Pacific Cement Company vs. Oil and Natural Gas Commission

A stay or suspension order issued under the Financial Rehabilitation and Insolvency Act of 2010 (FRIA) suspends all actions for enforcement of claims against a debtor but does not void a judgment rendered by a court that was not properly notified of the rehabilitation proceedings; the judgment remains valid but its execution is stayed pending rehabilitation.

Respondent Oil and Natural Gas Commission is a foreign corporation owned and controlled by the Government of India, while petitioner Pacific Cement Company is a domestic corporation based in Surigao City. On February 26, 1983, the parties entered into a supply contract whereby petitioner undertook to supply respondent with 4,300 metric tons of oil well cement for US$477,300.00. The contract contained an arbitration clause (Clause No. 16) and a jurisdiction clause (Clause No. 15). After petitioner failed to deliver the cargo and replacement cement did not conform to specifications, respondent referred the dispute to a sole arbitrator in Dehra Dun, India, pursuant to Clause No. 16. The arbitrator issued an award in favor of respondent on July 23, 1988, which was subsequently adopted and made the "Rule of the Court" by the Civil Judge of Dehra Dun on February 7, 1990. Respondent then sought enforcement of the foreign judgment in the Philippines.

Respondent Oil and Natural Gas Commission is a foreign corporation owned and controlled by the Government of India, while petitioner Pacific Cement Company is a domestic corporation based in Surigao City. On February 26, 1983, the parties entered into a supply contract whereby petitioner undertook to supply respondent with 4,300 metric tons of oil well cement for the price of US$477,300.00. The cargo was loaded on board the ship MV Surutana Nava at the port of Surigao City for delivery at Bombay and Calcutta, India, but it never reached its destination, having been held up in Bangkok, Thailand due to a dispute between the shipowner and petitioner. Despite receipt of payment and several demands, petitioner failed to deliver the cement. Negotiations followed, and the parties agreed that petitioner would replace the entire 4,300 metric tons with Class "G" cement cost-free at respondent's designated port. Upon inspection, however, the replacement cement did not conform to respondent's specifications.

Respondent thereafter referred the dispute to a sole arbitrator pursuant to Clause No. 16 of the contract, which provided for arbitration of questions and disputes relating to the meaning of specifications, designs, drawings, instructions, quality of workmanship, and other matters arising out of or relating to the supply order/contract. The venue for arbitration was Dehra Dun, India. On July 23, 1988, the sole arbitrator, N.N. Malhotra, issued an award in favor of respondent, directing petitioner to pay US$899,603.77 — comprising the amount received against the letter of credit, reimbursement of inspection team expenditures, letter of credit establishment charges, and loss of interest — plus 6% interest per annum from July 24, 1988 until actual payment, and costs of Rs 70,000 (US$5,000) shared equally.

Respondent filed a petition before the Court of the Civil Judge in Dehra Dun for execution of the arbitral award. The foreign court issued notices to petitioner, which filed objections but did not pay the required filing fees, instead sending a communication requesting information on the amount of fees and a 15-day period to comply. Without responding to petitioner's communication, the foreign court rejected the objections for non-payment of filing fees and, on February 7, 1990, issued an Order making the award the "Rule of the Court" and passing a decree directing petitioner to pay US$899,603.77 with 9% interest per annum until realization. Petitioner failed to comply despite notice and demands, prompting respondent to file suit in the RTC of Surigao City for enforcement of the foreign judgment.

The RTC initially dismissed the complaint for lack of cause of action, holding that the arbitrator lacked jurisdiction because the non-delivery of cargo should have been litigated before a court under Clause No. 15 (the jurisdiction clause) rather than arbitrated under Clause No. 16. The CA affirmed. On review, however, the Supreme Court in G.R. No. 114323 (July 23, 1998) reversed, ruling that the arbitrator had jurisdiction because the dispute included not only non-delivery but also the failure of the replacement cement to conform to contract specifications — a matter clearly within Clause No. 16's coverage. The Court upheld the foreign court's Order and found no due process violation. On motion for reconsideration, the Court, by Resolution dated September 28, 1999, remanded the case to the RTC for further proceedings.

On remand, the RTC rendered its Decision on January 6, 2012 in favor of respondent, finding that the existence and authenticity of the foreign judgment were proven beyond question, that the law of the case doctrine applied on the jurisdictional issue, and that the foreign judgment had attained finality. The RTC ordered petitioner to pay US$899,603.77 with 6% interest from July 24, 1988, US$5,000.00 for arbitration costs, P100,000.00 as attorney's fees, and P50,000.00 as litigation expenses. Petitioner appealed to the CA, which affirmed the RTC Decision on August 20, 2015. During the pendency of that appeal, petitioner filed a Petition for Rehabilitation on October 27, 2014, and the RTC as Rehabilitation Court issued a Commencement Order with Stay Order on December 15, 2014. Petitioner never informed the CA of the rehabilitation proceedings until after the CA promulgated its August 20, 2015 Decision. The CA subsequently set aside and then clarified its rulings, ultimately sustaining the enforceability of the foreign judgment but suspending its execution pending rehabilitation.

• FRIA Suspension: Petitioner argued that the proceedings before the CA were actions to collect or enforce a claim against it and thus covered by the mandatory provisions of FRIA. The Commencement Order containing the Stay Order rendered the CA's August 20, 2015 Decision and subsequent Resolutions null and void, since as early as December 15, 2014, the proceedings before the CA should have been suspended.
• Foreign Judgment Invalidity: Petitioner maintained that the foreign judgment was rendered without jurisdiction because the submission to the arbitrator pleaded non-delivery of oil well cement, which is not contemplated under Clause No. 16 of the supply contract, as held by the Court in G.R. No. 114323. The arbitrator exceeded his authority, and such mistake of law or fact amounting to want of jurisdiction is sufficient ground to repel the foreign judgment.
• Replacement Cement Issue Not Raised: Petitioner averred that the specification of the replacement cement was never raised as an issue before the arbitrator. The Arbitral Award discussed at length only the failure to deliver the oil well cement on account of petitioner's dispute with its carriers. While replacement cement was mentioned, the award included no disposition pertaining to its specifications or quality. The issue of replacement cement quality was raised only on appeal as a mere afterthought.
• Notice Not Required: Petitioner insisted it was not necessary to give notice to respondent of the rehabilitation proceedings since it already complied with the publication requirement under the rules, and rehabilitation proceedings are in rem in nature.

• Finality of Foreign Judgment: Respondent maintained that the petition should be dismissed because it had long been settled that the foreign judgment is enforceable in this jurisdiction. The CA sustained its August 20, 2015 Decision upholding enforceability, subject to rehabilitation proceedings, which complies with Sec. 16(q) of FRIA.
• Failure to Repel: Respondent submitted that the petition must fail since petitioner had miserably failed to establish any ground to repel the foreign judgment, whose existence and validity had been judicially admitted by petitioner.
• Procedural Delay: Respondent lamented that after three decades of litigation, the case remained unresolved, and petitioner refused to move forward with the rehabilitation case with dispatch, which is the objective of FRIA.
• Timeliness of Motion: Respondent contended that petitioner's motion for reconsideration was filed out of time, rendering the CA resolution final and executory.

• Validity of CA Rulings: Whether the assailed CA Decision dated August 20, 2015 and the Resolutions dated August 22, 2016 and January 11, 2017 are valid, in view of the issuance of the Commencement Order by the Rehabilitation Court.
• Effect of Stay Order on Pending Judgment: Whether a judgment rendered by a court after the issuance of a Commencement/Stay Order under FRIA is void when the court was not properly notified of the rehabilitation proceedings.
• Enforceability of Foreign Judgment: Whether the foreign judgment remains valid and enforceable notwithstanding the suspension of its execution pending rehabilitation proceedings.

• Validity of CA Rulings: Yes. The CA's August 20, 2015 Decision and subsequent Resolutions are valid. The CA was never properly notified of the rehabilitation proceedings or the Commencement Order during the pendency of the appeal, and a stay order does not oust a court of jurisdiction over a case properly filed before it.
• Effect of Stay Order on Pending Judgment: No, the judgment is not void. The stay order under FRIA suspends enforcement of claims against the debtor but does not automatically void a judgment rendered by a court unaware of the rehabilitation proceedings; the doctrine in Lingkod Manggagawa applies only where the court was properly informed of the stay order yet proceeded anyway.
• Enforceability of Foreign Judgment: Yes, sustained but suspended. The foreign judgment's presumptive validity was not successfully overcome by petitioner; its enforcement is suspended pending rehabilitation proceedings pursuant to FRIA.

• Validity of CA Rulings: The Court traced the evolution of corporate rehabilitation law from the Insolvency Law of 1909 through P.D. No. 902-A, R.A. No. 8799, and FRIA. Under FRIA, a Commencement Order includes a Stay or Suspension Order that suspends all actions or proceedings for the enforcement of claims against the debtor. However, the Court distinguished between the effect of a stay order on enforcement of claims and its effect on a court's jurisdiction. A stay order suspends actions for claims but does not oust a court of jurisdiction over a case properly filed before it. The Court examined whether the CA was properly notified of the rehabilitation proceedings and found that petitioner never informed the CA or respondent of the Commencement Order until after the CA rendered its August 20, 2015 Decision. The Rehabilitation Receiver's manifestation was filed only on October 13, 2015, and even then admitted that it was incumbent upon petitioner's former counsel to inform the CA, which he failed to do. Because the CA was not bound to take judicial notice of proceedings in other courts, its Decision could not be declared void for having been rendered after the Commencement Order.

• Effect of Stay Order on Pending Judgment: The Court analyzed Lingkod Manggagawa sa Rubberworld Adidas-Anglo vs. Rubberworld (Phils.), Inc., where the Labor Arbiter and NLRC proceeded with a case despite being properly informed of the SEC suspension order, and the Court declared their decisions null and void. The Court also examined La Savoie Development Corp. vs. Buenavista Properties, Inc., where the trial court rendered judgment before being notified of the stay order, and the Court held the judgment did not attain finality but did not expressly declare it void. The Court further cited Kaizen Builders, Inc. vs. Court of Appeals, where the CA was properly informed of the Commencement Order yet proceeded to render judgment, which was declared void. The Court distinguished these cases from the present case: here, the CA was never properly notified of the rehabilitation proceedings before rendering its Decision. Applying the principle from De Castro vs. Liberty Broadcasting Network, Inc., courts cannot take judicial notice of proceedings in other courts and can only act on facts and issues presented before them. The Court held that La Savoie was not controlling because the Quezon City RTC in that case was informed of the rehabilitation proceedings before the entry of judgment and writ of execution, whereas here the CA had no knowledge whatsoever when it rendered its Decision.

• Enforceability of Foreign Judgment: The Court found that petitioner's contentions regarding the foreign judgment's invalidity were a mere rehash of facts and issues already threshed out in the CA's August 20, 2015 Decision and previously resolved with finality in G.R. No. 114323. The foreign arbitral award, recognized and upheld in the RTC Decision ordering petitioner to pay a sum of money, is covered by the suspension of payments under FRIA and may not be subject of execution while rehabilitation is ongoing. However, the Court clarified that FRIA's Sec. 17 renders null and void only the enforcement of claims by way of execution, foreclosure, attachment, levy, garnishment, or other means of payment or satisfaction — not the rendition of judgment itself. The word "enforcement" denotes disposition of property or money to satisfy a claim. The Court also rejected petitioner's argument that publication alone sufficed as notice, noting that FRIA and the FR Rules require personal notice to certain classes of creditors, including foreign creditors with no known addresses in the Philippines, and creditors holding at least 10% of total liabilities. Respondent, as a foreign creditor with a substantial claim, was entitled to such notice. The Court further issued mandatory guidelines requiring rehabilitation receivers to notify all courts with pending actions involving the debtor, to obviate separate suits questioning judgments rendered in violation of commencement/stay orders.

• Stay Order Does Not Oust Jurisdiction — A stay or suspension order issued under FRIA suspends all actions for enforcement of claims against a debtor but does not work to oust a court of its jurisdiction over a case properly filed before it. The suspension is temporary, aimed at preventing the irreversible collapse of the corporation and giving the rehabilitation receiver tranquility to study viability. In this case, the Court applied this principle to hold that the CA's Decision was not void despite being rendered after the Commencement Order, because the CA was never properly notified of the rehabilitation proceedings.

• Doctrine from Lingkod Manggagawa — Void Judgments in Violation of Stay Orders — Proceedings and orders undertaken in violation of a suspension or stay order are null and void and cannot attain final and executory status, but only where the court or tribunal was properly informed of the stay order yet proceeded anyway. The Court clarified that this doctrine does not apply where the court rendering judgment had no knowledge of the rehabilitation proceedings, as in the present case.

• Law of the Case — Where the Supreme Court has already ruled on an issue in a prior proceeding involving the same parties and the same facts, that ruling becomes the law of the case and binds lower courts on remand. The RTC and CA correctly applied this principle in upholding the arbitrator's jurisdiction as already determined in G.R. No. 114323.

• Presumption of Validity of Foreign Judgments — A foreign judgment is presumed to be valid and binding unless the contrary is shown. The party attacking the foreign judgment bears the burden of overcoming such presumption. Petitioner failed to discharge this burden, and the Court found no sufficient ground to repel the foreign judgment.

• Courts Cannot Take Judicial Notice of Other Proceedings — Courts can only consider facts and issues pleaded by the parties and are not omniscient; they may not take judicial notice of proceedings in other courts except those expressly provided as subjects of mandatory judicial notice. The party asking the court to take judicial notice is obligated to supply the court with the relevant information.

• "A stay order simply suspends all actions for claims against a corporation undergoing rehabilitation; it does not work to oust a court of its jurisdiction over a case properly filed before it." — This passage articulates the controlling distinction between suspension of enforcement and ouster of jurisdiction, the ratio decidendi of the case.

• "Nowhere in FRIA is it stated that any action taken on pending actions against the debtor, including rendition of judgment, is automatically voided on the ground that it was rendered or issued after the issuance of a commencement order. The mandate of the law is simply to consolidate the resolution of all such legal proceedings by and against the debtor to the rehabilitation court." — This passage defines the scope of FRIA's nullification provision (Sec. 17), clarifying that it targets enforcement activities, not the rendition of judgments.

• "The Court does not take judicial notice of proceedings in the various courts of justice in the Philippines." — This principle, quoted from De Castro vs. Liberty Broadcasting Network, Inc., establishes that courts must be properly notified of rehabilitation proceedings before being expected to suspend their own proceedings, and is central to the Court's refusal to void the CA's Decision.

• "Acts executed against the provisions of mandatory or prohibitory laws shall be void, except when the law itself authorizes their validity. The Labor Arbiter's decision in this case is void ab initio, and therefore, non-existent." — From Lingkod Manggagawa, this passage articulates the doctrine of void judgments rendered in violation of stay orders, which the Court distinguished from the present case where the CA was never properly notified.

• Oil and Natural Gas Commission vs. Court of Appeals, 354 Phil. 830 (1998) (G.R. No. 114323) — Controlling precedent. The Court's prior ruling in this same controversy established that the arbitrator had jurisdiction under Clause No. 16, the foreign court's Order was valid, and there was no due process violation. Applied as the law of the case in subsequent proceedings.
• Lingkod Manggagawa sa Rubberworld Adidas-Anglo vs. Rubberworld (Phils.), Inc., 542 Phil. 203 (2007) — Followed but distinguished. Established that proceedings conducted in violation of a stay order are null and void, but only where the court was properly informed of the stay order yet proceeded anyway. The Court declined to apply its nullification rule here because the CA was never notified.
• La Savoie Development Corp. vs. Buenavista Properties, Inc., 854 Phil. 125 (2019) — Distinguished. Held that a judgment rendered before notification of the stay order did not attain finality, but the Court did not expressly declare it void. Found not controlling because in that case the trial court was informed before entry of judgment, whereas here the CA had no knowledge at all when it rendered its Decision.
• Kaizen Builders, Inc. vs. Court of Appeals, G.R. No. 226894, Sept. 3, 2020, 949 SCRA 230 — Followed but distinguished. Declared the CA's decision void for being rendered after a Commencement Order where the CA was properly informed. Distinguished because here the CA was never notified.
• De Castro vs. Liberty Broadcasting Network, Inc., 643 Phil. 304 (2010) — Followed. Established that courts do not take judicial notice of rehabilitation proceedings in other courts and are not bound to consider matters not properly brought to their attention. Central to the holding that the CA's Decision was not void.
• Philippine Airlines, Inc. vs. Zamora, 543 Phil. 546 (2007) — Followed. Held that the automatic suspension of actions for claims against a corporation under rehabilitation embraces all phases of the suit, before the trial court or any tribunal, including the Supreme Court.
• Veterans Philippine Scout Security Agency, Inc. vs. First Dominion Prime Holdings, Inc., 693 Phil. 336 (2012) — Followed. Explained that the suspension of all actions and claims against a distressed corporation covers all claims of pecuniary nature without distinction, whether secured or unsecured, and that the purpose is to enable the rehabilitation receiver to exercise powers free from judicial or extrajudicial interference.

• Section 16(q), R.A. No. 10142 (FRIA) — Defines the effects of the Stay or Suspension Order included in the Commencement Order: suspension of all actions or proceedings for enforcement of claims, suspension of actions to enforce judgments, prohibition on disposal of properties except in ordinary course of business, and prohibition on payment of liabilities outstanding as of commencement date. Applied to hold that enforcement of the foreign judgment is suspended during rehabilitation.
• Section 17, R.A. No. 10142 (FRIA) — Sets forth the legal effects of the Commencement Order, including rendering null and void the results of extrajudicial activity to seize property or enforce claims, set-offs, and perfection of liens after commencement date, and consolidating resolution of all legal proceedings to the rehabilitation court. The Court interpreted "enforcement" as denoting disposition of property or money to satisfy a claim, not the rendition of judgment.
• Section 18, R.A. No. 10142 (FRIA) — Provides exceptions to the Stay or Suspension Order, including cases already pending appeal in the Supreme Court as of commencement date. The Court noted that the appeal was pending before the CA, not the Supreme Court, hence not covered by the exception in Sec. 18(a).
• Section 4(c), R.A. No. 10142 (FRIA) — Defines "claim" as encompassing all claims or demands of whatever nature or character against the debtor or its property, whether for money or otherwise, liquidated or unliquidated, fixed or contingent, matured or unmatured, disputed or undisputed. Applied to confirm that the foreign arbitral award is a claim covered by the suspension.
• Section 3, R.A. No. 10142 (FRIA) — Declares rehabilitation proceedings in rem in nature, with jurisdiction over all persons acquired upon publication. The Court acknowledged this but held that FRIA and the FR Rules also require personal notice to certain classes of creditors.
• Section 8(H) and 8(J), Rule 2(B), Financial Rehabilitation Rules of Procedure (2013) — Require the debtor to serve copies of the petition on creditors holding at least 10% of total liabilities, the BIR, and relevant regulatory agencies, and to ensure foreign creditors receive the Commencement Order at least 15 days before the initial hearing. Applied to hold that respondent, as a foreign creditor with a substantial claim, was entitled to personal notice.
• Section 13, Rule 2(B), Financial Rehabilitation Rules of Procedure (2013) — Requires compliance with publication and service requirements as jurisdictional prerequisites before the initial hearing. Cited to emphasize that notice to specified classes of creditors is not an empty gesture but a jurisdictional requirement.
• Section 6(c), P.D. No. 902-A, as amended — Mandates suspension of all actions for claims against corporations under management or receivership. Cited as the statutory basis for the doctrine in Lingkod Manggagawa, which the Court distinguished from the present case governed by FRIA.
• Section 48, Rule 39, Rules of Court — Governs enforcement of foreign judgments and grounds to repel them. Petitioner invoked this provision, but the Court found no sufficient ground to repel the foreign judgment.

Leonen, SAJ., Caguioa, Hernando, Lazaro-Javier, Inting, Zalameda, M. Lopez, Gaerlan, Rosario, J. Lopez, Dimaampao, Marquez, Kho, Jr., and Singh, JJ., concur. No separate concurring opinions were noted.