It will be recalled that in G.R. No. 177721, July 3, 2007, 526 SCRA 353, the respondent Sandiganbayan Associate Justice Gregory S. Ong was ENJOINED from accepting an appointment to the position of Associate Justice of the Supreme Court or assuming the position and discharging the functions of that office, until he shall have successfully completed all necessary steps, through the appropriate adversarial proceedings in court, to show that he is a natural-born Filipino citizen and correct the records of his birth and citizenship.
In the latest case of KILOSBAYAN FOUNDATION, et.al. vs. LEONCIO M. JANOLO, JR., PRESIDING JUDGE, et. al., G.R. No. 180543, August 18, 2010, in effect, the Supreme Court laid to rest the issue of the nationality of Justice Ong by not reopening at all the decision of the Regional Trial Court of Pasig City which allowed the correction of the entry in his birth certificate in re: his citizenship as a natural-born Filipino.
I am reproducing the salient parts of the aforecited Kilosbayan decision because of its remedial law-related doctrines, to wit:
x x x.
The Court shall first resolve the preliminary objections raised by respondents. Both Ong and the OSG claim that petitioners availed themselves of an improper remedy and disregarded the hierarchy of courts. Ong adds that the defective verification renders the petition as unsigned pleading, and the lack of service of the petition on all adverse parties violates basic rules.
The question on the propriety of the remedy availed of by petitioners is resolved in Cerezo v. Tuazon,[11] where the Court discussed the various remedies available to a party declared in default, including a petition for certiorari to declare the nullity of a judgment by default if the trial court improperly declared a party in default, or even if the trial court properly declared a party in default, if grave abuse of discretion attended such declaration. A party declared in default may thus alternatively file a petition for certiorari assailing both the order of default and the judgment of default.[12] On the choice of remedy, the Court finds petitioners’ recourse procedurally allowable. The same, however, cannot be said as to the choice of court forum.
The hierarchy of courts serves as a general determinant of the appropriate forum for appeals and petitions for extraordinary writs.[13] The rule on hierarchy of courts is not absolute, and the Court has full discretionary power to take cognizance of a petition filed directly with it. A direct invocation of this Court’s original jurisdiction may be allowed where there are special and important reasons therefor clearly and specifically set out in the petition.[14]
The present petition is bereft of even a single allegation of exceptional and compelling circumstance to warrant an exception to the rule. In fact, this valid objection elicited no response from petitioners, who glossed over all procedural issues in their Consolidated Reply. If petitioners themselves do not provide the Court some basis for the direct recourse, the Court is not minded to search for one.
Further, the petition carries a defective verification since it was verified without stating the basis thereof. In the Verification/ Certification of the Petition, the affiant states that he “has read the same and all the facts contained therein are true and correct.”[15] The Rules clearly state that a pleading is verified by an affidavit that the affiant has read the pleading and that the allegations therein are true and correct of his personal knowledge or based on authentic records, and a pleading required to be verified which lacks a proper verification shall be treated as an unsigned pleading.[16] Verification is not an empty ritual or a meaningless formality. Its import must never be sacrificed in the name of mere expedience or sheer caprice. For what is at stake is the matter of verity attested by the sanctity of an oath to secure an assurance that the allegations in the pleading have been made in good faith, or are true and correct and not merely speculative.[17]
Moreover, this Court observes that the affiant failed to present competent evidence of his identity before the notary public, as required under the 2004 Rules on Notarial Practice.[18] The Court cannot assume that affiant, being a public figure, is personally known to the notary public, for the jurat does not contain a statement to that effect.
Records also show that petitioners failed to furnish public respondent with a copy of the petition. The Rules require that the petition should be filed with proof of service on all adverse parties, and that the failure to comply with the requirement shall be sufficient ground for the dismissal of the petition.[19]
On procedural grounds alone then, the petition is susceptible to dismissal. The Court deems it best, however, to resolve the substantial issues in the interest of justice.
In their motion for voluntary inhibition, petitioners cite that Ong, his counsel, and public respondent are members of the San Beda Law Alumni Association which, along with the school’s Benedictine community, publicly endorsed and supported Ong’s petition through newspaper advertisements. Moreover, from the account of the proceedings, petitioners point out that issuing the order of default without resolving the motion for reconsideration of the order denying the motion for inhibition exhibits blatant bias for being unduly precipitate and wholly unwarranted.
The rule on compulsory disqualification and voluntary inhibition of judges is provided under Section 1, Rule 137 of the Rules of Court:
No judge or judicial officer shall sit in any case in which he, or his wife or child, is pecuniarily interested as heir, legatee, creditor or otherwise, or in which he is related to either party within the sixth degree of consanguinity or affinity, or to counsel within the fourth degree, computed according to the rules of the civil law, or in which he has been executor, administrator, guardian, trustee or counsel, or in which he has presided in any inferior court when his ruling or decision is the subject of review, without the written consent of all parties in interest, signed by them and entered upon the record.
A judge may, in the exercise of his sound discretion, disqualify himself from sitting in a case, for just or valid reasons other than those mentioned above. (underscoring supplied)
In keeping with the tenet that judges should not only act with fairness, independence, impartiality and honesty but should also be perceived to be the embodiment of such qualities, the Court added the rule on voluntary inhibition in 1964. In outlining the genesis of the provision, the Court narrated:
In Umale v. Villaluz, the Court traced the history of the second paragraph of the above-quoted provision, which had been added only as an amendment to the Rules of Court in 1964. Prior to that year, the question on whether to take cognizance of the case did not depend upon the discretion of the judges not legally disqualified to sit in a given case. If those concerned were not disqualified, it was their official duty to proceed with the case or else risk being called upon to account for their dereliction. They could not voluntarily inhibit themselves on grounds of prejudice or bias, extreme delicacy, or even if they themselves took great interest and an active part in the filing of the case. Gutierrez v. Santos and Del Castillo v. Javelona paved the way for the recognition of other circumstances for disqualification– those that depended upon the exercise of discretion of the judges concerned.[20]
While the second paragraph does not expressly enumerate the specific grounds for inhibition and leaves it to the sound discretion of the judge, such should be based on just or valid reasons. The import of the rule on the voluntary inhibition of judges is that the decision on whether to inhibit is left to the sound discretion and conscience of the judge based on his rational and logical assessment of the circumstances prevailing in the case brought before him. It makes clear to the occupants of the Bench that outside of pecuniary interest, relationship or previous participation in the matter that calls for adjudication, there might be other causes that could conceivably erode the trait of objectivity, thus calling for inhibition. That is to betray a sense of realism, for the factors that lead to preferences and predilections are many and varied.[21]
In the final reckoning, there is really no hard and fast rule when it comes to the inhibition of judges. Each case should be treated differently and decided based on its peculiar circumstances.
The issue of voluntary inhibition is primarily a matter of conscience and sound discretion on the part of the judge. It is a subjective test, the result of which the reviewing tribunal will not disturb in the absence of any manifest finding of arbitrariness and whimsicality. The discretion given to trial judges is an acknowledgment of the fact that they are in a better position to determine the issue of inhibition, as they are the ones who directly deal with the parties-litigants in their courtrooms.[22]
Impartiality being a state of mind, there is thus a need for some kind of manifestation of its reality, in order to provide “good, sound or ethical grounds” or “just and valid reasons” for inhibition.[23] Bare allegations of bias and prejudice are not enough in the absence of clear and convincing evidence to overcome the presumption that a judge will undertake his noble role to dispense justice according to law and evidence and without fear or favor.[24] In Gochan v. Gochan,[25] the Court elucidated further:
Verily, the second paragraph of Section 1 of Rule 137 does not give judges the unfettered discretion to decide whether to desist from hearing a case. The inhibition must be for just and valid causes. The mere imputation of bias or partiality is not enough ground for them to inhibit, especially when the charge is without basis. This Court has to be shown acts or conduct clearly indicative of arbitrariness or prejudice before it can brand them with the stigma of bias or partiality.
In a string of cases, the Supreme Court has said that bias and prejudice, to be considered valid reasons for the voluntary inhibition of judges, must be proved with clear and convincing evidence. Bare allegations of their partiality will not suffice. It cannot be presumed, especially if weighed against the sacred oaths of office of magistrates, requiring them to administer justice fairly and equitably– both to the poor and the rich, the weak and the strong, the lonely and the well-connected.[26] (emphasis and underscoring supplied)
The Court applied the same precept in Pagoda Philippines, Inc. v. Universal Canning, Inc.[27] where the judge’s right to inhibit was weighed against his duty to decide the case without fear of repression. Indeed, the automatic granting of a motion for voluntary inhibition would open the floodgates to a form of forum-shopping, in which litigants would be allowed to shop for a judge more sympathetic to their cause, and would prove antithetical to the speedy and fair administration of justice.[28]
A judge must decide based on a rational and logical assessment of the circumstances prevailing in a case brought before him.[29] In the present case, petitioners cite public respondent’s affiliation with an alumni association as the sole ground to which they anchor their motion for the voluntary inhibition of public respondent.
Before the trial court, petitioners alleged that the law school ties among public respondent, Ong and his counsel, they having graduated from San Beda College of Law, albeit years apart, spell partiality.
Inhibition is not allowed at every instance that a schoolmate or classmate appears before the judge as counsel for one of the parties, however.[30] In one case,[31] the Court ruled that organizational affiliation per se is not a ground for inhibition.
Membership in a college fraternity, by itself, does not constitute a ground to disqualify an investigator, prosecutor or judge from acting on the case of a respondent who happens to be a member of the same fraternity. A trial Judge, appellate Justice, or member of this Court who is or was a member of a college fraternity, a university alumni association, a socio-civic association like Jaycees or Rotary, a religion-oriented organization like Knights of Columbus or Methodist Men, and various other fraternal organizations is not expected to automatically inhibit himself or herself from acting whenever a case involving a member of his or her group happens to come before him or her for action.
A member in good standing of any reputable organization is expected all the more to maintain the highest standards of probity, integrity, and honor and to faithfully comply with the ethics of the legal profession.[32] (underscoring supplied)
The added fact that the law school’s alumni association published statements in support of Ong’s application cannot lend credence to the imputation of bias on the part of pubic respondent. No clear and convincing evidence was shown to indicate that public respondent actively sponsored and participated in the adoption and publication of the alumni association’s stand. It is inconceivable to suppose that the alumni association’s statement obliged all its members to earnestly embrace the manifesto as a matter of creed.
Arbitrariness cannot be inferred either from the fact that public respondent resolved the motion for voluntary inhibition one day after it was filed. Since the personal process of “careful self-examination”[33] is essentially a matter of conscience, the judge may decide as soon as the factual basis of the motions has been clearly laid before the court because from there on the resolution of the motion enters the subjective phase.
That public respondent, Ong and his counsel former Senator Rene Saguisag are all graduates of San Beda College of Law was clearly and early on established. Hence, this sole ground relied upon by petitioners in their motion, it bears repeating, no longer required a hearing or called for the submission of a comment or opposition, and the absence thereof did not prejudice petitioners.
In one case,[34] it was held that the Rules of Court does not direct the court to order the filing of comments or oppositions to the motion before the motion is resolved. The parties may orally argue and ventilate their positions and, thereafter, the court may rule on the motion.
The Court notes that when petitioners filed the Omnibus Motion (for reconsideration and deferment) which basically reiterated their previous arguments, they no longer set the motion for hearing and simply submitted their motion ex parte without further arguments, thereby recognizing the non-litigious nature of their allegations.
Even assuming that Ong interposed no objection to the motion, it was still up to public respondent to discern, for a qualified judge cannot be ousted from sitting in a case by sheer agreement of the parties.
Petitioners further complain that public respondent proceeded to hear the case and declared them in default without first resolving their pending motion. Records show that petitioners filed on August 13, 2007 an Omnibus Motion[35] for reconsideration of the August 7, 2007 Order and for deferment of the hearings set on August 14, 21 and 28, 2007. Petitioners, thereafter, did not appear in the various settings, they alleging that the question of voluntary inhibition, which they deem to be an “overriding consideration” partaking of a “highly prejudicial matter,” had yet to be resolved by the trial court.[36]
While there is no specific rule providing for a definite period of time within which to resolve a motion for reconsideration of an order denying inhibition, judges must endeavor to act promptly on it within the mandatory 90-day period so as not to interrupt the course of trial.[37]
The trial court narrated what transpired on August 14, 2007 as confirmed by the entry of the nunc pro tunc Order of September 17, 2007 making on record the denial of the Omnibus Motion.
During the hearing on August 14, 2007, the Court, after considering the arguments and counter-arguments from petitioner [Ong] and the Office of the Solicitor General, and finding no cogent reasons to reconsider its earlier position, denied in open court the motion seeking a reconsideration of the Order dated August 7, 2007 which denied movants’ “Motion for Voluntary Inhibition of Presiding Judge”. Corollarily, for lack of merit, the motion to defer the proceedings in the instant case was similarly denied. (see TSN, August 14, 2007, pp. 13). (citation in the original)[38]
The cited record of the proceedings validates the disposition made by the trial court on the given date, during which time petitioners failed to appear. After hearing the arguments, the trial court ruled as follows, quoted verbatim:
COURT: That’s right, so there’s no basis to overturn our previous Order denying the motion to voluntary inhibition filed by Atty. Capulong Now, there’s another matter being raised here, counsel could not have a valid argument here to delay the proceedings What the Supreme Court wanted is to have an Order summary of the proceeding because Kilos Bayan did sought at their level. Supreme Court was expecting that they will do so again in our level, but in… since there’s seems to be no good idea waiting for the adversary arguments, so, it will, when it reaches the Supreme Court, it will repeat the purpose to which they were directed to litigate. They’re supposed to litigate because if they believe they’re… for the denial of the petition, unless the application for declaration of natural born citizen, they should do so without any delay, so, use Bayan as a very… an active group and Bantay Katarungan, they should be a party to expeditious resolution of cases, not to a delay. How many are we here from government. We are here to litigate. So, the Motion for Reconsideration is denied, and Motion to Defer Further Proceedings is also denied. The settings for August were all placed in the Order which was published in the newspaper of general circulation. We have previously agreed that we will proceed to cross of petitioner and witnesses. Are you ready or would you agree to the suggestion by the Court that we conduct pre-trial?[39] (underscoring supplied)
The issuance of a nunc pro tunc order is recognized where an order actually rendered by a court at a former time had not been entered of record as rendered.[40] The phrase nunc pro tunc signifies “now for then,” or that a thing is done now that shall have the same legal force and effect as if done at the time it ought to have been done.[41] The purpose of an order nunc pro tunc is to make a present record of an order that the court made in a previous term, but which was not then recorded. It can only be made when the thing ordered has previously been made, but, by inadvertence, has not been entered.[42]
In the case at bar, the trial court actually took judicial action which was, however, by mistake or inadvertence, not placed in proper form on record. In any event, petitioners neither seriously contest the veracity of the transcript used as basis for such confirmatory order nor claim any unwarranted prejudice from the fact of its resolution during their non-appearance in the scheduled hearing.
The disallowance of a motion for postponement is not sufficient to show arbitrariness and partiality of the trial court.[43] For one, the grant of such is not a matter of right for it is addressed to the sound discretion of the court.[44] Parties have absolutely no right to assume that their motion for deferment would be granted, hence, they should prepare for the hearing, lest they pass the blame to no one but themselves.
Further, in considering such motions, two things must be borne in mind: (1) the reason for the postponement and (2) the merits of the case of the movant.[45] In this case, the requested postponement was premised on the pendency of the motion for reconsideration. The Omnibus Motion was, however, “submitted ex parte and without further arguments from Oppositors,”[46] drawing public respondent to promptly resolve it by denying it.
As to the merits of the case of petitioners, the trial court was left with nothing to assess since they did not file any Opposition to Ong’s Petition despite the grant to them of extension of time for the purpose and their various submissions to the trial court all related to peripheral issues.
No trace of bias can be found at that juncture when the court proceeded to declare petitioners in default after resolving the pending incidents. It is an equally important doctrine that bias and prejudice must be shown to have resulted in an opinion on the merits on the basis of an extrajudicial source, not on what the judge learned from participating in the case. As long as opinions formed in the course of judicial proceedings are based on the evidence presented and the conduct observed by the magistrate, such opinion – even if later found to be erroneous – will not prove personal bias or prejudice on the part of the judge. While palpable error may be inferred from the decision or the order itself, extrinsic evidence is required to establish bias, bad faith, malice or corrupt purpose.[47]
Divergence of opinion as to applicable laws and jurisprudence between counsel and the judge is not a proper ground for disqualification. Opinions framed in the course of judicial proceedings, although erroneous, as long as they are based on the evidence presented and conduct observed by the judge, do not prove bias or prejudice. Repeated rulings against a litigant no matter how erroneous are not bases for disqualification.[48]
As for the allegation of undue haste, the Court cannot appreciate it, considering that the trial court even granted petitioners additional period within which to file an Opposition and in view of the nature of the case, which empowers the trial court to make orders expediting proceedings.[49]
In the absence then of clear and convincing evidence to prove the charge, a ruling not to inhibit oneself cannot just be overturned.[50] In this case, petitioners failed to demonstrate such acts or conduct clearly indicative of arbitrariness or prejudice as to thaw the attributes of the cold neutrality of an impartial judge. Unjustified assumptions and mere misgivings that the hand of prejudice, passion, pride and pettiness moves the judge in the performance of his functions are patently weak to parry the presumption that a judge shall decide on the merits of a case with an unclouded vision of its facts.
In fine, the Court finds no grave abuse of discretion when public respondent did not inhibit himself from hearing the case.
On the second issue, petitioners assail the Orders of August 21, 2007 and October 4, 2007 declaring them in default and denying their motion to vacate order, respectively.
Rules of procedure, especially those prescribing the time within which certain acts must be done, have often been held as absolutely indispensable to the prevention of needless delays and to the orderly and speedy discharge of business.[51] Section 5, Rule 108 of the Rules of Court provides that “[t]he civil registrar and any person having or claiming any interest under the entry whose cancellation or correction is sought may, within fifteen (15) days from notice of the petition, or from the last date of publication of such notice, file his opposition thereto.” Records show that the notice was last published on July 26, 2007.[52]
The trial court pointed out that petitioners filed their entry of appearance[53] without any attached Opposition to Ong’s petition and that, despite the grant to them of additional five days from August 7, 2007, they still failed to make a submission. Petitioners do not contest the trial court’s earlier observation that at the August 7, 2007 hearing, petitioners’ counsel undertook to submit the Opposition within the extended period and to appear at the next hearing,[54] where eventually both their pleading and presence turned up unforthcoming.
Petitioners thereafter filed an Urgent Ex-Parte Motion to Vacate the August 21, 2007 Order, insisting that the Omnibus Motion presented a prejudicial issue that should have been resolved first before the trial court proceeded with the case. Notably, in both the Motion to Vacate Order and the Memorandum and/or Submission, petitioners relied only on this ground and impliedly waived other defenses or grounds for the lifting of the default order.
For a motion to lift an order of default to prosper, the following requisites must concur: (1) it must be made by motion under oath by one who has knowledge of the facts; (2) it must be shown that the failure to file answer was due to fraud, accident, mistake or excusable negligence; and (3) there must be a proper showing of the existence of meritorious defense.[55]
As the trial court observed, the motion to vacate or set aside the order of default failed to comply with paragraph (b), Section 3, Rule 9 of the Rules of Court,[56] it noting, inter alia, that the motion was “not under oath, it failed to explain or justify why movants have not filed any opposition to the petition, and it was not accompanied by an affidavit of merit.”[57]
Indeed, a trial court has no authority to consider a motion to lift the order of default where such motion was not made under oath.[58] Moreover, a motion to lift an order of default must allege with particularity the facts constituting the fraud, accident, mistake or excusable neglect which caused the failure to answer.[59]
In this case, petitioners’ unverified motion does not contain any justifiable reason for their failure to file an appropriate responsive pleading. Petitioners’ persistent stance on the pendency of their Omnibus Motion deserves scant consideration in view of the recognition of the nunc pro tunc order confirming the August 14, 2007 denial of such motion.
Moreover, the filing of a motion for inhibition could not toll the running of the reglementary period to file a responsive pleading, for where a period is to be suspended by the filing of a pleading, the Rules of Court expressly provides for such a suspension.[60] Despite the grant of an extension of time, petitioners did not file an Opposition to Ong’s Petition, even one ex abundante ad cautelam that would have sufficiently dealt with their concern over the alleged pending incident.
Further, petitioners failed to allege, much less demonstrate, a meritorious defense or any argument to protect whatever interest they may have under the entry which they resist to be corrected, either embodied in a separate affidavit of merit or embedded in the verified motion itself.[61] Petitioners would later admit that they are “not real adversarial litigants in the juridical sense” as they are acting as “judicial monitors and observers.”[62]
Velayo-Fong v. Velayo[63] discusses the meaning of meritorious defense:
Moreover, when a party files a motion to lift order of default, she must also show that she has a meritorious defense or that something would be gained by having the order of default set aside. The term meritorious defense implies that the applicant has the burden of proving such a defense in order to have the judgment set aside. The cases usually do not require such a strong showing. The test employed appears to be essentially the same as used in considering summary judgment, that is, whether there is enough evidence to present an issue for submission to the trier of fact, or a showing that on the undisputed facts it is not clear that the judgment is warranted as a matter of law. The defendant must show that she has a meritorious defense otherwise the grant of her motion will prove to be a useless exercise. Thus, her motion must be accompanied by a statement of the evidence which she intends to present if the motion is granted and which is such as to warrant a reasonable belief that the result of the case would probably be otherwise if a new trial is granted.[64] (emphasis in the original)
Conjunctively, the glaring deficiencies negate the posture that petitioners had no intention to delay the case and that their defenses, if any, deserve to see the light of day in court. David v. Gutierrez-Fruelda[65] did not countenance the failure to comply with the basic requirements of a motion to lift an order of default. Accordingly, public respondent did not arbitrarily declare them in default and deny their motion to lift the order of default.
Respecting the trial court’s Decision of October 24, 2007, petitioners recapitulate their arguments against the inhibition and default orders to conclude that the assailed decision is “insupportable.”[66] As lone ground, petitioners posit that the special proceedings under Rule 108 do not fall under the juridical concept of adversarial proceedings in the absence of effective adversaries since the Office of the Civil Registrar is a formal party while the Office of the Solicitor General sided with Ong’s legal position. Petitioners admit that they, while being parties in interest in their capacity as judicial monitors and observers, are not real adversarial litigants in the juridical sense.[67]
The Court, in Kilosbayan Foundation v. Ermita,[68] stated that substantial corrections to the nationality or citizenship of persons recorded in the civil registry are effected through a petition filed in court under Rule 108 of the Rules of Court. Jurisprudence has settled that such proceedings are adversarial in nature or “[o]ne having opposing parties; contested, as distinguished from an ex parte application, one which the party seeking relief has given legal warning to the other party, and afforded the latter an opportunity to contest it.”[69] In this case, impleaded as defendants were the Civil Registrar of San Juan, Metro Manila and any other person having or claiming an interest under the entry sought to be corrected. The interest of the State was amply represented by the Office of the Solicitor General, while petitioners’ “interest” was deemed waived when they failed to appear and file a responsive pleading.
x x x.
I am not a pro bono lawyer. See the PAO or IBP chapter near you for free legal aid.
Sunday, August 22, 2010
One lucky lawyer
This is one lucky lawyer.
In the case of REYES VS. ATTY. VITAN, AC No. 5835, Aug. 18, 2010, four (4) administrative cases were filed against Atty. Jeremias R. Vitan, in each of which he was found guilty and meted the penalty of suspension from the practice of law.
All the four cases against him involved grave issues of dishonesty and deceit. Recidivism or habitual delinquency was patent. The 4 offenses deserved disbarment as a final penalty. Yet, the Court contented itself with mere suspensions.
The Court must be consistent in the application of administrative penalties.
At any rate, here are the background facts.
In the first case, A.C. No. 6441, (Violeta R. Tahaw v. Atty. Jeremias R. Vitan), promulgated on October 21, 2004,[1] Atty. Vitan was suspended for six (6)months, effective immediately upon receipt of the Decision. He was further ordered to return the amount of P30,000 to complainant for legal services he did not render. The records disclose that respondent received the Decision on November 12, 2004 and the period of suspension would have ended on May 12, 2005.
In A.C. No. 5835, (Carlos B. Reyes v. Atty. Jeremias R. Vitan), promulgated on April 15, 2005,[2] Atty. Vitan was suspended for six (6) months; and ordered to pay complainant P17,000.00 with interest of 12% per annum from the date of the promulgation of the Decision until the full amount shall have been returned. Per records, the Court’s decision was received by him on May 13, 2005, and his suspension would have ended on November 13, 2005.
In A.C. No. 6955 (Mar Yuson v. Atty. Jeremias R. Vitan), promulgated on July 27, 2006,[3] respondent was found liable for his failure to pay a just debt in the amount of P100,000.00. Upon investigation, the Integrated Bar of the Philippines (IBP) imposed the penalty of Suspension for two (2) years. This was modified by the Court after finding that there was partial payment of the loan, and the penalty was reduced to six (6) months suspension with warning, effective upon receipt of the Decision. In a Motion to Lift Order of Suspension, respondent moved for the reconsideration of the decision, asserting that there was full payment of the loan. The motion was denied in the Resolution dated March 6, 2007.
In the decision in the fourth case, A.C. No. 6051, (Celia Arroyo-Pesidio v. Atty. Jeremias R. Vitan), promulgated on April 2, 2007,[4] respondent was found to have failed to render the legal services sought after he had received the amount of P100,000, and was once again, suspended for one (1) year, with stern warning. The Decision was received on April 18, 2007, so the suspension period should have lapsed on April 18, 2008.
In a Report dated February 23, 2010, the OBC noted that respondent has been repeatedly suspended from the practice of law, for an aggregate period of 30 months or 2 ½ years. Accordingly, respondent should have served the orders of suspension successively pursuant to the Court’s resolution in A.M. No. RTJ-04-1857, entitled “Gabriel de la Paz v. Judge Santos B. Adiong,” where the Court clearly stated that “in case of two or more suspensions, the same shall be served successively by the erring respondent.”[6] It is, therefore, incumbent upon respondent to show to the Court that he has desisted from the practice of law for a period of at least 2 ½ years.
The holding of the Court is quoted below:
The Court, in the recent case of Ligaya Maniago v. Atty. Lourdes I. De Dios,[7] issued the guidelines on the lifting of orders of suspension, and has advised strict observance thereof. However, the Court will not hesitate to withhold the privilege of the practice of law if it is shown that respondent, as an officer of the Court, is still not worthy of the trust and confidence of his clients and of the public.
Thus, applying the guidelines in Maniago, the Court Resolved to GRANT Respondent’s Petition for Reinstatement, effective upon his submission to the Court of a Sworn Statement attesting to the fact:
1) that he has completely served the four (4) suspensions imposed on him successively;
2) that he had desisted from the practice of law, and has not appeared as counsel in any court during the periods of suspension, as follows:
(a) Six (6) months suspension in A.C. No. 5835 from May 13, 2005 to November 13, 2005;
(b) One (1) year suspension in A.C. No. 6051 from April 18, 2007 to April 18, 2008;
(c) Six (6) months suspension in A.C. No. 6441 from November 12, 2004 to May 12, 2005; and
(d) Six (6) months suspension in A.C. No. 6955 from date of receipt of the Resolution dated March 6, 2007 denying the Motion for Reconsideration of the Decision dated July 27, 2006.
3) that he has returned the sums of money to the complainants as ordered by the Court in the following cases, attaching proofs thereof:
(a) In A.C. No. 5835 – the sum of P17,000 with interest of 12% per annum from the date of promulgation of the Decision until the full amount shall have been returned; and
(b) In A.C. No. 6441 – the amount of P30,000.
Atty. Jeremias R. Vitan is further directed to FURNISH copies of the Sworn Statement to the Integrated Bar of the Philippines and Executive Judge(s), as mandated in Maniago.
Any finding or report contrary to the statements made by the Respondent under oath shall be a ground for the imposition of a more severe punishment, or disbarment, as may be warranted.
In the case of REYES VS. ATTY. VITAN, AC No. 5835, Aug. 18, 2010, four (4) administrative cases were filed against Atty. Jeremias R. Vitan, in each of which he was found guilty and meted the penalty of suspension from the practice of law.
All the four cases against him involved grave issues of dishonesty and deceit. Recidivism or habitual delinquency was patent. The 4 offenses deserved disbarment as a final penalty. Yet, the Court contented itself with mere suspensions.
The Court must be consistent in the application of administrative penalties.
At any rate, here are the background facts.
In the first case, A.C. No. 6441, (Violeta R. Tahaw v. Atty. Jeremias R. Vitan), promulgated on October 21, 2004,[1] Atty. Vitan was suspended for six (6)months, effective immediately upon receipt of the Decision. He was further ordered to return the amount of P30,000 to complainant for legal services he did not render. The records disclose that respondent received the Decision on November 12, 2004 and the period of suspension would have ended on May 12, 2005.
In A.C. No. 5835, (Carlos B. Reyes v. Atty. Jeremias R. Vitan), promulgated on April 15, 2005,[2] Atty. Vitan was suspended for six (6) months; and ordered to pay complainant P17,000.00 with interest of 12% per annum from the date of the promulgation of the Decision until the full amount shall have been returned. Per records, the Court’s decision was received by him on May 13, 2005, and his suspension would have ended on November 13, 2005.
In A.C. No. 6955 (Mar Yuson v. Atty. Jeremias R. Vitan), promulgated on July 27, 2006,[3] respondent was found liable for his failure to pay a just debt in the amount of P100,000.00. Upon investigation, the Integrated Bar of the Philippines (IBP) imposed the penalty of Suspension for two (2) years. This was modified by the Court after finding that there was partial payment of the loan, and the penalty was reduced to six (6) months suspension with warning, effective upon receipt of the Decision. In a Motion to Lift Order of Suspension, respondent moved for the reconsideration of the decision, asserting that there was full payment of the loan. The motion was denied in the Resolution dated March 6, 2007.
In the decision in the fourth case, A.C. No. 6051, (Celia Arroyo-Pesidio v. Atty. Jeremias R. Vitan), promulgated on April 2, 2007,[4] respondent was found to have failed to render the legal services sought after he had received the amount of P100,000, and was once again, suspended for one (1) year, with stern warning. The Decision was received on April 18, 2007, so the suspension period should have lapsed on April 18, 2008.
In a Report dated February 23, 2010, the OBC noted that respondent has been repeatedly suspended from the practice of law, for an aggregate period of 30 months or 2 ½ years. Accordingly, respondent should have served the orders of suspension successively pursuant to the Court’s resolution in A.M. No. RTJ-04-1857, entitled “Gabriel de la Paz v. Judge Santos B. Adiong,” where the Court clearly stated that “in case of two or more suspensions, the same shall be served successively by the erring respondent.”[6] It is, therefore, incumbent upon respondent to show to the Court that he has desisted from the practice of law for a period of at least 2 ½ years.
The holding of the Court is quoted below:
The Court, in the recent case of Ligaya Maniago v. Atty. Lourdes I. De Dios,[7] issued the guidelines on the lifting of orders of suspension, and has advised strict observance thereof. However, the Court will not hesitate to withhold the privilege of the practice of law if it is shown that respondent, as an officer of the Court, is still not worthy of the trust and confidence of his clients and of the public.
Thus, applying the guidelines in Maniago, the Court Resolved to GRANT Respondent’s Petition for Reinstatement, effective upon his submission to the Court of a Sworn Statement attesting to the fact:
1) that he has completely served the four (4) suspensions imposed on him successively;
2) that he had desisted from the practice of law, and has not appeared as counsel in any court during the periods of suspension, as follows:
(a) Six (6) months suspension in A.C. No. 5835 from May 13, 2005 to November 13, 2005;
(b) One (1) year suspension in A.C. No. 6051 from April 18, 2007 to April 18, 2008;
(c) Six (6) months suspension in A.C. No. 6441 from November 12, 2004 to May 12, 2005; and
(d) Six (6) months suspension in A.C. No. 6955 from date of receipt of the Resolution dated March 6, 2007 denying the Motion for Reconsideration of the Decision dated July 27, 2006.
3) that he has returned the sums of money to the complainants as ordered by the Court in the following cases, attaching proofs thereof:
(a) In A.C. No. 5835 – the sum of P17,000 with interest of 12% per annum from the date of promulgation of the Decision until the full amount shall have been returned; and
(b) In A.C. No. 6441 – the amount of P30,000.
Atty. Jeremias R. Vitan is further directed to FURNISH copies of the Sworn Statement to the Integrated Bar of the Philippines and Executive Judge(s), as mandated in Maniago.
Any finding or report contrary to the statements made by the Respondent under oath shall be a ground for the imposition of a more severe punishment, or disbarment, as may be warranted.
Delay seems endemic in our courts
Judge Winston M. Villegas of Tanjay City, Negros Oriental was found GUILTY of undue delay in rendering a decision in Civil Case No. 192. Accordingly, he was fined P15,000.00, with a STERN WARNING against the commission of a similar offense. (VERA VS. JUDGE VILLEGAS, AM No. RTJ-09-2211, Aug. 12, 2010).
Records showed that Civil Case No. 192 was filed on March 6, 2003. The complainant alleged that their last hearing was held on July 6, 2006 as evidenced by the Order issued by the respondent judge granting, among other things, her request to secure the services of another lawyer and to file the corresponding opposition to the Motion to Dismiss filed by Lorenzo Vera Cruz. It was only on December 27, 2007, or after more than one (1) year, that the respondent judge issued another Order denying the Motion to Dismiss and setting the case for pre-trial on February 7, 2008. Hence, it was clear that the respondent judge was guilty of undue delay in resolving the Motion to Dismiss filed by Lorenzo Vera Cruz. The said motion was resolved beyond the 90-day period required by law. Further, it was not refuted that the case was filed in 2003, and after almost five (5) years, it remained in the pre-trial stage. Respondent’s contentions that he had to hear 10 to 12 cases a day and that the electricity of the court was cut off in September 2007 were untenable to justify delay in the trial and resolution of pending incidents filed before him.
ACCORDING TO THE SUPREME COURT:
x x x.
Indeed, Judge Villegas had fallen short of the standards of efficiency and promptness of action required of an administrator of justice. He had become deaf, in this particular case, to the age-old maxim “justice delayed is justice denied.” As we stressed in an earlier administrative matter,[21] “Failure to decide a case or resolve a motion within the reglementary period constitutes gross inefficiency and warrants the imposition of administrative sanction against the erring magistrate. The delay in resolving motions and incidents pending before a judge within the reglementary period of ninety (90) days fixed by the Constitution and the law is not excusable.”[22]
Undue delay in rendering a decision or order, or in transmitting the records of a case is classified as a less serious charge.[23] If the respondent is found guilty of a less serious charge, any of the following sanctions may be imposed: (1) suspension from office without salary and other benefits for not less than one (1) month nor more than three (3) months; or (2) a fine of more than P10,000.00 but not exceeding P20,000.00.[24]
In determining the penalty to be imposed, we take into account the surrounding circumstances of the case. In this case, we have to consider that this is Judge Villegas’ first offense of this nature. Thus, a fine, rather than the heavier penalty of suspension, is more appropriate. The amount of the fine, on the other hand, has to take into account the extent of the delay. The complainant’s case – Civil Case No. 192 – was still on pre-trial as of February 7, 2008, or almost five years since it was filed on March 6, 2003. This delay cannot but be substantial delay given the time that has passed and the status of the case. Thus, a fine in the midrange of the imposable penalty, or P15,000.00 is in order.
Records showed that Civil Case No. 192 was filed on March 6, 2003. The complainant alleged that their last hearing was held on July 6, 2006 as evidenced by the Order issued by the respondent judge granting, among other things, her request to secure the services of another lawyer and to file the corresponding opposition to the Motion to Dismiss filed by Lorenzo Vera Cruz. It was only on December 27, 2007, or after more than one (1) year, that the respondent judge issued another Order denying the Motion to Dismiss and setting the case for pre-trial on February 7, 2008. Hence, it was clear that the respondent judge was guilty of undue delay in resolving the Motion to Dismiss filed by Lorenzo Vera Cruz. The said motion was resolved beyond the 90-day period required by law. Further, it was not refuted that the case was filed in 2003, and after almost five (5) years, it remained in the pre-trial stage. Respondent’s contentions that he had to hear 10 to 12 cases a day and that the electricity of the court was cut off in September 2007 were untenable to justify delay in the trial and resolution of pending incidents filed before him.
ACCORDING TO THE SUPREME COURT:
x x x.
Indeed, Judge Villegas had fallen short of the standards of efficiency and promptness of action required of an administrator of justice. He had become deaf, in this particular case, to the age-old maxim “justice delayed is justice denied.” As we stressed in an earlier administrative matter,[21] “Failure to decide a case or resolve a motion within the reglementary period constitutes gross inefficiency and warrants the imposition of administrative sanction against the erring magistrate. The delay in resolving motions and incidents pending before a judge within the reglementary period of ninety (90) days fixed by the Constitution and the law is not excusable.”[22]
Undue delay in rendering a decision or order, or in transmitting the records of a case is classified as a less serious charge.[23] If the respondent is found guilty of a less serious charge, any of the following sanctions may be imposed: (1) suspension from office without salary and other benefits for not less than one (1) month nor more than three (3) months; or (2) a fine of more than P10,000.00 but not exceeding P20,000.00.[24]
In determining the penalty to be imposed, we take into account the surrounding circumstances of the case. In this case, we have to consider that this is Judge Villegas’ first offense of this nature. Thus, a fine, rather than the heavier penalty of suspension, is more appropriate. The amount of the fine, on the other hand, has to take into account the extent of the delay. The complainant’s case – Civil Case No. 192 – was still on pre-trial as of February 7, 2008, or almost five years since it was filed on March 6, 2003. This delay cannot but be substantial delay given the time that has passed and the status of the case. Thus, a fine in the midrange of the imposable penalty, or P15,000.00 is in order.
Judge insults lawyer; fined.
In the case of ATTY. CORREA VS. JUDGE BELEN, AM No. RTJ - 2242, Aug. 6, 2010, the complainant Atty. Raul L. Correa charged respondent Judge Medel Arnaldo B. Belen of the Regional Trial Court, Branch 36, Calamba City, Laguna of Misconduct.
Complainant narrated that he was one of the Co-Administrators appointed by the court in Special Proceedings No. 660-01C, entitled “Intestate Estate of Hector Tan.” He revealed that during the hearing of the case, respondent Judge Belen disagreed with various items in the Administrator’s Report, including the audited Financial Report covering the said estate, and immediately ruled that they should be disallowed. Complainant added that respondent Judge Belen scolded their accountant, branded her as an incompetent, and threatened to sue her before the regulatory body overseeing all certified public accountants.
Complainant further claimed that, in the course of the proceedings, he was asked by respondent Judge Belen to stand up while the latter dictated his order on their Administrator’s Report. Respondent Judge Belen even rebuked him for some mistakes in managing the affairs of the estate, adding that it was regrettable “because Atty. Raul Correa is a U.P. Law Graduate and a Bar Topnotcher at that.” Complainant described the actuations and statements of respondent Judge Belen as uncalled for, a left-handed compliment, and a grave insult to his Alma Mater. Worse, the complainant stated that the respondent Judge Belen ousted complainant as co-administrator of the estate of Hector Tan.
Finding the respondent Judge Medel Arnaldo B. Belen, Presiding Judge of the Regional Trial Court of Calamba City, Branch 36, GUILTY of Conduct Unbecoming of a Judge, the Supreme Court FINED him P10,000.00, with a stern warning that a repetition of the same or similar act shall be dealt with more severely.
Read the salient parts of the decision below, thus:
x x x.
Indeed, the New Code of Judicial Conduct for the Philippine Judiciary exhorts members of the judiciary, in the discharge of their duties, to be models of propriety at all times. Canon 4 mandates –
CANON 4
PROPRIETY
Propriety and the appearance of propriety are essential to the performance of all the activities of a judge.
SECTION 1. Judges shall avoid impropriety and the appearance of impropriety in all of their activities.
x x x
SEC. 6. Judges, like any other citizen, are entitled to freedom of expression, belief, association and assembly, but in exercising such rights, they shall always conduct themselves in such a manner as to preserve the dignity of the judicial office and the impartiality and independence of the judiciary.
The Code also calls upon judges to ensure equality of treatment to all before the courts. More specifically, Section 3, Canon 5 on Equality provides –
SEC. 3. Judges shall carry out judicial duties with appropriate consideration for all persons, such as the parties, witnesses, lawyers, court staff and judicial colleagues, without differentiation on any irrelevant ground, immaterial to the proper performance of such duties.
We join the OCA in noting that the incidents narrated by complainant were never denied by respondent Judge Belen, who merely offered his justification and asserted counter accusations against complainant.
Verily, we hold that respondent Judge Belen should be more circumspect in his language in the discharge of his duties. A judge is the visible representation of the law. Thus, he must behave, at all times, in such a manner that his conduct, official or otherwise, can withstand the most searching public scrutiny. The ethical principles and sense of propriety of a judge are essential to the preservation of the people’s faith in the judicial system.[2]
A judge must consistently be temperate in words and in actions. Respondent Judge Belen’s insulting statements, tending to project complainant’s ignorance of the laws and procedure, coming from his inconsiderate belief that the latter mishandled the cause of his client is obviously and clearly insensitive, distasteful, and inexcusable. Such abuse of power and authority could only invite disrespect from counsels and from the public. Patience is one virtue that members of the bench should practice at all times, and courtesy to everyone is always called for.
Conduct unbecoming of a judge is classified as a light offense under Section 10, Rule 140 of the Revised Rules of Court, penalized under Section 11 (c) thereof by any of the following: (1) a Fine of not less than P1,000.00 but not exceeding P10,000.00; (2) Censure; (3) Reprimand; and (4) Admonition with warning. Inasmuch as this is not respondent Judge Belen’s first offense, the penalty of fine of P10,000.00 is deemed appropriate.
Complainant narrated that he was one of the Co-Administrators appointed by the court in Special Proceedings No. 660-01C, entitled “Intestate Estate of Hector Tan.” He revealed that during the hearing of the case, respondent Judge Belen disagreed with various items in the Administrator’s Report, including the audited Financial Report covering the said estate, and immediately ruled that they should be disallowed. Complainant added that respondent Judge Belen scolded their accountant, branded her as an incompetent, and threatened to sue her before the regulatory body overseeing all certified public accountants.
Complainant further claimed that, in the course of the proceedings, he was asked by respondent Judge Belen to stand up while the latter dictated his order on their Administrator’s Report. Respondent Judge Belen even rebuked him for some mistakes in managing the affairs of the estate, adding that it was regrettable “because Atty. Raul Correa is a U.P. Law Graduate and a Bar Topnotcher at that.” Complainant described the actuations and statements of respondent Judge Belen as uncalled for, a left-handed compliment, and a grave insult to his Alma Mater. Worse, the complainant stated that the respondent Judge Belen ousted complainant as co-administrator of the estate of Hector Tan.
Finding the respondent Judge Medel Arnaldo B. Belen, Presiding Judge of the Regional Trial Court of Calamba City, Branch 36, GUILTY of Conduct Unbecoming of a Judge, the Supreme Court FINED him P10,000.00, with a stern warning that a repetition of the same or similar act shall be dealt with more severely.
Read the salient parts of the decision below, thus:
x x x.
Indeed, the New Code of Judicial Conduct for the Philippine Judiciary exhorts members of the judiciary, in the discharge of their duties, to be models of propriety at all times. Canon 4 mandates –
CANON 4
PROPRIETY
Propriety and the appearance of propriety are essential to the performance of all the activities of a judge.
SECTION 1. Judges shall avoid impropriety and the appearance of impropriety in all of their activities.
x x x
SEC. 6. Judges, like any other citizen, are entitled to freedom of expression, belief, association and assembly, but in exercising such rights, they shall always conduct themselves in such a manner as to preserve the dignity of the judicial office and the impartiality and independence of the judiciary.
The Code also calls upon judges to ensure equality of treatment to all before the courts. More specifically, Section 3, Canon 5 on Equality provides –
SEC. 3. Judges shall carry out judicial duties with appropriate consideration for all persons, such as the parties, witnesses, lawyers, court staff and judicial colleagues, without differentiation on any irrelevant ground, immaterial to the proper performance of such duties.
We join the OCA in noting that the incidents narrated by complainant were never denied by respondent Judge Belen, who merely offered his justification and asserted counter accusations against complainant.
Verily, we hold that respondent Judge Belen should be more circumspect in his language in the discharge of his duties. A judge is the visible representation of the law. Thus, he must behave, at all times, in such a manner that his conduct, official or otherwise, can withstand the most searching public scrutiny. The ethical principles and sense of propriety of a judge are essential to the preservation of the people’s faith in the judicial system.[2]
A judge must consistently be temperate in words and in actions. Respondent Judge Belen’s insulting statements, tending to project complainant’s ignorance of the laws and procedure, coming from his inconsiderate belief that the latter mishandled the cause of his client is obviously and clearly insensitive, distasteful, and inexcusable. Such abuse of power and authority could only invite disrespect from counsels and from the public. Patience is one virtue that members of the bench should practice at all times, and courtesy to everyone is always called for.
Conduct unbecoming of a judge is classified as a light offense under Section 10, Rule 140 of the Revised Rules of Court, penalized under Section 11 (c) thereof by any of the following: (1) a Fine of not less than P1,000.00 but not exceeding P10,000.00; (2) Censure; (3) Reprimand; and (4) Admonition with warning. Inasmuch as this is not respondent Judge Belen’s first offense, the penalty of fine of P10,000.00 is deemed appropriate.
Abusive
Judge Medel Arnaldo B. Belen, Presiding Judge of the Regional Trial Court of Calamba City, Branch 36, was found GUILTY of violation of Section 4 of Canon 1 and Section 1 of Canon 4 of the New Code of Judicial Conduct for the Philippine Judiciary, and was FINED him P11,000, with a stern warning that a repetition of the same or similar act shall be dealt with more severely. (BELEN VS. JUDGE BELEN, AM No. RTJ-08-2139, Aug. 9, 2010)
Respondent judge wrote letters to government authorities and employees to secure public information regarding complainant’s piggery and poultry business; to inform addressees of the laws allegedly being violated by complainant; and to remind the addressees of their duties as government officials or employees and warn them of the possible legal effects of neglect of public duties. In writing these letters, respondent judge’s use of his personal stationery with letterhead indicating that he was the Presiding Judge of RTC of Calamba City, Branch 36, and stating that the letter was “from [his] chambers,” clearly manifests that respondent judge was trying to use the prestige of his office to influence said government officials and employees, and to achieve with prompt and ease the purpose for which those letters were written. In other words, respondent judge used said letterhead to promote his personal interest. This is violative of Section 4 of Canon 1 and Section 1 of Canon 4 of the New Code of Judicial Conduct for the Philippine Judiciary, to wit:
CANON 1
INDEPENDENCE
x x x
SECTION. 4. Judges shall not allow family, social, or other relationships to influence judicial conduct or judgment. The prestige of judicial office shall not be used or lent to advance the private interests of others, nor convey or permit others to convey the impression that they are in a special position to influence the judge.
CANON 4
PROPRIETY
Propriety and the appearance of propriety are essential to the performance of all the activities of a judge.
SECTION 1. Judges shall avoid impropriety and the appearance of impropriety in all of their activities.
x x x
Quoted below are the salient pronouncements of the Court:
x x x.
In Oktubre v. Velasco,[16] this Court held that respondent judge’s act of sending several letters bearing his sala’s letterhead, in connection with an apparent dispute in the administration of the estates of his relatives, clearly showed the judge’s intent to use the prestige of his judicial office, and hence, violative of Rule 2.03 of the Code of Judicial Conduct.[17] The Court considered respondent Judge Velasco’s excuse for using his sala’s letterhead, i.e., that he wanted to protect the interest of his maternal co-heirs in the subject properties, as flimsy, and emphasized that respondent judge had no business using his sala’s letterhead for private matters, as the same should be used only for official correspondence.[18]
Similarly, in Rosauro v. Kallos,[19] it was held that respondent judge’s use of his sala’s official stationery in his private correspondence with complainant and his counsel constitutes violation of Rule 2.03 of the Code of Judicial Conduct. The Court concluded that: “By using his sala’s stationery other than for official purposes, respondent Judge evidently used the prestige of his office to benefit Guerrero (and himself) in violation of Rule 2.03 of the Code.”[20]
In Ladignon v. Garong,[21] respondent judge’s act of using the official letterhead of his court and signing the same using the word “judge” in his letter-complaint to the First United Methodist Church in Michigan, USA, was held to be violative of Canon 2 of the Code of Judicial Ethics and Rule 2.03 of the Code of Judicial Conduct. The Court held, thus:
We agree with the Report that what is involved here is the rule that “Judges shall avoid impropriety and the appearance of impropriety in all of their activities”. (Canon 4, Section 1, New Code of Judicial Conduct) Indeed, members of the Judiciary should be beyond reproach and suspicion in their conduct, and should be free from any appearance of impropriety in the discharge of their official duties as well as in their personal behavior and everyday life. No position exacts a greater demand for moral righteousness and uprightness on the individual than a seat in the Judiciary. x x x
x x x
x x x As the Report stated, [repondent judge’s] use of the letterhead and his designation as a Judge in a situation of potential dispute gave “the appearance that there is an implied or assured consent of the court to his cause.” This circumstance, to our mind, was what marked the respondent Judge’s use of his letterhead and title as improper. In other words, the respondent Judge’s transgression was not per se in the use of the letterhead, but in not being very careful and discerning in considering the circumstances surrounding the use of his letterhead and his title.
x x x
x x x the use of a letterhead should not be considered independently of the surrounding circumstances of the use - the underlying reason that marks the use with the element of “impropriety” or “appearance of impropriety”. In the present case, the respondent Judge crossed the line of propriety when he used his letterhead to report a complaint involving an alleged violation of church rules and, possibly, of Philippine laws. Coming from a judge with the letter addressed to a foreign reader, such report could indeed have conveyed the impression of official recognition or notice of the reported violation.
The same problem that the use of letterhead poses, occurs in the use of the title of “Judge” or “Justice” in the correspondence of a member of the Judiciary. While the use of the title is an official designation as well as an honor that an incumbent has earned, a line still has to be drawn based on the circumstances of the use of the appellation. While the title can be used for social and other identification purposes, it cannot be used with the intent to use the prestige of his judicial office to gainfully advance his personal, family or other pecuniary interests. Nor can the prestige of a judicial office be used or lent to advance the private interests of others, or to convey or permit others to convey the impression that they are in a special position to influence the judge. (Canon 2, Rule 2.03 of the Code of Judicial Conduct) To do any of these is to cross into the prohibited field of impropriety.[22]
In view of the foregoing, we find respondent judge guilty of violation of Section 4 of Canon 1 and Section 1 of Canon 4 of the New Code of Judicial Conduct for the Philippine Judiciary.
Section 11(B), in relation to Section 9(4) of Rule 140, as amended by A.M. No. 01-8-10-SC,[23] provides that violation of Supreme Court rules constitutes a less-serious charge punishable by any of the following sanctions:
1. Suspension from office without salary and other benefits for not less than one (1) nor more than three (3) months; or
2. A fine of more than P10,000.00 but not exceeding P20,000.00.
We agree with the recommendation of the investigating justice and the OCA that respondent judge, for his transgression, be meted a penalty of fine amounting to P11,000, with a stern warning that a repetition of the same or similar act shall be dealt with more severely.
Respondent judge wrote letters to government authorities and employees to secure public information regarding complainant’s piggery and poultry business; to inform addressees of the laws allegedly being violated by complainant; and to remind the addressees of their duties as government officials or employees and warn them of the possible legal effects of neglect of public duties. In writing these letters, respondent judge’s use of his personal stationery with letterhead indicating that he was the Presiding Judge of RTC of Calamba City, Branch 36, and stating that the letter was “from [his] chambers,” clearly manifests that respondent judge was trying to use the prestige of his office to influence said government officials and employees, and to achieve with prompt and ease the purpose for which those letters were written. In other words, respondent judge used said letterhead to promote his personal interest. This is violative of Section 4 of Canon 1 and Section 1 of Canon 4 of the New Code of Judicial Conduct for the Philippine Judiciary, to wit:
CANON 1
INDEPENDENCE
x x x
SECTION. 4. Judges shall not allow family, social, or other relationships to influence judicial conduct or judgment. The prestige of judicial office shall not be used or lent to advance the private interests of others, nor convey or permit others to convey the impression that they are in a special position to influence the judge.
CANON 4
PROPRIETY
Propriety and the appearance of propriety are essential to the performance of all the activities of a judge.
SECTION 1. Judges shall avoid impropriety and the appearance of impropriety in all of their activities.
x x x
Quoted below are the salient pronouncements of the Court:
x x x.
In Oktubre v. Velasco,[16] this Court held that respondent judge’s act of sending several letters bearing his sala’s letterhead, in connection with an apparent dispute in the administration of the estates of his relatives, clearly showed the judge’s intent to use the prestige of his judicial office, and hence, violative of Rule 2.03 of the Code of Judicial Conduct.[17] The Court considered respondent Judge Velasco’s excuse for using his sala’s letterhead, i.e., that he wanted to protect the interest of his maternal co-heirs in the subject properties, as flimsy, and emphasized that respondent judge had no business using his sala’s letterhead for private matters, as the same should be used only for official correspondence.[18]
Similarly, in Rosauro v. Kallos,[19] it was held that respondent judge’s use of his sala’s official stationery in his private correspondence with complainant and his counsel constitutes violation of Rule 2.03 of the Code of Judicial Conduct. The Court concluded that: “By using his sala’s stationery other than for official purposes, respondent Judge evidently used the prestige of his office to benefit Guerrero (and himself) in violation of Rule 2.03 of the Code.”[20]
In Ladignon v. Garong,[21] respondent judge’s act of using the official letterhead of his court and signing the same using the word “judge” in his letter-complaint to the First United Methodist Church in Michigan, USA, was held to be violative of Canon 2 of the Code of Judicial Ethics and Rule 2.03 of the Code of Judicial Conduct. The Court held, thus:
We agree with the Report that what is involved here is the rule that “Judges shall avoid impropriety and the appearance of impropriety in all of their activities”. (Canon 4, Section 1, New Code of Judicial Conduct) Indeed, members of the Judiciary should be beyond reproach and suspicion in their conduct, and should be free from any appearance of impropriety in the discharge of their official duties as well as in their personal behavior and everyday life. No position exacts a greater demand for moral righteousness and uprightness on the individual than a seat in the Judiciary. x x x
x x x
x x x As the Report stated, [repondent judge’s] use of the letterhead and his designation as a Judge in a situation of potential dispute gave “the appearance that there is an implied or assured consent of the court to his cause.” This circumstance, to our mind, was what marked the respondent Judge’s use of his letterhead and title as improper. In other words, the respondent Judge’s transgression was not per se in the use of the letterhead, but in not being very careful and discerning in considering the circumstances surrounding the use of his letterhead and his title.
x x x
x x x the use of a letterhead should not be considered independently of the surrounding circumstances of the use - the underlying reason that marks the use with the element of “impropriety” or “appearance of impropriety”. In the present case, the respondent Judge crossed the line of propriety when he used his letterhead to report a complaint involving an alleged violation of church rules and, possibly, of Philippine laws. Coming from a judge with the letter addressed to a foreign reader, such report could indeed have conveyed the impression of official recognition or notice of the reported violation.
The same problem that the use of letterhead poses, occurs in the use of the title of “Judge” or “Justice” in the correspondence of a member of the Judiciary. While the use of the title is an official designation as well as an honor that an incumbent has earned, a line still has to be drawn based on the circumstances of the use of the appellation. While the title can be used for social and other identification purposes, it cannot be used with the intent to use the prestige of his judicial office to gainfully advance his personal, family or other pecuniary interests. Nor can the prestige of a judicial office be used or lent to advance the private interests of others, or to convey or permit others to convey the impression that they are in a special position to influence the judge. (Canon 2, Rule 2.03 of the Code of Judicial Conduct) To do any of these is to cross into the prohibited field of impropriety.[22]
In view of the foregoing, we find respondent judge guilty of violation of Section 4 of Canon 1 and Section 1 of Canon 4 of the New Code of Judicial Conduct for the Philippine Judiciary.
Section 11(B), in relation to Section 9(4) of Rule 140, as amended by A.M. No. 01-8-10-SC,[23] provides that violation of Supreme Court rules constitutes a less-serious charge punishable by any of the following sanctions:
1. Suspension from office without salary and other benefits for not less than one (1) nor more than three (3) months; or
2. A fine of more than P10,000.00 but not exceeding P20,000.00.
We agree with the recommendation of the investigating justice and the OCA that respondent judge, for his transgression, be meted a penalty of fine amounting to P11,000, with a stern warning that a repetition of the same or similar act shall be dealt with more severely.
DOJ power over pending criminal cases subject to court's discretion
In the case of FLOREZ VS. HON. GONZALES, GR 188197, August 3, 2010, the Supreme Court affirmed the old doctrine pronounced in CRESPO VS. MOGUL, L-53373, June 30, 1987, 235 Phil. 465, 476 (1987), which held that once a complaint or information is filed in Court, any disposition of the case as its dismissal or the conviction or acquittal of the accused rests in the sound discretion of the Court.
Although the fiscal retains the direction and control of the prosecution of criminal cases even while the case is already in Court, he cannot impose his opinion on the trial court. The Court is the best and sole judge on what to do with the case before it. The determination of the case is within its exclusive jurisdiction and competence.
A motion to dismiss the case filed by the fiscal should be addressed to the Court who has the option to grant or deny the same. It does not matter if this is done before or after the arraignment of the accused or that the motion was filed after a reinvestigation or upon instructions of the Secretary of Justice who reviewed the records of the investigation.
In order to avoid such a situation whereby the opinion of the Secretary of Justice who reviewed the action of the fiscal may be disregarded by the trial court, the Secretary of Justice should, as far as practicable, refrain from entertaining a petition for review or appeal from the action of the fiscal, when the complaint or information has already been filed in Court. The matter should be left entirely for the determination of the Court.
Quoted below are the salient parts of the decision in FLOREZ VS. HON. GONZALES, GR 188197, August 3, 2010:
x x x.
In this case, on a petition for review, the Secretary of Justice found probable cause for Other Deceits against Lim; thus, the proper Information was filed in Court pursuant to the directive of the Secretary of Justice. Upon filing of the Information, the MTCC acquired jurisdiction over the case.
Lim filed a motion for reconsideration of the May 31, 2006 Resolution of the Secretary of Justice. There was nothing procedurally infirm in this course of action inasmuch as there is nothing in Crespo that bars the Secretary of Justice from reviewing resolutions of his subordinates in an appeal or petition for review in criminal cases. The Secretary of Justice was merely advised in Crespo that, as far as practicable, he should not take cognizance of an appeal when the complaint or information is already filed in court.[42]
This is also true with respect to a motion for reconsideration before the Secretary of Justice. Review, whether on appeal or on motion for reconsideration, as an act of supervision and control by the Secretary of Justice over the prosecutors, finds basis in the doctrine of exhaustion of administrative remedies which holds that mistakes, abuses or negligence committed in the initial steps of an administrative activity or by an administrative agency may be corrected by higher administrative authorities, and not directly by courts. As a rule, only after administrative remedies are exhausted may judicial recourse be allowed.[43] In any case, the grant of a motion to dismiss or a motion to withdraw the information, which the prosecution may file after the Secretary of Justice reverses the finding of probable cause, is subject to the discretion of the court.[44]
In this case, the Secretary of Justice, reversed himself in his March 22, 2007 Resolution, and directed the withdrawal of the Information against Lim. In compliance with this directive, the prosecutor filed a Motion to Withdraw Information on May 3, 2007. Flores, on the other hand, filed on May 22, 2007 a petition for certiorari before the Court of Appeals to assail the March 22, 2007 Resolution of the Secretary of Justice. Then, on June 20, 2007, the MTCC denied the Motion to Withdraw Information on the ground that, based on its own assessment, there exists probable cause to hold Lim for trial for the crime of Other Deceits. In view of the June 20, 2007 MTCC Resolution, Flores manifested before the Court of Appeals this disposition, attaching a copy of the said Resolution to his pleading. Meanwhile, Lim filed a motion for reconsideration with the MTCC. Cognizant of the pending petition for certiorari in the Court of Appeals and Lim’s motion for reconsideration of the June 20, 2007 Resolution, the MTCC suspended the proceedings before it, and deferred the arraignment of Lim until the resolution of Flores’ certiorari petition of the Court of Appeals.
We wish to point out that, notwithstanding the pendency of the Information before the MTCC, especially considering the reversal by the Secretary of Justice of his May 31, 2006 Resolution, a petition for certiorari under Rule 65 of the Rules of Court, anchored on the alleged grave abuse of discretion amounting to excess or lack of jurisdiction on the part of Secretary of Justice, was an available remedy to Flores as an aggrieved party.[45]
In the petition for certiorari, the Court of Appeals is not being asked to cause the dismissal of the case in the trial court, but only to resolve the issue of whether the Secretary of Justice acted with grave abuse of discretion in either affirming or reversing the finding of probable cause against the accused. But still the rule stands—the decision whether to dismiss the case or not rests on the sound discretion of the trial court where the Information was filed.[46] As jurisdiction was already acquired by the MTCC, this jurisdiction is not lost despite a resolution by the Secretary of Justice to withdraw the information or to dismiss the case, notwithstanding the deferment or suspension of the arraignment of the accused and further proceedings, and not even if the Secretary of Justice is affirmed by the higher courts.[47]
Verily, it bears stressing that the trial court is not bound to adopt the resolution of the Secretary of Justice, in spite of being affirmed by the appellate courts, since it is mandated to independently evaluate or assess the merits of the case and it may either agree or disagree with the recommendation of the Secretary of Justice. Reliance on the resolution of the Secretary of Justice alone would be an abdication of the trial court’s duty and jurisdiction to determine a prima facie case.[48] Thus, the trial court may make an independent assessment of the merits of the case based on the affidavits and counter-affidavits, documents, or evidence appended to the Information; the records of the public prosecutor which the court may order the latter to produce before it; or any evidence already adduced before the court by the accused at the time the motion is filed by the public prosecutor.[49] The trial court should make its assessment separately and independently of the evaluation of the prosecution or of the Secretary of Justice. This assessment should be embodied in the written order disposing of the motion to dismiss or the motion to withdraw the information.[50]
This was precisely what the MTCC did when it denied the Motion to Withdraw Information in its June 20, 2007 Resolution, and it correctly did so. In view of the above disquisitions, and while the disposition of the issue of whether or not the Secretary of Justice acted with grave abuse of discretion in not finding probable cause against Lim may be persuasive, the MTCC is not bound to dismiss the case or to withdraw the Information. For these reasons, the petition for certiorari before the Court of Appeals has effectively become moot and academic upon the issuance by the MTCC of its June 20, 2007 Resolution. The March 6, 2008 Decision and the May 28, 2009 Resolution of the Court of Appeals affirming the Secretary of Justice will really make no difference anymore.
As held in Auto Prominence Corporation v. Winterkorn,[51] pursuant to our ruling in Crespo and in the subsequent related cases, this Court held—
In ascertaining whether the Secretary of Justice committed grave abuse of discretion amounting to lack or excess or jurisdiction in his determination of the existence of probable cause, the party seeking the writ of certiorari must be able to establish that the Secretary of Justice exercised his executive power in an arbitrary and despotic manner, by reason of passion or personal hostility, and the abuse of discretion must be so patent and gross as would amount to an evasion or to a unilateral refusal to perform the duty enjoined or to act in contemplation of law. Grave abuse of discretion is not enough, it must amount to lack or excess of jurisdiction. Excess of jurisdiction signifies that he had jurisdiction over the case, but (he) transcended the same or acted without authority.
There is no escaping the fact that resolving the issue of whether the Secretary of Justice committed grave abuse of discretion amounting to lack or excess of jurisdiction would necessarily entail a review of his finding of lack of probable cause against the respondents AUDI AG officers.
If we should sustain the DOJ Secretary in maintaining that no probable cause exists to hold respondents AUDI AG officers liable to stand trial for the crime they were charged with, our ruling would actually serve no practical or useful purpose, since the RTC had already made such a judicial determination, on the basis of which it dismissed Criminal Case No. 4824-A. Lest it be forgotten, the fact that the Information against respondents AUDI AG officers had already been filed in court, its disposition, i.e., its dismissal or the conviction of the accused, rests on the sound discretion of the Court. And although the fiscal retains direction and control of the prosecution of criminal cases even while the case is already in court, he cannot impose his opinion on the trial court. The Court is the best and sole judge of what to do with the case before it. The determination of the case is within its exclusive jurisdiction and competence. Thus, the court may deny or grant the motion to withdraw an Information, not out of subservience to the (Special) Prosecutor, but in faithful exercise of judicial discretion and prerogative. For these very same reasons, we must now refrain from resolving the issues raised by petitioners PPC and APC, considering that the information against respondents AUDI AG officers had already been filed before the RTC; the RTC acquired exclusive jurisdiction over Criminal Case No. 4824-A; and it has already rendered judgment dismissing the charges against respondents AUDI AG officers.
This is not to say that we are already affirming the 2 July 2008 Order of the RTC dismissing Criminal Case No. 4824-A. To the contrary, we are much aware that petitioners PPC and APC’s Motion for Reconsideration of the said order of dismissal is still pending resolution by the trial court. By refusing to go into the merits of the instant Petition, we are only respecting the exclusive jurisdiction of the RTC over Criminal Case No. 4824-A and avoiding any pronouncement on our part which would preempt its independent assessment of the case. Irrefragably, a determination by us that probable cause against respondents AUDI AG officers does or does not exist would strongly influence, if not directly affect, the resolution by the RTC of the matter still pending before it. In any case, the party that would feel aggrieved by the final judgment or order of the lower court in Criminal Case No. 4824-A has the option of elevating the same to the higher courts. And if only for the orderly administration of justice, the proceeding in Criminal Case No. 4824-A, that is, the resolution of the pending motion for reconsideration filed by petitioners PPC and APC, should be allowed to continue and take its course.
Under the circumstances, the denial of the present Petition is clearly warranted for being moot. Where a declaration on an issue would have no practical use or value, this Court will refrain from expressing its opinion in a case where no practical relief may be granted in view of a supervening event. Thus, it is unnecessary to indulge in academic discussion of a case presenting a moot question, as a judgment thereon cannot have any practical legal effect or, in the nature of things, cannot be enforced.[52]
Although the fiscal retains the direction and control of the prosecution of criminal cases even while the case is already in Court, he cannot impose his opinion on the trial court. The Court is the best and sole judge on what to do with the case before it. The determination of the case is within its exclusive jurisdiction and competence.
A motion to dismiss the case filed by the fiscal should be addressed to the Court who has the option to grant or deny the same. It does not matter if this is done before or after the arraignment of the accused or that the motion was filed after a reinvestigation or upon instructions of the Secretary of Justice who reviewed the records of the investigation.
In order to avoid such a situation whereby the opinion of the Secretary of Justice who reviewed the action of the fiscal may be disregarded by the trial court, the Secretary of Justice should, as far as practicable, refrain from entertaining a petition for review or appeal from the action of the fiscal, when the complaint or information has already been filed in Court. The matter should be left entirely for the determination of the Court.
Quoted below are the salient parts of the decision in FLOREZ VS. HON. GONZALES, GR 188197, August 3, 2010:
x x x.
In this case, on a petition for review, the Secretary of Justice found probable cause for Other Deceits against Lim; thus, the proper Information was filed in Court pursuant to the directive of the Secretary of Justice. Upon filing of the Information, the MTCC acquired jurisdiction over the case.
Lim filed a motion for reconsideration of the May 31, 2006 Resolution of the Secretary of Justice. There was nothing procedurally infirm in this course of action inasmuch as there is nothing in Crespo that bars the Secretary of Justice from reviewing resolutions of his subordinates in an appeal or petition for review in criminal cases. The Secretary of Justice was merely advised in Crespo that, as far as practicable, he should not take cognizance of an appeal when the complaint or information is already filed in court.[42]
This is also true with respect to a motion for reconsideration before the Secretary of Justice. Review, whether on appeal or on motion for reconsideration, as an act of supervision and control by the Secretary of Justice over the prosecutors, finds basis in the doctrine of exhaustion of administrative remedies which holds that mistakes, abuses or negligence committed in the initial steps of an administrative activity or by an administrative agency may be corrected by higher administrative authorities, and not directly by courts. As a rule, only after administrative remedies are exhausted may judicial recourse be allowed.[43] In any case, the grant of a motion to dismiss or a motion to withdraw the information, which the prosecution may file after the Secretary of Justice reverses the finding of probable cause, is subject to the discretion of the court.[44]
In this case, the Secretary of Justice, reversed himself in his March 22, 2007 Resolution, and directed the withdrawal of the Information against Lim. In compliance with this directive, the prosecutor filed a Motion to Withdraw Information on May 3, 2007. Flores, on the other hand, filed on May 22, 2007 a petition for certiorari before the Court of Appeals to assail the March 22, 2007 Resolution of the Secretary of Justice. Then, on June 20, 2007, the MTCC denied the Motion to Withdraw Information on the ground that, based on its own assessment, there exists probable cause to hold Lim for trial for the crime of Other Deceits. In view of the June 20, 2007 MTCC Resolution, Flores manifested before the Court of Appeals this disposition, attaching a copy of the said Resolution to his pleading. Meanwhile, Lim filed a motion for reconsideration with the MTCC. Cognizant of the pending petition for certiorari in the Court of Appeals and Lim’s motion for reconsideration of the June 20, 2007 Resolution, the MTCC suspended the proceedings before it, and deferred the arraignment of Lim until the resolution of Flores’ certiorari petition of the Court of Appeals.
We wish to point out that, notwithstanding the pendency of the Information before the MTCC, especially considering the reversal by the Secretary of Justice of his May 31, 2006 Resolution, a petition for certiorari under Rule 65 of the Rules of Court, anchored on the alleged grave abuse of discretion amounting to excess or lack of jurisdiction on the part of Secretary of Justice, was an available remedy to Flores as an aggrieved party.[45]
In the petition for certiorari, the Court of Appeals is not being asked to cause the dismissal of the case in the trial court, but only to resolve the issue of whether the Secretary of Justice acted with grave abuse of discretion in either affirming or reversing the finding of probable cause against the accused. But still the rule stands—the decision whether to dismiss the case or not rests on the sound discretion of the trial court where the Information was filed.[46] As jurisdiction was already acquired by the MTCC, this jurisdiction is not lost despite a resolution by the Secretary of Justice to withdraw the information or to dismiss the case, notwithstanding the deferment or suspension of the arraignment of the accused and further proceedings, and not even if the Secretary of Justice is affirmed by the higher courts.[47]
Verily, it bears stressing that the trial court is not bound to adopt the resolution of the Secretary of Justice, in spite of being affirmed by the appellate courts, since it is mandated to independently evaluate or assess the merits of the case and it may either agree or disagree with the recommendation of the Secretary of Justice. Reliance on the resolution of the Secretary of Justice alone would be an abdication of the trial court’s duty and jurisdiction to determine a prima facie case.[48] Thus, the trial court may make an independent assessment of the merits of the case based on the affidavits and counter-affidavits, documents, or evidence appended to the Information; the records of the public prosecutor which the court may order the latter to produce before it; or any evidence already adduced before the court by the accused at the time the motion is filed by the public prosecutor.[49] The trial court should make its assessment separately and independently of the evaluation of the prosecution or of the Secretary of Justice. This assessment should be embodied in the written order disposing of the motion to dismiss or the motion to withdraw the information.[50]
This was precisely what the MTCC did when it denied the Motion to Withdraw Information in its June 20, 2007 Resolution, and it correctly did so. In view of the above disquisitions, and while the disposition of the issue of whether or not the Secretary of Justice acted with grave abuse of discretion in not finding probable cause against Lim may be persuasive, the MTCC is not bound to dismiss the case or to withdraw the Information. For these reasons, the petition for certiorari before the Court of Appeals has effectively become moot and academic upon the issuance by the MTCC of its June 20, 2007 Resolution. The March 6, 2008 Decision and the May 28, 2009 Resolution of the Court of Appeals affirming the Secretary of Justice will really make no difference anymore.
As held in Auto Prominence Corporation v. Winterkorn,[51] pursuant to our ruling in Crespo and in the subsequent related cases, this Court held—
In ascertaining whether the Secretary of Justice committed grave abuse of discretion amounting to lack or excess or jurisdiction in his determination of the existence of probable cause, the party seeking the writ of certiorari must be able to establish that the Secretary of Justice exercised his executive power in an arbitrary and despotic manner, by reason of passion or personal hostility, and the abuse of discretion must be so patent and gross as would amount to an evasion or to a unilateral refusal to perform the duty enjoined or to act in contemplation of law. Grave abuse of discretion is not enough, it must amount to lack or excess of jurisdiction. Excess of jurisdiction signifies that he had jurisdiction over the case, but (he) transcended the same or acted without authority.
There is no escaping the fact that resolving the issue of whether the Secretary of Justice committed grave abuse of discretion amounting to lack or excess of jurisdiction would necessarily entail a review of his finding of lack of probable cause against the respondents AUDI AG officers.
If we should sustain the DOJ Secretary in maintaining that no probable cause exists to hold respondents AUDI AG officers liable to stand trial for the crime they were charged with, our ruling would actually serve no practical or useful purpose, since the RTC had already made such a judicial determination, on the basis of which it dismissed Criminal Case No. 4824-A. Lest it be forgotten, the fact that the Information against respondents AUDI AG officers had already been filed in court, its disposition, i.e., its dismissal or the conviction of the accused, rests on the sound discretion of the Court. And although the fiscal retains direction and control of the prosecution of criminal cases even while the case is already in court, he cannot impose his opinion on the trial court. The Court is the best and sole judge of what to do with the case before it. The determination of the case is within its exclusive jurisdiction and competence. Thus, the court may deny or grant the motion to withdraw an Information, not out of subservience to the (Special) Prosecutor, but in faithful exercise of judicial discretion and prerogative. For these very same reasons, we must now refrain from resolving the issues raised by petitioners PPC and APC, considering that the information against respondents AUDI AG officers had already been filed before the RTC; the RTC acquired exclusive jurisdiction over Criminal Case No. 4824-A; and it has already rendered judgment dismissing the charges against respondents AUDI AG officers.
This is not to say that we are already affirming the 2 July 2008 Order of the RTC dismissing Criminal Case No. 4824-A. To the contrary, we are much aware that petitioners PPC and APC’s Motion for Reconsideration of the said order of dismissal is still pending resolution by the trial court. By refusing to go into the merits of the instant Petition, we are only respecting the exclusive jurisdiction of the RTC over Criminal Case No. 4824-A and avoiding any pronouncement on our part which would preempt its independent assessment of the case. Irrefragably, a determination by us that probable cause against respondents AUDI AG officers does or does not exist would strongly influence, if not directly affect, the resolution by the RTC of the matter still pending before it. In any case, the party that would feel aggrieved by the final judgment or order of the lower court in Criminal Case No. 4824-A has the option of elevating the same to the higher courts. And if only for the orderly administration of justice, the proceeding in Criminal Case No. 4824-A, that is, the resolution of the pending motion for reconsideration filed by petitioners PPC and APC, should be allowed to continue and take its course.
Under the circumstances, the denial of the present Petition is clearly warranted for being moot. Where a declaration on an issue would have no practical use or value, this Court will refrain from expressing its opinion in a case where no practical relief may be granted in view of a supervening event. Thus, it is unnecessary to indulge in academic discussion of a case presenting a moot question, as a judgment thereon cannot have any practical legal effect or, in the nature of things, cannot be enforced.[52]
Fined for delay
In the case of SARMIENTO, ET. AV. VS. LINDAYAG, AM No.MTJ-09-1743, August 3, 2010, the respondent Judge Aznar D. Lindayag, Presiding Judge, Municipal Trial Court in Cities, San Jose Del Monte City, Bulacan, was FINED 15,000 Pesos for undue delay in resolving Civil case No. 11-2002-SJ (a summary ejectment suit). The doctrinal statements of the Supreme Court are as follows:
x x x.
The Court finds the evaluation and recommendation of the OCA well-taken. It bears stressing that ejectment cases must be resolved with great dispatch.[8] Their nature calls for it. As Five Star Marketing Co., Inc. v. Booc[9] holds:
Forcible entry and unlawful detainer cases are summary proceedings designed to provide an expeditious means of protecting actual possession or the right to the possession of the property involved. It does not admit of a delay in the determination thereof. It is a “time procedure” designed to remedy the situation. Stated in another way, the avowed objective of actions for forcible entry and unlawful detainer, which have purposely been made summary in nature, is to provide a peaceful, speedy and expeditious means of preventing an alleged illegal possessor of property from unjustly continuing his possession for a long time, thereby ensuring the maintenance of peace and order in the community; otherwise, the party illegally deprived of possession might feel the despair of long waiting and decide as a measure of self-protection to take the law into his hands and seize the same by force and violence. And since the law discourages continued wrangling over possession of property for it involves perturbation of social order which must be restored as promptly as possible, technicalities or details of procedure which may cause unnecessary delays should accordingly and carefully be avoided.
In accordance with the above objective, the Revised Rules on Summary Procedure set forth the steps to expeditiously dispose of the cases covered by the rules, as in ejectment…[10] (emphasis supplied)
That explains why Section 10 of the Revised Rules on Summary Procedure[11] which applies to an ejectment complaint, among others, directs that within 30 days after the receipt of the last affidavits and position papers, or the expiration of the period for filing the same, the trial court should render judgment on the case. Without any order of extension granted by this Court, the failure to decide even a single case within the required period constitutes gross inefficiency.[12]
That it took respondent almost four years to decide the second complaint unmistakably shows his inefficiency. His above-quoted explanation-justification therefor does not indeed convince. Just as his statement about records getting misplaced or misfiled does not. The New Code of Judicial Conduct for the Philippine Judiciary requires judges to “devote their professional activity to judicial duties, which include not only the performance of judicial functions and responsibilities in court and the making of decisions, but also other tasks relevant to the judicial office or the court’s operations.”
Rule 3.08 of the Code of Judicial Conduct[13] requires that a judge should be diligent in discharging administrative responsibilities and should maintain professional competence in court management, hence, it is incumbent upon him to devise an efficient recording and filing system so that no disorderliness can affect the flow of cases and their speedy disposition.[14]
Under Rule 140 of the Rules of Court, undue delay in rendering a decision is a less serious charge in which any of the following sanctions may be imposed: (a) suspension from the service without salary and other benefits for not less than one month nor more than three months; or (b) a fine of more than P10,000 but not more than P20,000.
Respondent having been previously admonished in A.M. OCA IPI No. 07-1885-MTJ to be more circumspect in observing the reglementary periods for resolving motions and rendering decisions, not to mention that he was again charged for undue delay in resolving a motion in OCA IPI No. 08-2009-MTJ which is pending evaluation, the recommended fine of P15,000 is in order.
x x x.
The Court finds the evaluation and recommendation of the OCA well-taken. It bears stressing that ejectment cases must be resolved with great dispatch.[8] Their nature calls for it. As Five Star Marketing Co., Inc. v. Booc[9] holds:
Forcible entry and unlawful detainer cases are summary proceedings designed to provide an expeditious means of protecting actual possession or the right to the possession of the property involved. It does not admit of a delay in the determination thereof. It is a “time procedure” designed to remedy the situation. Stated in another way, the avowed objective of actions for forcible entry and unlawful detainer, which have purposely been made summary in nature, is to provide a peaceful, speedy and expeditious means of preventing an alleged illegal possessor of property from unjustly continuing his possession for a long time, thereby ensuring the maintenance of peace and order in the community; otherwise, the party illegally deprived of possession might feel the despair of long waiting and decide as a measure of self-protection to take the law into his hands and seize the same by force and violence. And since the law discourages continued wrangling over possession of property for it involves perturbation of social order which must be restored as promptly as possible, technicalities or details of procedure which may cause unnecessary delays should accordingly and carefully be avoided.
In accordance with the above objective, the Revised Rules on Summary Procedure set forth the steps to expeditiously dispose of the cases covered by the rules, as in ejectment…[10] (emphasis supplied)
That explains why Section 10 of the Revised Rules on Summary Procedure[11] which applies to an ejectment complaint, among others, directs that within 30 days after the receipt of the last affidavits and position papers, or the expiration of the period for filing the same, the trial court should render judgment on the case. Without any order of extension granted by this Court, the failure to decide even a single case within the required period constitutes gross inefficiency.[12]
That it took respondent almost four years to decide the second complaint unmistakably shows his inefficiency. His above-quoted explanation-justification therefor does not indeed convince. Just as his statement about records getting misplaced or misfiled does not. The New Code of Judicial Conduct for the Philippine Judiciary requires judges to “devote their professional activity to judicial duties, which include not only the performance of judicial functions and responsibilities in court and the making of decisions, but also other tasks relevant to the judicial office or the court’s operations.”
Rule 3.08 of the Code of Judicial Conduct[13] requires that a judge should be diligent in discharging administrative responsibilities and should maintain professional competence in court management, hence, it is incumbent upon him to devise an efficient recording and filing system so that no disorderliness can affect the flow of cases and their speedy disposition.[14]
Under Rule 140 of the Rules of Court, undue delay in rendering a decision is a less serious charge in which any of the following sanctions may be imposed: (a) suspension from the service without salary and other benefits for not less than one month nor more than three months; or (b) a fine of more than P10,000 but not more than P20,000.
Respondent having been previously admonished in A.M. OCA IPI No. 07-1885-MTJ to be more circumspect in observing the reglementary periods for resolving motions and rendering decisions, not to mention that he was again charged for undue delay in resolving a motion in OCA IPI No. 08-2009-MTJ which is pending evaluation, the recommended fine of P15,000 is in order.
Forum shopping and res judicata.
In the case of ALONSO, ET. AL. VS. RELAMIDA, En Banc, AC No. 8481, August 3, 2010, the Supreme Court found the respondent Atty. Ibaro B. Relamida, Jr. guilty of violating the Rules on Res Judicata and Forum Shopping. He was SUSPENDED for six (6) months from the practice of law. He was warned that a repetition of the same or a similar act will be dealt with more severely. The doctrinal parts of the decision are quoted below, for legal research purposes of the visitors of this law blog, thus:
x x x,
All lawyers must bear in mind that their oaths are neither mere words nor an empty formality. When they take their oath as lawyers, they dedicate their lives to the pursuit of justice. They accept the sacred trust to uphold the laws of the land. As the first Canon of the Code of Professional Responsibility states, "[a] lawyer shall uphold the Constitution, obey the laws of the land and promote respect for law and legal processes." Moreover, according to the lawyer’s oath they took, lawyers should "not wittingly or willingly promote or sue any groundless, false or unlawful suit, nor give aid or consent to the same."[20]
In the instant case, it is clear that Atty. Relamida is guilty of forum shopping and violation of the rule on res judicata. Atty. Relamida should have refrained from filing the second complaint against Servier. He ought to have known that the previous dismissal was with prejudice, since it had the effect of an adjudication on the merits. He was aware of all the proceedings which the first complaint went through as by his own admission, he participated in the preparation of the pleadings and even signed as counsel of Ebanen occasionally.[21] He knew that the decision in the subject case had already attained finality. Atty. Relamida was well aware that when he filed the second complaint, it involved the same parties and same cause of action, albeit, he justified the same on the ground of nullity of the previous dismissal.
His allegation that he was not the original counsel of Ebanen and that his intention was only to protect the rights of his clients whom he believed were not properly addressed in the prior complaint deserves scant consideration. He should know that once a case is decided with finality, the controversy is settled and the matter is laid to rest. The prevailing party is entitled to enjoy the fruits of his victory, while the other party is obliged to respect the court’s verdict and to comply with it.[22]
The essence of forum shopping is the filing of multiple suits involving the same parties for the same cause of action, either simultaneously or successively, for the purpose of obtaining a favorable judgment. It exists when, as a result of an adverse opinion in one forum, a party seeks a favorable opinion in another, or when he institutes two or more actions or proceedings grounded on the same cause to increase the chances of obtaining a favorable decision. An important factor in determining its existence is the vexation caused to the courts and the parties-litigants by the filing of similar cases to claim substantially the same reliefs. Forum shopping exists where the elements of litis pendentia are present or where a final judgment in one case will amount to res judicata in another. Thus, the following requisites should concur:[23]
x x x (a) identity of parties, or at least such parties as represent the same interests in both actions, (b) identity of rights asserted and relief prayed for, the relief being founded on the same facts, and (c) the identity of the two preceding particulars is such that any judgment rendered in the other action will, regardless of which party is successful, amount to res judicata in the action under consideration.
A lawyer owes fidelity to the cause of his client, but not at the expense of truth and the administration of justice. The filing of multiple petitions constitutes abuse of the court’s processes and improper conduct that tends to impede, obstruct and degrade the administration of justice and will be punished as contempt of court. Needless to state, the lawyer who files such multiple or repetitious petitions (which obviously delays the execution of a final and executory judgment) subjects himself to disciplinary action for incompetence (for not knowing any better) or for willful violation of his duties as an attorney to act with all good fidelity to the courts, and to maintain only such actions as appear to him to be just and are consistent with truth and honor.[24]
The filing of another action concerning the same subject matter, in violation of the doctrine of res judicata, runs contrary to Canon 12 of the Code of Professional Responsibility, which requires a lawyer to exert every effort and consider it his duty to assist in the speedy and efficient administration of justice. By his actuations, respondent also violated Rule 12.02 and Rule 12.04 of the Code, as well as a lawyer’s mandate "to delay no man for money or malice."[25]
The Court has, time and again, warned lawyers not to resort to forum shopping for this practice clogs the court dockets. Their primary duty is to assist the courts in the administration of justice. Any conduct which tends to delay, impede or obstruct the administration of justice contravenes such lawyer’s duty.[26] This we will not tolerate.
In cases of similar nature,[27] the penalty imposed by this Court was six (6) months suspension from the practice of law. Thus, consistent with the existing jurisprudence, we find that, in this case, the suspension of six (6) months from practice of law is proper.
x x x,
All lawyers must bear in mind that their oaths are neither mere words nor an empty formality. When they take their oath as lawyers, they dedicate their lives to the pursuit of justice. They accept the sacred trust to uphold the laws of the land. As the first Canon of the Code of Professional Responsibility states, "[a] lawyer shall uphold the Constitution, obey the laws of the land and promote respect for law and legal processes." Moreover, according to the lawyer’s oath they took, lawyers should "not wittingly or willingly promote or sue any groundless, false or unlawful suit, nor give aid or consent to the same."[20]
In the instant case, it is clear that Atty. Relamida is guilty of forum shopping and violation of the rule on res judicata. Atty. Relamida should have refrained from filing the second complaint against Servier. He ought to have known that the previous dismissal was with prejudice, since it had the effect of an adjudication on the merits. He was aware of all the proceedings which the first complaint went through as by his own admission, he participated in the preparation of the pleadings and even signed as counsel of Ebanen occasionally.[21] He knew that the decision in the subject case had already attained finality. Atty. Relamida was well aware that when he filed the second complaint, it involved the same parties and same cause of action, albeit, he justified the same on the ground of nullity of the previous dismissal.
His allegation that he was not the original counsel of Ebanen and that his intention was only to protect the rights of his clients whom he believed were not properly addressed in the prior complaint deserves scant consideration. He should know that once a case is decided with finality, the controversy is settled and the matter is laid to rest. The prevailing party is entitled to enjoy the fruits of his victory, while the other party is obliged to respect the court’s verdict and to comply with it.[22]
The essence of forum shopping is the filing of multiple suits involving the same parties for the same cause of action, either simultaneously or successively, for the purpose of obtaining a favorable judgment. It exists when, as a result of an adverse opinion in one forum, a party seeks a favorable opinion in another, or when he institutes two or more actions or proceedings grounded on the same cause to increase the chances of obtaining a favorable decision. An important factor in determining its existence is the vexation caused to the courts and the parties-litigants by the filing of similar cases to claim substantially the same reliefs. Forum shopping exists where the elements of litis pendentia are present or where a final judgment in one case will amount to res judicata in another. Thus, the following requisites should concur:[23]
x x x (a) identity of parties, or at least such parties as represent the same interests in both actions, (b) identity of rights asserted and relief prayed for, the relief being founded on the same facts, and (c) the identity of the two preceding particulars is such that any judgment rendered in the other action will, regardless of which party is successful, amount to res judicata in the action under consideration.
A lawyer owes fidelity to the cause of his client, but not at the expense of truth and the administration of justice. The filing of multiple petitions constitutes abuse of the court’s processes and improper conduct that tends to impede, obstruct and degrade the administration of justice and will be punished as contempt of court. Needless to state, the lawyer who files such multiple or repetitious petitions (which obviously delays the execution of a final and executory judgment) subjects himself to disciplinary action for incompetence (for not knowing any better) or for willful violation of his duties as an attorney to act with all good fidelity to the courts, and to maintain only such actions as appear to him to be just and are consistent with truth and honor.[24]
The filing of another action concerning the same subject matter, in violation of the doctrine of res judicata, runs contrary to Canon 12 of the Code of Professional Responsibility, which requires a lawyer to exert every effort and consider it his duty to assist in the speedy and efficient administration of justice. By his actuations, respondent also violated Rule 12.02 and Rule 12.04 of the Code, as well as a lawyer’s mandate "to delay no man for money or malice."[25]
The Court has, time and again, warned lawyers not to resort to forum shopping for this practice clogs the court dockets. Their primary duty is to assist the courts in the administration of justice. Any conduct which tends to delay, impede or obstruct the administration of justice contravenes such lawyer’s duty.[26] This we will not tolerate.
In cases of similar nature,[27] the penalty imposed by this Court was six (6) months suspension from the practice of law. Thus, consistent with the existing jurisprudence, we find that, in this case, the suspension of six (6) months from practice of law is proper.
Saturday, August 21, 2010
Financial rehabilitation and insolvency act of 2010
For legal research purposes of my readers, may I quote below the salient parts of the newly adopted REPUBLIC ACT No. 10142 (published August 16, 2010), known as the "Financial Rehabilitation and Insolvency Act (FRIA) of 2010". This new law repealed “The Insolvency Law” (Act No. 1956). All other laws, orders, rules and regulations or parts thereof inconsistent with any provision of this Act were likewise repealed or modified accordingly. Thus:
Section 3. Nature of Proceedings. - The proceedings under this Act shall be in rem. Jurisdiction over all persons affected by the proceedings shall be considered as acquired upon publication of the notice of the commencement of the proceedings in any newspaper of general circulation in the Philippines in the manner prescribed by the rules of procedure to be promulgated by the Supreme Court.
The proceedings shall be conducted in a summary and non-adversarial manner consistent with the declared policies of this Act and in accordance with the rules of procedure that the Supreme Court may promulgate.
Section 5. Exclusions. - The term debtor does not include banks, insurance companies, pre-need companies, and national and local government agencies or units.
X x x.
Provided, That government financial institutions other than banks and government-owned or controlled corporations shall be covered by this Act, unless their specific charter provides otherwise.
Section 7. Substantive and Procedural Consolidation. - Each juridical entity shall be considered as a separate entity under the proceedings in this Act. Under these proceedings, the assets and liabilities of a debtor may not be commingled or aggregated with those of another, unless the latter is a related enterprise that is owned or controlled directly or indirectly by the same interests: Provided, however, That the commingling or aggregation of assets and liabilities of the debtor with those of a related enterprise may only be allowed where:
(a) there was commingling in fact of assets and liabilities of the debtor and the related enterprise prior to the commencement of the proceedings;
(b) the debtor and the related enterprise have common creditors and it will be more convenient to treat them together rather than separately;
(c) the related enterprise voluntarily accedes to join the debtor as party petitioner and to commingle its assets and liabilities with the debtor's; and
(d) The consolidation of assets and liabilities of the debtor and the related enterprise is beneficial to all concerned and promotes the objectives of rehabilitation.
Provided, finally, That nothing in this section shall prevent the court from joining other entities affiliated with the debtor as parties pursuant to the rules of procedure as may be promulgated by the Supreme Court.
Section 10. Liability of Individual Debtor, Owner of a Sole Proprietorship, Partners in a Partnership, or Directors and Officers. - Individual debtor, owner of a sole proprietorship, partners in a partnership, or directors and officers of a debtor shall be liable for double the value of the property sold, embezzled or disposed of or double the amount of the transaction involved, whichever is higher to be recovered for benefit of the debtor and the creditors, if they, having notice of the commencement of the proceedings, or having reason to believe that proceedings are about to be commenced, or in contemplation of the proceedings, willfully commit the following acts:
(a) Dispose or cause to be disposed of any property of the debtor other than in the ordinary course of business or authorize or approve any transaction in fraud of creditors or in a manner grossly disadvantageous to the debtor and/or creditors; or
(b) Conceal or authorize or approve the concealment, from the creditors, or embezzles or misappropriates, any property of the debtor.
The court shall determine the extent of the liability of an owner, partner, director or officer under this section. In this connection, in case of partnerships and corporations, the court shall consider the amount of the shareholding or partnership or equity interest of such partner, director or officer, the degree of control of such partner, director or officer over the debtor, and the extent of the involvement of such partner, director or debtor in the actual management of the operations of the debtor.
CHAPTER II
COURT-SUPERVISED REHABILITATION
(A) Initiation Proceedings.
(1) Voluntary Proceedings.
Section 12. Petition to Initiate Voluntary Proceedings by Debtor. - When approved by the owner in case of a sole proprietorship, or by a majority of the partners in case of a partnership, or in case of a corporation, by a majority vote of the board of directors or trustees and authorized by the vote of the stockholders representing at least two-thirds (2/3) of the outstanding capital stock, or in case of nonstock corporation, by the vote of at least two-thirds (2/3) of the members, in a stockholder's or member's meeting duly called for the purpose, an insolvent debtor may initiate voluntary proceedings under this Act by filing a petition for rehabilitation with the court and on the grounds hereinafter specifically provided.
The petition shall be verified to establish the insolvency of the debtor and the viability of its rehabilitation, and include, whether as an attachment or as part of the body of the petition, as a minimum the following:
(a) Identification of the debtor, its principal activities and its addresses;
(b) Statement of the fact of and the cause of the debtor's insolvency or inability to pay its obligations as they become due;
(c) The specific relief sought pursuant to this Act;
(d) The grounds upon which the petition is based;
(e) Other information that may be required under this Act depending on the form of relief requested;
(f) Schedule of the debtor's debts and liabilities including a list of creditors with their addresses, amounts of claims and collaterals, or securities, if any;
(g) An inventory of all its assets including receivables and claims against third parties;
(h) A Rehabilitation Plan;
(i) The names of at least three (3) nominees to the position of rehabilitation receiver; and
(j) Other documents required to be filed with the petition pursuant to this Act and the rules of procedure as may be promulgated by the Supreme Court.
A group of debtors may jointly file a petition for rehabilitation under this Act when one or more of its members foresee the impossibility of meeting debts when they respectively fall due, and the financial distress would likely adversely affect the financial condition and/or operations of the other members of the group and/or the participation of the other members of the group is essential under the terms and conditions of the proposed Rehabilitation Plan.
(2) Involuntary Proceedings.
Section 13. Circumstances Necessary to Initiate Involuntary Proceedings. - Any creditor or group of creditors with a claim of, or the aggregate of whose claims is, at least One Million Pesos (Php1,000,000.00) or at least twenty-five percent (25%) of the subscribed capital stock or partners' contributions, whichever is higher, may initiate involuntary proceedings against the debtor by filing a petition for rehabilitation with the court if:
(a) there is no genuine issue of fact on law on the claim/s of the petitioner/s, and that the due and demandable payments thereon have not been made for at least sixty (60) days or that the debtor has failed generally to meet its liabilities as they fall due; or
(b) a creditor, other than the petitioner/s, has initiated foreclosure proceedings against the debtor that will prevent the debtor from paying its debts as they become due or will render it insolvent.
Section 14. Petition to Initiate Involuntary Proceedings. - The creditor/s' petition for rehabilitation shall be verified to establish the substantial likelihood that the debtor may be rehabilitated, and include:
(a) identification of the debtor its principal activities and its address;
(b) the circumstances sufficient to support a petition to initiate involuntary rehabilitation proceedings under Section 13 of this Act;
(c) the specific relief sought under this Act;
(d) a Rehabilitation Plan;
(e) the names of at least three (3) nominees to the position of rehabilitation receiver;
(f) other information that may be required under this Act depending on the form of relief requested; and
(g) other documents required to be filed with the petition pursuant to this Act and the rules of procedure as may be promulgated by the Supreme Court.
(B) Action on the Petition and Commencement of Proceedings.
Section 15. Action on the Petition. - If the court finds the petition for rehabilitation to be sufficient in form and substance, it shall, within five (5) working days from the filing of the petition, issue a Commencement Order. If, within the same period, the court finds the petition deficient in form or substance, the court may, in its discretion, give the petitioner/s a reasonable period of time within which to amend or supplement the petition, or to submit such documents as may be necessary or proper to put the petition in proper order. In such case, the five (5) working days provided above for the issuance of the Commencement Order shall be reckoned from the date of the filing of the amended or supplemental petition or the submission of such documents.
Section 16. Commencement of Proceedings and Issuance of a Commencement Order. - The rehabilitation proceedings shall commence upon the issuance of the Commencement Order, which shall:
(a) identify the debtor, its principal business or activity/ies and its principal place of business;
(b) summarize the ground/s for initiating the proceedings;
(c) state the relief sought under this Act and any requirement or procedure particular to the relief sought;
(d) state the legal effects of the Commencement Order, including those mentioned in Section 17 hereof;
(e) declare that the debtor is under rehabilitation;
(f) direct the publication of the Commencement Order in a newspaper of general circulation in the Philippines once a week for at least two (2) consecutive weeks, with the first publication to be made within seven (7) days from the time of its issuance;
(g) If the petitioner is the debtor direct the service by personal delivery of a copy of the petition on each creditor holding at least ten percent (10%) of the total liabilities of the debtor as determined from the schedule attached to the petition within five (5) days; if the petitioner/s is/are creditor/s, direct the service by personal delivery of a copy of the petition on the debtor within five (5) days;
(h) appoint a rehabilitation receiver who may or not be from among the nominees of the petitioner/s and who shall exercise such powers and duties defined in this Act as well as the procedural rules that the Supreme Court will promulgate;
(i) summarize the requirements and deadlines for creditors to establish their claims against the debtor and direct all creditors to their claims with the court at least five (5) days before the initial hearing;
(j) direct Bureau of internal Revenue (BIR) to file and serve on the debtor its comment on or opposition to the petition or its claim/s against the debtor under such procedures as the Supreme Court provide;
(k) prohibit the debtor's suppliers of goods or services from withholding the supply of goods and services in the ordinary course of business for as long as the debtor makes payments for the services or goods supplied after the issuance of the Commencement Order;
(l) authorize the payment of administrative expenses as they become due;
(m) set the case for initial hearing, which shall not be more than forty (40) days from the date of filing of the petition for the purpose of determining whether there is substantial likelihood for the debtor to be rehabilitated;
(n) make available copies of the petition and rehabilitation plan for examination and copying by any interested party;
(o) indicate the location or locations at which documents regarding the debtor and the proceedings under Act may be reviewed and copied;
(p) state that any creditor or debtor who is not the petitioner, may submit the name or nominate any other qualified person to the position of rehabilitation receiver at least five (5) days before the initial hearing;
(q) include s Stay or Suspension Order which shall:
(1) suspend all actions or proceedings, in court or otherwise, for the enforcement of claims against the debtor;
(2) suspend all actions to enforce any judgment, attachment or other provisional remedies against the debtor;
(3) prohibit the debtor from selling, encumbering, transferring or disposing in any manner any of its properties except in the ordinary course of business; and
(4) prohibit the debtor from making any payment of its liabilities outstanding as of the commencement date except as may be provided herein.
Section 17. Effects of the Commencement Order. - Unless otherwise provided for in this Act, the court's issuance of a Commencement Order shall, in addition to the effects of a Stay or Suspension Order described in Section 16 hereof:
(a) vest the rehabilitation with all the powers and functions provided for this Act, such as the right to review and obtain records to which the debtor's management and directors have access, including bank accounts or whatever nature of the debtor subject to the approval by the court of the performance bond filed by the rehabilitation receiver;
(b) prohibit or otherwise serve as the legal basis rendering null and void the results of any extrajudicial activity or process to seize property, sell encumbered property, or otherwise attempt to collection or enforce a claim against the debtor after commencement date unless otherwise allowed in this Act, subject to the provisions of Section 50 hereof;
(c) serve as the legal basis for rendering null and void any setoff after the commencement date of any debt owed to the debtor by any of the debtor's creditors;
(d) serve as the legal basis for rendering null and void the perfection of any lien against the debtor's property after the commencement date; and
(e) consolidate the resolution of all legal proceedings by and against the debtor to the court Provided. However, That the court may allow the continuation of cases on other courts where the debtor had initiated the suit.
Attempts to seek legal of other resource against the debtor outside these proceedings shall be sufficient to support a finding of indirect contempt of court.
Section 18. Exceptions to the Stay or Suspension Order. - The Stay or Suspension Order shall not apply:
(a) to cases already pending appeal in the Supreme Court as of commencement date Provided, That any final and executory judgment arising from such appeal shall be referred to the court for appropriate action;
(b) subject to the discretion of the court, to cases pending or filed at a specialized court or quasi-judicial agency which, upon determination by the court is capable of resolving the claim more quickly, fairly and efficiently than the court: Provided, That any final and executory judgment of such court or agency shall be referred to the court and shall be treated as a non-disputed claim;
(c) to the enforcement of claims against sureties and other persons solidarily liable with the debtor, and third party or accommodation mortgagors as well as issuers of letters of credit, unless the property subject of the third party or accommodation mortgage is necessary for the rehabilitation of the debtor as determined by the court upon recommendation by the rehabilitation receiver;
(d) to any form of action of customers or clients of a securities market participant to recover or otherwise claim moneys and securities entrusted to the latter in the ordinary course of the latter's business as well as any action of such securities market participant or the appropriate regulatory agency or self-regulatory organization to pay or settle such claims or liabilities;
(e) to the actions of a licensed broker or dealer to sell pledged securities of a debtor pursuant to a securities pledge or margin agreement for the settlement of securities transactions in accordance with the provisions of the Securities Regulation Code and its implementing rules and regulations;
(f) the clearing and settlement of financial transactions through the facilities of a clearing agency or similar entities duly authorized, registered and/or recognized by the appropriate regulatory agency like the Bangko Sentral ng Pilipinas (BSP) and the SEC as well as any form of actions of such agencies or entities to reimburse themselves for any transactions settled for the debtor; and
(g) any criminal action against individual debtor or owner, partner, director or officer of a debtor shall not be affected by any proceeding commend under this Act.
Section 21. Effectivity and Duration of Commencement Order. - Unless lifted by the court, the Commencement Order shall be for the effective for the duration of the rehabilitation proceedings for as long as there is a substantial likelihood that the debtor will be successfully rehabilitated. In determining whether there is substantial likelihood for the debtor to be successfully rehabilitated, the court shall ensure that the following minimum requirements are met:
(a) The proposed Rehabilitation Plan submitted complies with the minimum contents prescribed by this Act;
(b) There is sufficient monitoring by the rehabilitation receiver of the debtor's business for the protection of creditors;
(c) The debtor has met with its creditors to the extent reasonably possible in attempts to reach consensus on the proposed Rehabilitation Plan;
(d) The rehabilitation receiver submits a report, based on preliminary evaluation, stating that the underlying assumptions and the goals stated in the petitioner's
Rehabilitation Plan are realistic reasonable and reasonable or if not, there is, in any case, a substantial likelihood for the debtor to be successfully rehabilitated because, among others:
(1) there are sufficient assets with/which to rehabilitate the debtor;
(2) there is sufficient cash flow to maintain the operations of the debtor;
(3) the debtor's, partners, stockholders, directors and officers have been acting in good faith and which due diligence;
(4) the petition is not s sham filing intended only to delay the enforcement of the rights of the creditor's or of any group of creditors; and
(5) the debtor would likely be able to pursue a viable Rehabilitation Plan;
(e) The petition, the Rehabilitation Plan and the attachments thereto do not contain any materially false or misleading statement;
(f) If the petitioner is the debtor, that the debtor has met with its creditor/s representing at least three-fourths (3/4) of its total obligations to the extent reasonably possible and made a good faith effort to reach a consensus on the proposed Rehabilitation Plan if the petitioner/s is/are a creditor or group of creditors, that/ the petitioner/s has/have met with the debtor and made a good faith effort to reach a consensus on the proposed Rehabilitation Plan; and
(g) The debtor has not committed acts misrepresentation or in fraud of its creditor/s or a group of creditors.
Section 22. Action at the Initial Hearing. - At the initial hearing, the court shall:
(a) determine the creditors who have made timely and proper filing of their notice of claims;
(b) hear and determine any objection to the qualifications of the appointment of the rehabilitation receiver and, if necessary appoint a new one in accordance with this Act;
(c) direct the creditors to comment on the petition and the Rehabilitation Plan, and to submit the same to the court and to the rehabilitation receiver within a period of not more than twenty (20) days; and
(d) direct the rehabilitation receiver to evaluate the financial condition of the debtor and to prepare and submit to the court within forty (40) days from initial hearing the report provided in Section 24 hereof.
Section 23. Effect of Failure to File Notice of Claim. - A creditor whose claim is not listed in the schedule of debts and liabilities and who fails to file a notice of claim in accordance with the Commencement Order but subsequently files a belated claim shall not be entitled to participate in the rehabilitation proceedings but shall be entitled to receive distributions arising therefrom.
Section 24. Report of the Rehabilitation Receiver. - Within forty (40) days from the initial hearing and with or without the comments of the creditors or any of them, the rehabilitation receiver shall submit a report to the court stating his preliminary findings and recommendations on whether:
(a) the debtor is insolvent and if so, the causes thereof and any unlawful or irregular act or acts committed by the owner/s of a sole proprietorship partners of a partnership or directors or officers of a corporation in contemplation of the insolvency of the debtor or which may have contributed to the insolvency of the debtor;
(b) the underlying assumptions, the financial goals and the procedures to accomplish such goals as stated in the petitioner's Rehabilitation Plan are realistic, feasible and reasonable;
(c) there is a substantial likelihood for the debtor to be successfully rehabilitated;
(d) the petition should be dismissed; and
(e) the debtor should be dissolved and/or liquidated.
Section 25. Giving Due Course to or Dismissal of Petition, or Conversion of Proceedings. - Within ten (10) days from receipt of the report of the rehabilitation receiver mentioned in Section 24 hereof the court may:
(a) give due course to the petition upon a finding that:
(1) the debtor is insolvent; and
(2) there is a substantial likelihood for the debtor to be successfully rehabilitated;
(3) dismiss the petition upon a finding that:
(b) The debtor shall comply with the provisions of the Rehabilitation Plan and shall take all actions necessary to carry out the Plan;
(c) Payments shall be made to the creditors in accordance with the provisions of the Rehabilitation Plan;
(d) Contracts and other arrangements between the debtor and its creditors shall be interpreted as continuing to apply to the extent that they do not conflict with the provisions of the Rehabilitation Plan;
(e) Any compromises on amounts or rescheduling of timing of payments by the debtor shall be binding on creditors regardless of whether or not the Plan is successfully implement; and
(f) Claims arising after approval of the Plan that are otherwise not treated by the Plan are not subject to any Suspension Order.
The Order confirming the Plan shall comply with Rules 36 of the Rules of Court: Provided, however, That the court may maintain jurisdiction over the case in order to resolve claims against the debtor that remain contested and allegations that the debtor has breached the Plan.
Section 72. Period for Confirmation of the Rehabilitation Plan. - The court shall have a maximum period of one (1) year from the date of the filing of the petition to confirm a Rehabilitation Plan.
If no Rehabilitation Plan is confirmed within the said period, the proceedings may upon motion or motu propio, be converted into one for the liquidation of the debtor .
Section 73. Accounting Discharge of Rehabilitation Receiver. - Upon the confirmation of the Rehabilitation Plan, the rehabilitation receiver shall provide a final report and accounting to the court. Unless the Rehabilitation Plan specifically requires and describes the role of the rehabilitation receiver after the approval of the Rehabilitation Plan, the court shall discharge the rehabilitation receiver of his duties.
(j) Termination of Proceedings
Section 74. Termination of Proceedings. - The rehabilitation proceedings under Chapter II shall, upon motion by any stakeholder or the rehabilitation receiver be terminated by order of the court either declaring a successful implementation of the Rehabilitation Plan or a failure of rehabilitation.
There is failure of rehabilitation in the following cases:
(a) Dismissal of the petition by the court;
(b) The debtor fails to submit a Rehabilitation Plan;
(c) Under the Rehabilitation Plan submitted by the debtor, there is no substantial likelihood that the debtor can be rehabilitated within a reasonable period;
(d) The Rehabilitation Plan or its amendment is approved by the court but in the implementation thereof, the debtor fails to perform its obligations thereunder or there is a failure to realize the objectives, targets or goals set forth therein, including the timelines and conditions for the settlement of the obligations due to the creditors and other claimants;
(e) The commission of fraud in securing the approval of the Rehabilitation Plan or its amendment; and
(f) Other analogous circumstances as may be defined by the rules of procedure.
Upon a breach of, or upon a failure of the Rehabilitation Plan the court, upon motion by an affected party may:
(1) Issue an order directing that the breach be cured within a specified period of time, falling which the proceedings may be converted to a liquidation;
(2) Issue an order converting the proceedings to a liquidation;
(3) Allow the debtor or rehabilitation receiver to submit amendments to the Rehabilitation Plan, the approval of which shall be governed by the same requirements for the approval of a Rehabilitation Plan under this subchapter;
(4) Issue any other order to remedy the breach consistent with the present regulation, other applicable law and the best interests of the creditors; or
(5) Enforce the applicable provisions of the Rehabilitation Plan through a writ of execution.
Section 75. Effects of Termination. - Termination of the proceedings shall result in the following:
(a) The discharge of the rehabilitation receiver subject to his submission of a final accounting; and
(b) The lifting of the Stay Order and any other court order holding in abeyance any action for the enforcement of a claim against the debtor.
Provided, however, That if the termination of proceedings is due to failure of rehabilitation or dismissal of the petition for reasons other than technical grounds, the proceedings shall be immediately converted to liquidation as provided in Section 92 of this Act.
CHAPTER III
PRE-NEGOTIATED REHABILITATION
Section 76. Petition by Debtor. - An insolvent debtor, by itself or jointly with any of its creditors, may file a verified petition with the court for the approval of a pre-negotiated Rehabilitation Plan which has been endorsed or approved by creditors holding at least two-thirds (2/3) of the total liabilities of the debtor, including secured creditors holding more than fifty percent (50%) of the total secured claims of the debtor and unsecured creditors holding more than fifty percent (50%) of the total unsecured claims of the debtor. The petition shall include as a minimum:
(a) a schedule of the debtor's debts and liabilities;
(b) an inventory of the debtor's assets;
(c) the pre-negotiated Rehabilitation Plan, including the names of at least three (3) qualified nominees for rehabilitation receiver; and
(d) a summary of disputed claims against the debtor and a report on the provisioning of funds to account for appropriate payments should any such claims be ruled valid or their amounts adjusted.
Section 77. Issuance of Order. - Within five (5) working days, and after determination that the petition is sufficient in form and substance, the court shall issue an Order which shall;
(a) identify the debtor, its principal business of activity/ies and its principal place of business;
(b) declare that the debtor is under rehabilitation;
(c) summarize the ground./s for the filling of the petition;
(d) direct the publication of the Order in a newspaper of general circulation in the Philippines once a week for at least two (2) consecutive weeks, with the first publication to be made within seven (7) days from the time of its issuance;
(e) direct the service by personal delivery of a copy of the petition on each creditor who is not a petitioner holding at least ten percent (10%) of the total liabilities of the debtor, as determined in the schedule attached to the petition, within three (3) days;
(f) state that copies of the petition and the Rehabilitation Plan are available for examination and copying by any interested party;
(g) state that creditors and other interested parties opposing the petition or Rehabilitation Plan may file their objections or comments thereto within a period of not later than twenty (20) days from the second publication of the Order;
(h) appoint a rehabilitation receiver, if provided for in the Plan; and
(i) include a Suspension or Stay Order as described in this Act.
Section 78. Approval of the Plan. - Within ten (10) days from the date of the second publication of the Order, the court shall approve the Rehabilitation Plan unless a creditor or other interested party submits an objection to it in accordance with the next succeeding section.
Section 79. Objection to the Petition or Rehabilitation Plan. - Any creditor or
other interested party may submit to the court a verified objection to the petition or the Rehabilitation Plan not later than eight (8) days from the date of the second publication of the Order mentioned in Section 77 hereof. The objections shall be limited to the following:
(a) The allegations in the petition or the Rehabilitation Plan or the attachments thereto are materially false or misleading;
(b) The majority of any class of creditors do not in fact support the Rehabilitation Plan;
(c) The Rehabilitation Plan fails to accurately account for a claim against the debtor and the claim in not categorically declared as a contested claim; or
(d) The support of the creditors, or any of them was induced by fraud.
Copies of any objection to the petition of the Rehabilitation Plan shall be served on the debtor, the rehabilitation receiver (if applicable), the secured creditor with the largest claim and who supports the Rehabilitation Plan, and the unsecured creditor with the largest claim and who supports the Rehabilitation Plan.
Section 80. Hearing on the Objections. - After receipt of an objection, the court shall set the same for hearing. The date of the hearing shall be no earlier than twenty (20) days and no later than thirty (30) days from the date of the second publication of the Order mentioned in Section 77 hereof. If the court finds merit in the objection, it shall direct the debtor, when feasible to cure the detect within a reasonable period. If the court determines that the debtor or creditors supporting the Rehabilitation Plan acted in bad faith, or that the objection is non-curable, the court may order the conversion of the proceedings into liquidation. A finding by the court that the objection has no substantial merit, or that the same has been cured shall be deemed an approval of the Rehabilitation Plan.
Section 81. Period for Approval of Rehabilitation Plan. - The court shall have a maximum period of one hundred twenty (120) days from the date of the filing of the petition to approve the Rehabilitation Plan. If the court fails to act within the said period, the Rehabilitation Plan shall be deemed approved.
Section 82. Effect of Approval. - Approval of a Plan under this chapter shall have the same legal effect as confirmation of a Plan under Chapter II of this Act.
CHAPTER IV
OUT-OF-COURT OR INFORMAL RESTRUCTURING AGREEMENTS OR REHABILITATION PLANS
Section 83. Out-of-Court or Informal Restructuring Agreements and Rehabilitation Plans. - An out-of-curt or informal restructuring agreement or Rehabilitation Plan that meets the minimum requirements prescribed in this chapter is hereby recognized as consistent with the objectives of this Act.
Section 84. Minimum Requirements of Out-of-Court or Informal Restructuring Agreements and Rehabilitation Plans. - For an out-of-court or informal restructuring/workout agreement or Rehabilitation Plan to qualify under this chapter, it must meet the following minimum requirements:
(a) The debtor must agree to the out-of-court or informal restructuring/workout agreement or Rehabilitation Plan;
(b) It must be approved by creditors representing at least sixty-seven (67%) of the secured obligations of the debtor;
(c) It must be approved by creditors representing at least seventy-five percent (75%) of the unsecured obligations of the debtor; and
(d) It must be approved by creditors holding at least eighty-five percent (85%) of the total liabilities, secured and unsecured, of the debtor.
Section 85. Standstill Period. - A standstill period that may be agreed upon by the parties pending negotiation and finalization of the out-of-court or informal restructuring/workout agreement or Rehabilitation Plan contemplated herein shall be effective and enforceable not only against the contracting parties but also against the other creditors: Provided, That (a) such agreement is approved by creditors representing more than fifty percent (50%) of the total liabilities of the debtor;
(b) notice thereof is publishing in a newspaper of general circulation in the Philippines once a week for two (2) consecutive weeks; and (c) the standstill period does not exceed one hundred twenty (120) days from the date of effectivity. The notice must invite creditors to participate in the negotiation for out-of-court rehabilitation or restructuring agreement and notify them that said agreement will be binding on all creditors if the required majority votes prescribed in Section 84 of this Act are met.
Section 86. Cram Down Effect. - A restructuring/workout agreement or Rehabilitation Plan that is approved pursuant to an informal workout framework referred to in this chapter shall have the same legal effect as confirmation of a Plan under Section 69 hereof. The notice of the Rehabilitation Plan or restructuring agreement or Plan shall be published once a week for at least three (3) consecutive weeks in a newspaper of general circulation in the Philippines. The Rehabilitation Plan or restructuring agreement shall take effect upon the lapse of fifteen (15) days from the date of the last publication of the notice thereof.
Section 87. Amendment or Modification. - Any amendment of an out-of-court restructuring/workout agreement or Rehabilitation Plan must be made in accordance with the terms of the agreement and with due notice on all creditors.
Section 88. Effect of Court Action or Other Proceedings. - Any court action or other proceedings arising from, or relating to, the out-of-court or informal restructuring/workout agreement or Rehabilitation Plan shall not stay its implementation, unless the relevant party is able to secure a temporary restraining order or injunctive relief from the Court of Appeals.
Section 89. Court Assistance. - The insolvent debtor and/or creditor may seek court
assistance for the execution or implementation of a Rehabilitation Plan under this Chapter, under such rules of procedure as may be promulgated by the Supreme Court.
CHAPTER V
LIQUIDATION OF INSOLVENT JURIDICAL DEBTORS
Section 90. Voluntary Liquidation. - An insolvent debtor may apply for liquidation by filing a petition for liquidation with the court. The petition shall be verified, shall establish the insolvency of the debtor and shall contain, whether as an attachment or as part of the body of the petition;
(a) a schedule of the debtor's debts and liabilities including a list of creditors with their addresses, amounts of claims and collaterals, or securities, if any;
(b) an inventory of all its assets including receivables and claims against third parties; and
(c) the names of at least three (3) nominees to the position of liquidator.
At any time during the pendency of court-supervised or pre-negotiated rehabilitation proceedings, the debtor may also initiate liquidation proceedings by filing a motion in the same court where the rehabilitation proceedings are pending to convert the rehabilitation proceedings into liquidation proceedings. The motion shall be verified, shall contain or set forth the same matters required in the preceding paragraph, and state that the debtor is seeking immediate dissolution and termination of its corporate existence.
If the petition or the motion, as the case may be, is sufficient in form and substance, the court shall issue a Liquidation Order mentioned in Section 112 hereof.
Section 91. Involuntary Liquidation. - Three (3) or more creditors the aggregate of whose claims is at least either One million pesos (Php1,000,000,00) or at least twenty-five percent (25%0 of the subscribed capital stock or partner's contributions of the debtor, whichever is higher, may apply for and seek the liquidation of an insolvent debtor by filing a petition for liquidation of the debtor with the court.
The petition shall show that:
(a) there is no genuine issue of fact or law on the claims/s of the petitioner/s, and that the due and demandable payments thereon have not been made for at least one hundred eighty (180) days or that the debtor has failed generally to meet its liabilities as they fall due; and
(b) there is no substantial likelihood that the debtor may be rehabilitated.
At any time during the pendency of or after a rehabilitation court-supervised or pre-negotiated rehabilitation proceedings, three (3) or more creditors whose claims is at least either One million pesos (Php1,000,000.00) or at least twenty-five percent (25%) of the subscribed capital or partner's contributions of the debtor, whichever is higher, may also initiate liquidation proceedings by filing a motion in the same court where the rehabilitation proceedings are pending to convert the rehabilitation proceedings into liquidation proceedings. The motion shall be verified, shall contain or set forth the same matters required in the preceding paragraph, and state that the movants are seeking the immediate liquidation of the debtor.
If the petition or motion is sufficient in form and substance, the court shall issue an Order:
(1) directing the publication of the petition or motion in a newspaper of general circulation once a week for two (2) consecutive weeks; and
(2) directing the debtor and all creditors who are not the petitioners to file their comment on the petition or motion within fifteen (15) days from the date of last publication.
If, after considering the comments filed, the court determines that the petition or motion is meritorious, it shall issue the Liquidation Order mentioned in Section 112 hereof.
Section 92. Conversion by the Court into Liquidation Proceedings. - During the pendency of court-supervised or pre-negotiated rehabilitation proceedings, the court may order the conversion of rehabilitation proceedings to liquidation proceedings pursuant to (a) Section 25(c) of this Act; or (b) Section 72 of this Act; or (c) Section 75 of this Act; or (d) Section 90 of this Act; or at any other time upon the recommendation of the rehabilitation receiver that the rehabilitation of the debtor is not feasible. Thereupon, the court shall issue the Liquidation Order mentioned in Section 112 hereof.
Section 93. Powers of the Securities and Exchange Commission (SEC). - The provisions of this chapter shall not affect the regulatory powers of the SEC under Section 6 of Presidential Decree No. 902-A, as amended, with respect to any dissolution and liquidation proceeding initiated and heard before it.
CHAPTER VI
INSOLVENCY OF INDIVIDUAL DEBTORS
(A) Suspension of Payments.
Section 94. Petition. - An individual debtor who, possessing sufficient property to cover all his debts but foreseeing the impossibility of meeting them when they respectively fall due, may file a verified petition that he be declared in the state of suspension of payments by the court of the province or city in which he has resides for six (6) months prior to the filing of his petition. He shall attach to his petition, as a minimum: (a) a schedule of debts and liabilities; (b) an inventory of assess; and (c) a proposed agreement with his creditors.
Section 95. Action on the Petition. - If the court finds the petition sufficient in form and substance, it shall, within five (5) working days from the filing of the petition, issue an Order:
(a) calling a meeting of all the creditors named in the schedule of debts and liabilities at such time not less than fifteen (15) days nor more than forty (40) days from the date of such Order and designating the date, time and place of the meeting;
(b) directing such creditors to prepare and present written evidence of their claims before the scheduled creditors' meeting;
(c) directing the publication of the said order in a newspaper of general circulation published in the province or city in which the petition is filed once a week for two (2) consecutive weeks, with the first publication to be made within seven (7) days from the time of the issuance of the Order;
(d) directing the clerk of court to cause the sending of a copy of the Order by registered mail, postage prepaid, to all creditors named in the schedule of debts and liabilities;
(e) forbidding the individual debtor from selling, transferring, encumbering or disposing in any manner of his property, except those used in the ordinary operations of commerce or of industry in which the petitioning individual debtor is engaged so long as the proceedings relative to the suspension of payments are pending;
(f) prohibiting the individual debtor from making any payment outside of the necessary or legitimate expenses of his business or industry, so long as the proceedings relative to the suspension of payments are pending; and
(g) appointing a commissioner to preside over the creditors' meeting.
Section 96. Actions Suspended. - Upon motion filed by the individual debtor, the court may issue an order suspending any pending execution against the individual debtor. Provide, That properties held as security by secured creditors shall not be the subject of such suspension order. The suspension order shall lapse when three (3) months shall have passed without the proposed agreement being accepted by the creditors or as soon as such agreement is denied.
No creditor shall sue or institute proceedings to collect his claim from the debtor from the time of the filing of the petition for suspension of payments and for as long as proceedings remain pending except:
(a) those creditors having claims for personal labor, maintenance, expense of last illness and funeral of the wife or children of the debtor incurred in the sixty (60) days immediately prior to the filing of the petition; and
(b) secured creditors.
Section 97. Creditors' Meeting. - The presence of creditors holding claims amounting to at least three-fifths (3/5) of the liabilities shall be necessary for holding a meeting. The commissioner appointed by the court shall preside over the meeting and the clerk of court shall act as the secretary thereof, subject to the following rules:
(a) The clerk shall record the creditors present and amount of their respective claims;
(b) The commissioner shall examine the written evidence of the claims. If the creditors present hold at least three-fifths (3/5) of the liabilities of the individual debtor, the commissioner shall declare the meeting open for business;
(c) The creditors and individual debtor shall discuss the propositions in the proposed agreement and put them to a vote;
(d) To form a majority, it is necessary:
(1) that two-thirds (2/3) of the creditors voting unite upon the same proposition; and
(2) that the claims represented by said majority vote amount to at least three-fifths (3/5) of the total liabilities of the debtor mentioned in the petition; and
(e) After the result of the voting has been announced, all protests made against the majority vote shall be drawn up, and the commissioner and the individual debtor together with all creditors taking part in the voting shall sign the affirmed propositions.
No creditor who incurred his credit within ninety (90) days prior to the filing of the petition shall be entitled to vote.
Section 98. Persons Who May Refrain From Voting. - Creditors who are unaffected by the Suspension Order may refrain from attending the meeting and from voting therein. Such persons shall not be bound by any agreement determined upon at such meeting, but if they should join in the voting they shall be bound in the same manner as are the other creditors.
Section 99. Rejection of the Proposed Agreement. - The proposed agreement shall be deemed rejected if the number of creditors required for holding a meeting do not attend thereat, or if the two (2) majorities mentioned in Section 97 hereof are not in favor thereof. In such instances, the proceeding shall be terminated without recourse and the parties concerned shall be at liberty to enforce the rights which may correspond to them.
Section 100. Objections. - If the proposal of the individual debtor, or any amendment thereof made during the creditors' meeting, is approved by the majority of creditors in accordance with Section 97 hereof, any creditor who attended the meeting and who dissented from and protested against the vote of the majority may file an objection with the court within ten (10) days from the date of the last creditors' meeting. The causes for which objection may be made to the decision made by the majority during the meeting shall be: (a) defects in the call for the meeting, in the holding thereof and in the deliberations had thereat which prejudice the rights of the creditors; (b) fraudulent connivance between one or more creditors and the individual debtor to vote in favor of the proposed agreement; or (c) fraudulent conveyance of claims for the purpose of obtaining a majority. The court shall hear and pass upon such objection as soon as possible and in a summary manner.
In case the decision of the majority of creditors to approve the individual debtor's proposal or any amendment thereof made during the creditors' meeting is annulled by the court, the court shall declare the proceedings terminated and the creditors shall be at liberty to exercise the rights which may correspond to them.
Section 101. Effects of Approval of Proposed Agreement. - If the decision of the majority of the creditors to approve the proposed agreement or any amendment thereof made during the creditors' meeting is uphold by the court, or when no opposition or objection to said decision has been presented, the court shall order that the agreement be carried out and all parties bound thereby to comply with its terms.
The court may also issue all orders which may be necessary or proper to enforce the agreement on motion of any affected party. The Order confirming the approval of the proposed agreement or any amendment thereof made during the creditors' meeting shall be binding upon all creditors whose claims are included in the schedule of debts and liabilities submitted by the individual debtor and who were properly summoned, but not upon: (a) those creditors having claims for personal labor, maintenance, expenses of last illness and funeral of the wife or children of the debtor incurred in the sixty (60) days immediately prior to the filing of the petition; and (b) secured creditors who failed to attend the meeting or refrained from voting therein.
Section 102. Failure of Individual Debtor to Perform Agreement. - If the individual debtor fails, wholly or in part, to perform the agreement decided upon at the meeting of the creditors, all the rights which the creditors had against the individual debtor before the agreement shall revest in them. In such case the individual debtor may be made subject to the insolvency proceedings in the manner established by this Act.
(B) Voluntary Liquidation.
Section 103. Application. - An individual debtor whose properties are not sufficient to cover his liabilities, and owing debts exceeding Five hundred thousand pesos (Php500,000.00), may apply to be discharged from his debts and liabilities by filing a verified petition with the court of the province or city in which he has resided for six (6) months prior to the filing of such petition. He shall attach to his petition a schedule of debts and liabilities and an inventory of assets. The filing of such petition shall be an act of insolvency.
Section 104. Liquidation Order. - If the court finds the petition sufficient in form and substance it shall, within five (5) working days issue the Liquidation Order mentioned in Section 112 hereof.
(C) In voluntary Liquidation.
Section 105. Petition; Acts of Insolvency. - Any creditor or group of creditors with a claim of, or with claims aggregating at least Five hundred thousand pesos (Php500, 000.00) may file a verified petition for liquidation with the court of the province or city in which the individual debtor resides.
The following shall be considered acts of insolvency, and the petition for liquidation shall set forth or allege at least one of such acts:
(a) That such person is about to depart or has departed from the Republic of the Philippines, with intent to defraud his creditors;
(b) That being absent from the Republic of the Philippines, with intent to defraud his creditors, he remains absent;
(c) That he conceals himself to avoid the service of legal process for the purpose of hindering or delaying the liquidation or of defrauding his creditors;
(d) That he conceals, or is removing, any of his property to avoid its being attached or taken on legal process;
(e) That he has suffered his property to remain under attachment or legal process for three (3) days for the purpose of hindering or delaying the liquidation or of defrauding his creditors;
(f) That he has confessed or offered to allow judgment in favor of any creditor or claimant for the purpose of hindering or delaying the liquidation or of defrauding any creditors or claimant;
(g) That he has willfully suffered judgment to be taken against him by default for the purpose of hindering or delaying the liquidation or of defrauding his creditors;
(h) That he has suffered or procured his property to be taken on legal process with intent to give a preference to one or more of his creditors and thereby hinder or delay the liquidation or defraud any one of his creditors;
(i) That he has made any assignment, gift, sale, conveyance or transfer of his estate, property, rights or credits with intent to hinder or delay the liquidation or defraud his creditors;
(j) That he has, in contemplation of insolvency, made any payment, gift, grant, sale, conveyance or transfer of his estate, property, rights or credits;
(k) That being a merchant or tradesman, he has generally defaulted in the payment of his current obligations for a period of thirty (30) days;
(l) That for a period of thirty (30) days, he has failed, after demand, to pay any moneys deposited with him or received by him in a fiduciary; and
(m) That an execution having been issued against him on final judgment for money, he shall have been found to be without sufficient property subject to execution to satisfy the judgment.
The petitioning creditor/s shall post a bond in such as the court shall direct, conditioned that if the petition for liquidation is dismissed by the court, or withdrawn by the petitioner, or if the debtor shall not be declared an insolvent the petitioners will pay to the debtor all costs, expenses, damages occasioned by the proceedings and attorney's fees.
Section 106. Order to Individual Debtor to Show Cause. - Upon the filing of such creditors' petition, the court shall issue an Order requiring the individual debtor to show cause, at a time and place to be fixed by the said court, why he should not be adjudged an insolvent. Upon good cause shown, the court may issue an Order forbidding the individual debtor from making payments of any of his debts, and transferring any property belonging to him. However, nothing contained herein shall affect or impair the rights of a secured creditor to enforce his lien in accordance with its terms.
Section 107. Default. - If the individual debtor shall default or if, after trial, the issues are found in favor of the petitioning creditors the court shall issue the Liquidation Order mentioned in Section 112 hereof.
Section 108. Absent Individual Debtor. - In all cases where the individual debtor resides out of the Republic of the Philippines; or has departed therefrom; or cannot, after due diligence, be found therein; or conceals himself to avoid service of the Order to show cause, or any other preliminary process or orders in the matter, then the petitioning creditors, upon submitting the affidavits requisite to procedure an Order of publication, and presenting a bond in double the amount of the aggregate sum of their claims against the individual debtor, shall be entitled to an Order of the court directing the sheriff of the province or city in which the matter is pending to take into his custody a sufficient amount of property of the individual debtor to satisfy the demands of the petitioning creditors and the costs of the proceedings. Upon receiving such Order of the court to take into custody of the property of the individual debtor, it shall be the duty of the sheriff to take possession of the property and effects of the individual debtor, not exempt from execution, to an extent sufficient to cover the amount provided for and to prepare within three (3) days from the time of taking such possession, a complete inventory of all the property so taken, and to return it to the court as soon as completed.
The time for taking the inventory and making return thereof may be extended for good cause shown to the court. The sheriff shall also prepare a schedule of the names and residences of the creditors, and the amount due each, from the books of the debtor, or from such other papers or data of the individual debtor available as may come to his possession, and shall file such schedule or list of creditors and inventory with the clerk of court.
Section 109. All Property Taken to be Held for All Creditors; Appeal Bonds; Exemptions to Sureties. - In all cases where property is taken into custody by the sheriff, if it does not embrace all the property and effects of the debtor not exempt from execution, any other creditor or creditors of the individual debtor, upon giving bond to be approved by the court in double the amount of their claims, singly or jointly, shall be entitled to similar orders and to like action, by the sheriff; until all claims be provided for, if there be sufficient property or effects. All property taken into custody by the sheriff by virtue of the giving of any such bonds shall be held by him for the benefit of all creditors of the individual debtor whose claims shall be duly proved as provided in this Act. The bonds provided for in this section and the preceding section to procure the order for custody of the property and effects of the individual debtor shall be conditioned that if, upon final hearing of the petition in insolvency, the court shall find in favor of the petitioners, such bonds and all of them shall be void; if the decision be in favor of the individual debtor, the proceedings shall be dismissed, and the individual debtor, his heirs, administrators, executors or assigns shall be entitled to recover such sum of money as shall be sufficient to cover the damages sustained by him, not to exceed the amount of the respective bonds. Such damages shall be fixed and allowed by the court. If either the petitioners or the debtor shall appeal from the decision of the court, upon final hearing of the petition, the appellant shall be required to give bond to the successful party in a sum double the amount of the value of the property in controversy, and for the costs of the proceedings.
Any person interested in the estate may take exception to the sufficiency of the sureties on such bond or bonds. When excepted to the petitioner's sureties, upon notice to the person excepting of not less than two (2) nor more than five (5) days, must justify as to their sufficiency; and upon failure to justify, or of others in their place fail to justify at the time and place appointed the judge shall issue an Order vacating the order to take the property of the individual debtor into the custody of the sheriff, or denying the appeal, as the case may be.
Section 110. Sale Under Execution. - If, in any case, proper affidavits and bonds are presented to the court or a judge thereof, asking for and obtaining an Order of publication and an Order for the custody of the property of the individual debtor and thereafter the petitioners shall make it appear satisfactorily to the court or a judge thereof that the interest of the parties to the proceedings will be subserved by a sale thereof, the court may order such property to be sold in the same manner as property is sold under execution, the proceeds to de deposited in the court to abide by the result of the proceedings.
CHAPTER VII
PROVISIONS COMMON TO LIQUIDATION IN INSOLVENCY OF INDIVIDUAL AND JURIDICAL DEBTORS
(A) The Liquidation Order.
Section 112. Liquidation Order. - The Liquidation Order shall:
(a) declare the debtor insolvent;
(b) order the liquidation of the debtor and, in the case of a juridical debtor, declare it as dissolved;
(c) order the sheriff to take possession and control of all the property of the debtor, except those that may be exempt from execution;
(d) order the publication of the petition or motion in a newspaper of general circulation once a week for two (2) consecutive weeks;
(e) direct payments of any claims and conveyance of any property due the debtor to the liquidator;
(f) prohibit payments by the debtor and the transfer of any property by the debtor;
(g) direct all creditors to file their claims with the liquidator within the period set by the rules of procedure;
(h) authorize the payment of administrative expenses as they become due;
(i) state that the debtor and creditors who are not petitioner/s may submit the names of other nominees to the position of liquidator; and
(j) set the case for hearing for the election and appointment of the liquidator, which date shall not be less than thirty (30) days nor more than forty-five (45) days from the date of the last publication.
Section 113. Effects of the Liquidation Order. - Upon the issuance of the Liquidation Order:
(a) the juridical debtor shall be deemed dissolved and its corporate or juridical existence terminated;
(b) legal title to and control of all the assets of the debtor, except those that may be exempt from execution, shall be deemed vested in the liquidator or, pending his election or appointment, with the court;
(c) all contracts of the debtor shall be deemed terminated and/or breached, unless the liquidator, within ninety (90) days from the date of his assumption of office, declares otherwise and the contracting party agrees;
(d) no separate action for the collection of an unsecured claim shall be allowed.
Such actions already pending will be transferred to the Liquidator for him to accept and settle or contest. If the liquidator contests or disputes the claim, the court shall allow, hear and resolve such contest except when the case is already on appeal. In such a case, the suit may proceed to judgment, and any final and executor judgment therein for a claim against the debtor shall be filed and allowed in court; and
(e) no foreclosure proceeding shall be allowed for a period of one hundred eighty (180) days.
Section 114. Rights of Secured Creditors. - The Liquidation Order shall not affect the right of a secured creditor to enforce his lien in accordance with the applicable contract or law. A secured creditor may:
(a) waive his right under the security or lien, prove his claim in the liquidation proceedings and share in the distribution of the assets of the debtor; or
(b) maintain his rights under the security or lien:
If the secured creditor maintains his rights under the security or lien:
(1) the value of the property may be fixed in a manner agreed upon by the creditor and the liquidator. When the value of the property is less than the claim it secures, the liquidator may convey the property to the secured creditor and the latter will be admitted in the liquidation proceedings as a creditor for the balance. If its value exceeds the claim secured, the liquidator may convey the property to the creditor and waive the debtor's right of redemption upon receiving the excess from the creditor;
(2) the liquidator may sell the property and satisfy the secured creditor's entire claim from the proceeds of the sale; or
(3) the secure creditor may enforce the lien or foreclose on the property pursuant to applicable laws.
(B) The Liquidator.
Section 115. Election of Liquidator. - Only creditors who have filed their claims within the period set by the court, and whose claims are not barred by the statute of limitations, will be allowed to vote in the election of the liquidator. A secured creditor will not be allowed to vote, unless: (a) he waives his security or lien; or
(b) has the value of the property subject of his security or lien fixed by agreement with the liquidator, and is admitted for the balance of his claim.
The creditors entitled to vote will elect the liquidator in open court. The nominee receiving the highest number of votes cast in terms of amount of claims, ad who is qualified pursuant to Section 118 hereof, shall be appointed as the liquidator.
Section 116. Court-Appointed Liquidator. - The court may appoint the liquidator if:
(a) on the date set for the election of the liquidator, the creditors do not attend;
(b) the creditors who attend, fail or refuse to elect a liquidator;
(c) after being elected, the liquidator fails to qualify; or
(d) a vacancy occurs for any reason whatsoever, In any of the cases provided herein, the court may instead set another hearing of the election of the liquidator.
Provided further, That nothing in this section shall be construed to prevent a rehabilitation receiver, who was administering the debtor prior to the commencement of the liquidation, from being appointed as a liquidator.
Section 119. Powers, Duties and Responsibilities of the Liquidator. - The liquidator shall be deemed an officer of the court with the principal duly of preserving and maximizing the value and recovering the assets of the debtor, with the end of liquidating them and discharging to the extent possible all the claims against the debtor. The powers, duties and responsibilities of the liquidator shall include, but not limited to:
(a) to sue and recover all the assets, debts and claims, belonging or due to the debtor;
(b) to take possession of all the property of the debtor except property exempt by law from execution;
(c) to sell, with the approval of the court, any property of the debtor which has come into his possession or control;
(d) to redeem all mortgages and pledges, and so satisfy any judgement which may be an encumbrance on any property sold by him;
(e) to settle all accounts between the debtor and his creditors, subject to the approval of the court;
(f) to recover any property or its value, fraudulently conveyed by the debtor;
(g) to recommend to the court the creation of a creditors' committee which will assist him in the discharge of the functions and which shall have powers as the court deems just, reasonable and necessary; and
(h) upon approval of the court, to engage such professional as may be necessary and reasonable to assist him in the discharge of his duties.
In addition to the rights and duties of a rehabilitation receiver, the liquidator, shall have the right and duty to take all reasonable steps to manage and dispose of the debtor's assets with a view towards maximizing the proceedings therefrom, to pay creditors and stockholders, and to terminate the debtor's legal existence. Other duties of the liquidator in accordance with this section may be established by procedural rules.
A liquidator shall be subject to removal pursuant to procedures for removing a rehabilitation receiver.
(C) Determination of Claims
Section 123. Registry of Claims. - Within twenty (20) days from his assumption into office the liquidator shall prepare a preliminary registry of claims of secured and unsecured creditors. Secured creditors who have waived their security or lien, or have fixed the value of the property subject of their security or lien by agreement with the liquidator and is admitted as a creditor for the balance , shall be considered as unsecured creditors. The liquidator shall make the registry available for public inspection and provide publication notice to creditors, individual debtors owner/s of the sole proprietorship-debtor, the partners of the partnership-debtor and shareholders or members of the corporation-debtor, on where and when they may inspect it. All claims must be duly proven before being paid.
Section 124. Right of Set-off. - If the debtor and creditor are mutually debtor and creditor of each other one debt shall be set off against the other, and only the balance, if any shall be allowed in the liquidation proceedings.
Section 125. - Opposition or Challenge to Claims. - Within thirty (30 ) days from the expiration of the period for filing of applications for recognition of claims, creditors, individual debtors, owner/s of the sole proprietorship-debtor, partners of the partnership-debtor and shareholders or members of the corporation -debtor and other interested parties may submit a challenge to claim or claims to the court, serving a certified copy on the liquidator and the creditor holding the challenged claim. Upon the expiration of the (30) day period, the rehabilitation receiver shall submit to the court the registry of claims containing the undisputed claims that have not been subject to challenge. Such claims shall become final upon the filling of the register and may be subsequently set aside only on grounds or fraud, accident, mistake or inexcusable neglect.
Section 126. Submission of Disputed to the Court. - The liquidator shall resolve disputed claims and submit his findings thereon to the court for final approval. The liquidator may disallow claims.
(D) Avoidance Proceedings.
Section 127. Rescission or Nullity of Certain Transactions. - Any transaction occurring prior to the issuance of the Liquidation Order or, in case of the conversion of the rehabilitation proceedings prior to the commencement date, entered into by the debtor or involving its assets, may be rescinded or declared null and void on the ground that the same was executed with intent to defraud a creditor or creditors or which constitute undue preference of creditors. The presumptions set forth in Section 58 hereof shall apply.
Section 128. Actions for Rescission or Nullity. - (a) The liquidator or, with his conformity, a creditor may initiate and prosecute any action to rescind, or declare null and void any transaction described in the immediately preceding paragraph. If the liquidator does not consent to the filling or prosecution of such action, any creditor may seek leave of the court to commence said action.
(b) if leave of court is granted under subsection (a) hereof, the liquidator shall assign and transfer to the creditor all rights, title and interest in the chose in action or subject matter of the proceeding, including any document in support thereof.
(c) Any benefit derived from a proceeding taken pursuant to subsection (a) hereof, to the extent of his claim and the costs, belongs exclusively to the creditor instituting the proceeding, and the surplus, if any, belongs to the estate.
(d) Where, before an orders is made under subsection (a) hereof, the liquidator signifies to the court his readiness to the institute the proceeding for the benefit of the creditors, the order shall fix the time within which he shall do so and, in that case the benefit derived from the proceedings, if instituted within the time limits so fixed, belongs to the estate.
(E) The Liquidation Plan.
Section 129. The Liquidation Plan. - Within three (3) months from his assumption into office, the Liquidator shall submit a Liquidation Plan to the court. The Liquidation Plan shall, as a minimum enumerate all the assets of the debtor and a schedule of liquidation of the assets and payment of the claims.
Section 130. Exempt Property to be Set Apart. - It shall be the duty of the court, upon petition and after hearing, to exempt and set apart, for the use and benefit of the said insolvent, such real and personal property as is by law exempt from execution, and also a homestead; but no such petition shall be heard as aforesaid until it is first proved that notice of the hearing of the application therefor has been duly given by the clerk, by causing such notice to be posted it at least three (3) public places in the province or city at least ten (10) days prior to the time of such hearing, which notice shall set forth the name of the said insolvent debtor, and the time and place appointed for the hearing of such application, and shall briefly indicate the homestead sought to be exempted or the property sought to be set aside; and the decree must show that such proof was made to the satisfaction of the court, and shall be conclusive evidence of that fact.
Section 131. Sale of Assets in Liquidation. - The liquidator may sell the unencumbered assets of the debtor and convert the same into money. The sale shall be made at public auction. However, a private sale may be allowed with the approval of the court if; (a) the goods to be sold are of a perishable nature, or are liable to quickly deteriorate in value, or are disproportionately expensive to keep or maintain; or (b) the private sale is for the best interest of the debtor and his creditors.
With the approval of the court, unencumbered property of the debtor may also be conveyed to a creditor in satisfaction of his claim or part thereof.
Section 132. manner of Implementing the Liquidation Plan. - The Liquidator shall implement the Liquidation Plan as approved by the court. Payments shall be made to the creditors only in accordance with the provisions of the Plan.
Section 133. Concurrence and Preference of Credits. - The Liquidation Plan and its Implementation shall ensure that the concurrence and preference of credits as enumerated in the Civil Code of the Philippines and other relevant laws shall be observed, unless a preferred creditor voluntarily waives his preferred right. For purposes of this chapter, credits for services rendered by employees or laborers to the debtor shall enjoy first preference under Article 2244 of the Civil Code, unless the claims constitute legal liens under Article 2241 and 2242 thereof.
Section 134. Order Removing the Debtor from the List of Registered Entitles at the Securities and Exchange Commission. - Upon determining that the liquidation has been completed according to this Act and applicable law, the court shall issue an Order approving the report and ordering the SEC to remove the debtor from the registry of legal entities.
Section 135. Termination of Proceedings. - Upon receipt of evidence showing that the debtor has been removed from the registry of legal entities at the SEC. The court shall issue an Order terminating the proceedings.
(F) Liquidation of a Securities Market Participant.
Section 136. Liquidation of a Securities Market Participant. - The foregoing provisions of this chapter shall be without prejudice to the power of a regulatory agency or self- regulatory organization to liquidate trade-related claims of clients or customers of a securities market participant which, for purposes of investor protection, are hereby deemed to have absolute priority over other claims of whatever nature or kind insofar as trade-related assets are concerned.
For purposes of this section, trade -related assets include cash, securities, trading right and other owned and used by the securities market participant in the ordinary course of this business.
CHAPTER VIII
PROCEEDINGS ANCILLARY TO OTHER INSOLVENCY OR REHABILITAION PROCEEDINGS
(B) Cross-Border Insolvency Proceedings.
Section 139. Adoption of Uncitral Model Law on Cross-Border Insolvency. - Subject to the provision of Section 136 hereof and the rules of procedure that may be adopted by the Supreme Court, the Model Law on Cross-Border Insolvency of the United Nations Center for International Trade and Development is hereby adopted as part of this Act.
Section 140. Initiation of Proceedings. - The court shall set a hearing in connection with an insolvency or rehabilitation proceeding taking place in a foreign jurisdiction, upon the submission of a petition by the representative of the foreign entity that is the subject of the foreign proceeding.
Section 141. Provision of Relief. - The court may issue orders:
(a) suspending any action to enforce claims against the entity or otherwise seize or foreclose on property of the foreign entity located in the Philippines;
(b) requiring the surrender property of the foreign entity to the foreign representative; or
(c) providing other necessary relief.
Section 142. Factors in Granting Relief. - In determining whether to grant relief
under this subchapter, the court shall consider;
(a) the protection of creditors in the Philippines and the inconvenience in pursuing their claim in a foreign proceeding;
(b) the just treatment of all creditors through resort to a unified insolvency or rehabilitation proceedings;
(c) whether other jurisdictions have given recognition to the foreign proceeding;
(d) the extent that the foreign proceeding recognizes the rights of creditors and other interested parties in a manner substantially in accordance with the manner prescribed in this Act; and
(e) the extent that the foreign proceeding has recognized and shown deference to proceedings under this Act and previous legislation.
CHAPTER X
MISCELLANEOUS PROVISIOS
Section 145. Penalties. - An owner, partner, director, officer or other employee of the debtor who commits any one of the following acts shall, upon conviction thereof, be punished by a fine of not more than One million pesos (Php 1, 000,000.00) and imprisonment for not less than three(3) months nor more than five (5) years for each offense;
(a) if he shall, having notice of the commencement of the proceedings, or having reason to believe that proceedings are about to be commented, or in contemplation of the proceedings hide or conceal, or destroy or cause to be destroyed or hidden any property belonging to the debtor or if he shall hide, destroy, after mutilate or falsify, or cause to be hidden, destroyed, altered, mutilated or falsified, any book, deed, document or writing relating thereto; if he shall, with intent to defraud the creditors of the debtor, make any payment sale, assignment, transfer or conveyance of any property belongings to the debtor
(b) if he shall, having knowledge belief of any person having proved a false or fictitious claim against the debtor, fail to disclose the same to the rehabilitation receiver of liquidator within one (1) month after coming to said knowledge or belief; or if he shall attempt to account for any of the debtors property by fictitious losses or expense; or
(c) if he shall knowingly violate a prohibition or knowingly fail to undertake an obligation established by this Act.
Section 3. Nature of Proceedings. - The proceedings under this Act shall be in rem. Jurisdiction over all persons affected by the proceedings shall be considered as acquired upon publication of the notice of the commencement of the proceedings in any newspaper of general circulation in the Philippines in the manner prescribed by the rules of procedure to be promulgated by the Supreme Court.
The proceedings shall be conducted in a summary and non-adversarial manner consistent with the declared policies of this Act and in accordance with the rules of procedure that the Supreme Court may promulgate.
Section 5. Exclusions. - The term debtor does not include banks, insurance companies, pre-need companies, and national and local government agencies or units.
X x x.
Provided, That government financial institutions other than banks and government-owned or controlled corporations shall be covered by this Act, unless their specific charter provides otherwise.
Section 7. Substantive and Procedural Consolidation. - Each juridical entity shall be considered as a separate entity under the proceedings in this Act. Under these proceedings, the assets and liabilities of a debtor may not be commingled or aggregated with those of another, unless the latter is a related enterprise that is owned or controlled directly or indirectly by the same interests: Provided, however, That the commingling or aggregation of assets and liabilities of the debtor with those of a related enterprise may only be allowed where:
(a) there was commingling in fact of assets and liabilities of the debtor and the related enterprise prior to the commencement of the proceedings;
(b) the debtor and the related enterprise have common creditors and it will be more convenient to treat them together rather than separately;
(c) the related enterprise voluntarily accedes to join the debtor as party petitioner and to commingle its assets and liabilities with the debtor's; and
(d) The consolidation of assets and liabilities of the debtor and the related enterprise is beneficial to all concerned and promotes the objectives of rehabilitation.
Provided, finally, That nothing in this section shall prevent the court from joining other entities affiliated with the debtor as parties pursuant to the rules of procedure as may be promulgated by the Supreme Court.
Section 10. Liability of Individual Debtor, Owner of a Sole Proprietorship, Partners in a Partnership, or Directors and Officers. - Individual debtor, owner of a sole proprietorship, partners in a partnership, or directors and officers of a debtor shall be liable for double the value of the property sold, embezzled or disposed of or double the amount of the transaction involved, whichever is higher to be recovered for benefit of the debtor and the creditors, if they, having notice of the commencement of the proceedings, or having reason to believe that proceedings are about to be commenced, or in contemplation of the proceedings, willfully commit the following acts:
(a) Dispose or cause to be disposed of any property of the debtor other than in the ordinary course of business or authorize or approve any transaction in fraud of creditors or in a manner grossly disadvantageous to the debtor and/or creditors; or
(b) Conceal or authorize or approve the concealment, from the creditors, or embezzles or misappropriates, any property of the debtor.
The court shall determine the extent of the liability of an owner, partner, director or officer under this section. In this connection, in case of partnerships and corporations, the court shall consider the amount of the shareholding or partnership or equity interest of such partner, director or officer, the degree of control of such partner, director or officer over the debtor, and the extent of the involvement of such partner, director or debtor in the actual management of the operations of the debtor.
CHAPTER II
COURT-SUPERVISED REHABILITATION
(A) Initiation Proceedings.
(1) Voluntary Proceedings.
Section 12. Petition to Initiate Voluntary Proceedings by Debtor. - When approved by the owner in case of a sole proprietorship, or by a majority of the partners in case of a partnership, or in case of a corporation, by a majority vote of the board of directors or trustees and authorized by the vote of the stockholders representing at least two-thirds (2/3) of the outstanding capital stock, or in case of nonstock corporation, by the vote of at least two-thirds (2/3) of the members, in a stockholder's or member's meeting duly called for the purpose, an insolvent debtor may initiate voluntary proceedings under this Act by filing a petition for rehabilitation with the court and on the grounds hereinafter specifically provided.
The petition shall be verified to establish the insolvency of the debtor and the viability of its rehabilitation, and include, whether as an attachment or as part of the body of the petition, as a minimum the following:
(a) Identification of the debtor, its principal activities and its addresses;
(b) Statement of the fact of and the cause of the debtor's insolvency or inability to pay its obligations as they become due;
(c) The specific relief sought pursuant to this Act;
(d) The grounds upon which the petition is based;
(e) Other information that may be required under this Act depending on the form of relief requested;
(f) Schedule of the debtor's debts and liabilities including a list of creditors with their addresses, amounts of claims and collaterals, or securities, if any;
(g) An inventory of all its assets including receivables and claims against third parties;
(h) A Rehabilitation Plan;
(i) The names of at least three (3) nominees to the position of rehabilitation receiver; and
(j) Other documents required to be filed with the petition pursuant to this Act and the rules of procedure as may be promulgated by the Supreme Court.
A group of debtors may jointly file a petition for rehabilitation under this Act when one or more of its members foresee the impossibility of meeting debts when they respectively fall due, and the financial distress would likely adversely affect the financial condition and/or operations of the other members of the group and/or the participation of the other members of the group is essential under the terms and conditions of the proposed Rehabilitation Plan.
(2) Involuntary Proceedings.
Section 13. Circumstances Necessary to Initiate Involuntary Proceedings. - Any creditor or group of creditors with a claim of, or the aggregate of whose claims is, at least One Million Pesos (Php1,000,000.00) or at least twenty-five percent (25%) of the subscribed capital stock or partners' contributions, whichever is higher, may initiate involuntary proceedings against the debtor by filing a petition for rehabilitation with the court if:
(a) there is no genuine issue of fact on law on the claim/s of the petitioner/s, and that the due and demandable payments thereon have not been made for at least sixty (60) days or that the debtor has failed generally to meet its liabilities as they fall due; or
(b) a creditor, other than the petitioner/s, has initiated foreclosure proceedings against the debtor that will prevent the debtor from paying its debts as they become due or will render it insolvent.
Section 14. Petition to Initiate Involuntary Proceedings. - The creditor/s' petition for rehabilitation shall be verified to establish the substantial likelihood that the debtor may be rehabilitated, and include:
(a) identification of the debtor its principal activities and its address;
(b) the circumstances sufficient to support a petition to initiate involuntary rehabilitation proceedings under Section 13 of this Act;
(c) the specific relief sought under this Act;
(d) a Rehabilitation Plan;
(e) the names of at least three (3) nominees to the position of rehabilitation receiver;
(f) other information that may be required under this Act depending on the form of relief requested; and
(g) other documents required to be filed with the petition pursuant to this Act and the rules of procedure as may be promulgated by the Supreme Court.
(B) Action on the Petition and Commencement of Proceedings.
Section 15. Action on the Petition. - If the court finds the petition for rehabilitation to be sufficient in form and substance, it shall, within five (5) working days from the filing of the petition, issue a Commencement Order. If, within the same period, the court finds the petition deficient in form or substance, the court may, in its discretion, give the petitioner/s a reasonable period of time within which to amend or supplement the petition, or to submit such documents as may be necessary or proper to put the petition in proper order. In such case, the five (5) working days provided above for the issuance of the Commencement Order shall be reckoned from the date of the filing of the amended or supplemental petition or the submission of such documents.
Section 16. Commencement of Proceedings and Issuance of a Commencement Order. - The rehabilitation proceedings shall commence upon the issuance of the Commencement Order, which shall:
(a) identify the debtor, its principal business or activity/ies and its principal place of business;
(b) summarize the ground/s for initiating the proceedings;
(c) state the relief sought under this Act and any requirement or procedure particular to the relief sought;
(d) state the legal effects of the Commencement Order, including those mentioned in Section 17 hereof;
(e) declare that the debtor is under rehabilitation;
(f) direct the publication of the Commencement Order in a newspaper of general circulation in the Philippines once a week for at least two (2) consecutive weeks, with the first publication to be made within seven (7) days from the time of its issuance;
(g) If the petitioner is the debtor direct the service by personal delivery of a copy of the petition on each creditor holding at least ten percent (10%) of the total liabilities of the debtor as determined from the schedule attached to the petition within five (5) days; if the petitioner/s is/are creditor/s, direct the service by personal delivery of a copy of the petition on the debtor within five (5) days;
(h) appoint a rehabilitation receiver who may or not be from among the nominees of the petitioner/s and who shall exercise such powers and duties defined in this Act as well as the procedural rules that the Supreme Court will promulgate;
(i) summarize the requirements and deadlines for creditors to establish their claims against the debtor and direct all creditors to their claims with the court at least five (5) days before the initial hearing;
(j) direct Bureau of internal Revenue (BIR) to file and serve on the debtor its comment on or opposition to the petition or its claim/s against the debtor under such procedures as the Supreme Court provide;
(k) prohibit the debtor's suppliers of goods or services from withholding the supply of goods and services in the ordinary course of business for as long as the debtor makes payments for the services or goods supplied after the issuance of the Commencement Order;
(l) authorize the payment of administrative expenses as they become due;
(m) set the case for initial hearing, which shall not be more than forty (40) days from the date of filing of the petition for the purpose of determining whether there is substantial likelihood for the debtor to be rehabilitated;
(n) make available copies of the petition and rehabilitation plan for examination and copying by any interested party;
(o) indicate the location or locations at which documents regarding the debtor and the proceedings under Act may be reviewed and copied;
(p) state that any creditor or debtor who is not the petitioner, may submit the name or nominate any other qualified person to the position of rehabilitation receiver at least five (5) days before the initial hearing;
(q) include s Stay or Suspension Order which shall:
(1) suspend all actions or proceedings, in court or otherwise, for the enforcement of claims against the debtor;
(2) suspend all actions to enforce any judgment, attachment or other provisional remedies against the debtor;
(3) prohibit the debtor from selling, encumbering, transferring or disposing in any manner any of its properties except in the ordinary course of business; and
(4) prohibit the debtor from making any payment of its liabilities outstanding as of the commencement date except as may be provided herein.
Section 17. Effects of the Commencement Order. - Unless otherwise provided for in this Act, the court's issuance of a Commencement Order shall, in addition to the effects of a Stay or Suspension Order described in Section 16 hereof:
(a) vest the rehabilitation with all the powers and functions provided for this Act, such as the right to review and obtain records to which the debtor's management and directors have access, including bank accounts or whatever nature of the debtor subject to the approval by the court of the performance bond filed by the rehabilitation receiver;
(b) prohibit or otherwise serve as the legal basis rendering null and void the results of any extrajudicial activity or process to seize property, sell encumbered property, or otherwise attempt to collection or enforce a claim against the debtor after commencement date unless otherwise allowed in this Act, subject to the provisions of Section 50 hereof;
(c) serve as the legal basis for rendering null and void any setoff after the commencement date of any debt owed to the debtor by any of the debtor's creditors;
(d) serve as the legal basis for rendering null and void the perfection of any lien against the debtor's property after the commencement date; and
(e) consolidate the resolution of all legal proceedings by and against the debtor to the court Provided. However, That the court may allow the continuation of cases on other courts where the debtor had initiated the suit.
Attempts to seek legal of other resource against the debtor outside these proceedings shall be sufficient to support a finding of indirect contempt of court.
Section 18. Exceptions to the Stay or Suspension Order. - The Stay or Suspension Order shall not apply:
(a) to cases already pending appeal in the Supreme Court as of commencement date Provided, That any final and executory judgment arising from such appeal shall be referred to the court for appropriate action;
(b) subject to the discretion of the court, to cases pending or filed at a specialized court or quasi-judicial agency which, upon determination by the court is capable of resolving the claim more quickly, fairly and efficiently than the court: Provided, That any final and executory judgment of such court or agency shall be referred to the court and shall be treated as a non-disputed claim;
(c) to the enforcement of claims against sureties and other persons solidarily liable with the debtor, and third party or accommodation mortgagors as well as issuers of letters of credit, unless the property subject of the third party or accommodation mortgage is necessary for the rehabilitation of the debtor as determined by the court upon recommendation by the rehabilitation receiver;
(d) to any form of action of customers or clients of a securities market participant to recover or otherwise claim moneys and securities entrusted to the latter in the ordinary course of the latter's business as well as any action of such securities market participant or the appropriate regulatory agency or self-regulatory organization to pay or settle such claims or liabilities;
(e) to the actions of a licensed broker or dealer to sell pledged securities of a debtor pursuant to a securities pledge or margin agreement for the settlement of securities transactions in accordance with the provisions of the Securities Regulation Code and its implementing rules and regulations;
(f) the clearing and settlement of financial transactions through the facilities of a clearing agency or similar entities duly authorized, registered and/or recognized by the appropriate regulatory agency like the Bangko Sentral ng Pilipinas (BSP) and the SEC as well as any form of actions of such agencies or entities to reimburse themselves for any transactions settled for the debtor; and
(g) any criminal action against individual debtor or owner, partner, director or officer of a debtor shall not be affected by any proceeding commend under this Act.
Section 21. Effectivity and Duration of Commencement Order. - Unless lifted by the court, the Commencement Order shall be for the effective for the duration of the rehabilitation proceedings for as long as there is a substantial likelihood that the debtor will be successfully rehabilitated. In determining whether there is substantial likelihood for the debtor to be successfully rehabilitated, the court shall ensure that the following minimum requirements are met:
(a) The proposed Rehabilitation Plan submitted complies with the minimum contents prescribed by this Act;
(b) There is sufficient monitoring by the rehabilitation receiver of the debtor's business for the protection of creditors;
(c) The debtor has met with its creditors to the extent reasonably possible in attempts to reach consensus on the proposed Rehabilitation Plan;
(d) The rehabilitation receiver submits a report, based on preliminary evaluation, stating that the underlying assumptions and the goals stated in the petitioner's
Rehabilitation Plan are realistic reasonable and reasonable or if not, there is, in any case, a substantial likelihood for the debtor to be successfully rehabilitated because, among others:
(1) there are sufficient assets with/which to rehabilitate the debtor;
(2) there is sufficient cash flow to maintain the operations of the debtor;
(3) the debtor's, partners, stockholders, directors and officers have been acting in good faith and which due diligence;
(4) the petition is not s sham filing intended only to delay the enforcement of the rights of the creditor's or of any group of creditors; and
(5) the debtor would likely be able to pursue a viable Rehabilitation Plan;
(e) The petition, the Rehabilitation Plan and the attachments thereto do not contain any materially false or misleading statement;
(f) If the petitioner is the debtor, that the debtor has met with its creditor/s representing at least three-fourths (3/4) of its total obligations to the extent reasonably possible and made a good faith effort to reach a consensus on the proposed Rehabilitation Plan if the petitioner/s is/are a creditor or group of creditors, that/ the petitioner/s has/have met with the debtor and made a good faith effort to reach a consensus on the proposed Rehabilitation Plan; and
(g) The debtor has not committed acts misrepresentation or in fraud of its creditor/s or a group of creditors.
Section 22. Action at the Initial Hearing. - At the initial hearing, the court shall:
(a) determine the creditors who have made timely and proper filing of their notice of claims;
(b) hear and determine any objection to the qualifications of the appointment of the rehabilitation receiver and, if necessary appoint a new one in accordance with this Act;
(c) direct the creditors to comment on the petition and the Rehabilitation Plan, and to submit the same to the court and to the rehabilitation receiver within a period of not more than twenty (20) days; and
(d) direct the rehabilitation receiver to evaluate the financial condition of the debtor and to prepare and submit to the court within forty (40) days from initial hearing the report provided in Section 24 hereof.
Section 23. Effect of Failure to File Notice of Claim. - A creditor whose claim is not listed in the schedule of debts and liabilities and who fails to file a notice of claim in accordance with the Commencement Order but subsequently files a belated claim shall not be entitled to participate in the rehabilitation proceedings but shall be entitled to receive distributions arising therefrom.
Section 24. Report of the Rehabilitation Receiver. - Within forty (40) days from the initial hearing and with or without the comments of the creditors or any of them, the rehabilitation receiver shall submit a report to the court stating his preliminary findings and recommendations on whether:
(a) the debtor is insolvent and if so, the causes thereof and any unlawful or irregular act or acts committed by the owner/s of a sole proprietorship partners of a partnership or directors or officers of a corporation in contemplation of the insolvency of the debtor or which may have contributed to the insolvency of the debtor;
(b) the underlying assumptions, the financial goals and the procedures to accomplish such goals as stated in the petitioner's Rehabilitation Plan are realistic, feasible and reasonable;
(c) there is a substantial likelihood for the debtor to be successfully rehabilitated;
(d) the petition should be dismissed; and
(e) the debtor should be dissolved and/or liquidated.
Section 25. Giving Due Course to or Dismissal of Petition, or Conversion of Proceedings. - Within ten (10) days from receipt of the report of the rehabilitation receiver mentioned in Section 24 hereof the court may:
(a) give due course to the petition upon a finding that:
(1) the debtor is insolvent; and
(2) there is a substantial likelihood for the debtor to be successfully rehabilitated;
(3) dismiss the petition upon a finding that:
(b) The debtor shall comply with the provisions of the Rehabilitation Plan and shall take all actions necessary to carry out the Plan;
(c) Payments shall be made to the creditors in accordance with the provisions of the Rehabilitation Plan;
(d) Contracts and other arrangements between the debtor and its creditors shall be interpreted as continuing to apply to the extent that they do not conflict with the provisions of the Rehabilitation Plan;
(e) Any compromises on amounts or rescheduling of timing of payments by the debtor shall be binding on creditors regardless of whether or not the Plan is successfully implement; and
(f) Claims arising after approval of the Plan that are otherwise not treated by the Plan are not subject to any Suspension Order.
The Order confirming the Plan shall comply with Rules 36 of the Rules of Court: Provided, however, That the court may maintain jurisdiction over the case in order to resolve claims against the debtor that remain contested and allegations that the debtor has breached the Plan.
Section 72. Period for Confirmation of the Rehabilitation Plan. - The court shall have a maximum period of one (1) year from the date of the filing of the petition to confirm a Rehabilitation Plan.
If no Rehabilitation Plan is confirmed within the said period, the proceedings may upon motion or motu propio, be converted into one for the liquidation of the debtor .
Section 73. Accounting Discharge of Rehabilitation Receiver. - Upon the confirmation of the Rehabilitation Plan, the rehabilitation receiver shall provide a final report and accounting to the court. Unless the Rehabilitation Plan specifically requires and describes the role of the rehabilitation receiver after the approval of the Rehabilitation Plan, the court shall discharge the rehabilitation receiver of his duties.
(j) Termination of Proceedings
Section 74. Termination of Proceedings. - The rehabilitation proceedings under Chapter II shall, upon motion by any stakeholder or the rehabilitation receiver be terminated by order of the court either declaring a successful implementation of the Rehabilitation Plan or a failure of rehabilitation.
There is failure of rehabilitation in the following cases:
(a) Dismissal of the petition by the court;
(b) The debtor fails to submit a Rehabilitation Plan;
(c) Under the Rehabilitation Plan submitted by the debtor, there is no substantial likelihood that the debtor can be rehabilitated within a reasonable period;
(d) The Rehabilitation Plan or its amendment is approved by the court but in the implementation thereof, the debtor fails to perform its obligations thereunder or there is a failure to realize the objectives, targets or goals set forth therein, including the timelines and conditions for the settlement of the obligations due to the creditors and other claimants;
(e) The commission of fraud in securing the approval of the Rehabilitation Plan or its amendment; and
(f) Other analogous circumstances as may be defined by the rules of procedure.
Upon a breach of, or upon a failure of the Rehabilitation Plan the court, upon motion by an affected party may:
(1) Issue an order directing that the breach be cured within a specified period of time, falling which the proceedings may be converted to a liquidation;
(2) Issue an order converting the proceedings to a liquidation;
(3) Allow the debtor or rehabilitation receiver to submit amendments to the Rehabilitation Plan, the approval of which shall be governed by the same requirements for the approval of a Rehabilitation Plan under this subchapter;
(4) Issue any other order to remedy the breach consistent with the present regulation, other applicable law and the best interests of the creditors; or
(5) Enforce the applicable provisions of the Rehabilitation Plan through a writ of execution.
Section 75. Effects of Termination. - Termination of the proceedings shall result in the following:
(a) The discharge of the rehabilitation receiver subject to his submission of a final accounting; and
(b) The lifting of the Stay Order and any other court order holding in abeyance any action for the enforcement of a claim against the debtor.
Provided, however, That if the termination of proceedings is due to failure of rehabilitation or dismissal of the petition for reasons other than technical grounds, the proceedings shall be immediately converted to liquidation as provided in Section 92 of this Act.
CHAPTER III
PRE-NEGOTIATED REHABILITATION
Section 76. Petition by Debtor. - An insolvent debtor, by itself or jointly with any of its creditors, may file a verified petition with the court for the approval of a pre-negotiated Rehabilitation Plan which has been endorsed or approved by creditors holding at least two-thirds (2/3) of the total liabilities of the debtor, including secured creditors holding more than fifty percent (50%) of the total secured claims of the debtor and unsecured creditors holding more than fifty percent (50%) of the total unsecured claims of the debtor. The petition shall include as a minimum:
(a) a schedule of the debtor's debts and liabilities;
(b) an inventory of the debtor's assets;
(c) the pre-negotiated Rehabilitation Plan, including the names of at least three (3) qualified nominees for rehabilitation receiver; and
(d) a summary of disputed claims against the debtor and a report on the provisioning of funds to account for appropriate payments should any such claims be ruled valid or their amounts adjusted.
Section 77. Issuance of Order. - Within five (5) working days, and after determination that the petition is sufficient in form and substance, the court shall issue an Order which shall;
(a) identify the debtor, its principal business of activity/ies and its principal place of business;
(b) declare that the debtor is under rehabilitation;
(c) summarize the ground./s for the filling of the petition;
(d) direct the publication of the Order in a newspaper of general circulation in the Philippines once a week for at least two (2) consecutive weeks, with the first publication to be made within seven (7) days from the time of its issuance;
(e) direct the service by personal delivery of a copy of the petition on each creditor who is not a petitioner holding at least ten percent (10%) of the total liabilities of the debtor, as determined in the schedule attached to the petition, within three (3) days;
(f) state that copies of the petition and the Rehabilitation Plan are available for examination and copying by any interested party;
(g) state that creditors and other interested parties opposing the petition or Rehabilitation Plan may file their objections or comments thereto within a period of not later than twenty (20) days from the second publication of the Order;
(h) appoint a rehabilitation receiver, if provided for in the Plan; and
(i) include a Suspension or Stay Order as described in this Act.
Section 78. Approval of the Plan. - Within ten (10) days from the date of the second publication of the Order, the court shall approve the Rehabilitation Plan unless a creditor or other interested party submits an objection to it in accordance with the next succeeding section.
Section 79. Objection to the Petition or Rehabilitation Plan. - Any creditor or
other interested party may submit to the court a verified objection to the petition or the Rehabilitation Plan not later than eight (8) days from the date of the second publication of the Order mentioned in Section 77 hereof. The objections shall be limited to the following:
(a) The allegations in the petition or the Rehabilitation Plan or the attachments thereto are materially false or misleading;
(b) The majority of any class of creditors do not in fact support the Rehabilitation Plan;
(c) The Rehabilitation Plan fails to accurately account for a claim against the debtor and the claim in not categorically declared as a contested claim; or
(d) The support of the creditors, or any of them was induced by fraud.
Copies of any objection to the petition of the Rehabilitation Plan shall be served on the debtor, the rehabilitation receiver (if applicable), the secured creditor with the largest claim and who supports the Rehabilitation Plan, and the unsecured creditor with the largest claim and who supports the Rehabilitation Plan.
Section 80. Hearing on the Objections. - After receipt of an objection, the court shall set the same for hearing. The date of the hearing shall be no earlier than twenty (20) days and no later than thirty (30) days from the date of the second publication of the Order mentioned in Section 77 hereof. If the court finds merit in the objection, it shall direct the debtor, when feasible to cure the detect within a reasonable period. If the court determines that the debtor or creditors supporting the Rehabilitation Plan acted in bad faith, or that the objection is non-curable, the court may order the conversion of the proceedings into liquidation. A finding by the court that the objection has no substantial merit, or that the same has been cured shall be deemed an approval of the Rehabilitation Plan.
Section 81. Period for Approval of Rehabilitation Plan. - The court shall have a maximum period of one hundred twenty (120) days from the date of the filing of the petition to approve the Rehabilitation Plan. If the court fails to act within the said period, the Rehabilitation Plan shall be deemed approved.
Section 82. Effect of Approval. - Approval of a Plan under this chapter shall have the same legal effect as confirmation of a Plan under Chapter II of this Act.
CHAPTER IV
OUT-OF-COURT OR INFORMAL RESTRUCTURING AGREEMENTS OR REHABILITATION PLANS
Section 83. Out-of-Court or Informal Restructuring Agreements and Rehabilitation Plans. - An out-of-curt or informal restructuring agreement or Rehabilitation Plan that meets the minimum requirements prescribed in this chapter is hereby recognized as consistent with the objectives of this Act.
Section 84. Minimum Requirements of Out-of-Court or Informal Restructuring Agreements and Rehabilitation Plans. - For an out-of-court or informal restructuring/workout agreement or Rehabilitation Plan to qualify under this chapter, it must meet the following minimum requirements:
(a) The debtor must agree to the out-of-court or informal restructuring/workout agreement or Rehabilitation Plan;
(b) It must be approved by creditors representing at least sixty-seven (67%) of the secured obligations of the debtor;
(c) It must be approved by creditors representing at least seventy-five percent (75%) of the unsecured obligations of the debtor; and
(d) It must be approved by creditors holding at least eighty-five percent (85%) of the total liabilities, secured and unsecured, of the debtor.
Section 85. Standstill Period. - A standstill period that may be agreed upon by the parties pending negotiation and finalization of the out-of-court or informal restructuring/workout agreement or Rehabilitation Plan contemplated herein shall be effective and enforceable not only against the contracting parties but also against the other creditors: Provided, That (a) such agreement is approved by creditors representing more than fifty percent (50%) of the total liabilities of the debtor;
(b) notice thereof is publishing in a newspaper of general circulation in the Philippines once a week for two (2) consecutive weeks; and (c) the standstill period does not exceed one hundred twenty (120) days from the date of effectivity. The notice must invite creditors to participate in the negotiation for out-of-court rehabilitation or restructuring agreement and notify them that said agreement will be binding on all creditors if the required majority votes prescribed in Section 84 of this Act are met.
Section 86. Cram Down Effect. - A restructuring/workout agreement or Rehabilitation Plan that is approved pursuant to an informal workout framework referred to in this chapter shall have the same legal effect as confirmation of a Plan under Section 69 hereof. The notice of the Rehabilitation Plan or restructuring agreement or Plan shall be published once a week for at least three (3) consecutive weeks in a newspaper of general circulation in the Philippines. The Rehabilitation Plan or restructuring agreement shall take effect upon the lapse of fifteen (15) days from the date of the last publication of the notice thereof.
Section 87. Amendment or Modification. - Any amendment of an out-of-court restructuring/workout agreement or Rehabilitation Plan must be made in accordance with the terms of the agreement and with due notice on all creditors.
Section 88. Effect of Court Action or Other Proceedings. - Any court action or other proceedings arising from, or relating to, the out-of-court or informal restructuring/workout agreement or Rehabilitation Plan shall not stay its implementation, unless the relevant party is able to secure a temporary restraining order or injunctive relief from the Court of Appeals.
Section 89. Court Assistance. - The insolvent debtor and/or creditor may seek court
assistance for the execution or implementation of a Rehabilitation Plan under this Chapter, under such rules of procedure as may be promulgated by the Supreme Court.
CHAPTER V
LIQUIDATION OF INSOLVENT JURIDICAL DEBTORS
Section 90. Voluntary Liquidation. - An insolvent debtor may apply for liquidation by filing a petition for liquidation with the court. The petition shall be verified, shall establish the insolvency of the debtor and shall contain, whether as an attachment or as part of the body of the petition;
(a) a schedule of the debtor's debts and liabilities including a list of creditors with their addresses, amounts of claims and collaterals, or securities, if any;
(b) an inventory of all its assets including receivables and claims against third parties; and
(c) the names of at least three (3) nominees to the position of liquidator.
At any time during the pendency of court-supervised or pre-negotiated rehabilitation proceedings, the debtor may also initiate liquidation proceedings by filing a motion in the same court where the rehabilitation proceedings are pending to convert the rehabilitation proceedings into liquidation proceedings. The motion shall be verified, shall contain or set forth the same matters required in the preceding paragraph, and state that the debtor is seeking immediate dissolution and termination of its corporate existence.
If the petition or the motion, as the case may be, is sufficient in form and substance, the court shall issue a Liquidation Order mentioned in Section 112 hereof.
Section 91. Involuntary Liquidation. - Three (3) or more creditors the aggregate of whose claims is at least either One million pesos (Php1,000,000,00) or at least twenty-five percent (25%0 of the subscribed capital stock or partner's contributions of the debtor, whichever is higher, may apply for and seek the liquidation of an insolvent debtor by filing a petition for liquidation of the debtor with the court.
The petition shall show that:
(a) there is no genuine issue of fact or law on the claims/s of the petitioner/s, and that the due and demandable payments thereon have not been made for at least one hundred eighty (180) days or that the debtor has failed generally to meet its liabilities as they fall due; and
(b) there is no substantial likelihood that the debtor may be rehabilitated.
At any time during the pendency of or after a rehabilitation court-supervised or pre-negotiated rehabilitation proceedings, three (3) or more creditors whose claims is at least either One million pesos (Php1,000,000.00) or at least twenty-five percent (25%) of the subscribed capital or partner's contributions of the debtor, whichever is higher, may also initiate liquidation proceedings by filing a motion in the same court where the rehabilitation proceedings are pending to convert the rehabilitation proceedings into liquidation proceedings. The motion shall be verified, shall contain or set forth the same matters required in the preceding paragraph, and state that the movants are seeking the immediate liquidation of the debtor.
If the petition or motion is sufficient in form and substance, the court shall issue an Order:
(1) directing the publication of the petition or motion in a newspaper of general circulation once a week for two (2) consecutive weeks; and
(2) directing the debtor and all creditors who are not the petitioners to file their comment on the petition or motion within fifteen (15) days from the date of last publication.
If, after considering the comments filed, the court determines that the petition or motion is meritorious, it shall issue the Liquidation Order mentioned in Section 112 hereof.
Section 92. Conversion by the Court into Liquidation Proceedings. - During the pendency of court-supervised or pre-negotiated rehabilitation proceedings, the court may order the conversion of rehabilitation proceedings to liquidation proceedings pursuant to (a) Section 25(c) of this Act; or (b) Section 72 of this Act; or (c) Section 75 of this Act; or (d) Section 90 of this Act; or at any other time upon the recommendation of the rehabilitation receiver that the rehabilitation of the debtor is not feasible. Thereupon, the court shall issue the Liquidation Order mentioned in Section 112 hereof.
Section 93. Powers of the Securities and Exchange Commission (SEC). - The provisions of this chapter shall not affect the regulatory powers of the SEC under Section 6 of Presidential Decree No. 902-A, as amended, with respect to any dissolution and liquidation proceeding initiated and heard before it.
CHAPTER VI
INSOLVENCY OF INDIVIDUAL DEBTORS
(A) Suspension of Payments.
Section 94. Petition. - An individual debtor who, possessing sufficient property to cover all his debts but foreseeing the impossibility of meeting them when they respectively fall due, may file a verified petition that he be declared in the state of suspension of payments by the court of the province or city in which he has resides for six (6) months prior to the filing of his petition. He shall attach to his petition, as a minimum: (a) a schedule of debts and liabilities; (b) an inventory of assess; and (c) a proposed agreement with his creditors.
Section 95. Action on the Petition. - If the court finds the petition sufficient in form and substance, it shall, within five (5) working days from the filing of the petition, issue an Order:
(a) calling a meeting of all the creditors named in the schedule of debts and liabilities at such time not less than fifteen (15) days nor more than forty (40) days from the date of such Order and designating the date, time and place of the meeting;
(b) directing such creditors to prepare and present written evidence of their claims before the scheduled creditors' meeting;
(c) directing the publication of the said order in a newspaper of general circulation published in the province or city in which the petition is filed once a week for two (2) consecutive weeks, with the first publication to be made within seven (7) days from the time of the issuance of the Order;
(d) directing the clerk of court to cause the sending of a copy of the Order by registered mail, postage prepaid, to all creditors named in the schedule of debts and liabilities;
(e) forbidding the individual debtor from selling, transferring, encumbering or disposing in any manner of his property, except those used in the ordinary operations of commerce or of industry in which the petitioning individual debtor is engaged so long as the proceedings relative to the suspension of payments are pending;
(f) prohibiting the individual debtor from making any payment outside of the necessary or legitimate expenses of his business or industry, so long as the proceedings relative to the suspension of payments are pending; and
(g) appointing a commissioner to preside over the creditors' meeting.
Section 96. Actions Suspended. - Upon motion filed by the individual debtor, the court may issue an order suspending any pending execution against the individual debtor. Provide, That properties held as security by secured creditors shall not be the subject of such suspension order. The suspension order shall lapse when three (3) months shall have passed without the proposed agreement being accepted by the creditors or as soon as such agreement is denied.
No creditor shall sue or institute proceedings to collect his claim from the debtor from the time of the filing of the petition for suspension of payments and for as long as proceedings remain pending except:
(a) those creditors having claims for personal labor, maintenance, expense of last illness and funeral of the wife or children of the debtor incurred in the sixty (60) days immediately prior to the filing of the petition; and
(b) secured creditors.
Section 97. Creditors' Meeting. - The presence of creditors holding claims amounting to at least three-fifths (3/5) of the liabilities shall be necessary for holding a meeting. The commissioner appointed by the court shall preside over the meeting and the clerk of court shall act as the secretary thereof, subject to the following rules:
(a) The clerk shall record the creditors present and amount of their respective claims;
(b) The commissioner shall examine the written evidence of the claims. If the creditors present hold at least three-fifths (3/5) of the liabilities of the individual debtor, the commissioner shall declare the meeting open for business;
(c) The creditors and individual debtor shall discuss the propositions in the proposed agreement and put them to a vote;
(d) To form a majority, it is necessary:
(1) that two-thirds (2/3) of the creditors voting unite upon the same proposition; and
(2) that the claims represented by said majority vote amount to at least three-fifths (3/5) of the total liabilities of the debtor mentioned in the petition; and
(e) After the result of the voting has been announced, all protests made against the majority vote shall be drawn up, and the commissioner and the individual debtor together with all creditors taking part in the voting shall sign the affirmed propositions.
No creditor who incurred his credit within ninety (90) days prior to the filing of the petition shall be entitled to vote.
Section 98. Persons Who May Refrain From Voting. - Creditors who are unaffected by the Suspension Order may refrain from attending the meeting and from voting therein. Such persons shall not be bound by any agreement determined upon at such meeting, but if they should join in the voting they shall be bound in the same manner as are the other creditors.
Section 99. Rejection of the Proposed Agreement. - The proposed agreement shall be deemed rejected if the number of creditors required for holding a meeting do not attend thereat, or if the two (2) majorities mentioned in Section 97 hereof are not in favor thereof. In such instances, the proceeding shall be terminated without recourse and the parties concerned shall be at liberty to enforce the rights which may correspond to them.
Section 100. Objections. - If the proposal of the individual debtor, or any amendment thereof made during the creditors' meeting, is approved by the majority of creditors in accordance with Section 97 hereof, any creditor who attended the meeting and who dissented from and protested against the vote of the majority may file an objection with the court within ten (10) days from the date of the last creditors' meeting. The causes for which objection may be made to the decision made by the majority during the meeting shall be: (a) defects in the call for the meeting, in the holding thereof and in the deliberations had thereat which prejudice the rights of the creditors; (b) fraudulent connivance between one or more creditors and the individual debtor to vote in favor of the proposed agreement; or (c) fraudulent conveyance of claims for the purpose of obtaining a majority. The court shall hear and pass upon such objection as soon as possible and in a summary manner.
In case the decision of the majority of creditors to approve the individual debtor's proposal or any amendment thereof made during the creditors' meeting is annulled by the court, the court shall declare the proceedings terminated and the creditors shall be at liberty to exercise the rights which may correspond to them.
Section 101. Effects of Approval of Proposed Agreement. - If the decision of the majority of the creditors to approve the proposed agreement or any amendment thereof made during the creditors' meeting is uphold by the court, or when no opposition or objection to said decision has been presented, the court shall order that the agreement be carried out and all parties bound thereby to comply with its terms.
The court may also issue all orders which may be necessary or proper to enforce the agreement on motion of any affected party. The Order confirming the approval of the proposed agreement or any amendment thereof made during the creditors' meeting shall be binding upon all creditors whose claims are included in the schedule of debts and liabilities submitted by the individual debtor and who were properly summoned, but not upon: (a) those creditors having claims for personal labor, maintenance, expenses of last illness and funeral of the wife or children of the debtor incurred in the sixty (60) days immediately prior to the filing of the petition; and (b) secured creditors who failed to attend the meeting or refrained from voting therein.
Section 102. Failure of Individual Debtor to Perform Agreement. - If the individual debtor fails, wholly or in part, to perform the agreement decided upon at the meeting of the creditors, all the rights which the creditors had against the individual debtor before the agreement shall revest in them. In such case the individual debtor may be made subject to the insolvency proceedings in the manner established by this Act.
(B) Voluntary Liquidation.
Section 103. Application. - An individual debtor whose properties are not sufficient to cover his liabilities, and owing debts exceeding Five hundred thousand pesos (Php500,000.00), may apply to be discharged from his debts and liabilities by filing a verified petition with the court of the province or city in which he has resided for six (6) months prior to the filing of such petition. He shall attach to his petition a schedule of debts and liabilities and an inventory of assets. The filing of such petition shall be an act of insolvency.
Section 104. Liquidation Order. - If the court finds the petition sufficient in form and substance it shall, within five (5) working days issue the Liquidation Order mentioned in Section 112 hereof.
(C) In voluntary Liquidation.
Section 105. Petition; Acts of Insolvency. - Any creditor or group of creditors with a claim of, or with claims aggregating at least Five hundred thousand pesos (Php500, 000.00) may file a verified petition for liquidation with the court of the province or city in which the individual debtor resides.
The following shall be considered acts of insolvency, and the petition for liquidation shall set forth or allege at least one of such acts:
(a) That such person is about to depart or has departed from the Republic of the Philippines, with intent to defraud his creditors;
(b) That being absent from the Republic of the Philippines, with intent to defraud his creditors, he remains absent;
(c) That he conceals himself to avoid the service of legal process for the purpose of hindering or delaying the liquidation or of defrauding his creditors;
(d) That he conceals, or is removing, any of his property to avoid its being attached or taken on legal process;
(e) That he has suffered his property to remain under attachment or legal process for three (3) days for the purpose of hindering or delaying the liquidation or of defrauding his creditors;
(f) That he has confessed or offered to allow judgment in favor of any creditor or claimant for the purpose of hindering or delaying the liquidation or of defrauding any creditors or claimant;
(g) That he has willfully suffered judgment to be taken against him by default for the purpose of hindering or delaying the liquidation or of defrauding his creditors;
(h) That he has suffered or procured his property to be taken on legal process with intent to give a preference to one or more of his creditors and thereby hinder or delay the liquidation or defraud any one of his creditors;
(i) That he has made any assignment, gift, sale, conveyance or transfer of his estate, property, rights or credits with intent to hinder or delay the liquidation or defraud his creditors;
(j) That he has, in contemplation of insolvency, made any payment, gift, grant, sale, conveyance or transfer of his estate, property, rights or credits;
(k) That being a merchant or tradesman, he has generally defaulted in the payment of his current obligations for a period of thirty (30) days;
(l) That for a period of thirty (30) days, he has failed, after demand, to pay any moneys deposited with him or received by him in a fiduciary; and
(m) That an execution having been issued against him on final judgment for money, he shall have been found to be without sufficient property subject to execution to satisfy the judgment.
The petitioning creditor/s shall post a bond in such as the court shall direct, conditioned that if the petition for liquidation is dismissed by the court, or withdrawn by the petitioner, or if the debtor shall not be declared an insolvent the petitioners will pay to the debtor all costs, expenses, damages occasioned by the proceedings and attorney's fees.
Section 106. Order to Individual Debtor to Show Cause. - Upon the filing of such creditors' petition, the court shall issue an Order requiring the individual debtor to show cause, at a time and place to be fixed by the said court, why he should not be adjudged an insolvent. Upon good cause shown, the court may issue an Order forbidding the individual debtor from making payments of any of his debts, and transferring any property belonging to him. However, nothing contained herein shall affect or impair the rights of a secured creditor to enforce his lien in accordance with its terms.
Section 107. Default. - If the individual debtor shall default or if, after trial, the issues are found in favor of the petitioning creditors the court shall issue the Liquidation Order mentioned in Section 112 hereof.
Section 108. Absent Individual Debtor. - In all cases where the individual debtor resides out of the Republic of the Philippines; or has departed therefrom; or cannot, after due diligence, be found therein; or conceals himself to avoid service of the Order to show cause, or any other preliminary process or orders in the matter, then the petitioning creditors, upon submitting the affidavits requisite to procedure an Order of publication, and presenting a bond in double the amount of the aggregate sum of their claims against the individual debtor, shall be entitled to an Order of the court directing the sheriff of the province or city in which the matter is pending to take into his custody a sufficient amount of property of the individual debtor to satisfy the demands of the petitioning creditors and the costs of the proceedings. Upon receiving such Order of the court to take into custody of the property of the individual debtor, it shall be the duty of the sheriff to take possession of the property and effects of the individual debtor, not exempt from execution, to an extent sufficient to cover the amount provided for and to prepare within three (3) days from the time of taking such possession, a complete inventory of all the property so taken, and to return it to the court as soon as completed.
The time for taking the inventory and making return thereof may be extended for good cause shown to the court. The sheriff shall also prepare a schedule of the names and residences of the creditors, and the amount due each, from the books of the debtor, or from such other papers or data of the individual debtor available as may come to his possession, and shall file such schedule or list of creditors and inventory with the clerk of court.
Section 109. All Property Taken to be Held for All Creditors; Appeal Bonds; Exemptions to Sureties. - In all cases where property is taken into custody by the sheriff, if it does not embrace all the property and effects of the debtor not exempt from execution, any other creditor or creditors of the individual debtor, upon giving bond to be approved by the court in double the amount of their claims, singly or jointly, shall be entitled to similar orders and to like action, by the sheriff; until all claims be provided for, if there be sufficient property or effects. All property taken into custody by the sheriff by virtue of the giving of any such bonds shall be held by him for the benefit of all creditors of the individual debtor whose claims shall be duly proved as provided in this Act. The bonds provided for in this section and the preceding section to procure the order for custody of the property and effects of the individual debtor shall be conditioned that if, upon final hearing of the petition in insolvency, the court shall find in favor of the petitioners, such bonds and all of them shall be void; if the decision be in favor of the individual debtor, the proceedings shall be dismissed, and the individual debtor, his heirs, administrators, executors or assigns shall be entitled to recover such sum of money as shall be sufficient to cover the damages sustained by him, not to exceed the amount of the respective bonds. Such damages shall be fixed and allowed by the court. If either the petitioners or the debtor shall appeal from the decision of the court, upon final hearing of the petition, the appellant shall be required to give bond to the successful party in a sum double the amount of the value of the property in controversy, and for the costs of the proceedings.
Any person interested in the estate may take exception to the sufficiency of the sureties on such bond or bonds. When excepted to the petitioner's sureties, upon notice to the person excepting of not less than two (2) nor more than five (5) days, must justify as to their sufficiency; and upon failure to justify, or of others in their place fail to justify at the time and place appointed the judge shall issue an Order vacating the order to take the property of the individual debtor into the custody of the sheriff, or denying the appeal, as the case may be.
Section 110. Sale Under Execution. - If, in any case, proper affidavits and bonds are presented to the court or a judge thereof, asking for and obtaining an Order of publication and an Order for the custody of the property of the individual debtor and thereafter the petitioners shall make it appear satisfactorily to the court or a judge thereof that the interest of the parties to the proceedings will be subserved by a sale thereof, the court may order such property to be sold in the same manner as property is sold under execution, the proceeds to de deposited in the court to abide by the result of the proceedings.
CHAPTER VII
PROVISIONS COMMON TO LIQUIDATION IN INSOLVENCY OF INDIVIDUAL AND JURIDICAL DEBTORS
(A) The Liquidation Order.
Section 112. Liquidation Order. - The Liquidation Order shall:
(a) declare the debtor insolvent;
(b) order the liquidation of the debtor and, in the case of a juridical debtor, declare it as dissolved;
(c) order the sheriff to take possession and control of all the property of the debtor, except those that may be exempt from execution;
(d) order the publication of the petition or motion in a newspaper of general circulation once a week for two (2) consecutive weeks;
(e) direct payments of any claims and conveyance of any property due the debtor to the liquidator;
(f) prohibit payments by the debtor and the transfer of any property by the debtor;
(g) direct all creditors to file their claims with the liquidator within the period set by the rules of procedure;
(h) authorize the payment of administrative expenses as they become due;
(i) state that the debtor and creditors who are not petitioner/s may submit the names of other nominees to the position of liquidator; and
(j) set the case for hearing for the election and appointment of the liquidator, which date shall not be less than thirty (30) days nor more than forty-five (45) days from the date of the last publication.
Section 113. Effects of the Liquidation Order. - Upon the issuance of the Liquidation Order:
(a) the juridical debtor shall be deemed dissolved and its corporate or juridical existence terminated;
(b) legal title to and control of all the assets of the debtor, except those that may be exempt from execution, shall be deemed vested in the liquidator or, pending his election or appointment, with the court;
(c) all contracts of the debtor shall be deemed terminated and/or breached, unless the liquidator, within ninety (90) days from the date of his assumption of office, declares otherwise and the contracting party agrees;
(d) no separate action for the collection of an unsecured claim shall be allowed.
Such actions already pending will be transferred to the Liquidator for him to accept and settle or contest. If the liquidator contests or disputes the claim, the court shall allow, hear and resolve such contest except when the case is already on appeal. In such a case, the suit may proceed to judgment, and any final and executor judgment therein for a claim against the debtor shall be filed and allowed in court; and
(e) no foreclosure proceeding shall be allowed for a period of one hundred eighty (180) days.
Section 114. Rights of Secured Creditors. - The Liquidation Order shall not affect the right of a secured creditor to enforce his lien in accordance with the applicable contract or law. A secured creditor may:
(a) waive his right under the security or lien, prove his claim in the liquidation proceedings and share in the distribution of the assets of the debtor; or
(b) maintain his rights under the security or lien:
If the secured creditor maintains his rights under the security or lien:
(1) the value of the property may be fixed in a manner agreed upon by the creditor and the liquidator. When the value of the property is less than the claim it secures, the liquidator may convey the property to the secured creditor and the latter will be admitted in the liquidation proceedings as a creditor for the balance. If its value exceeds the claim secured, the liquidator may convey the property to the creditor and waive the debtor's right of redemption upon receiving the excess from the creditor;
(2) the liquidator may sell the property and satisfy the secured creditor's entire claim from the proceeds of the sale; or
(3) the secure creditor may enforce the lien or foreclose on the property pursuant to applicable laws.
(B) The Liquidator.
Section 115. Election of Liquidator. - Only creditors who have filed their claims within the period set by the court, and whose claims are not barred by the statute of limitations, will be allowed to vote in the election of the liquidator. A secured creditor will not be allowed to vote, unless: (a) he waives his security or lien; or
(b) has the value of the property subject of his security or lien fixed by agreement with the liquidator, and is admitted for the balance of his claim.
The creditors entitled to vote will elect the liquidator in open court. The nominee receiving the highest number of votes cast in terms of amount of claims, ad who is qualified pursuant to Section 118 hereof, shall be appointed as the liquidator.
Section 116. Court-Appointed Liquidator. - The court may appoint the liquidator if:
(a) on the date set for the election of the liquidator, the creditors do not attend;
(b) the creditors who attend, fail or refuse to elect a liquidator;
(c) after being elected, the liquidator fails to qualify; or
(d) a vacancy occurs for any reason whatsoever, In any of the cases provided herein, the court may instead set another hearing of the election of the liquidator.
Provided further, That nothing in this section shall be construed to prevent a rehabilitation receiver, who was administering the debtor prior to the commencement of the liquidation, from being appointed as a liquidator.
Section 119. Powers, Duties and Responsibilities of the Liquidator. - The liquidator shall be deemed an officer of the court with the principal duly of preserving and maximizing the value and recovering the assets of the debtor, with the end of liquidating them and discharging to the extent possible all the claims against the debtor. The powers, duties and responsibilities of the liquidator shall include, but not limited to:
(a) to sue and recover all the assets, debts and claims, belonging or due to the debtor;
(b) to take possession of all the property of the debtor except property exempt by law from execution;
(c) to sell, with the approval of the court, any property of the debtor which has come into his possession or control;
(d) to redeem all mortgages and pledges, and so satisfy any judgement which may be an encumbrance on any property sold by him;
(e) to settle all accounts between the debtor and his creditors, subject to the approval of the court;
(f) to recover any property or its value, fraudulently conveyed by the debtor;
(g) to recommend to the court the creation of a creditors' committee which will assist him in the discharge of the functions and which shall have powers as the court deems just, reasonable and necessary; and
(h) upon approval of the court, to engage such professional as may be necessary and reasonable to assist him in the discharge of his duties.
In addition to the rights and duties of a rehabilitation receiver, the liquidator, shall have the right and duty to take all reasonable steps to manage and dispose of the debtor's assets with a view towards maximizing the proceedings therefrom, to pay creditors and stockholders, and to terminate the debtor's legal existence. Other duties of the liquidator in accordance with this section may be established by procedural rules.
A liquidator shall be subject to removal pursuant to procedures for removing a rehabilitation receiver.
(C) Determination of Claims
Section 123. Registry of Claims. - Within twenty (20) days from his assumption into office the liquidator shall prepare a preliminary registry of claims of secured and unsecured creditors. Secured creditors who have waived their security or lien, or have fixed the value of the property subject of their security or lien by agreement with the liquidator and is admitted as a creditor for the balance , shall be considered as unsecured creditors. The liquidator shall make the registry available for public inspection and provide publication notice to creditors, individual debtors owner/s of the sole proprietorship-debtor, the partners of the partnership-debtor and shareholders or members of the corporation-debtor, on where and when they may inspect it. All claims must be duly proven before being paid.
Section 124. Right of Set-off. - If the debtor and creditor are mutually debtor and creditor of each other one debt shall be set off against the other, and only the balance, if any shall be allowed in the liquidation proceedings.
Section 125. - Opposition or Challenge to Claims. - Within thirty (30 ) days from the expiration of the period for filing of applications for recognition of claims, creditors, individual debtors, owner/s of the sole proprietorship-debtor, partners of the partnership-debtor and shareholders or members of the corporation -debtor and other interested parties may submit a challenge to claim or claims to the court, serving a certified copy on the liquidator and the creditor holding the challenged claim. Upon the expiration of the (30) day period, the rehabilitation receiver shall submit to the court the registry of claims containing the undisputed claims that have not been subject to challenge. Such claims shall become final upon the filling of the register and may be subsequently set aside only on grounds or fraud, accident, mistake or inexcusable neglect.
Section 126. Submission of Disputed to the Court. - The liquidator shall resolve disputed claims and submit his findings thereon to the court for final approval. The liquidator may disallow claims.
(D) Avoidance Proceedings.
Section 127. Rescission or Nullity of Certain Transactions. - Any transaction occurring prior to the issuance of the Liquidation Order or, in case of the conversion of the rehabilitation proceedings prior to the commencement date, entered into by the debtor or involving its assets, may be rescinded or declared null and void on the ground that the same was executed with intent to defraud a creditor or creditors or which constitute undue preference of creditors. The presumptions set forth in Section 58 hereof shall apply.
Section 128. Actions for Rescission or Nullity. - (a) The liquidator or, with his conformity, a creditor may initiate and prosecute any action to rescind, or declare null and void any transaction described in the immediately preceding paragraph. If the liquidator does not consent to the filling or prosecution of such action, any creditor may seek leave of the court to commence said action.
(b) if leave of court is granted under subsection (a) hereof, the liquidator shall assign and transfer to the creditor all rights, title and interest in the chose in action or subject matter of the proceeding, including any document in support thereof.
(c) Any benefit derived from a proceeding taken pursuant to subsection (a) hereof, to the extent of his claim and the costs, belongs exclusively to the creditor instituting the proceeding, and the surplus, if any, belongs to the estate.
(d) Where, before an orders is made under subsection (a) hereof, the liquidator signifies to the court his readiness to the institute the proceeding for the benefit of the creditors, the order shall fix the time within which he shall do so and, in that case the benefit derived from the proceedings, if instituted within the time limits so fixed, belongs to the estate.
(E) The Liquidation Plan.
Section 129. The Liquidation Plan. - Within three (3) months from his assumption into office, the Liquidator shall submit a Liquidation Plan to the court. The Liquidation Plan shall, as a minimum enumerate all the assets of the debtor and a schedule of liquidation of the assets and payment of the claims.
Section 130. Exempt Property to be Set Apart. - It shall be the duty of the court, upon petition and after hearing, to exempt and set apart, for the use and benefit of the said insolvent, such real and personal property as is by law exempt from execution, and also a homestead; but no such petition shall be heard as aforesaid until it is first proved that notice of the hearing of the application therefor has been duly given by the clerk, by causing such notice to be posted it at least three (3) public places in the province or city at least ten (10) days prior to the time of such hearing, which notice shall set forth the name of the said insolvent debtor, and the time and place appointed for the hearing of such application, and shall briefly indicate the homestead sought to be exempted or the property sought to be set aside; and the decree must show that such proof was made to the satisfaction of the court, and shall be conclusive evidence of that fact.
Section 131. Sale of Assets in Liquidation. - The liquidator may sell the unencumbered assets of the debtor and convert the same into money. The sale shall be made at public auction. However, a private sale may be allowed with the approval of the court if; (a) the goods to be sold are of a perishable nature, or are liable to quickly deteriorate in value, or are disproportionately expensive to keep or maintain; or (b) the private sale is for the best interest of the debtor and his creditors.
With the approval of the court, unencumbered property of the debtor may also be conveyed to a creditor in satisfaction of his claim or part thereof.
Section 132. manner of Implementing the Liquidation Plan. - The Liquidator shall implement the Liquidation Plan as approved by the court. Payments shall be made to the creditors only in accordance with the provisions of the Plan.
Section 133. Concurrence and Preference of Credits. - The Liquidation Plan and its Implementation shall ensure that the concurrence and preference of credits as enumerated in the Civil Code of the Philippines and other relevant laws shall be observed, unless a preferred creditor voluntarily waives his preferred right. For purposes of this chapter, credits for services rendered by employees or laborers to the debtor shall enjoy first preference under Article 2244 of the Civil Code, unless the claims constitute legal liens under Article 2241 and 2242 thereof.
Section 134. Order Removing the Debtor from the List of Registered Entitles at the Securities and Exchange Commission. - Upon determining that the liquidation has been completed according to this Act and applicable law, the court shall issue an Order approving the report and ordering the SEC to remove the debtor from the registry of legal entities.
Section 135. Termination of Proceedings. - Upon receipt of evidence showing that the debtor has been removed from the registry of legal entities at the SEC. The court shall issue an Order terminating the proceedings.
(F) Liquidation of a Securities Market Participant.
Section 136. Liquidation of a Securities Market Participant. - The foregoing provisions of this chapter shall be without prejudice to the power of a regulatory agency or self- regulatory organization to liquidate trade-related claims of clients or customers of a securities market participant which, for purposes of investor protection, are hereby deemed to have absolute priority over other claims of whatever nature or kind insofar as trade-related assets are concerned.
For purposes of this section, trade -related assets include cash, securities, trading right and other owned and used by the securities market participant in the ordinary course of this business.
CHAPTER VIII
PROCEEDINGS ANCILLARY TO OTHER INSOLVENCY OR REHABILITAION PROCEEDINGS
(B) Cross-Border Insolvency Proceedings.
Section 139. Adoption of Uncitral Model Law on Cross-Border Insolvency. - Subject to the provision of Section 136 hereof and the rules of procedure that may be adopted by the Supreme Court, the Model Law on Cross-Border Insolvency of the United Nations Center for International Trade and Development is hereby adopted as part of this Act.
Section 140. Initiation of Proceedings. - The court shall set a hearing in connection with an insolvency or rehabilitation proceeding taking place in a foreign jurisdiction, upon the submission of a petition by the representative of the foreign entity that is the subject of the foreign proceeding.
Section 141. Provision of Relief. - The court may issue orders:
(a) suspending any action to enforce claims against the entity or otherwise seize or foreclose on property of the foreign entity located in the Philippines;
(b) requiring the surrender property of the foreign entity to the foreign representative; or
(c) providing other necessary relief.
Section 142. Factors in Granting Relief. - In determining whether to grant relief
under this subchapter, the court shall consider;
(a) the protection of creditors in the Philippines and the inconvenience in pursuing their claim in a foreign proceeding;
(b) the just treatment of all creditors through resort to a unified insolvency or rehabilitation proceedings;
(c) whether other jurisdictions have given recognition to the foreign proceeding;
(d) the extent that the foreign proceeding recognizes the rights of creditors and other interested parties in a manner substantially in accordance with the manner prescribed in this Act; and
(e) the extent that the foreign proceeding has recognized and shown deference to proceedings under this Act and previous legislation.
CHAPTER X
MISCELLANEOUS PROVISIOS
Section 145. Penalties. - An owner, partner, director, officer or other employee of the debtor who commits any one of the following acts shall, upon conviction thereof, be punished by a fine of not more than One million pesos (Php 1, 000,000.00) and imprisonment for not less than three(3) months nor more than five (5) years for each offense;
(a) if he shall, having notice of the commencement of the proceedings, or having reason to believe that proceedings are about to be commented, or in contemplation of the proceedings hide or conceal, or destroy or cause to be destroyed or hidden any property belonging to the debtor or if he shall hide, destroy, after mutilate or falsify, or cause to be hidden, destroyed, altered, mutilated or falsified, any book, deed, document or writing relating thereto; if he shall, with intent to defraud the creditors of the debtor, make any payment sale, assignment, transfer or conveyance of any property belongings to the debtor
(b) if he shall, having knowledge belief of any person having proved a false or fictitious claim against the debtor, fail to disclose the same to the rehabilitation receiver of liquidator within one (1) month after coming to said knowledge or belief; or if he shall attempt to account for any of the debtors property by fictitious losses or expense; or
(c) if he shall knowingly violate a prohibition or knowingly fail to undertake an obligation established by this Act.