Land Bank of the Philippines vs. Ascot Holdings and Equities, Inc.

A prohibited motion for reconsideration in intra-corporate controversies does not toll the reglementary period to appeal, rendering the trial court's judgment final and executory upon the lapse of the prescribed period.

In 1992, Land Bank of the Philippines purchased 75,000,000 Philippine Airlines (PAL) shares from the National Government. Respondents, together with other government financial institutions, formed a consortium and organized PR Holdings Inc. to hold 67% of PAL's capital stocks. In 2002, a Stockholders' Agreement granted Land Bank and other government institutions a put-option to sell their PAL shares to respondents at ₱5.00 per share on the sixth year, with respondents' obligation guaranteed by Fortune Tobacco Corporation and Asia Brewery Inc. via a Guaranty Agreement.

• The Put-Option Agreement: Land Bank purchased PAL shares in 1992. Respondents and government institutions formed a consortium (PR Holdings) to buy 67% of PAL stocks. A Stockholders' Agreement in 2002 granted Land Bank, PNB, DBP, GSIS, AFP-RSBS, and the National Government a put-option to sell their PAL shares to respondents at ₱5.00/share on the sixth year. Fortune Tobacco and Asia Brewery executed a Guaranty Agreement as joint and solidary co-obligors should respondents fail to perform.
• The Intra-Corporate Dispute: Instead of honoring the agreement, respondents filed Civil Case No. 02-843 in the RTC of Makati against Land Bank et al., praying to be released from the put-option obligation under the doctrine of rebus sic stantibus due to radical changes in conditions (fleet expansion, pilot strike, Asian economic downturn, peso devaluation, reduced demand for air travel). Defendants countered that the parties assumed the risk of business deterioration and that the obligation was irrevocably guaranteed.
• The Procedural Misstep: The RTC ruled in favor of respondents on March 15, 2006. Land Bank filed a motion for reconsideration, which the RTC denied on July 4, 2006. On July 25, 2006—124 days after receiving the RTC judgment—Land Bank filed a motion for extension of time to file a petition for review with the CA. The CA denied the motion and the subsequent motion for reconsideration, holding that the filing of a prohibited motion for reconsideration did not toll the reglementary period to appeal.

• Grave Abuse of Discretion: Petitioner argued that the CA committed grave abuse of discretion in denying the motion for extension.
• Substantial Justice: Petitioner maintained that the filing of the motion for reconsideration, though prohibited, should suspend the running of the reglementary period to appeal in the interest of substantial justice.
• Dangerous Precedent: Petitioner contended that the RTC judgment created a dangerous precedent by upholding the application of rebus sic stantibus to absolve respondents from their obligations.
• Imagined Loss: Petitioner claimed it stood to lose its substantial investment of over ₱1 billion if the appeal was not heard.

• Rebus Sic Stantibus: Respondents argued that unforeseen events—fleet expansion, pilot strike, Asian economic downturn, peso devaluation, and reduced air travel demand—radically changed the conditions prevailing at the time of the agreement, releasing them from their obligation under Article 1267 of the Civil Code.

• Tolling of Period to Appeal: Whether the filing of a motion for reconsideration, albeit a prohibited pleading under the Interim Rules for Intra-Corporate Controversies, tolls the reglementary period to appeal.
• Relaxation of Procedural Rules: Whether the "interest of substantial justice" warrants the relaxation of procedural rules to allow the filing of a petition for review beyond the reglementary period.

• Tolling of Period to Appeal: The filing of a prohibited motion for reconsideration did not toll the reglementary period to appeal. Under Section 8(3), Rule 1 of the Interim Rules of Procedure Governing Intra-Corporate Controversies, such motions are prohibited pleadings and cannot be given any legal effect. The RTC judgment became final and executory 15 days after receipt; thus, the CA had no jurisdiction to entertain the petition for review or grant an extension 124 days later.
• Relaxation of Procedural Rules: The bare invocation of "the interest of substantial justice" does not automatically compel the suspension of procedural rules. Procedural rules are indispensable for the orderly administration of justice and may be relaxed only in exceptionally meritorious cases. Furthermore, petitioner's alleged loss of its ₱1 billion investment was deemed more imaginary than real, as petitioner retained ownership of the shares and its proprietary rights, and stood to benefit from PAL's continued operations under respondents' majority ownership.

• Prohibited Pleadings and Tolling of Period to Appeal — A prohibited pleading cannot toll the running of the period to appeal because it cannot be given any legal effect. The filing of a prohibited motion for reconsideration in intra-corporate controversies does not suspend the reglementary period to appeal, rendering the judgment final and executory upon the lapse of the 15-day period.
• Substantial Justice vs. Procedural Rules — The bare invocation of "the interest of substantial justice" is not a magic wand that compels the suspension of procedural rules. Procedural rules must be faithfully followed, and relaxation is permitted only in exceptionally meritorious cases to relieve a litigant of an injustice not commensurate with the failure to comply with the prescribed procedure.
• Appeal as a Statutory Privilege — The right to appeal is not a constitutional right but a mere statutory privilege. Parties must comply with the requirements for perfecting an appeal within the reglementary period, which is mandatory and jurisdictional. Failure to perfect an appeal renders the judgment final and executory.

• "It is obvious that a prohibited pleading cannot toll the running of the period to appeal since such pleading cannot be given any legal effect precisely because of its being prohibited."
• "The bare invocation of 'the interest of substantial justice' is not a magic wand that will automatically compel this Court to suspend procedural rules."

• Sebastian and Cardenas v. Morales, et al. — Followed: Held that while liberal construction of the rules is the controlling principle to effect substantial justice, procedural rules must be faithfully followed except only for persuasive reasons to relieve a litigant of an injustice not commensurate with the failure to comply.
• Manila Memorial Park Cemetery, Inc. v. CA — Followed: Reiterated that appeal is a mere statutory privilege, not a constitutional right, and failure to perfect an appeal renders the judgment final and executory.
• Gabriel Lazaro v. Court of Appeals — Followed: Rules may be relaxed only to relieve a litigant of an injustice not commensurate with the degree of thoughtlessness in not complying with the prescribed procedure.
• Policarpio T. Cuevas v. Bais Steel Corporation — Distinguished: Cited as an instance where the Court relaxed procedural rules to serve substantial justice; the present case was held not to be an exceptionally meritorious case warranting similar relaxation.

• Section 8(3), Rule 1, Interim Rules of Procedure Governing Intra-Corporate Controversies Under R.A. No. 8799 — Prohibits motions for new trial, motions for reconsideration of judgment or order, or motions for re-opening of trial in intra-corporate controversies. Applied to determine that Land Bank's motion for reconsideration was a prohibited pleading that did not toll the period to appeal.
• Rule 43, 1997 Rules of Civil Procedure — Governs appeals from the RTC to the CA. Applied as the mode of appeal from the RTC judgment in the intra-corporate controversy.
• Article 1267, in relation to Article 1174, New Civil Code — Embodies the doctrine of rebus sic stantibus. Cited as the legal basis invoked by respondents in the underlying intra-corporate case to be released from their put-option obligation.

Reynato S. Puno, Angelina Sandoval-Gutierrez, Renato C. Corona, Adolfo S. Azcuna