City Government of Taguig vs. Shoppers Paradise Realty & Development Corp.

A rehabilitation court has jurisdiction to resolve incidental claims by a debtor against a creditor that voluntarily appeared in the rehabilitation proceedings, where such claims arise from transactions integral to and sanctioned by the approved rehabilitation plan, notwithstanding the limited technical definition of "claim" under Section 4(c) of the FRIA, which refers to claims by creditors against the debtor under rehabilitation.

Shoppers Paradise Realty & Development Corporation (SPRDC) and Shoppers Paradise FTI Corporation (SPFC) are affiliate corporations engaged in the construction, development, maintenance, and lease of commercial buildings, including the Sunshine Plaza Mall erected on a long-term lease over the Food Terminal, Inc. (FTI) Complex in Taguig City. The City Government of Taguig (CGT) is among their creditors, claiming unpaid realty taxes on the operation of the Sunshine Plaza Mall. Following the 1997 Asian Financial Crisis, SPRDC and SPFC jointly filed a Petition for Rehabilitation before the RTC-Makati, which approved a Revised Rehabilitation Plan envisioning an offsetting scheme whereby lease rentals from available mall units would fund payment of financial obligations, including realty tax delinquencies. The governing statute on rehabilitation is Republic Act No. 10142, or the Financial Rehabilitation and Insolvency Act of 2010 (FRIA), and the procedural rules embodied in A.M. No. 12-12-11-SC, or the Financial Rehabilitation Rules of Procedure (2013).

SPRDC and SPFC are affiliate corporations organized under Philippine law, both engaged in the construction, development, maintenance, and lease of commercial buildings. Their business model involves long-term leases of land, construction of community malls thereon, eventual sale of leasehold rights, and leasing out of commercial spaces. Among their projects, SPFC holds a long-term lease over the Food Terminal, Inc. (FTI) Complex in Taguig City, upon which it erected its Sunshine Plaza Mall. The 1997 Asian Financial Crisis inflicted financial setbacks on both corporations, prompting them to file a joint Petition for Rehabilitation on May 9, 2005, docketed as SP Proc. Case No. M-6075, and heard by Branch 149 of the RTC-Makati as a rehabilitation court. The CGT was among the creditors claiming unpaid realty taxes due on the operation of the Sunshine Plaza Mall.

To facilitate assessment and payment of realty taxes, the RTC-Makati issued an Order dated October 5, 2006, directing the CGT to issue individual tax declarations for each of the Sunshine Plaza Mall's stall owners, with SPRDC and SPFC made jointly and severally liable. The CGT issued new sets of Tax Declaration Certificates to stall owners on May 30, 2007. Meanwhile, the RTC-Makati issued a Resolution dated November 7, 2006, approving the Revised Rehabilitation Plan, which envisioned sourcing funds to pay financial obligations from lease rentals of available units at the malls, including the Sunshine Plaza Mall. Pursuant to this plan, the CGT and SPFC executed a Memorandum of Agreement dated October 29, 2007 (MOA), instituting an offsetting scheme whereby SPFC agreed to lease out unoccupied units of the Sunshine Plaza Mall to the CGT and apply accruing rentals to the realty tax credit due to the CGT until the credit was fully consumed. The MOA contained an automatic renewal clause whereby the lease terms would continue if the CGT remained in possession and SPFC allowed the same. Through a Clarificatory Letter/Addendum dated December 5, 2007, to which both the Mayor of the CGT and the President of SPFC placed their conforme, the term of the lease was shortened and the area expanded. Accordingly, the CGT leased portions of the Sunshine Plaza Mall to operate the Pamantasan ng Lungsod ng Taguig (PLT) and its canteen.

Besides PLT and its canteen, the CGT leased additional areas of the Sunshine Plaza Mall to establish and operate a government satellite office. Under Executive Order No. 032, Series of 2005 (EO 32), the CGT institutionalized One-Stop Local Government Centers (OSLGC), creating an OSLGC in the FTI Compound denominated as "Area III" or "FTI Area." Unlike the MOA governing the PLT and canteen areas, no definitive agreement similar to the MOA was executed for the OSLGC Area 3 Satellite Office. However, a Booking Term Sheet dated February 27, 2009 (BTS), signed by Ana Esperanza A. Pagsisihan, designated therein as "Area 3 Manager," provided terms and conditions for the lease of an area for the operation of a "Satellite Office." Letters dated November 13, 2008 and September 5, 2009 from SPFC apprised Nancy Pagsisihan, identified as "Manager, Area 3 Satellite Office," of the offsetting of CUSA fees incurred by PLT, its canteen, and the Satellite Office against unpaid realty taxes. An Internal Memorandum dated May 5, 2015, issued by the OIC of the CGT City Treasurer, notified Elvira Villar, the "Accountable Officer, Area 3," of the closure of the Area 3 Satellite Office and directed preparation of a final statement of account of outstanding payables "arising out of the bilateral contract between the City Government of Taguig and Sunshine Plaza Mall." SPFC's Letter dated May 6, 2015 to Elvira Villar acknowledged receipt of a letter communicating the intention not to renew the lease and advised settlement of obligations before vacating.

Believing its realty tax delinquencies had been offset by accrued rentals, SPFC sent a Letter dated August 28, 2015 to the OIC of the CGT City Treasurer, invoking the MOA's stipulations. The OIC responded on September 7, 2015, claiming the offset applied only to unpaid realty taxes as of December 31, 2006, disavowing the authority of Ana Esperanza Pagsisihan to execute the BTS, and requiring SPFC to pay its realty tax delinquencies. The Rehabilitation Receiver submitted Special and Supplemental Special Reports on September 22 and October 7, 2015, respectively, recommending that the CGT acknowledge its use and occupancy of the mall areas and that the parties confer and reconcile rentals, CUSA fees, and utilities. The RTC-Makati issued an Order dated October 13, 2015 directing the court-appointed Controller to meet with the CGT City Treasurer for reconciliation, but no reconciliation was accomplished due to the CGT City Treasurer's non-cooperation. SPFC paid the realty tax delinquencies under protest on October 27, 2015, and thereafter filed the Urgent Motion for Collection on November 5, 2015, praying that the CGT be directed to pay unpaid rentals, CUSA fees, and utilities totaling ₱10,335,208.84, including interest and penalties. The RTC-Makati granted the motion in its Order dated December 8, 2015, finding the amounts reasonable and sustainable and holding that the CGT could not denounce the court's jurisdiction having voluntarily submitted to it, and could not unjustly enrich itself by occupying portions of the mall without paying its obligations.

• Jurisdiction of the Rehabilitation Court: Petitioner maintained that the RTC-Makati, acting as a rehabilitation court, had no jurisdiction to act on the Urgent Motion for Collection, relying on Steel Corporation of the Philippines vs. Mapfre Insular Insurance Corporation, which held that rehabilitation courts have jurisdiction over claims against the debtor under rehabilitation, not over claims by the debtor against its own debtors or third parties.
• Authority to Execute the BTS: Petitioner argued that the authority of Ana Esperanza Pagsisihan to execute the Booking Term Sheet on behalf of the CGT was questionable and disavowed, and that the BTS did not mention any offsetting scheme for the Area 3 Satellite Office.
• Scope of the Offsetting Scheme: Petitioner contended that the offset features under the MOA applied only to unpaid realty taxes as of December 31, 2006, and not to those incurred beyond such date.
• Purely Legal Issues: Petitioner asserted that it raised purely legal issues appropriate for a Petition for Review on Certiorari under Rule 45, reiterating its arguments regarding the jurisdiction of the RTC-Makati as rehabilitation court.

• Factual Issues Inappropriate for Rule 45: Respondents pointed out that the CGT raised factual issues inappropriate for a Petition for Review on Certiorari under Rule 45 of the Revised Rules of Court.
• Jurisdiction of the Rehabilitation Court: Respondents argued that the RTC-Makati possessed the authority to rule on the Urgent Motion for Collection, as the claims were based on transactions entered into pursuant to the rehabilitation proceedings and were well within the power of the RTC-Makati as a rehabilitation court.
• Establishment of Occupancy: Respondents maintained that the amounts claimed were well-supported by documentary evidence and that the CGT could not disclaim its use and occupancy of various areas in the Sunshine Plaza Mall.

• Jurisdiction of the Rehabilitation Court: Whether the Court of Appeals committed reversible error in finding that the RTC-Makati committed no grave abuse of discretion in issuing the Order dated December 8, 2015, specifically whether the RTC-Makati, acting as a rehabilitation court, had the authority to act on the Urgent Motion for Collection.
• Applicability of Steel Corporation: Whether the ruling in Steel Corporation of the Philippines vs. Mapfre Insular Insurance Corporation — that rehabilitation courts have no jurisdiction over claims by the debtor against its own debtors or third parties — bars the RTC-Makati from acting on the Urgent Motion for Collection.

• Jurisdiction of the Rehabilitation Court: No reversible error. The RTC-Makati, as a rehabilitation court, possessed jurisdiction to act on the Urgent Motion for Collection because the claim arose from transactions integral to the approved Revised Rehabilitation Plan and was directed against the CGT, a creditor that had voluntarily appeared in the rehabilitation proceedings.
• Applicability of Steel Corporation: Inapplicable. Steel Corporation involved a claim against a third party insurer not involved in rehabilitation proceedings and requiring a full-blown trial, whereas the present claim was against a creditor bound by the rehabilitation plan and was sufficiently established by evidence.

• Jurisdiction of the Rehabilitation Court: Rehabilitation is the restoration of the debtor to a condition of successful operation and solvency, and rehabilitation proceedings are in rem in nature, conducted in a summary and non-adversarial manner. Through amendments to PD 902-A, the SEC was vested with jurisdiction over rehabilitation petitions, which was subsequently transferred to the Regional Trial Courts. Once jurisdiction is acquired, the court can subject all those affected to orders consistent with the rehabilitation of the insolvent debtor. The Urgent Motion for Collection sought payment for accrued rentals and utilities over the CGT's use of the PLT, its canteen, and the OSLGC Area 3 Satellite Office — arrangements entered into precisely to effect an offsetting arrangement sanctioned by the Revised Rehabilitation Plan so that SPFC could satisfy its unpaid realty taxes. Occupancy by the PLT and canteen was embodied in the MOA, which directly referenced the Resolution approving the Revised Rehabilitation Plan. Occupancy by the OSLGC Area 3 Satellite Office was premised on EO 32 and the BTS, and was confirmed by the CGT City Treasurer's Internal Memorandum dated May 5, 2015, which referred to the "bilateral contract between the City Government of Taguig and Sunshine Plaza Mall." Although none of the documents explicitly declared that the Satellite Office occupancy was for offsetting purposes, the arrangement was entered into during rehabilitation proceedings under the auspices of the controlling Revised Rehabilitation Plan. The CGT's attempt to disavow Pagsisihan's authority was incompatible with the consistent mosaic of references to the Satellite Office overseen by the Area 3 Manager. The Urgent Motion for Collection was thus a "necessary incident" designed to bring a material but collateral matter arising in the progress of the case, relating to a question connected with and dependent upon the principal remedy. To rule otherwise would thwart the framework of rehabilitation court, receiver, and rehabilitation plan, encourage multiplicity of suits, and defeat the summary and expeditious nature of rehabilitation proceedings.

• Applicability of Steel Corporation: In Steel Corporation, the claim was against an insurer that was not a participant in the rehabilitation proceedings and did not relate to SCP's rehabilitation; the claim was disputed and required a full-blown trial, inconsistent with the non-adversarial nature of rehabilitation proceedings. In contrast, the CGT voluntarily appeared as a creditor in SP Proc. Case No. M-6075, and its realty tax claims were to be addressed by the offsetting scheme in the Revised Rehabilitation Plan. SPFC's claim against the CGT was duly established by evidence, not disputed. The Court's ruling in Steel Corporation that rehabilitation courts cannot resolve "claims" by the debtor against its own debtors was simply confining the technical definition of "claim" under Section 4(c) of the FRIA, which refers to claims by creditors against the debtor. This interpretation does not preclude claims by the debtor which are incidental to the rehabilitation plan and proceedings, as the rehabilitation receiver is authorized under Section 31(f) of the FRIA "to sue and recover, with the approval of the court, all amounts owed to, and all properties pertaining to the debtor." Advent Capital and Finance Corporation vs. Alcantara, cited as authority in Steel Corporation, was likewise distinguishable: the claim there was against a trustee who was neither a debtor nor a creditor with interest in the rehabilitation, and the claim was disputed and required a full-blown trial.

• Jurisdiction of Rehabilitation Courts over Incidental Claims — A rehabilitation court, though of limited and special jurisdiction, is vested with all powers necessary to exercise such jurisdiction to make it effective. Once jurisdiction is acquired, the court can subject all those affected to orders consistent with the rehabilitation of the insolvent debtor, including the resolution of incidental claims by the debtor against creditors that voluntarily appeared in the proceedings, where such claims arise from transactions integral to the approved rehabilitation plan. The technical definition of "claim" under Section 4(c) of the FRIA — referring to claims by creditors against the debtor — does not preclude the rehabilitation court from resolving claims by the debtor that are incidental to the rehabilitation plan and proceedings.
• Nature of Rehabilitation Proceedings — Rehabilitation is the restoration of the debtor to a condition of successful operation and solvency, if continuance of operation is economically feasible and creditors can recover more if the debtor continues as a going concern than if immediately liquidated. Rehabilitation proceedings are in rem in nature, conducted in a summary and non-adversarial manner, and must be resolved expeditiously for the benefit of all parties and the economy in general. The inherent purpose is to minimize expenses of the distressed corporation during the rehabilitation period by providing the best possible framework for the corporation to gradually regain or achieve a sustainable operating form.
• Binding Effect of the Rehabilitation Plan — Once approved by the rehabilitation court, the rehabilitation plan is binding upon all affected persons and must be carried out by the debtor with the assistance of the receiver. The rehabilitation receiver is authorized to sue and recover, with the approval of the court, all amounts owed to and all properties pertaining to the debtor, and is tasked with implementing the rehabilitation plan, which embodies the various means indicating how the insolvent debtor will be rehabilitated.
• Incidental Motions in Rehabilitation — A motion is a "necessary incident" designed to bring a material but incidental matter arising in the progress of the case, relating to a question collateral to the main object of the action and connected with and dependent upon the principal remedy.

• "once jurisdiction is acquired, the court can subject all those affected to orders consistent with the rehabilitation of the insolvent debtor, including the reversal of any transfer, payment, or sale made after the filing of the petition." — This passage, quoting Allied Banking Corporation vs. Equitable PCI Bank, Inc., articulates the scope of the rehabilitation court's authority once jurisdiction is acquired, establishing the doctrinal basis for the Court's holding that the RTC-Makati could act on the Urgent Motion for Collection.

• "the jurisdiction of the rehabilitation courts is over claims against the debtor that is under rehabilitation, not over claims by the debtor against its own debtors or against third parties" — This quotation from Steel Corporation of the Philippines vs. Mapfre Insular Insurance Corporation sets out the rule the CGT relied upon, which the Court distinguished rather than overturned, clarifying that the technical definition of "claim" under the FRIA does not preclude incidental claims by the debtor within the rehabilitation framework.

• "To rule as the CGT insists would thwart the intricate framework consisting of the rehabilitation court, the receiver, and the rehabilitation plan, that the legislators so carefully and deliberately designed." — This passage states the policy rationale for the Court's holding, emphasizing that denying the rehabilitation court jurisdiction over incidental claims arising from the approved plan would undermine the legislative design of corporate rehabilitation.

• "though of limited and special jurisdiction, when the law conferred jurisdiction over rehabilitation courts, the latter were vested with all the powers necessary to exercise such jurisdiction to make it effective." — This formulation encapsulates the Court's conclusion on the scope of rehabilitation court authority, foregrounding the principle that special jurisdiction carries with it all powers necessary for its effective exercise.

• Steel Corporation of the Philippines vs. Mapfre Insular Insurance Corporation, 719 Phil. 638 (2013) — Distinguished. The Court held that this case, which barred rehabilitation courts from resolving claims by the debtor against third parties, was inapplicable because the claim there was against an insurer not involved in rehabilitation, was disputed, and required a full-blown trial — all absent in the present case. The Court clarified that the ruling merely confined the technical definition of "claim" under the FRIA and did not preclude incidental claims by the debtor within the rehabilitation framework.
• Advent Capital and Finance Corporation vs. Alcantara, 680 Phil. 238 (2012) — Distinguished. Cited as authority in Steel Corporation, this case involved a claim against a trustee who was neither a debtor nor creditor with interest in the rehabilitation, and the claim was disputed and required a full-blown trial — circumstances materially different from the present case.
• Bureau of Internal Revenue vs. Lepanto Ceramics, Inc., 809 Phil. 278 (2017) — Followed. Cited for the proposition that the inherent purpose of rehabilitation is to minimize expenses of the distressed corporation during the rehabilitation period by providing the best possible framework for the corporation to gradually regain a sustainable operating form.
• Allied Banking Corporation vs. Equitable PCI Bank, Inc., 828 Phil. 64 (2018) — Followed. Cited for the principle that once jurisdiction is acquired, the court can subject all those affected to orders consistent with the rehabilitation of the insolvent debtor.
• Nacar vs. Gallery Frames, 716 Phil. 267 (2013) — Applied. Cited as the guideline for recomputation of the CGT's liability, the Court noting that the interest and penalties components required adjustment given the considerable time elapsed since the filing of the Urgent Motion for Collection.

• Section 5(d), Presidential Decree No. 902-A (as amended by PD 1758 and PD 1799) — Vested the SEC with original and exclusive jurisdiction over petitions of corporations to be declared in a state of suspension of payments, including rehabilitation. This jurisdiction was subsequently transferred to the Regional Trial Courts by Section 5.2 of RA 8799.
• Section 4(gg), Republic Act No. 10142 (Financial Rehabilitation and Insolvency Act of 2010) — Defines "rehabilitation" as the restoration of the debtor to a condition of successful operation and solvency, if continuance of operation is economically feasible and creditors can recover more if the debtor continues as a going concern than if immediately liquidated.
• Section 4(c), FRIA — Defines "claim" as referring to claims by creditors against the debtor under rehabilitation. The Court clarified that this technical definition does not preclude the rehabilitation court from resolving claims by the debtor incidental to the rehabilitation plan and proceedings.
• Section 31(f), FRIA — Authorizes the rehabilitation receiver "[t]o sue and recover, with the approval of the court, all amounts owed to, and all properties pertaining to the debtor." The Court relied on this provision to support the rehabilitation court's authority to act on the Urgent Motion for Collection.
• Section 69(a) and (b), FRIA — Provides that once approved by the rehabilitation court, the rehabilitation plan is binding upon all affected persons and must be carried out by the debtor with the assistance of the receiver.
• Section 3 and Rule 1, Section 4, A.M. No. 12-12-11-SC (Financial Rehabilitation Rules of Procedure, 2013) — Establish that rehabilitation proceedings are in rem in nature and conducted in a summary and non-adversarial manner.

Leonen, Hernando, Inting, and Rosario, JJ., concurred. (Rosario, J., was designated as Additional Member per Special Order No. 2833 dated June 29, 2021.) No separate concurring opinions were noted.