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Decision

SERENO, J.:

Petitioner filed this present Petition for Review^[1][1] under Rule 45 of the Rules of Court, seeking a reversal of the Court of Appeals Decision,^[2][2] the dispositive portion of which states:

WHEREFORE, premises considered, the Decision dated April 15, 1996 rendered by the Regional Trial Court of Makati City, Branch 60, is hereby AFFIRMED, with MODIFICATIONS, as follows:

1)      The legal interest rate of six percent (6%) per annum should be computed from the date of the filing of the complaint which shall become twelve percent (12%) per annum from the time the judgment becomes final and executory until its satisfaction.

2)      The award of P300,000.00 as exemplary damages is reduced to P50,000.00;

3)      The award of P400,00.00 as attorney’s fees is likewise reduced to P75,000.00;

4)      The Decision is hereby affirmed in all other respects.

SO ORDERED.

The case arose when petitioner refused to pay the demurrage being collected by respondent.

The facts are as follows:

In a contract dated 26 April 1983, respondent was appointed as the exclusive Philippine indent representative of Richco Rotterdam B.V. (Richco), a foreign corporation, in the sale of the latter’s commodities. Under one of the terms of the contract, respondent was to assume the liabilities of all the Philippine buyers, should they fail to honor the commitments on the discharging operations of each vessel, including the payment of demurrage and other penalties. In such instances, Richco shall have the option to debit the account of respondent corresponding to the liabilities of the buyers, and respondent shall then be deemed to be subrogated to all the rights of Richco against these defaulting buyers.^[3][3]

Sometime in 1987, petitioner purchased Canadian barley and soybean meal from Richco. The latter thereafter chartered four (4) vessels to transport the products to thePhilippines. Each of the carrier bulk cargoes was covered by a Contract of Sale executed between respondent as the seller and duly authorized representative of Richco and petitioner as the buyer. The four contracts specifically referred to the charter party in determining demurrage or dispatch rate. The contract further provided that petitioner guarantees to settle any demurrage due within one (1) month from respondent’s presentation of the statement.

Upon delivery of the barley and soybean meal, petitioner failed to discharge the cargoes from the four (4) vessels at the computed allowable period to do so. Thus, it incurred a demurrage amounting to a total of US$193,937.41.

On numerous occasions, on behalf of Richco, respondent demanded from petitioner the payment of the demurrage, to no avail. Consequently, on 20 October 1991, Richco sent a communication to respondent, informing it that the demurrage due from petitioner had been debited from the respondent’s account.

Thereafter, on 12 February 1992, respondent filed with the Regional Trial Court (RTC), National Capital Judicial Region,MakatiCity, a Complaint for demurrage and damages against petitioner. Meanwhile, the latter raised the defense that the delay was due to respondent’s inefficiency in unloading the cargo.

On 15 April 1996, after trial on the merits, the RTC rendered a Decision^[4][4] holding petitioner liable to pay demurrage and damages to respondent, to wit:

34. WHEREFORE, the Court hereby renders judgment as follows:

34.1 The defendant REPUBLIC FLOUR MILLS CORPORATION is ordered to pay the plaintiff FORBES FACTORS, INC. the following:

34.1.1. US$193,937.41 or its Philippine PESO equivalent at the rate of exchange at the time of payment – As demurrage.

34.1.2 Six (6) percent of the amount in the preceding paragraph 34.1.1 – Per annum from October 29, 1991 until the said amount is fully paid – As damages.

34.1.3. P300,000.00 – As exemplary damages.

34.1.4. P 400,000.00 – As attorney’s fees.

34.2. The COUNTERCLAIM is DISMISSED; and

34.3. Cost is taxed against the defendant.

The RTC found that the delay in discharging the cargoes within the allowable period was due to petitioner’s failure to provide enough barges on which to load the goods. It likewise found that petitioner in fact acknowledged that the latter had incurred demurrage when it alleged that the computation was bloated. Petitioner was thus liable to pay demurrage based on the sales contracts executed with respondent and on the contract executed between respondent and Richco.

Finally, the court ruled that respondent was entitled to damages from petitioner’s “wanton, fraudulent, reckless, oppressive or malevolent” refusal to pay the latter’s liabilities despite repeated demands.

Subsequently, petitioner appealed to the Court of Appeals (CA), alleging that respondent was not a real party-in-interest to bring the collection suit. Petitioner insisted that the payment of demurrage should be made to the owner of the vessels that transported the goods, and not to respondent who was merely the indent representative of Richco, the charterer of the vessel. In addition, petitioner claimed that it was denied due process when the RTC refused to reset the hearing for the presentation of Reynaldo Santos, petitioner’s witness and export manager. Finally, petitioner contested the RTC’s award of exemplary damages and attorney’s fees.

On 18 February 2002, the CA promulgated the assailed Decision. It upheld the validity of the Contracts of Sale and held that these had the force of law between the contracting parties and must be complied with in good faith. However, the appellate court modified the trial court’s award of damages. It held that exemplary damages are not intended to enrich anyone, thus, reducing the amount from P300,000 to P50,000. It also found the award of attorney’s fees to be excessive, and consequently reduced it from P400,000 to P75,000.

Hence this Petition.

Three issues are raised for the resolution by this Court. First, petitioner assails the right of respondent to demand payment of demurrage. Petitioner asserts that, by definition, demurrage is the sum fixed by the contract of carriage as remuneration to the ship owner for the detention of the vessel beyond the number of days allowed by the charter party.^[5][5] Thus, since respondent is not the ship owner, it has no right to demand the payment of demurrage and has no personality to bring the claim against petitioner. Second, petitioner questions the propriety of the award of damages in favor of respondent. And third, the former insists that it was denied due process when the RTC denied its Motion to reset the hearing to present its witness.

We find the petition without merit.

The facts are undisputed. The delay incurred by petitioner in discharging the cargoes from the vessels was due to its own fault. Its obligation to demurrage is established by the Contracts of Sale it executed, wherein it agreed to the conditions to provide all discharging facilities at its expense in order to effect the immediate discharge of cargo; and to place for its account all discharging costs, fees, taxes, duties and all other charges incurred due to the nature of the importation.^[6][6]

Meanwhile, respondent unequivocally established that Richco charged to it the demurrage due from petitioner. Thus, at the moment that Richco debited the account of respondent, the latter is deemed to have subrogated to the rights of the former, who in turn, paid demurrage to the ship owner. It is therefore immaterial that respondent is not the ship owner, since it has been able to prove that it has stepped into the shoes of the creditor.

Subrogation is either “legal” or “conventional.” Legal subrogation is an equitable doctrine and arises by operation of the law, without any agreement to that effect executed between the parties; conventional subrogation rests on a contract, arising where “an agreement is made that the person paying the debt shall be subrogated to the rights and remedies of the original creditor.”^[7][7] The case at bar is an example of legal subrogation, the petitioner and respondent having no express agreement on the right of subrogation. Thus, it is of no moment that the Contracts of Sale did not expressly state that demurrage shall be paid to respondent. By operation of law, respondent has become the real party-in-interest to pursue the payment of demurrage.  As aptly stated by the RTC:

19. True it is that demurrage is, as a rule, an amount payable to a shipowner by a charterer for the detention of the vessel beyond the period allowed for the loading or unloading or sailing. This however, does not mean that a party cannot stipulate with another who is not a shipowner, on demurrage. In this case, FORBES stipulated under the charter parties on demurrage with the shipowners. This stipulation could be the basis of the provisions on demurrage in the four (4) Contracts of Sale (Exhs. B, N, X, and CC) and contract between FORBES and RICHCO (Exh. A).

xxx                               xxx                               xxx

20. RICHCO debited the US$193,937.41 from the accounts of FORBES as evidenced by Exh. OO. Hence, FORBES was subrogated to the right of RICHCO to collect the said amount from RFM pursuant to the contract between RICHCO and FORBES (Exh. A).

21. Under Exh. A, FORBES guaranteed its “…buyers (sic) payment schedule…” Consequently, it was subrogated to the rights of RICHCO arising from the failure of RFM to pay its demurrage and FORBES paid for it. The subrogation was pursuant to Articles 1302 and 2067, New Civil Code, which read:

“Art. 1302. It is presumed that there is legal subrogation:

(1)   When a creditor pays another creditor who is preferred, even without the debtor’s knowledge;

(2)   When a third person, not interested in the obligation, pays with the express or tacit approval of the debtor;

(3)   When, even without the knowledge of the debtor, a person interested in the fulfillment of the obligation pays, without prejudice to the effects of confusion as to the latter’s share.”

“Art. 2067. The guarantor who pays is subrogated by virtue thereof to all the rights which the creditor had against the debtor.

If the guarantor has compromised with the creditor, he cannot demand of the debtor more than what he has really paid.”

As we held in Fireman’s Fund Insurance Company v. Jamila & Company, Inc.:

…Subrogation has been referred to as the doctrine of substitution. It “is an arm of equity that may guide or even force one to pay a debt for which an obligation was incurred but which was in whole or in part paid by another” (83 C.J.S. 576, 678, note 16, citing Fireman’s Fund Indemnity Co. vs. State Compensation Insurance Fund, 209 Pac. 2d 55).

“Subrogation is founded on principles of justice and equity, and its operation is governed by principles of equity. It rests on the principle that substantial justice should be attained regardless of form, that is, its basis is the doing of complete, essential, and perfect justice between all the parties without regard to form”(83 C.J.S. 579- 80)^[8][8]

  Anent the second issue, we have previously held in Pepsi Cola Products Phil., Inc. v. Court of Appeals,^[9][9] that a motion for continuance of postponement is not a matter of right. Rather, the motion is addressed to the sound discretion of the court, whose action thereon will not be disturbed by appellate courts in the absence of clear and manifest abuse of discretion, resulting in a denial of substantial justice.

On the last issue, we find that the award of exemplary damages proper. Petitioner refused to honor the contract despite respondent’s repeated demands and its proof of payment to Richco; and despite its repeated promise to settle its outstanding obligations in the span of almost five years. Petitioner indeed acted in a wanton, fraudulent, reckless, oppressive or malevolent manner. Because respondent was also forced to initiate the present Complaint, it was only proper that it was awarded attorney’s fees. Lastly, the CA was correct in reducing the award of exemplary damages or attorney’s fees, since neither is meant to enrich anyone.

WHEREFORE, in view of the foregoing, the assailed Decision of the Court of Appeals is hereby AFFIRMED. The present Petition is DENIED.

          SO ORDERED.

MARIA LOURDES P. A. SERENO

Associate Justice

WE CONCUR:

ANTONIO T. CARPIO

Associate Justice

Chairperson

       ARTURO D. BRION                                 BIENVENIDO L. REYES

           Associate Justice                                                Associate Justice

ESTELA M. PERLAS-BERNABE

Associate Justice

A T T E S T A T I O N

          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, Second Division

C E R T I F I C A T I O N

          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

CASE 2011-0211: NEMESIO FLORAN AND CARIDAD FLORAN VS. ATTY. ROY PRULE EDIZA (A.C. NO. 5325, 19 OCTOBER 2011, CARPIO, J.) SUBJECT: OBLIGATION OF A LAWYER TO BE TRUTHFUL, FAIR AND HONEST IN PROTECTING HIS CLIENT’S RIGHTS (BRIEF TITLE: SPOUSES FLORAN VS. ATTY. EDIZA)

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DISPOSITIVE:

WHEREFORE, we find respondent Atty. Roy Prule Ediza administratively liable for violating Rule 1.01 of Canon 1, Canon 15, and Rule 18.03 of Canon 18 of the Code of Professional Responsibility. He is hereby SUSPENDED from the practice of law for six months, effective upon receipt of this Decision. He is DIRECTED to return to the Spouses Nemesio and Caridad Floran the two (2) sets of documents that he misled the spouses and Sartiga Epal to sign. He is further ORDERED to pay Spouses Nemesio and Caridad Floran, within 30 days from receipt of this Decision, the amount of P125,463.38, with legal interest from 8 September 2000 until fully paid. He is warned that a repetition of the same or similar acts in the future shall be dealt with more severely.

Let a copy of this Decision be entered in the record of respondent as attorney. Further, let other copies be served on the IBP and the Office of the Court Administrator, which is directed to circulate them to all the courts in the country for their information and guidance.

SO ORDERED.

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SECOND DIVISION

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DECISION

CARPIO, J.:

The Case

This administrative case arose from an Affidavit/Complaint filed by spouses Nemesio (Nemesio) and Caridad (Caridad) Floran against Atty. Roy Prule Ediza (Atty. Ediza) for unethical conduct.

The Facts

Spouses Floran own an unregistered 3.5525 hectare parcel of land, particularly described as Cad. Lot No. 422-A, Pls-923 and situated in San Martin, Villanueva, Misamis Oriental. The land is covered by a tax declaration in the name of Sartiga Epal (Epal), a relative, who gave the property to the Spouses Floran.

On 9 August 1996, a certain Esteban Valera filed an action¹ for judicial foreclosure of mortgage on the house situated on the land owned by the Spouses Floran with the Regional Trial Court (RTC) of Cagayan de Oro City, Branch 41. The action for foreclosure involved an amount of P7,500.

Spouses Floran sought the assistance of Atty. Ediza. On 24 September 1996, Atty. Ediza filed a Motion to Dismiss on the grounds of lack of jurisdiction and cause of action. On 23 October 1996, the RTC granted the motion to dismiss the case without prejudice based on non-compliance with barangay conciliation procedures under the Revised Katarungang Pambarangay Law.

Sometime in 1997, the Spouses Floran sold a hectare or 10,910 square meters of their 3.5525 hectare land to Phividec Industrial Authority (Phividec) for P25 per square meter totaling to the amount of P272,750, payable in three installments – (1) P55,132; (2) P120,000, and (3) P97,618. The installments were paid and released within the months of June to July 1997. The sale was evidenced by a Deed of Undertaking of Lot Owner executed by Nemesio and Phividec’s representative and notarized by Atty. Ediza on 31 March 1997.

Phividec then required the couple to execute a waiver in Phividec’s favor. The Spouses Floran again sought the help of Atty. Ediza for the preparation and notarization of the waiver. Atty. Ediza informed the Spouses Floran to have the original owner of the land, Epal, sign a Deed of Absolute Sale in their favor. Atty. Ediza gave the Spouses Floran several documents for Epal to sign. Caridad visited Epal in Bunawan, Agusan del Sur and acquired her approval and expressed assent to the conveyance, as evidenced by a Deed of Absolute Sale made by Epal in favor of Nemesio for P2,000.

On 11 June 1998, Nemesio and Phividec executed the Deed of Absolute Sale of Unregistered Land. Out of the total amount of P272,750, which Phividec paid and released to the Spouses Floran, Atty. Ediza received the amount of P125,463.38 for the titling of the remaining portion of the land, other expenses and attorney’s fees.

Spouses Floran went back to Atty. Ediza several times to follow-up on the title. However, Atty. Ediza failed to fulfill his promises. After the lapse of two years, with the land still unregistered, the Spouses Floran asked Atty. Ediza for the return of their money. Atty. Ediza refused. Thus, Spouses Floran presented their complaint before the chapter president of the Integrated Bar of the Philippines (IBP) Misamis Oriental.

The IBP called the Spouses Floran and Atty. Ediza to a conference. During the dialogue, Atty. Ediza refused to return the money but promised to tear a document evidencing sale by the Spouses Floran to him of one hectare land of their property for P50,000. The Spouses Floran claimed that they had no knowledge that they executed such document in favor of Atty. Ediza and suspected that they might have signed a document earlier which Atty. Ediza told them not to read. Afterwards, the Spouses Floran filed their formal complaint before the Supreme Court.

In the Complaint/Affidavit dated 8 September 2000, Caridad alleged that Atty. Ediza gave them certain documents, including a Deed of Absolute Sale, for Epal to sign in order to transfer the land in their name. However, the Spouses Floran later discovered that one of the documents given by Atty. Ediza is a deed of sale for a one hectare land in the same property executed by Epal in favor of Atty. Ediza for a consideration of P2,000. When the Spouses Floran confronted Atty. Ediza, he initially denied the document but then later promised to tear and destroy it.

In his Comment dated 23 January 2001, Atty. Ediza claimed that the Spouses Floran voluntarily gave him one hectare of the 3.5525 hectare land as payment for handling and winning the civil case for foreclosure of mortgage. Atty. Ediza explained that the Spouses Floran did not find the lot interesting, lacking in good topography. He also stated that the property only had an assessed value of P23,700 at the time it was presented to him.

Thereafter, towards the end of 1996, when Atty. Ediza learned that Phividec was interested to buy a hectare of the Spouses Floran’s land, and considering that he has a hectare of undivided portion in the property, he suggested to the Spouses Floran that both of them sell half a hectare each and equally share in the proceeds of the sale. After Phividec made its full payment, Atty. Ediza gave fifty percent of the proceeds to the Spouses Floran and he kept the other half. Thereafter, Atty. Ediza wanted his remaining share in the land consisting of 4,545 square meters be titled in his name. Atty. Ediza conveyed this to the Spouses Floran and volunteered to take care of titling the land, including the Spouses Floran’s remaining share, with no cost to them.

Atty. Ediza stated that since Phividec had not yet applied for a separate tax declaration which would segregate its portion from the remainder of the property, he thought of holding in abeyance the separate survey on the remainder of the land. Also, Atty. Ediza was in a hurry to have the land titled with the intention of selling it so he informed the Spouses Floran to just follow up with Phividec.

At the IBP conference, Atty. Ediza stated that he only agreed to return the 4,545 square meter portion of the land to amicably settle the case with the Spouses Floran. He asserted that the Deed of Sale signed by the Spouses Floran in his favor served as payment for the dismissal of the case he handled for the Spouses Floran. Atty. Ediza denied that the money he received was intended for the titling of the remaining portion of the land. Atty. Ediza claimed that the complaint against him stemmed from a case where he represented a certain Robert Sabuclalao for recovery of land. The land was being occupied by the Church of the Assembly of God where Nemesio Floran serves as pastor.

In a Resolution dated 7 March 2001, the Court resolved to refer the case to the IBP for investigation, report and recommendation.

The IBP’s Report and Recommendation

On 14 August 2008, the investigating commissioner of the Commission on Bar Discipline of the IBP submitted his Report and found that Atty. Ediza (1) failed to meet the standards prescribed by Rule 1.01 of Canon 1 and Canon 15, and (2) violated Rule 18.03 of Canon 18 of the Code of Professional Responsibility. The IBP recommended that Atty. Ediza be imposed the penalty of six months suspension from the practice of law.

In finding Atty. Ediza guilty of violating the Code of Professional Responsibility, the Investigating Commissioner opined:

After careful evaluation of the claims of the parties vis-a-vis the documents available, the version of the complainants appear to be credible while that of the respondent is shot through with inconsistencies.

x x x

b. The foreclosure case of complainants involved only P7,500.00 and respondent Ediza filed only a single motion and attended only two hearings. Thus, it is highly incredible [that] complainants whom respondent Ediza claims were destitute will voluntarily and generously donate to him 1 hectare of their land valued at P50,000.00. As it turned out, the 1 hectare portion is worth not only P50,000.00 [but] more than P200,000.00.

c. The deed of sale of a portion of complainants’ land to respondent Ediza is admittedly simulated because while it states that the consideration for the sale is P50,000.00, neither party claims that any money was paid by respondent Ediza to complainants.

      d.            As a lawyer, Atty. Ediza must be aware that a deed of sale involving real property must be notarized to be enforceable. The document was unexplainably never notarized.

Thus, this Commission finds that respondent Ediza must have caused the complainants to unknowingly sign the deed of sale of a portion of their property in his favor. It may further be noted that in their complaint, complainants allege that they saw in the files of respondent Ediza a copy of deed of sale of a property executed by Sartiga Epal in favor of Atty. Ediza which he promised to destroy when confronted about it by complainants. This was never denied by Atty. Ediza.

Such conduct fails to come up to the standard prescribed by Canon 1.01 that “A lawyer shall not engage in unlawful, dishonest, immoral and deceitful conduct” and Canon 15 that “A lawyer shall observe candor, fairness and loyalty in all his dealings and transaction with his client.”

On the second issue, x x x the claim of the complainants that they agreed to give P125,000.00 of the proceeds of the sale of their property to respondent Ediza to register the remaining portion also appears to be more credible for the following reasons:

1.      There is no credible reason for complainants to expect and demand that respondent Ediza undertake the registration of their property except that they have paid for it. If they were aware that they gave 1 hectare of their property to respondent Ediza for handling their civil case and that they are not paying respondent Ediza to register their property, it is not likely that simple folks like them would be so bold to demand for such valuable service from him for free.

2.      There is no credible reason for respondent to willingly undertake for free for complainants the not so simple task of registering an untitled property.

3.      As previously stated, the P125,000.00 given to respondent Ediza by complainants is obviously too generous for simply having handled the civil case involving only P7,500.00. There must have been another reason for complainants to willingly pay the said amount to respondent and the registration for their remaining property appears to be a credible reason.

It should also be noted that respondent Atty. Ediza does not even allege that he has taken any step towards accomplishing the registration of the property of the complainants prior to the filing of this complaint. Whether or not he agreed to do it for free or for a fee, respondent Ediza should have complied with his promise to register the property of complainants unless he has valid reasons not to do so. He has not also given any credible explanation why he failed to do so.

Such conduct of respondent Ediza violates Canon 18.03 that “A lawyer shall not neglect a legal matter entrusted to him, and his negligence in connection therewith shall render him liable.”

Atty. Ediza filed a Motion for Reconsideration. On 26 June 2011, in Resolution No. XIX-2011-433, the Board of Governors of the IBP affirmed the findings of the investigating commissioner. The resolution states:

RESOLVED to unanimously DENY Respondent’s Motion for Reconsideration, there being no cogent reason to reverse the findings of the Board and it being a mere reiteration of the matters which had already been threshed out and taken into consideration. Thus, for lack of substantial ground or reason to disturb it, the Board of Governors’ Resolution No. XVIII-2008-401 dated August 14, 2008 is hereby AFFIRMED.

The Court’s Ruling

After a careful review of the records of the case, we agree with the findings of the IBP and find reasonable grounds to hold respondent Atty. Ediza administratively liable.

The practice of law is a privilege bestowed by the State on those who show that they possess the legal qualifications for it. Lawyers are expected to maintain at all times a high standard of legal proficiency and morality, including honesty, integrity and fair dealing. They must perform their fourfold duty to society, the legal profession, the courts and their clients, in accordance with the values and norms of the legal profession as embodied in the Code of Professional Responsibility.²

Rule 1.01 of Canon 1, Canon 15, and Rule 18.03 of Canon 18 of the Code of Professional Responsibility provide:

CANON 1

A LAWYER SHALL UPHOLD THE CONSTITUTION, OBEY THE LAWS OF THE LAND AND PROMOTE RESPECT FOR LAW OF AND LEGAL PROCESSES.

Rule 1.01 – A lawyer shall not engage in unlawful, dishonest, immoral or deceitful conduct. x x x

CANON 15

A LAWYER SHALL OBSERVE CANDOR, FAIRNESS AND LOYALTY IN ALL HIS DEALINGS AND TRANSACTIONS WITH HIS CLIENTS.

CANON 18

A LAWYER SHALL SERVE HIS CLIENT WITH COMPETENCE AND DILIGENCE.

Rule 18.03 – A lawyer shall not neglect a legal matter entrusted to him, and his negligence in connection therewith shall render him liable.

In the present case, the Spouses Floran assert that they had no knowledge that they signed a deed of sale to transfer a portion of their land in favor of Atty. Ediza. They also insist that Atty. Ediza failed to comply with his promise to register their property despite receiving the amount of P125,463.38. On the other hand, Atty. Ediza maintains that he acquired the land from the Spouses Floran because of their “deep gratitude” to him in the dismissal of the civil case for foreclosure of mortgage. Atty. Ediza further claims that the amount of P125,463.38 which he received was his rightful share from the sale of the land.

It is clear from the records that Atty. Ediza deceived the Spouses Floran when he asked them to unknowingly sign a deed of sale transferring a portion of their land to Atty. Ediza. Atty. Ediza also did the same to Epal when he gave Caridad several documents for Epal to sign. Atty. Ediza made it appear that Epal conveyed her rights to the land to him and not to the Spouses Floran. Moreover, when the sale of the Spouses Floran’s land pushed through, Atty. Ediza received half of the amount from the proceeds given by the buyer and falsely misled the Spouses Floran into thinking that he will register the remaining portion of the land.

Lamentably, Atty. Ediza played on the naïveté of the Spouses Floran to deprive them of their valued property. This is an unsavory behavior from a member of the legal profession. Aside from giving adequate attention, care and time to his client’s case, a lawyer is also expected to be truthful, fair and honest in protecting his client’s rights. Once a lawyer fails in this duty, he is not true to his oath as a lawyer.

In Santos v. Lazaro³ and Dalisay v. Mauricio,⁴ we held that Rule 18.03 of the Code of Professional Responsibility is a basic postulate in legal ethics. Indeed, when a lawyer takes a client’s cause, he covenants that he will exercise due diligence in protecting the latter’s rights. Failure to exercise that degree of vigilance and attention expected of a good father of a family makes the lawyer unworthy of the trust reposed in him by his client and makes him answerable not just to his client but also to the legal profession, the courts and society.

The Supreme Court, as guardian of the legal profession, has ultimate disciplinary power over attorneys. This authority to discipline its members is not only a right, but a moral and legal obligation as well. The Court will not tolerate such action from a member of the legal profession who deliberately and maliciously did not protect his client’s interests.

In view of the foregoing, we find that suspension from the practice of law for six months is warranted. Atty. Ediza is directed to return to the Spouses Floran the two (2) sets of documents that he misled the spouses and Epal to sign. Atty. Ediza is also directed to return the amount of P125,463.38, representing the amount he received from the proceeds of the sale of the land belonging to the Spouses Floran, with legal interest from the time of the filing of the administrative complaint until fully paid.

WHEREFORE, we find respondent Atty. Roy Prule Ediza administratively liable for violating Rule 1.01 of Canon 1, Canon 15, and Rule 18.03 of Canon 18 of the Code of Professional Responsibility. He is hereby SUSPENDED from the practice of law for six months, effective upon receipt of this Decision. He is DIRECTED to return to the Spouses Nemesio and Caridad Floran the two (2) sets of documents that he misled the spouses and Sartiga Epal to sign. He is further ORDERED to pay Spouses Nemesio and Caridad Floran, within 30 days from receipt of this Decision, the amount of P125,463.38, with legal interest from 8 September 2000 until fully paid. He is warned that a repetition of the same or similar acts in the future shall be dealt with more severely.

Let a copy of this Decision be entered in the record of respondent as attorney. Further, let other copies be served on the IBP and the Office of the Court Administrator, which is directed to circulate them to all the courts in the country for their information and guidance.

SO ORDERED.

ANTONIO T. CARPIO

Associate Justice

WE CONCUR:

ARTURO D. BRION

Associate Justice

MARIA LOURDES P. A. SERENO BIENVENIDO L. REYES

Associate Justice Associate Justice

ESTELA M. PERLAS-BERNABE

Associate Justice

* Designated Acting Member per Special Order No. 1114 dated 3 October 2011.

1 Docketed as Civil Case No. 96-516.

2 Spouses Garcia v. Atty. Bala, 512 Phil. 486 (2005).

3 445 Phil. 1 (2003).

4 496 Phil. 393 (2005).

CASE 2011-0210: SIOCHI FISHERY ENTERPRISES, INC., JUN-JUN FISHING CORPORATION, DEDE FISHING CORPORATION, BLUE CREST AQUA-FARMS, INC. AND ILOILO PROPERTY VENTURES INC. VS. BANK OF PHILIPPINE ISLANDS (G.R. NO. 193872, 19 OCTOBER 2011, CARPIO, J.) SUBJECTS: LIBERAL INTERPRETATION OF RULES; REHABILITATION PLAN; RECEIVERSHIP (BRIEF TITLE: SIOCHI FISHERY VS. BPI).

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DISPOSITIVE:

WHEREFORE, the Court DENIES the petition and AFFIRMS the 20 October 2009 Decision and 22 September 2010 Resolution of the Court of Appeals in CA-G.R. SP No. 93278.

SO ORDERED.

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D E C I S I O N

CARPIO, J.:

The Case

This is a petition¹ for review on certiorari under Rule 45 of the Rules of Court. The petition challenges the 20 October 2009 Decision² and 22 September 2010 Resolution³ of the Court of Appeals in CA-G.R. SP No. 93278. The Court of Appeals set aside the 9 January 2006 Order⁴ of the Regional Trial Court (RTC), National Capital Judicial Region,MalabonCity, Branch 74, in Sec. Corp. Case No. S4-03-MN.

The Facts

Petitioners Siochi Fishery Enterprises, Inc., Jun-Jun Fishing Corporation, Dede Fishing Corporation, Blue Crest Aqua-Farms, Inc. and Iloilo Property Ventures, Inc. (petitioners) are domestic corporations of the Siochi family. Petitioners are engaged in various businesses and have interlocking stockholders and directors. Their principal office is located at31 Don B. Bautista Boulevard, Dampalit,MalabonCity.

In the course of their business, petitioners borrowed from respondent Bank of the Philippine Islands (BPI) and from Ayala Life Assurance, Inc. As of 30 June 2004, petitioners’ total obligation amounted to P85,362,262.05.

On 15 July 2004, petitioners filed with the RTC a petition⁵ for corporate rehabilitation. Petitioners prayed that the RTC (1) issue a stay order; (2) declare petitioners in a state of suspension of payments; (3) approve petitioners’ proposed rehabilitation plan; and (4) appoint a rehabilitation receiver.

RTC’s Ruling

In its 26 July 2004 Order,⁶ the RTC (1) stayed enforcement of all claims against petitioners; (2) prohibited petitioners from disposing their properties, except in the ordinary course of business; (3) prohibited petitioners from paying their obligations; (4) prohibited petitioners’ suppliers from withholding supply of goods and services; and (5) appointed Atty. Cesar C. Cruz (Atty. Cruz) as rehabilitation receiver.

BPI filed with the RTC a comment to the 26 July 2004 Order. BPI alleged, among others, that (1) the RTC had no jurisdicttion over Blue Crest Aqua-Farms, Inc. and Iloilo Property Ventures, Inc.; (2) petitioners submitted only one affidavit of general financial condition for all five corporations; (3) the market values of petitioners’ real properties were unsubstantiated and inconsistent; (4) the photocopies of the Transfer Certificates of Title were incomplete; (5) the interest rate had already been reduced to 12%; (6) typhoons were not an excuse to default on payments; (7) the Asian financial crisis and the peso devaluation did not affect petitioners; (8) petitioners’ total liability should have been lowered from P79,848,920.23 to P70,135,649.50; (9) petitioners had no sufficient cash flow to pay their debts; (10) the rehabilitation plan was unfeasible and prejudicial to BPI; and (11) petitioners did not present a liquidation analysis.

In his 14 December 2004 motion,⁷ Atty. Cruz prayed that the RTC issue an order directing petitioners and their creditors to attend a meeting. In its 18 Januray 2005 Order,⁸ the RTC denied the motion.

In its 9 January 2006 Order,⁹ the RTC approved petitioners’ rehabilitation plan. The RTC held:

Jurisdiction over the instant petition has been acquired upon the publication of the stay order which serves as the notice of the commencement of the proceedings x x x. In the instant petition, all the petitioning corporations have, as admitted also by BPI, interlocking directors which means that the said directors are all members of the “Siochi” family. In addition thereto, three (3) of the petitioning corporations x x x hold their respective principal offices inMalabonCity. In line therefore with the settled policy of avoiding multiplicity of suits, the Court finds it proper to include Blue Crest Aqua-Farms, Inc. and Iloilo Property Ventures in the instant petition. x x x

x x x x

Based on the Consolidated Schedule of Debts and Liabilities x x x the total principal liability of the petitioners is Seventy Nine Million, Eight Hundred Forty Eight [sic] Nine Hundred Twenty and 23/100 (P79,848,920.23) Pesos. On the other hand, the petitioning corporations own properties among which are titled lands located in Malabon City, Navotas, Obando, Bulacan and Iloilo Province with an estimated value of Three Hundred Ninety Three Million Nine Hundred Twenty Two Thousand and 00/100 (P393,922,000.00) Pesos, as appraised by the Philippine Appraisal Co., Inc. x x x. Accordingly, the petitioning corporations could still be considered net worthy, capable of being rehabilitated.

As regards the rehabilitation plan, the Court, contrary to BPI andALAI’s stand, finds the same feasible, and viable. A moratorium period of five (5) years on the payment of its loans/obligations will enable said petitioners to generate additional capital/funds to continue its [sic] business operations. This is in line with the petitioners’ intention to source fund from its [sic] internal operations, the growth of which is expected to favorably expand. To achieve this goal, an extension period for the payment of petitioners’ obligations is just and proper. This is precisely the main reason why petitioners filed the instant petition as corporate rehabilitation can, in one way, be effected by suspension of payments of obligation for a certain period. Thereafter, payment of their loan/obligations could be ably resumed.

Further, petitioners, thru its [sic] President, is [sic] in the process of negotiating with prospective investors to put up additional capital and diversifying its [sic] operation and, if still necessary, funds can still be generated from the real estate properties of the petitioners mentioned in Exhibit “I” whose value has not been exposed to the limit of their loan value. Aside from the repayment plan in an amount of Php3,241,514.83 per quarter beginning the 1^st quarter of the 6^th year up to ten years thereafter, petitioners are open to negotiations with their creditors, to enter into dacion en pago and/or sales of assets as means of payment.

The sale of petitioners’ assets, as claimed by BPI, in order to pay off their matured obligation/s with it and not the suspension of payments is, as the Court sees, not a solution because this would mean a forced sale of their assets at a much lower price thereby adding significant loss in the value of the petitioner’s [sic] assets, making said petitioners insolvent rather than giving it [sic] a chance to rehabilitate their business operations.

The success therefore of the rehabilitation plan largely depends on its ability to reduce its debt obligations to a manageable level by the suspension of payments of obligations. This scheme enables the petitioners to restore their profitability and solvency and maintain it [sic] as an on-going business, to the benefit not only of the stockholders and investors but to BPI and ALAIas petitioners’ creditors.¹⁰

BPI appealed the RTC’s 9 January 2006 Order to the Court of Appeals.

The Court of Appeals’ Ruling

In its 20 October 2009 Decision, the Court of Appeals set aside the RTC’s 9 January 2006 Order. The Court of Appeals held:

In the case at bar, the proceeding before the court a quo was rife with procedural infirmities. Under the Interim Rules, the court is directed to summarily hear the parties on any matter relating to the petition as well as any comment and/or opposition filed in connection therewith. Accordingly, the creditor or any interested party is required to file a verified opposition to or comment on the petition for rehabilitation so as to aid the court in making an informed and rational decision as to whether or not the petition for rehabilitation should be given due course. Pursuant thereto, petitioner filed its Oppositions and Comments wherein it raised the following significant issues, among others, viz: that the court a quo has no jurisdiction over Blue Crest Aqua-Farms, Inc. and Iloilo Property Ventures, Inc.; that the Consolidated Schedule of Debts and Liabilities is misleading; that respondent corporations have no sufficient cash flow to repay their debts; that the proposal in the Rehabilitation Plan does not ensure actual loan repayment nor respondent corporations’ recovery; that the proposed repayment period thereunder is grossly disadvantageous; and that respondent corporations are undercapitalized. Instead of discussing these issues, the court a quo merely confined the hearing on the issue of jurisdiction. It should be pointed out that while the Interim Rules direct the court to summarily hear the parties, it [sic] do not authorize the court to disregard the comment and/or opposition filed by the parties, especially when there are material issues raised therein, as in the present case. The rules itself [sic] mandate a just, expeditious and inexpensive determination of cases. Certainly, disregarding the arguments raised by petitioner would not result in a just determination of the case.

The most glaring procedural infirmity committed by the court a quo, however, is its failure to refer respondent corporations’ petition for rehabilitation and Rehabilitation Plan to the rehabilitation receiver despite the explicit and clear mandate of the Interim Rules that if the court is satisfied that there is merit in the petition, it shall give due course to the petition and “immediately” refer the same and its annexes to the rehabilitation receiver x x x.

x x x x

We have likewise observed that the court a quo made an unwarranted procedural shortcut as its finding that there was merit in respondent corporations’ petition for rehabilitation was made in the same Order approving their Rehabilitation Plan. The court a quo’s propensity in ignoring the procedure laid down in the Interim Rules can also be seen in its failure to issue an Order directing respondent corporations and their creditors to attend a meeting notwithstanding the Manifestation and Motion filed by the rehabilitation receiver for this purpose. Further, the court a quo ignored the patent defect in the allegations in the petition for rehabilitation. A perusal of the records reveals that out of the five (5) respondent corporations, it is only Iloilo Property Ventures, Inc. which has a threat or demand from Ayala Life Assurance, Inc. x x x. However, in their respective Affidavits of General Financial Condition, respondent corporations uniformly alleged that petitioner and Ayala Life Assurance, Inc. “will initiate legal actions including foreclosure proceedings to enforce collection of the obligations.” Interestingly, Blue Crest Aqua-Farms, Inc. alleged the same in its Affidavit of General Financial Condition even as petitioner and Ayala Life Assurance, Inc. were not listed among its creditors in its Schedule of Debts and Liabilities. In actuality, Blue Crest Aqua-Farms, Inc. does not even qualify as a financially distressed corporation as it has no threats/demands for the enforcement of claims and its cash on hand and in bank is sufficient to pay its financial obligations. x x x

x x x x

In cases where the creditors oppose the approval of the rehabilitation plan, the court may only approve the same upon the concurrence of two conditions — one, that the rehabilitation of the debtor is feasible and two, that the opposition of the creditors is manifestly unreasonable. x x x

In the present case, the court a quo found the rehabilitation of respondent corporations feasible and viable on the basis of the following circumstances: (1) that the real properties they own have an estimated value of P393,922,000.00 x x x as opposed to their consolidated debts and liabilities in the amount of P79,848,920.23; and (2) that the moratorium period of five (5) years on the payment of its [sic] loans/obligations will enable respondent corporations to generate additional capital/funds to continue its [sic] business operations from the expected growth of its [sic] internal operations, from negotiations with prospective investors, and from their real properties whose value has not been exposed to the limit of their loan value. However, the court a quo’s conclusion that respondent corporations’ rehabilitation is feasible and viable is not supported by their financial condition, commitments and proposed measures for rehabilitation/recovery.

With respect to the Appraisal Report, it bears to stress that the same was commissioned by respondent corporations and petitioner was not afforded the opportunity to contest the same. Also, it is extant from the records that some of the properties included therein do not belong to respondent corporations but to their officers, namely, Ferdinand Siochi, Mario Siochi, Jr., Gerald Siochi and Jose Patrick Siochi. Thus, these properties should not be considered as part of respondent corporations’ assets as their officers have a separate personality from the corporation itself. x x x

As to respondent corporations’ financial condition, the same is reflected in their respective Affidavits of General Financial Condition and Consolidated Cash Flow Statement. In their respective Affidavits of General Financial Condition x x x, the average annual income and average annual net loss for the past three (3) years prior to the filing of the petition for rehabilitation are: (1) income of P4,781,833.21 and loss of P2,079,499.80 — Siochi Fishery Enterprises, Inc., (2) income of P65,254.48 and loss of P1,081,921.15 — Jun-Jun Fishing Corporation, (3) income of P34,633.36 and loss of P1,051,300.03 — Dede Fishing Corporation. A scrutiny of their Consolidated Cash Flow Statement for the past three (3) months prior to the filing of the petition shows that respondent corporations’ cash balance is P2,839,921.70 while an examination of respondent corporations’ cash flow for three (3) months after the filing of the petition shows that their cash inflow amounts to P4,788,230.59 and their cash outflow is pegged at P1,574,976.76, thereby leaving a cash balance of P3,213,253.83.

On the other hand, an examination of the Consolidated Schedule of Debts and Liabilities shows that the total claim of petitioner is P30,445,608.73 while that of Ayala Life Assurance, Inc. is P44,038,428.54 or an aggregate amount of P74,484,037.27. x x x

Given these facts, it can readily be seen that respondent corporations are in dire financial condition. Their Affidavits of General Financial Condition show that Jun-Jun Fishing Corporation and Dede Fishing Corporation had bigger average annual net loss than average annual income for the past three (3) years prior to the filing of the petition for rehabilitation. x x x It must be noted that their Consolidated Cash Flow Statement and the cash balance reflected reflected therein incorporates the amount belonging to Blue Crest Aqua-Farms, Inc. which should have been excluded from the petition. Even with the inclusion of Blue Crest’s money, respondent corporations’ cash balance is still insufficient to service their debts. Therefore, the feasibility and viability of their rehabilitation would have to depend on their financial commitments to support the Rehabilitation Plan, as well as the proposed measures for rehabilitation/recovery, which are reflected in their Rehabilitation Plan.

x x x x

At this juncture, it must be emphasized that the debtor’s material financial commitments are of critical value in gauging the sincerity of its intention in the projected rehabilitation as these signify the debtor’s resolve to financially support the rehabilitation plan. Corollarily, respondent corporations’ material financial commitments were stated in this manner:

“1. The petitioners intend to source fund from its internal operations, the growth of which is expected to favorably expand.

2. The president is currently negotiating with prospective investors to put up additional fresh capital and diversifying its operation.

3.      The real estate properties of petitioner [sic] have not been exposed to the limit of their loan value and if necessary funds can still be sourced from them to ensure working fund/capital for petitioners’ operations.”

Notably, in concluding that the moratorium period of five (5) years on the payment of its [sic] loans/obligations will enable respondent corporations to generate additional capital/funds from their internal operations, prospective investors, and their properties which had not been exposed to the limit of their loan value, the court a quo heavily relied on the above-quoted commitments. However, these hardly qualify as a concrete undertaking on the part of respondent corporations to financially support their Rehabilitation Plan.

Firstly, the sourcing of funds from their internal operations is based on a mere expectancy. Respondent corporations did not even allege in their Rehabilitation Plan their operational plan or definite management which would bring about growth and expansion in their internal operations. x x x In fact, petitioner correctly contends that inspite of the supposed modernization program on the 5^th year of the rehabilitation period, the sales projection of respondent corporations was constantly pegged at 5%.

Secondly, respondent corporations failed to give the specific details regarding their prospective investors who will supposedly put up additional fresh capital. This should have been considered by the court a quo considering that in their respective Affidavits of General Financial Condition, respondent corporations uniformly answered that none, so far, has expressed interest in investing new money into respondent corporations’ business.

x x x x

Noticeably, some of respondent corporations’ subscribed capital stock remained unpaid and their respective boards of directors failed to take concrete steps to compel the shareholders to pay their subscribed capital stock in full or to order the conversion of their debts to equity or to offer the remaining shares of stock from their authorized capital stock for subscription. x x x [P]etitioner correctly pointed out that the proposed rehabilitation is deemed to succeed in only one thing: to extend the loan repayment term and does not ensure actual loan repayment nor business recovery of the petitioners.

Thirdly, by stating that their real estate properties have not been exposed to the limit of their loan values, respondent corporations are implying that they will use the mortgaged properties as collaterals to secure another loan. This hardly constitutes a material financial commitment as the real properties x x x referred to by respondent corporations were already mortgaged to petitioner and Ayala Life Assurance, Inc. Respondent corporations had no right to assume that petitioner and Ayala Life Assurance, Inc., who have a superior lien over these properties, would allow them to obtain another loan from a new creditor secured by the aforementioned properties. In the same vein, respondent corporations may not compel petitioner and Ayala Life Assurance, Inc. to grant them a new loan with the same properties as collaterals so as to enable them to obtain their full loanable value. x x x

x x x x

In this case, there was nothing in the records that would show that the rehabilitation receiver recommended the approval of the Rehabilitation Plan or that the shareholders or owners of the debtor will lose their controlling interest as a result thereof. Also, there was no showing that the plan would likely provide petitioner with compensation greater than that which it would have received if the assets of respondent corporations were sold by a liquidator within a three-month period. Ergo, petitioner’s opposition to the Rehabilitation Plan is not manifestly unreasonable.

x x x x

In the case at bar, the interest of herein petitioner should be protected and preserved as it is engaged in the banking business which is imbued with public interest. x x x

x x x x

Similarly, the reduction of interest on these loans from 12% to 8% is unwarranted as it is not the province of the court a quo to relieve respondent corporations from the obligations they had voluntarily assumed. x x x The rule is that the parties to a loan agreement have been given wide latitude to agree on any interest rate and an interest of 12% per annum is deemed fair and reasonable.¹¹

Petitioners filed a motion for reconsideration. In its 22 September 2010 Resolution, the Court of Appeals denied the motion. Hence, the present petition.

Issue

Petitioners raise as issue that the Court of Appeals erred in setting aside the RTC’s 9 January 2006 Order because “it is within [the RTC’s] discretion to disregard the procedural formalities,” and “the lower court has x x x factual basis in [sic] its finding that [petitioners] are capable of rehabilitated [sic].”

The Court’s Ruling

The petition is unmeritorious.

Petitioners claim that the Interim Rules of Procedure are construed liberally; thus, the RTC may disregard the Rules. The Court disagrees. Indeed, the Rules are construed liberally. However, this does not mean that courts may disregard the Rules. In North Bulacan Corporation v. Philippine Bank of Communications,¹² the Court held that, “These rules are to be construed liberally to obtain for the parties a just, expeditious, and inexpensive disposition of the case. The parties may not, however, invoke such liberality if it will result in the utter disregard of the rules.”¹³

In New Frontier Sugar Corporation v. Regional Trial Court, Branch 39, Iloilo City,¹⁴ the Court enumerated the basic procedure in corporate rehabilitation cases. The Court held:

As provided in the Interim Rules, the basic procedure is as follows:

1.      The petition is filed with the appropriate Regional Trial Court;

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

3.      Publication of the Stay Order;

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

5.      Referral for evaluation of the rehabilitation plan to the rehabilitation receiver who shall submit his recommendations to the court;

6.      Modifications or revisions of the rehabilitation plan as necessary;

7.      Submission of final rehabilitation plan to the trial court for approval;

8.      Approval/disapproval of rehabilitation plan by the trial court[.]¹⁵ (Emphasis supplied)

In the present case, the RTC hastily approved the rehabilitation plan in the same order giving due course to the petition. The RTC confined the initial hearing to the issue of jurisdiction and failed to address other more important matters relating to the petition and comment. The RTC also failed to refer for evaluation the rehabilitation plan to the rehabilitation receiver. Thus, the rehabilitation receiver was unable to submit his recommendations and make modifications or revisions to the rehabilitation plan as necessary. Moreover, the RTC denied the rehabilitation receiver’s motion to issue an order directing petitioners and their creditors to attend a meeting. In its 20 October 2009 Decision, the Court of Appeals found:

The most glaring procedural infirmity committed by the court a quo, however, is its failure to refer respondent corporations’ petition for rehabilitation and Rehabilitation Plan to the rehabilitation receiver despite the explicit and clear mandate of the Interim Rules that if the court is satisfied that there is merit in the petition, it shall give due course to the petition and “immediately” refer the same and its annexes to the rehabilitation receiver x x x.

It is discernible from the foregoing that there are serious matters which should be determined before rehabilitation may be had. For this reason, the Interim Rules required the appointment of a rehabilitation receiver simultaneously with the issuance of the Stay Order and prescribed the following qualifications — expertise and acumen to manage and operate a business similar in size and complexity to that of the debtor, knowledge in management, finance, and rehabilitation of distressed companies, and general familiarity with the rights of creditors in rehabilitation, etc. to further emphasize the significance of the role of the rehabilitation receiver in rehabilitation proceedings, the Interim Rules directed the rehabilitation receiver to evaluate the rehabilitation plan and submit his recommendations to the court. In fact, his recommendation bears much weight as it is one of the factors which must be considered by the court if it were to approve the rehabilitation plan. More importantly, it must be emphasized that the purpose of the law in directing the appointment of receivers is to protect the interests of the corporate investors and creditors. Thus, the court a quo committed serious error when it failed to refer the petition for rehabilitation and its annexes to the appointed receiver.

We have likewise observed that the court a quo made an unwarranted procedural shortcut as its finding that there was merit in respondent corporations’ petition for rehabilitation was made in the same Order approving their Rehabilitation Plan.¹⁶

As an officer of the court and an expert, the rehabilitation receiver plays an important role in corporate rehabilitation proceedings. In Pryce Corporation v. Court of Appeals,¹⁷ the Court held that, “the purpose of the law in directing the appointment of receivers is to protect the interests of the corporate investors and creditors.”¹⁸ Section 14 of the Interim Rules of Procedure on Corporate Rehabilitation enumerates the powers and functions of the rehabilitation receiver: (1) verify the accuracy of the petition, including its annexes such as the schedule of debts and liabilities and the inventory of assets submitted in support of the petition; (2) accept and incorporate, when justified, amendments to the schedule of debts and liabilities; (3) recommend to the court the disallowance of claims and rejection of amendments to the schedule of debts and liabilities that lack sufficient proof and justification; (4) submit to the court and make available for review by the creditors a revised schedule of debts and liabilities; (5) investigate the acts, conduct, properties, liabilities, and financial condition of the debtor, the operation of its business and the desirability of the continuance thereof, and any other matter relevant to the proceedings or to the formulation of a rehabilitation plan; (6) examine under oath the directors and officers of the debtor and any other witnesses that he may deem appropriate; (7) make available to the creditors documents and notices necessary for them to follow and participate in the proceedings; (8) report to the court any fact ascertained by him pertaining to the causes of the debtor’s problems, fraud, preferences, dispositions, encumbrances, misconduct, mismanagement, and irregularities committed by the stockholders, directors, management, or any other person; (9) employ such person or persons such as lawyers, accountants, appraisers, and staff as are necessary in performing his functions and duties as rehabilitation receiver; (10) monitor the operations of the debtor and to immediately report to the court any material adverse change in the debtor’s business; (11) evaluate the existing assets and liabilities, earnings and operations of the debtor; (12) determine and recommend to the court the best way to salvage and protect the interests of the creditors, stockholders, and the general public; (13) study the rehabilitation plan proposed by the debtor or any rehabilitation plan submitted during the proceedings, together with any comments made thereon; (14) prohibit and report to the court any encumbrance, transfer, or disposition of the debtor’s property outside of the ordinary course of business or what is allowed by the court; (15) prohibit and report to the court any payments outside of the ordinary course of business; (16) have unlimited access to the debtor’s employees, premises, books, records, and financial documents during business hours; (17) inspect, copy, photocopy, or photograph any document, paper, book, account, or letter, whether in the possession of the debtor or other persons; (18) gain entry into any property for the purpose of inspecting, measuring, surveying, or photographing it or any designated relevant object or operation thereon; (19) take possession, control, and custody of the debtor’s assets; (20) notify the parties and the court as to contracts that the debtor has decided to continue to perform or breach; (21) be notified of, and to attend all meetings of the board of directors and stockholders of the debtor; (22) recommend any modification of an approved rehabilitation plan as he may deem appropriate; (23) bring to the attention of the court any material change affecting the debtor’s ability to meet the obligations under the rehabilitation plan; (24) recommend the appointment of a management committee in the cases provided for under Presidential Decree No. 902-A, as amended; (25) recommend the termination of the proceedings and the dissolution of the debtor if he determines that the continuance in business of such entity is no longer feasible or profitable or no longer works to the best interest of the stockholders, parties-litigants, creditors, or the general public; and (26) apply to the court for any order or directive that he may deem necessary or desirable to aid him in the exercise of his powers.

The rehabilitation plan is an indispensable requirement in corporate rehabilitation proceedings.¹⁹ Section 5 of the Rules enumerates the essential requisites of a 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; (c) the material financial commitments to support the rehabilitation plan; (d) the means for the execution of the rehabilitation plan, which may include conversion of the debts or any portion thereof to equity, restructuring of the debts, dacion en pago, or sale of assets or of the controlling interest; (e) a liquidation analysis that estimates the proportion of the claims that the creditors and shareholders would receive if the debtor’s properties were liquidated; and (f) such other relevant information to enable a reasonable investor to make an informed decision on the feasibility of the rehabilitation plan. (Emphasis supplied)

The Court notes that petitioners failed to include a liquidation analysis in their rehabilitation plan.

Petitioners claim that the RTC had factual basis in giving due course to the petition for corporate rehabilitation, and in approving the rehabilitation plan. The Court disagrees. In its 9 January 2006 Order, the RTC stated:

Based on the Consolidated Schedule of Debts and Liabilities x x x the total principal liability of the petitioners is Seventy Nine Million, Eight Hundred Forty Eight [sic] Nine Hundred Twenty and 23/100 (P79,848,920.23) Pesos. On the other hand, the petitioning corporations own properties among which are titled lands located in Malabon City, Navotas, Obando, Bulacan and Iloilo Province with an estimated value of Three Hundred Ninety Three Million Nine Hundred Twenty Two Thousand and 00/100 (P393,922,000.00) Pesos, as appraised by the Philippine Appraisal Co., Inc. x x x. Accordingly, the petitioning corporations could still be considered net worthy, capable of being rehabilitated.

As regards the rehabilitation plan, the Court, contrary to BPI andALAI’s stand, finds the same feasible, and viable. A moratorium period of five (5) years on the payment of its loans/obligations will enable said petitioners to generate additional capital/funds to continue its [sic] business operations. This is in line with the petitioners’ intention to source fund from its [sic] internal operations, the growth of which is expected to favorably expand. x x x

Further, petitioners, thru its [sic] President, is [sic] in the process of negotiating with prospective investors to put up additional capital and diversifying its [sic] operation and, if still necessary, funds can still be generated from the real estate properties of the petitioners mentioned in Exhibit “I” whose value has not been exposed to the limit of their loan value.²⁰

The Court notes that, contrary to the factual finding of the RTC, petitioners do not own all of the properties with a total estimated value of P393,922,000. Some of the properties are owned by Ferdinand, Gerald and Jose Patrick Siochi, and Mario Siochi, Jr., not by petitioners. A corporation has a legal personality distinct from its stockholders and directors. In Santos v. National Labor Relations Commission,²¹ the Court held that, “A corporation is a juridical entity with legal personality separate and distinct from those acting for and in its behalf and, in general, from the people comprising it.”²² In its 20 October 2009 Decision, the Court of Appeals found:

With respect to the Appraisal Report, it bears to stress that the same was commissioned by respondent corporations and petitioner was not afforded the opportunity to contest the same. Also, it is extant from the records that some of the properties included therein do not belong to respondent corporations but to their officers, namely, Ferdinand Siochi, Mario Siochi, Jr., Gerald Siochi and Jose Patrick Siochi. Thus, these properties should not be considered as part of respondent corporations’ assets as their officers have a separate personality from the corporation itself. In turn, this renders doubtful their declaration in their Rehabilitation Plan that they have “sufficient collaterals to back-up their bank loans.”²³ (Emphasis supplied)

The Court of Appeals also found:

Firstly, the sourcing of funds from their internal operations is based on a mere expectancy. Respondent corporations did not even allege in their Rehabilitation Plan their operational plan or definite management which would bring about growth and expansion in their internal operations. In their Consolidated Cash Flow Statement for the 15-year reahibilitation period, respondent corporations allocated a fund of P30 million for a modernization program. But they did not sufficiently describe and adequately explain as to how the alleged modernization program would translate to a growth in or expansion of their internal operations. In fact, petitioner correctly contends that inspite of the supposed modernization program on the 5^th year of the rehabilitation period, the sales projection of respondent corporations was constantly pegged at 5%.

Secondly, respondent corporations failed to give the specific details regarding their prospective investors who will supposedly put up additional fresh capital. This should have been considered by the court a quo considering that in their respective Affidavits of General Financial Condition, respondent corporations uniformly answered that none, so far, has expressed interest in investing new money into respondent corporations’ business.²⁴

Incidentally, since the time of filing on 15 July 2004 of the petition for corporate rehabilitation, there has been no showing that petitioners’ situation has improved or that they have complied faithfully with the terms of the rehabilitation plan.

WHEREFORE, the Court DENIES the petition and AFFIRMS the 20 October 2009 Decision and 22 September 2010 Resolution of the Court of Appeals in CA-G.R. SP No. 93278.

SO ORDERED.

ANTONIO T. CARPIO

Associate Justice

WE CONCUR:

ARTURO D. BRION

Associate Justice

MARIA LOURDES P. A. SERENO BIENVENIDO L. REYES

Associate Justice Associate Justice

ESTELA M. PERLAS-BERNABE

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. 1114 dated 3 October 2011.

1 Rollo, pp. 10-42.

2Id. at 51-75. Penned by Associate Justice Ramon M. Bato, Jr., with Associate Justices Noel G. Tijam and Priscilla J. Baltazar-Padilla concurring.

3Id. at 93-94.

4Id. at 146-149. Penned by Judge Leonardo L. Leonida.

5Id. at 101-108.

6Id. at 121-124.

7Id. at 141-143.

8Id. at 144.

9Id. at 146-149.

10Id. at 147-148.

11Id. at 60-74.

12 G.R. No. 183140, 2 August 2010, 626 SCRA 260.

13Id. at 263.

14 G.R. No. 165001, 31 January 2007, 513 SCRA 601.

15Id. at 608-609.

16 Rollo, pp. 60-62.

17 G.R. No. 172302, 4 February 2008, 543 SCRA 657.

18Id. at 664.

19 Pacific Wide Realty and Development Corporation v. Puerto Azul Land, Inc., G.R. Nos. 178768 and 180893, 25 November 2009, 605 SCRA 503, 515.

20 Rollo, pp. 147-148.

21 325 Phil. 145 (1996).

22Id. at 156.

23 Rollo, p. 64.

24Id. at 67.