Philippine Islands Corporation for Tourism Development, Inc. vs. Victorias Milling Company, Inc.

Upon appointment of a management committee or rehabilitation receiver under P.D. No. 902-A, all actions for claims against the corporation pending before any court, tribunal, board, or body are suspended, and the statute provides no exemption for secured creditors from such suspension — unlike the Insolvency Law, which exempts secured creditors from the suspensive effect of an ordinary suspension of payments order.

PICTD is the assignee of two loans obtained by VMC from the CICM Missionaries, Inc. (₱3,259,988.08) and from the Congregation of the Most Holy Redeemer (₱1,211,596.00), both assigned by way of a deed of assignment. VMC is a corporation that, while possessing sufficient property to cover its debts, foresaw its inability to pay them as they became due due to financial difficulties, prompting it to seek suspension of payments and the appointment of a management committee before the SEC. The dispute arose within the framework of P.D. No. 902-A, as amended by P.D. No. 1799, which governs the SEC's jurisdiction over corporate rehabilitation and suspension of payments, and the Rules of Procedure on Corporate Recovery of the SEC.

On March 7, 1997, PICTD filed a complaint for collection of a sum of money with prayer for a writ of preliminary attachment against VMC before the RTC of Makati City, Branch 148, docketed as Civil Case No. 97-483. The complaint alleged that VMC had obtained loans from the CICM Missionaries, Inc. in the amount of ₱3,259,988.08 and from the Congregation of the Most Holy Redeemer in the amount of ₱1,211,596.00, both of which were assigned to PICTD by way of a deed of assignment. When the loans matured on March 3, 1997, PICTD sought payment from VMC, but the latter failed to pay, prompting the filing of the complaint. The RTC ordered the issuance of a writ of preliminary attachment against VMC's properties; however, upon VMC's motion, the writ was lifted when VMC deposited a counter attachment bond.

Meanwhile, on July 4, 1997, VMC filed a petition before the SEC to declare itself in a state of suspension of payments, alleging that although it had sufficient property to cover all of its debts, it foresaw its inability to pay them when they became due because of financial difficulties. VMC sought the appointment of a management committee to oversee the implementation of its proposed rehabilitation plan so that it could continue its operations and meet its obligations. On July 8, 1997, the SEC ordered the suspension of all actions or claims against VMC pending before any court, tribunal, office, board, body, and/or commission. Pursuant to that order, VMC filed before the RTC an urgent motion to suspend proceedings in Civil Case No. 97-483, which the RTC granted on September 26, 1998.

On December 29, 1999, PICTD filed before the SEC a motion to lift the suspension of proceedings. In an Order dated June 20, 2002, the SEC denied PICTD's motion, ruling that PICTD was merely a general creditor who had been able to seize the property of the debtor through an attachment issued before judgment and did not have a prior security agreement with VMC that would ripen into a creditor's right in case of default; thus, its claim against VMC could not take precedence over the secured creditors. PICTD appealed to the Court of Appeals, which affirmed the SEC's Order in toto. The SEC had found that PICTD held no prior security agreement with VMC and was a general creditor whose attachment was issued before judgment, such that its claim could not take precedence over secured creditors.

• Scope of Suspension Order: PICTD argued that the Court of Appeals erred in ruling that the order of suspension suspends all actions or claims against VMC without qualification as to whether the claim is secured or unsecured.
• SEC's Power to Lift or Modify: PICTD maintained that the SEC, under Section 4-10, Rule IV of the Rules of Procedure on Corporate Recovery, had the power to lift or modify the order of suspension on a case-to-case basis and should have done so given PICTD's predicament.
• Exemption from Stay Order: PICTD contended that its claim in Civil Case No. 97-483 should be excluded from the SEC stay order, arguing it was effectively a secured creditor by virtue of the attachment it had obtained.

• Inclusiveness of Suspension Order: VMC countered that under Section 6(c) of P.D. No. 902-A, as amended by P.D. No. 1799, all claims and actions against a corporation declared in a status of suspension of payments and under a management committee are suspended.
• No Distinction Between Secured and Unsecured Creditors: VMC argued that PICTD's effort to distinguish itself as a secured creditor exempt from the order of suspension would not help its cause, since P.D. No. 902-A makes no distinction and the SEC Order dated July 8, 1997 suspending all actions is explicit.
• Forum Shopping: VMC contended that PICTD was guilty of forum shopping because it sought to extricate itself from the SEC suspension order even though said order had already been upheld by the Court of Appeals in CA-G.R. SP No. 61267, a decision that had become final and executory.

• Coverage of Suspension Order: Whether the proceedings of the collection suit filed by PICTD against VMC before the RTC should be excluded from the SEC order suspending all actions or claims against VMC.
• Forum Shopping: Whether PICTD is guilty of forum shopping.

• Coverage of Suspension Order: No. All actions for claims against a corporation under management or receivership are suspended upon appointment of a management committee pursuant to Section 6(c) of P.D. No. 902-A, as amended, and the statute provides no exemption for secured creditors, unlike the Insolvency Law.
• Forum Shopping: No. PICTD was merely pursuing the next proper recourse permitted by the Rules when it filed a motion to lift the suspension before the SEC, and could not be charged with deliberately seeking a friendlier forum.

• Coverage of Suspension Order: Section 6(c) of P.D. No. 902-A, as amended by P.D. No. 1799, expressly provides that upon appointment of a management committee, rehabilitation receiver, board, or body, all actions for claims against the corporation pending before any court, tribunal, board, or body shall be suspended. The purpose of the suspension is to prevent any creditor from obtaining an advantage or preference over another and to protect and preserve the rights of party-litigants as well as the interest of the investing public and creditors. The suspension gives the management committee or rehabilitation receiver enough breathing space to make the business viable again without diverting attention and resources to litigation in various fora. PICTD's argument that it should be exempt as a secured creditor was rejected because, unlike the Insolvency Law which exempts secured creditors from the suspensive effect of an order in ordinary suspension of payments proceedings, P.D. No. 902-A contains no such exemption when a management committee or rehabilitation receiver is appointed. PICTD's alternative argument that the SEC should have exempted it under Section 4-10, Rule IV of the Rules of Procedure on Corporate Recovery was likewise found unmeritorious: although the SEC may grant relief from the suspension order on a case-to-case basis, the determination of whether to do so is an administrative finding that the Court will not disturb absent any showing of grave abuse of discretion on the part of the SEC.

• Forum Shopping: Forum shopping is defined as the act of a party, against whom an adverse judgment or order has been rendered in one forum, of seeking and possibly getting a favorable opinion in another forum, other than by appeal or special civil action for certiorari, or the institution of two or more actions grounded on the same cause on the supposition that one or the other court would make a favorable disposition. The records showed that CA-G.R. SP No. 61267 originated from a Motion to Set Case for Further Proceedings filed by PICTD before the RTC, which VMC challenged via certiorari before the CA. In the present case, PICTD filed a motion to lift the suspension of proceedings before the SEC — a distinct proceeding addressing the specific issue of whether PICTD should be exempted from the suspension order. Finding two related proceedings involving similar issues is to be expected, and PICTD could not be charged with deliberately seeking a friendlier forum when it was merely pursuing the next proper recourse permitted by the Rules.

• Suspension of All Claims Upon Appointment of Management Committee — Under Section 6(c) of P.D. No. 902-A, as amended by P.D. No. 1799, upon appointment of a management committee, rehabilitation receiver, board, or body, all actions for claims against the corporation pending before any court, tribunal, board, or body shall be suspended. The purpose is to prevent a creditor from obtaining a preference over another, to protect the rights of party-litigants and the investing public or creditors, and to give the management committee or rehabilitation receiver breathing space to rehabilitate the debtor without diversion of resources to litigation. The Court applied this doctrine to hold that PICTD's collection suit was covered by the suspension order, and that unlike the Insolvency Law, P.D. No. 902-A provides no exemption for secured creditors.

• Forum Shopping — Forum shopping is the act of a party against whom an adverse judgment or order has been rendered in one forum of seeking a favorable opinion in another forum, other than by appeal or certiorari, or the institution of two or more actions grounded on the same cause in the hope that one court would make a favorable disposition. The Court found that PICTD was not guilty of forum shopping because it was merely pursuing the next proper recourse permitted by the Rules when it filed its motion to lift the suspension before the SEC, and the existence of related proceedings involving similar issues was expected rather than indicative of deliberate forum-shopping.

• "Unlike the provisions in the Insolvency Law which exempts secured creditors from the suspensive effect of the order issued by the court in an ordinary suspension of payments proceedings, the provisions of P.D. No. 902-A, when it comes to the appointment of a management committee or a rehabilitation receiver, do not contain an exemption for secured creditors." — This passage articulates the critical distinction between the Insolvency Law and P.D. No. 902-A regarding the treatment of secured creditors, forming the ratio decidendi on why PICTD's claim could not be exempted from the stay order.

• "The purpose for the suspension of the proceedings is to prevent a creditor from obtaining an advantage or preference over another and to protect and preserve the rights of party litigants as well as the interest of the investing public or creditors." — This defines the rationale behind the automatic stay under P.D. No. 902-A, explaining why the suspension is broad and without qualification as to the nature of the creditor's claim.

• "Finding two related proceedings involving similar issues are to be expected, petitioner cannot be charged with deliberately seeking a friendlier forum when it was merely pursuing the next proper recourse permitted by the Rules." — This passage establishes the boundary between legitimate pursuit of separate remedies and forum shopping, clarifying that related proceedings arising from the proper sequence of recourses do not constitute forum shopping.

• Philippine National Construction Corporation vs. Dy, G.R. No. 156887, October 3, 2005 — Cited for the definition of forum shopping. The Court relied on this case to articulate the elements and concept of forum shopping, then applied it to determine that PICTD's conduct did not constitute forum shopping.

• Sobrejuanite vs. ASB Development Corporation, G.R. No. 165675, September 30, 2005 — Cited for the proposition that the purpose of suspending proceedings is to prevent a creditor from obtaining a preference and to give the management committee breathing space for rehabilitation. The Court followed this precedent to explain the rationale behind the stay order under P.D. No. 902-A.

• BF Homes, Incorporated vs. Court of Appeals, G.R. Nos. 76879 & 77143, October 3, 1990 — Cited alongside Sobrejuanite for the same proposition regarding the purpose of the suspension of proceedings. The Court applied the principle to support its holding that the stay order applies broadly to all claims.

• Section 6(c), Presidential Decree No. 902-A, as amended by P.D. No. 1799 — This provision enumerates the powers of the SEC, including the authority to appoint a management committee or rehabilitation receiver, and provides that upon such appointment, all actions for claims against the corporation pending before any court, tribunal, board, or body shall be suspended. The Court applied this provision to hold that PICTD's collection suit was automatically suspended upon the SEC's appointment of a management committee for VMC, and that the statute makes no distinction between secured and unsecured creditors.

• Section 4-10, Rule IV, Rules of Procedure on Corporate Recovery of the SEC — This provision authorizes the SEC, on motion or motu proprio, to terminate, modify, or set conditions for the continuance of the suspension order, or relieve a claim from its coverage, upon showing of specified circumstances such as lack of adequate protection or the debtor's secured obligation exceeding the fair market value of the property. The Court acknowledged this provision but held that the SEC's determination not to lift the suspension was an administrative finding not reviewable absent grave abuse of discretion.

Justices Dante O. Tinga, Ruben T. Reyes, Teresita J. Leonardo-De Castro, and Arturo D. Brion concurred. No separate concurring opinions were noted.