Bank of the Philippine Islands vs. Shemberg Biotech Corporation

A petition for certiorari assailing interlocutory orders in corporate rehabilitation proceedings becomes moot when the rehabilitation plan has already been approved and the approval has been affirmed with finality in a separate appeal, rendering any ruling on the interlocutory orders of no practical value.

Respondent Shemberg Biotech Corporation (SBC) is a domestic corporation engaged in the manufacture of carrageenan from seaweeds. Petitioner Bank of the Philippine Islands (BPI) is one of SBC's creditors. SBC filed a petition for approval of its rehabilitation plan and appointment of a rehabilitation receiver before the RTC of Cebu City, Branch 11, in Civil Case No. CEB-26481-SRC, under the Interim Rules of Procedure on Corporate Rehabilitation (A.M. No. 00-8-10-SC), which took effect on December 15, 2000. The Interim Rules govern corporate rehabilitation proceedings and provide for stay orders, appointment of rehabilitation receivers, and termination of proceedings.

Respondent Shemberg Biotech Corporation (SBC), a domestic corporation manufacturing carrageenan from seaweeds, filed a petition for approval of its rehabilitation plan and appointment of a rehabilitation receiver before the RTC of Cebu City, Branch 11, in Civil Case No. CEB-26481-SRC. The RTC issued a stay order, and petitioner Bank of the Philippine Islands (BPI), one of SBC's creditors, filed its opposition to the petition.

After initial hearings, the RTC issued its October 12, 2001 Order, giving due course to SBC's petition, referring the rehabilitation plan to the Rehabilitation Receiver for evaluation, recalling the appointment of the first Rehabilitation Receiver, and appointing Atty. Pio Y. Go as new Rehabilitation Receiver. The RTC found that SBC complied with the conditions necessary to give due course to its petition and noted that SBC's business appeared viable since it had a market for its product, concluding that a sufficient breathing spell might help SBC settle its debts. The RTC stated it would reflect on the issue raised by creditors regarding the feasibility of the rehabilitation plan upon submission of the Rehabilitation Receiver's recommendation. BPI filed a motion for reconsideration, which the RTC denied in its December 26, 2001 Order.

BPI then filed a petition for certiorari, prohibition and mandamus before the Court of Appeals. Meanwhile, the RTC rendered its April 22, 2002 Decision in Civil Case No. CEB-26481-SRC, approving with modification SBC's rehabilitation plan. The CA dismissed BPI's petition, ruling that the RTC's April 22, 2002 Decision had rendered the petition moot, and that the issues raised against the rehabilitation plan should be raised in BPI's appeal from the said RTC Decision. The CA found that the RTC did not commit grave abuse of discretion in issuing the October 12, 2001 and December 26, 2001 Orders. BPI's motion for reconsideration was denied by the CA on February 3, 2004.

The RTC's April 22, 2002 Decision approving the rehabilitation plan was affirmed by the CA in BPI's appeal docketed as CA-G.R. CV No. 75781. The Supreme Court denied BPI's petition for review in G.R. No. 175359, and the denial became final with entry of judgment made. BPI admitted that the rehabilitation plan was already being implemented.

• Procedural Focus of CA: BPI lamented that the CA focused its discussion on procedural matters rather than on the substantial and jurisdictional issues raised.
• Rehabilitation Plan Defects: BPI contended that the rehabilitation plan does not require infusion of new capital from its guarantors and sureties, and that forcing creditors to transform their debt to equity amounts to taking private property without just compensation and due process of law.
• Arbitrary Exercise of Rehabilitation Power: BPI argued that the RTC exercised its rehabilitation power whimsically, arbitrarily and despotically by eliminating penalties and reducing interests amounting to millions, constituting a taking of property without just compensation and due process of law that could not be justified under police power.
• Constitutionality of Interim Rules: BPI asserted that the Interim Rules of Procedure on Corporate Rehabilitation is unconstitutional insofar as it alters, modifies, and expands the existing law on rehabilitation contrary to the principle that rules of procedure cannot modify or affect substantive rights.
• Prayer for Termination: BPI prayed that the Interim Rules be declared unconstitutional, that the order approving the rehabilitation plan be declared unconstitutional and void, and that the petition for rehabilitation be ordered dismissed and terminated.

• Mootness: Whether the petition for certiorari has been rendered moot by the RTC's approval of the rehabilitation plan and the finality of prior appellate rulings on the same plan.
• Debt-to-Equity Conversion: Whether the RTC ordered or approved debt-to-equity conversion in its assailed orders.
• Constitutionality of Interim Rules: Whether the Interim Rules of Procedure on Corporate Rehabilitation is unconstitutional for altering or expanding substantive law on rehabilitation.
• Termination of Rehabilitation Proceedings: Whether the Supreme Court may order the dismissal and termination of the rehabilitation proceedings.

• Mootness: Yes. The petition is moot, as a ruling on the propriety of the RTC's interlocutory directives would have no practical value since the Rehabilitation Receiver's recommendation was already submitted and the RTC had already rendered its April 22, 2002 Decision approving the rehabilitation plan.
• Debt-to-Equity Conversion: No. The contention is out of order because neither the RTC in its assailed orders nor the CA in its assailed decision and resolution approved debt-to-equity conversion; the RTC did not even order such conversion in its decision approving the rehabilitation plan with modification.
• Constitutionality of Interim Rules: No. BPI failed to discharge its burden of clearly and unequivocally proving the constitutional infirmity, and the challenge was a belated theory not raised before the CA, violating the rule that issues not previously ventilated cannot be raised for the first time on appeal.
• Termination of Rehabilitation Proceedings: No. The Court cannot grant the prayer to dismiss and terminate the rehabilitation proceedings, as it would improperly reverse the final course of the petition; the termination issue was not raised before the CA and involves factual matters beyond the scope of a Rule 45 petition.

• Mootness: An issue becomes moot when it ceases to present a justiciable controversy such that a declaration on the issue would be of no practical use or value. A ruling on the propriety of the RTC's directive that the Rehabilitation Receiver submit his recommendation would have no practical value since the recommendation was already submitted. Similarly, a ruling on the RTC's statement that it would reflect on the viability of the rehabilitation plan upon receipt of the recommendation would have no practical value since the RTC had already considered the recommendation in rendering its April 22, 2002 Decision. The RTC did not approve any rehabilitation plan in the assailed orders; it merely gave due course to the petition and referred the plan for evaluation. BPI's imputation of grave abuse of discretion was therefore without basis.

• Debt-to-Equity Conversion: BPI's contention that forcing debt-to-equity conversion is constitutionally infirm was rejected because the RTC did not approve debt-to-equity conversion in its October 12, 2001 and December 26, 2001 Orders, nor did the CA approve it in the assailed decision and resolution. The RTC did not even order conversion of debt-to-equity in its decision approving with modification SBC's rehabilitation plan. The contention was thus premature and unfounded.

• Constitutionality of Interim Rules: BPI failed in its burden of clearly and unequivocally proving the alleged constitutional infirmity of the Interim Rules, and such failure defeats the challenge. BPI even contradicted its own position by invoking Section 27, Rule 4 of the Interim Rules to support its prayer for termination of the rehabilitation proceedings, and by impliedly invoking the Interim Rules before the CA in seeking a modified rehabilitation plan. The constitutional challenge was also a new and belated theory not raised before the CA, and well-settled is the rule that issues not previously ventilated cannot be raised for the first time on appeal. The requisites for judicial review of constitutional questions were not satisfied: the issue was not raised at the earliest opportunity, as illustrated by the Court's refusal in Umali vs. Guingona, Jr. to entertain a constitutional issue belatedly raised in a motion for reconsideration before the RTC.

• Termination of Rehabilitation Proceedings: To dismiss the petition for rehabilitation would improperly reverse its final course: the petition was granted by the RTC, the RTC decision was affirmed with finality, and the rehabilitation plan was being implemented. While the Interim Rules and the new Rules of Procedure on Corporate Rehabilitation contain provisions on termination of proceedings, neither the RTC nor the CA ruled on this point, and BPI did not ask the CA to terminate the proceedings. The resolution of termination involves factual matters — whether there was failure to achieve targets, failure to perform obligations, inability to implement the plan, or successful implementation — which the Court cannot consider for the first time, as it is not a trier of facts and its role in a Rule 45 petition is limited to reviewing errors of law.

• Mootness Doctrine — An issue is moot when it ceases to present a justiciable controversy so that a declaration on the issue would be of no practical use or value. Applied to bar review of interlocutory orders where the rehabilitation plan has already been approved and the approval affirmed with finality.
• Requisites for Judicial Review of Constitutional Questions — The Court can exercise its power of judicial review only if the following requisites are present: (1) the existence of an actual and appropriate case; (2) a personal and substantial interest of the party raising the constitutional question; (3) the exercise of judicial review is pleaded at the earliest possible opportunity; and (4) the constitutional question is the lis mota of the case. Applied to reject BPI's belated constitutional challenge to the Interim Rules.
• Rule Against Raising New Issues on Appeal — Issues not previously ventilated cannot be raised for the first time on appeal. Applied to bar BPI's constitutional challenge and its prayer for termination, both of which were new theories not raised before the CA.
• Rule 45 Limited to Questions of Law — In a petition for review on certiorari under Rule 45, the Court's role is limited to reviewing or reversing errors of law; it is not a trier of facts. Applied to decline resolution of factual matters relevant to termination of rehabilitation proceedings.

• "An issue is said to have become moot when it ceases to present a justiciable controversy so that a declaration on the issue would be of no practical use or value." — This passage states the mootness doctrine applied to corporate rehabilitation proceedings, explaining why the Court declined to rule on interlocutory orders already overtaken by final approval of the rehabilitation plan.
• "Well settled is the rule that issues not previously ventilated cannot be raised for the first time on appeal." — This passage articulates the procedural bar against belatedly raised issues, applied to reject BPI's constitutional challenge to the Interim Rules.
• "This Court is not a trier of facts and our role in a petition for review on certiorari under Rule 45 of the 1997 Rules of Civil Procedure is limited to reviewing or reversing errors of law." — This passage defines the scope of Rule 45 review, explaining why the Court declined to consider factual matters bearing on termination of rehabilitation proceedings.

• King vs. Court of Appeals, G.R. No. 158195, December 16, 2005 — Cited for the definition of mootness as the cessation of a justiciable controversy rendering a declaration of no practical use or value.
• Atitiw vs. Zamora, G.R. No. 143374, September 30, 2005 — Cited for the principle that failure to clearly and unequivocally prove a constitutional challenge defeats the assertion.
• Rasdas vs. Estenor, G.R. No. 157605, December 13, 2005 — Cited for the rule that issues not previously ventilated cannot be raised for the first time on appeal.
• Philippine Constitution Association vs. Enriquez, G.R. Nos. 113105, 113174, 113766, and 113888, August 19, 1994 — Cited for the four requisites for the exercise of judicial review of constitutional questions.
• Umali vs. Guingona, Jr., G.R. No. 131124, March 29, 1999 — Cited as illustrative authority for the rule that a constitutional issue belatedly raised in a motion for reconsideration will not be entertained.
• Quimpo, Sr. vs. Abad Vda. de Beltran, G.R. No. 160956, February 13, 2008 — Cited for the principle that the Court is not a trier of facts and that Rule 45 review is limited to questions of law.

• Rule 45, Section 1, Rules of Court — Governs petitions for review on certiorari, limiting the Court's review to questions of law. Applied to confine the Court's role to reviewing errors of law and to exclude factual matters bearing on termination of rehabilitation proceedings.
• Section 27, Rule 4, Interim Rules of Procedure on Corporate Rehabilitation (A.M. No. 00-8-10-SC) — Provides for termination of rehabilitation proceedings in cases of failure to submit or disapproval of a rehabilitation plan, failure to achieve targets, failure to perform obligations, inability to implement the plan, or successful implementation. Invoked by BPI itself in its prayer for termination, thereby contradicting its own constitutional challenge to the Interim Rules.
• Rule 3, Section 23, Rules of Procedure on Corporate Rehabilitation (A.M. No. 00-8-10-SC, approved December 2, 2008) — Contains provisions on termination of rehabilitation proceedings similar to the Interim Rules. Referenced by the Court in noting that neither the RTC nor the CA ruled on termination.

Conchita Carpio Morales (Chairperson), Arturo D. Brion, Lucas P. Bersamin, and Roberto A. Abad (designated additional member per Special Order No. 843 dated May 17, 2010).