Land Bank of the Philippines vs. Fastech Synergy Philippines, Inc.

Once a prior final and executory decision has reversed and set aside the CA ruling under review and dismissed the underlying rehabilitation petition, a later petition seeking only to modify that same CA ruling is moot and academic.

Respondents are four corporations with common managers, assets, and creditors; petitioner Land Bank is one of their creditors. Their rehabilitation petition was governed by Republic Act No. 10142, otherwise known as the Financial Rehabilitation and Insolvency Act of 2010, and the 2008 Rules of Procedure on Corporate Rehabilitation, which require a rehabilitation plan to include material financial commitments and a liquidation analysis. A separate creditor petition, G.R. No. 206528, arose from the same CA decision and became final while this petition was pending.

The Fastech Corporations filed a joint petition for corporate rehabilitation because they had common managers, assets, and creditors. Due to financial losses, their assets would not be enough to pay their peso and dollar debts, which included obligations to Planters Development Bank, Penta Capital Investment Corporation, Union Bank of the Philippines, Bank of the Philippine Islands, and Land Bank of the Philippines; the listed peso debts totaled P73,968,606.00 and the dollar debts totaled US$2,348,669.00, with Land Bank’s dollar debt at US$340,000.00. They prayed for approval of their Rehabilitation Plan, which provided for a two-year grace period for payment of outstanding loans, a waiver of accumulated interests and penalties, a 12-year period from the end of the grace period for payment of interests accrued during the grace period, and interest of four percent per annum for real estate-secured creditors and two percent per annum for chattel mortgage-secured creditors.

On April 19, 2011, the Rehabilitation Court issued a Commencement Order with Stay Order and appointed Atty. Rosario Bernaldo as Rehabilitation Receiver. On May 18, 2011, the Rehabilitation Petition was heard and given due course; creditors Planters Bank, UnionBank, BPI, and Landbank later filed their respective Notices of Claims and Comments. After the Fastech Corporations presented their Rehabilitation Plan to Atty. Bernaldo and their creditors, the Rehabilitation Court issued a June 22, 2011 Order requiring them to submit a revised rehabilitation plan. The Fastech Corporations submitted their Revised Rehabilitation Plan, and their creditors filed comments and oppositions. Atty. Bernaldo submitted her Preliminary Report and opined that the original Rehabilitation Plan was viable, stating that the Fastech Corporations “may be successfully rehabilitated, considering the sufficiency of their assets to cover their liabilities and the underlying assumptions, financial projections and procedures to accomplish said goals in their Rehabilitation Plan.” The external auditors issued qualified audit opinions on the 2008 financial statements of Fastech Microassembly and Fastech Electronique but noted that these companies were unable to prove financial support from their major stockholders; the auditors were unable to provide opinions on Fastech Synergy’s and Fastech Properties’ 2008 financial statements due to insufficient audit evidence; and they were also unable to give audit opinions on the 2009 financial statements of the Fastech Corporations for lack of appropriate audit evidence.

The Rehabilitation Court directed the Fastech Corporations to submit their Reply to the creditors’ comments and oppositions, which they did on September 30, 2011. On December 9, 2011, the Rehabilitation Court issued a Resolution dismissing the Rehabilitation Petition because (a) the Singapore Stock Exchange had deleted one of the petitioners without explanation; (b) petitioners failed to overcome the unqualified adverse opinions of their external auditors; (c) petitioners withheld from the court the basic assumptions of their rehabilitation plan; (d) petitioners failed to demonstrate better future business financial results after failing to meet various restructuring plans; and (e) the proposed niche manner of manufacturing was experimental, highly competitive, and uncertain. The Rehabilitation Court noted that there were no credible bases to determine if the Fastech Corporations could be rehabilitated since they failed to submit the bases for their positive financial projections due to confidentiality. It dismissed the petition for unreliable facts and figures and for attachments containing materially false and misleading facts and figures under Section 25(b)(3) of Republic Act No. 10142, and it could not declare liquidation because the facts and figures submitted were unreliable.

The Fastech Corporations elevated the case to the CA by filing a Petition for Review under Rule 43, docketed as CA-G.R. SP No. 122836, and prayed for a Writ of Preliminary Injunction and/or Temporary Restraining Order. On January 24, 2012, the CA issued a Temporary Restraining Order to prevent the case from being moot and academic considering the Ex Parte Petition for Issuance of a Writ of Possession filed by Planters Bank over the properties of the Fastech Corporations. A Writ of Preliminary Injunction was issued by the CA on March 22, 2012. On April 30, 2012, Atty. Bernaldo filed her Manifestation before the CA and maintained that the Fastech Corporations’ rehabilitation was viable as “the financial projections and procedures set forth to accomplish the goals in their Rehabilitation Plan [were] attainable.”

On September 28, 2012, the CA issued a Decision granting the Fastech Corporations’ Petition for Review, which it found to have “serve[d] the purpose of corporate rehabilitation.” The CA ruled that the Rehabilitation Court erred in disregarding the opinion of Atty. Bernaldo that the Fastech Corporations “may be successfully rehabilitated,” and that the Rehabilitation Court “failed to distinguish the difference between an adverse or negative opinion and a disclaimer or when an auditor [could not] formulate an opinion with exactitude for lack of sufficient data.” The CA reversed and set aside the Rehabilitation Court’s Resolution, reinstated the Joint Petition, approved the Rehabilitation Plan, permanently enjoined Planters Bank from effecting foreclosure of the Fastech Corporations’ property during the pendency of the implementation of the Rehabilitation Plan, and remanded the case to the RTC Makati for supervision.

Landbank and Planters Bank separately moved for reconsideration. Landbank argued that the Rehabilitation Plan should not have been approved since it would not benefit the Fastech Corporations’ creditors, while Planters Bank averred that the rehabilitation of the Fastech Corporations could no longer be obtained. On March 5, 2013, the CA issued a Resolution denying both motions and added that Atty. Bernaldo’s Manifestation bolstered its finding that the rehabilitation was possible if “implemented in accordance with the Rehabilitation Plan.” On April 18, 2013, Planters Bank and its successor-in-interest, Philippine Asset Growth Two, Inc., filed a Petition for Review before the SC, docketed as G.R. No. 206528. On April 25, 2013, Landbank also filed this Petition for Review before the SC, questioning the CA’s application of Republic Act No. 10142 without considering the issues raised by the creditors, including its disagreement with the almost 20-year repayment period and the waiver of interest and penalties incurred prior to the filing of rehabilitation.

• Creditor Issues and Plan Viability: Petitioner argued that respondents’ creditors raised valid issues that should be addressed before declaring that rehabilitation was viable.
• Repayment Period and Waiver: Petitioner maintained that it did not agree with the period of the repayment plan, which could take almost 20 years, or with the waiver of interest and penalties incurred prior to the filing of rehabilitation.
• Rehabilitation Receiver’s Opinion: Petitioner argued that the Rehabilitation Receiver’s opinion was subjective and possibly partial in favor of rehabilitation.
• Matters Beyond Receiver’s Competence: Petitioner pointed out that some concerns were beyond the Rehabilitation Receiver’s competence and must be directly addressed by respondents to show petitioner that they were sincere in gaining the benefits of rehabilitation and were “not simply hiding behind its protective mantle to evade [their] obligations.”
• Prayer for Modification: Petitioner prayed that the assailed Decision and Resolution of the CA be modified to take its concerns into account.

• Questions of Fact: Respondents countered that petitioner raised questions of fact, which could not be entertained by the SC; the resolution of petitioner’s concerns would involve an examination of the records and evidence of the case.
• No Objection to Rehabilitation: Respondents argued that petitioner did not object to respondents’ rehabilitation; its opposition was merely on the stipulations in the Rehabilitation Plan.

• Mootness of the Petition: Whether the petition seeking review of the CA’s approval of the Rehabilitation Plan is moot and academic in light of the final and executory decision in G.R. No. 206528.

• Mootness of the Petition: Yes. The petition is moot and academic. The June 28, 2016 Decision in G.R. No. 206528 already reversed and set aside the same CA Decision and Resolution, dismissed the rehabilitation petition, and became final and executory on March 17, 2017.

• Mootness of the Petition: The SC recited the rule that courts will not render judgment on a moot and academic case unless there is a grave constitutional violation, exceptional character, paramount public interest, an opportunity to guide the bench, the bar, and the public, or the case is capable of repetition yet evading review. A case is moot and academic when it ceases to present a justiciable controversy because of supervening events so that a declaration thereon would be of no practical use or value. Judicial power under Article VIII, Section 1 of the Constitution is limited to actual cases and controversies, and an actual case exists only when there are conflicting or opposite legal rights that may be resolved in a judicial proceeding and a real and substantial controversy admitting of specific relief. Here, the sole issue raised by Landbank—whether the CA erred in approving the Rehabilitation Plan—had already been ruled upon in G.R. No. 206528. The SC in that case found that rehabilitation was not feasible because the Rehabilitation Plan lacked a material financial commitment and a liquidation analysis, and it reversed and set aside the same CA Decision and Resolution and dismissed the Joint Petition. That decision became final and executory on March 17, 2017. The SC held that its prior decision was comprehensive enough that to rule on the issue raised by petitioner would be futile and a waste of the SC’s time and resources, and petitioner did not advance any other issue that could have been resolved. With the promulgation of the June 28, 2016 Decision in G.R. No. 206528, the present case was rendered moot and academic.

• Moot and Academic — A case is moot and academic when it ceases to present a justiciable controversy because of supervening events, so that a declaration thereon would have no practical use or value. Courts generally decline jurisdiction over such cases unless there is a grave constitutional violation, exceptional character, paramount public interest, an opportunity to guide the bench, the bar, and the public, or the case is capable of repetition yet evading review. The SC applied this doctrine because the prior final decision in G.R. No. 206528 had already reversed the same CA ruling and dismissed the rehabilitation petition.
• Actual Case or Controversy — Judicial power is limited to actual cases and controversies involving conflicting legal rights that may be resolved in a judicial proceeding and a real and substantial controversy admitting of specific relief. The SC applied this limit by refusing to rule on Landbank’s petition after the prior final decision eliminated the live controversy.
• Final and Executory Judgment on the Same Issue — A final and executory judgment that has already resolved the sole issue raised in a later petition renders that later petition moot and academic. The SC applied this principle because G.R. No. 206528 had already resolved the feasibility of respondents’ rehabilitation and reversed the same CA Decision and Resolution.
• Rehabilitation Plan Requirements — Under Section 18, Rule 3 of the 2008 Rules of Procedure on Corporate Rehabilitation, a rehabilitation plan must include material financial commitments to support the plan and a liquidation analysis showing that creditors would receive more under the plan than under immediate liquidation. In the prior G.R. No. 206528 decision quoted by the SC, the plan was found deficient for lacking both, and the Rehabilitation Receiver’s recommendation was held not to bind the court.

• "Courts will not render judgment on a moot and academic case unless any of the following circumstances exists: '(1) [g]rave constitutional violations; (2) [e]xceptional character of the case; (3) [p]aramount public interest; (4) [t]he case presents an opportunity to guide the bench, the bar, and the public; or (5) [t]he case is capable of repetition yet evading review.'" — States the general rule against deciding moot cases and the recognized exceptions.
• "A case is moot and academic if it 'ceases to present a justiciable controversy because of supervening events so that a declaration thereon would be of no practical use or value.'" — Defines mootness in the words adopted by the SC from Timbol vs. Commission on Elections.
• "This Court arrived at the above conclusion after a careful scrutiny of the case records. The decision is comprehensive enough that to rule on the issue raised by petitioner will be futile and is a waste of this Court's time and resources. Moreover, petitioner did not advance any other issue that could have been resolved by this Court. Therefore, with the promulgation of the June 28, 2016 Decision in G.R. No. 206528, the present case has been rendered moot and academic." — Explains why the SC denied Landbank’s petition instead of ruling on the merits.
• "A distressed corporation should not be rehabilitated when the results of the financial examination and analysis clearly indicate that there lies no reasonable probability that it may be revived, to the detriment of its numerous stakeholders which include not only the corporation's creditors but also the public at large." — Quoted from the prior G.R. No. 206528 decision, which found respondents’ rehabilitation not feasible.

• Philippine Asset Growth Two, Inc. vs. Fastech Synergy Philippines, Inc., G.R. No. 206528, June 28, 2016 — Prior final decision in the companion case; it reversed and set aside the same CA ruling, dismissed the rehabilitation petition, and rendered this petition moot.
• Timbol vs. Commission on Elections, 754 Phil. 578 (2015) — Cited for the definition of a moot and academic case and the exceptions to the mootness rule.
• Republic vs. Moldex Realty, Inc., G.R. No. 171041, February 10, 2016, 783 SCRA 414 — Cited for the rule that a case becomes moot when supervening events eliminate the justiciable controversy and that courts refuse to render advisory opinions.
• David vs. Macapagal-Arroyo, 522 Phil. 705, 753 (2006) — Cited for the requirement of a real and substantial controversy admitting of specific relief.
• Bank of the Philippine Islands vs. Sarabia Manor Hotel Corporation — Quoted in the G.R. No. 206528 decision for the test of economic feasibility of a rehabilitation plan.
• Viva Shipping Lines, Inc. vs. Keppel Philippines Mining, Inc. — Quoted in the G.R. No. 206528 decision for the characteristics of an economically feasible and an infeasible rehabilitation plan.

• Article VIII, Section 1, 1987 Constitution — Judicial power includes the duty to settle actual controversies involving legally demandable and enforceable rights. The SC applied this limit by declining jurisdiction over the moot petition.
• Section 4(gg), Republic Act No. 10142 (FRIA) — Defines rehabilitation as the restoration of the debtor to successful operation and solvency if economically feasible and creditors can recover the present value of payments projected in the plan. This definition was quoted in the prior G.R. No. 206528 decision.
• Section 18, Rule 3, 2008 Rules of Procedure on Corporate Rehabilitation — Requires the rehabilitation plan to include material financial commitments and a liquidation analysis. The prior G.R. No. 206528 decision quoted this provision and found respondents’ plan deficient for lacking both.