mendoza) as Rehabilitation Receiver and directed him to submit his evaluation, study and recommendation on the proposed rehabilitation of PGI.

In a Manifestation⁷ dated 29 May 2003, PGI informed RTC, Branch 138, that its parent company, Pryce Corporation, had offered to help through dacion en pago of its real estate assets to PGI’s creditors, subject to certain terms and conditions.

In a Compliance⁸ dated July 2003,Mendoza submitted his recommendation which, among others, states:

2. Creditors Secured with Non-Operating Assets. – Payment of principal and interest accrued as of August 31, 2002 by way of assets already mortgaged to them at dacion values pegged to the average of two appraisals to be undertaken by Bangko Sentral-accredited appraisal firms who are nominated by the creditors in a meeting called for that purpose.⁹

In its Comment¹⁰ to Mendoza’s Compliance, BFB objected to dacion en pago as a mode of payment. BFB’s exposure to PGI was secured by assets that were considered non-operating and not critical to the rehabilitation plan recommended by Mendoza. PGI and Pryce Corporation submitted a Partial Opposition¹¹ to the provision on income sharing of receiver’s recommended revised rehabilitation plan but manifested their conformity to the other provisions of the plan.

In an Order¹² dated 10 October 2003, the RTC, Branch 138, approved the rehabilitation plan.

On 3 November 2003, BFB filed a notice of appeal.¹³ PGI filed a motion to dismiss the appeal on the ground that BFB failed to perfect the appeal because of failure to file the record on appeal within the required period.

On 20 April 2006, before the RTC, Branch 138, could resolve PGI’s motion to dismiss, BFB filed its Opposition (Re: Additional Argument in Support of Motion to Dismiss Appeal dated 27 July 2004) and Motion With Leave to Withdraw Notice of Appeal Dated 3 November 2003 and Instead Be Allowed to File a Petition for Review.¹⁴

In an Order¹⁵ dated 9 May 2006, the RTC, Branch 138, dismissed BFB’s appeal. The RTC, Branch 138, ruled that the law clearly states that in special proceedings, record on appeal is required to perfect the appeal. The dispositive portion of the Order reads:

WHEREFORE, the Motion to Dismiss Appeal filed by respondent Pryce Gases, Inc. is granted and the appeal of BPI Family Savings Bank, Inc. is dismissed. Consequently, no action need to be taken by the Court on the Motion for Leave to Withdraw Notice of Appeal dated 3 November 2003 and Instead Be Allowed to File a Petition for Review filed by BPI Family Savings Bank, Inc.

SO ORDERED.¹⁶

BFB filed a motion for reconsideration of the 9 May 2006 Order. In its Order dated 16 February 2007,¹⁷ the RTC, Branch 138, denied the motion on the ground that the Interim Rules of Procedure on Corporate Rehabilitation prohibit the filing of motions for reconsideration.

On 19 April 2007, BFB filed a petition for certiorari¹⁸ before the Court of Appeals.

The Decision of the Court of Appeals

In its 26 February 2008 Decision, the Court of Appeals dismissed the petition. The Court of Appeals ruled that corporate rehabilitations are special proceedings and as such, appeals from the final order or decision therein should be by record on appeal in accordance with Section 2, Rule 41 of the 1997 Rules of Civil Procedure. The Court of Appeals ruled that when BFB filed the notice of appeal, the rule in force was the Interim Rules of Procedure on Corporate Rehabilitation which required the filing of a record on appeal. The Court of Appeals ruled that the mere filing of a notice of appeal would not suffice without the required record on appeal. The Court of Appeals further ruled that BFB’s prayer that the petition be treated as filed under Rule 43 of the 1997 Rules of Civil Procedure lacked merit because it was filed out of time. The Court of Appeals ruled that due to the dismissal of BFB’s appeal and the denial of its motion for reconsideration by the RTC, Branch 138, the 10 October 2003 Order had become final and executory. Finally, the Court of Appeals ruled that BFB’s petition was grossly defective because the verification was signed by an employee of the Bank of the Philippine Islands, a completely different entity from BPI Family Savings Bank, Inc.

BFB filed a motion for reconsideration. In its 11 June 2009 Resolution, the Court of Appeals denied the motion for lack of merit.

Hence, the petition before this Court on the following grounds:

1. The Honorable Court of Appeals resolved an issue in a manner contrary to law and jurisprudence when it upheld the ruling of the lower court that dismissed the appeal of petitioner bank; and

2. The Honorable Court of Appeals resolved an issue in a manner contrary to law and jurisprudence when it upheld the ruling of the lower court which in effect forced and compelled petitioner bank to accept a dacion en pago arrangement against its consent.¹⁹

The Issue

The issue in this case is whether the Court of Appeals committed a reversible error in sustaining the RTC, Branch 138, in dismissing BFB’s appeal.

The Ruling of this Court

The petition has no merit.

Section 5 of the Interim Rules on Corporate Rehabilitation provides that “(t)he review of any order or decision of the court or an appeal therefrom shall be in accordance with the Rules of Court x x x.” Under A.M. No. 00-8-10-SC, a petition for corporate rehabilitation is considered a special proceeding.²⁰ Thus, the period of appeal provided in paragraph 19(b) of the Interim Rules Relative to the Implementation of Batas Pambansa Blg. 129 for special proceedings shall apply,²¹ that is, the period of appeal shall be 30 days since a record of appeal is required.²² Thus:

19. Period of Appeal. –

(a) x x x

(b) In appeals in special proceedings in accordance with Rule 109 of the Rules of Court and other cases wherein multiple appeals are allowed, the period of appeal shall be thirty (30) days, a record of appeal being required.

On 14 September 2004, this Court issued A.M. No. 04-9-07-SC providing that all decisions and final orders in cases falling under the Interim Rules of Corporate Rehabilitation and the Interim Rules of Procedure Governing Intra-Corporate Controversies under Republic Act No. 8799 shall be appealed to the Court of Appeals through a petition for review under Rule 43 of the Rules of Court, to be filed within fifteen (15) days from notice of the decision or final order of the Regional Trial Court.²³ However, in this case, BFB filed a notice of appeal on 3 November 2003, before the effectivity of A.M. No. 04-9-07-SC. Hence, at the time of filing of BFB’s appeal, the applicable mode of appeal is Section 2, Rule 41 of the 1997 Rules of Civil Procedure which provides:

Sec. 2. Modes of Appeal. –

(a) Ordinary appeal. – The appeal to the Court of Appeals in cases decided by the Regional Trial Court in the exercise of its original jurisdiction shall be taken by filing a notice of appeal with the court which rendered the judgment or final order appealed from and serving a copy thereof upon the adverse party. No record on appeal shall be required except in special proceedings and other cases of multiple or separate appeals where the law or these Rules so require. In such cases, the record on appeal shall be filed and served in like manner.

Under Section 9, Rule 41 of the 1997 Rules of Civil Procedure, “(a) party’s appeal by record on appeal is deemed perfected as to him with respect to the subject matter thereof upon approval of the record on appeal filed in due time.”

In this case, BFB did not perfect the appeal when it failed to file the record on appeal. The filing of the notice of appeal on 3 November 2003 was not sufficient because at the time of its filing, the Rules required the filing of the record on appeal and not merely a notice of appeal. The issuance by the Court of A.M. No. 04-9-07-SC providing that all decisions and final orders in cases falling under the Interim Rules of Corporate Rehabilitation and the Interim Rules of Procedure Governing Intra-Corporate Controversies under Republic Act No. 8799 shall be appealed to the Court of Appeals through a petition for review under Rule 43 of the Rules of Court, to be filed within 15 days from notice of the decision or final order of the Regional Trial Court, did not change the fact that BFB’s appeal was not perfected. Further, BFB filed its Motion With Leave to Withdraw Notice of Appeal only on 20 April 2006 or almost two years after the issuance of A.M. No. 04-9-07-SC on 14 September 2004.

Appeal is not a matter of right but a mere statutory privilege.²⁴ The party who seeks to exercise the right to appeal must comply with the requirements of the rules, failing in which the right to appeal is lost.²⁵ While the Court, in certain cases, applies the policy of liberal construction, it may be invoked only in situations where there is some excusable formal deficiency or error in a pleading, but not where its application subverts the essence of the proceeding or results in the utter disregard of the Rules of Court.²⁶

In addition, BFB filed a motion for reconsideration of the 9 May 2006 Order of the RTC, Branch 138. Under Section 1, Rule 3 of the Interim Rules of Procedure on Corporate Rehabilitation, the proceedings shall be summary and non-adversarial in nature and a motion for new trial or reconsideration is a prohibited pleading. Hence, in view of the failure of BFB to perfect its appeal and its subsequent filing of a motion for reconsideration which is a prohibited pleading, the 10 October 2003 Order of the RTC, Branch 138, approving the rehabilitation plan had become final and executory.

WHEREFORE, we DENY the petition. We AFFIRM the 26 February 2008 Decision and the 11 June 2009 Resolution of the Court of Appeals in CA-G.R. SP No. 98626.

SO ORDERED.

ANTONIO T. CARPIO

Associate Justice

WE CONCUR:

TERESITA J. LEONARDO-DE CASTRO

Associate Justice

ARTURO D. BRION JOSE PORTUGAL PEREZ

Associate Justice Associate Justice

MARIA LOURDES P.A. SERENO

Associate Justice

ATTESTATION

I attest that the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the opinion of the Court’s Division.

ANTONIO T. CARPIO

Associate Justice

Chairperson

CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution, and the Division Chairperson’s Attestation, I certify that the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the opinion of the Court’s Division.

RENATO C. CORONA

Chief Justice

* Designated acting member per Special Order No. 1006 dated 10 June 2011.

1 Under Rule 45 of the 1997 Rules of Civil Procedure.

2 Rollo, pp. 53-62. Penned by Associate Justice Agustin S. Dizon with Associate Justices Amelita G. Tolentino and Lucenito N. Tagle, concurring.

3Id. at 98-100. Penned by Associate Justice Amelita G. Tolentino with Associate Justices Pampio A. Abarintos and Antonio L. Villamor, concurring.

4Id. at 106-119.

5 Mortgage Trust Indenture.

6Id. at 136-138. Signed by Judge Sixto Marella, Jr.

7Id. at 139-144.

8Id. at 145-148.

9Id. at 146.

10Id. at 153-158.

11Id. at 159-168.

12Id. at 177-191.

13Id. at 192-193.

14Id. at 225-229.

15Id. at 237-238.

16Id. at 238.

17Id. at 252. Penned by Pairing Judge Jenny Lind R. Aldecoa-Delorino.

18 Denominated as a Petition for Review but filed under Rule 65 of the Revised Rules of Civil Procedure.

19 Rollo, p. 39.

20 New Frontier Sugar Corporation v. Regional Trial Court, Branch 39, Iloilo City, G.R. No. 165001, 31 January 2007, 513 SCRA 601.

21Id.

22Id.

23Id.

24 Cu-unjieng v. Court of Appeals, 515 Phil. 568 (2006).

25 Stolt-Nielsen Services, Inc. v. NLRC, 513 Phil. 642 (2005).

26 Dadizon v. Court of Appeals, G.R. No. 159116, 30 September 2009, 601 SCRA 351.