Umale vs. ASB Realty Corporation

Corporate rehabilitation and the appointment of a rehabilitation receiver do not ipso facto deprive a corporation and its corporate officers of the power to sue to recover unlawfully detained corporate property; the debtor corporation remains in control as debtor-in-possession, subject to the receiver’s monitoring. A lessee who commits grounds for ejectment under Article 1673 cannot avail of the lease periods in Article 1687.

ASB Realty Corporation is the registered owner of Lot 7, Block 5, Amethyst Street, Ortigas Center, Pasig City, which it acquired from its wholly-owned subsidiary Amethyst Pearl Corporation. ASB Realty was placed under corporate rehabilitation by the Securities and Exchange Commission, and a rehabilitation receiver was appointed. The dispute requires resolving the effect of corporate rehabilitation and receivership on the debtor corporation’s power to sue and on the lease of the property.

Lot 7, Block 5, Amethyst Street, Ortigas Center, Pasig City was originally owned by Amethyst Pearl Corporation, a company wholly owned by ASB Realty Corporation. In 1996, Amethyst Pearl executed a Deed of Assignment in Liquidation over the subject premises in favor of ASB Realty in consideration of the full redemption of Amethyst Pearl’s outstanding capital stock from ASB Realty. ASB Realty thus became the owner and obtained Transfer Certificate of Title No. PT-105797, registered in 1997 with the Registry of Deeds of Pasig City.

Sometime in 2003, ASB Realty commenced an action for unlawful detainer in the Metropolitan Trial Court of Pasig City against Leonardo S. Umale. ASB Realty alleged that it had entered into a lease contract with Umale for the period June 1, 1999 to May 31, 2000, under which Umale would conduct a pay-parking business on the property and pay monthly rent of ₱60,720.00. Upon the contract’s expiration on May 31, 2000, Umale continued occupying the premises and paying rentals, albeit at an increased monthly rent of ₱100,000.00. The last rental payment Umale made to ASB Realty was for the June 2001 to May 2002 period, evidenced by Official Receipt No. 56511 dated November 19, 2001. On June 23, 2003, ASB Realty served on Umale a Notice of Termination of Lease and Demand to Vacate and Pay, terminating the lease effective midnight of June 30, 2003, demanding that Umale vacate and pay rental arrears of ₱1.3 million by July 15, 2003. Umale failed to comply, continued in possession, and even constructed commercial establishments on the premises.

Umale admitted occupying the property since 1999 by virtue of a verbal lease contract but denied that ASB Realty was his lessor. He claimed that his lessor was Amethyst Pearl, the original owner, and that because there was no contract between him and ASB Realty, the latter had no cause of action. He asserted an oral lease with Amethyst Pearl for “a long period of time” and allegedly paid ₱1.2 million in 1999 as one year advance rentals to Amethyst Pearl. When that oral lease ended in May 2000, Umale claimed, he and Amethyst Pearl agreed on an oral contract to sell under which he did not have to pay rentals until the sale was perfected; despite this alleged waiver, he maintained that he continued paying annual rent of ₱1.2 million. He was surprised when he received the Notice of Termination of Lease from ASB Realty. Umale also challenged ASB Realty’s personality to recover the premises because ASB Realty had been placed under receivership by the Securities and Exchange Commission and a rehabilitation receiver had been appointed; under Section 14(s), Rule 4 of Administrative Memorandum No. 00-8-10-SC, the Interim Rules of Procedure on Corporate Rehabilitation, the receiver had the power to take possession, control, and custody of the debtor’s assets, so the receiver should sue. ASB Realty replied that it was impossible for Umale to have entered into a lease with Amethyst Pearl in 1999 because Amethyst Pearl had been liquidated in 1996; it insisted that the written lease contract showed Umale contracted with ASB Realty, not Amethyst Pearl, and cited the official receipt evidencing Umale’s rent payments to ASB Realty.

The MTC found an inconsistency in the written lease contract presented by ASB Realty: its whereas clauses cited ASB Realty, with Eden C. Lin as its representative, as Umale’s lessor, but its signatory page contained Eden C. Lin’s name under the heading Amethyst Pearl. The MTC concluded from this inconsistency that Amethyst Pearl was the real lessor. The RTC, on appeal, found sufficient evidence that ASB Realty entered into the lease contract with Umale; it held that the official receipt evidencing Umale’s rental payments for June 2001 to May 2002 to ASB Realty established that Umale knew his lessor, the one entitled to receive his rent payments, was ASB Realty, not Amethyst Pearl. The RTC found ASB Realty’s positive assertions more compelling than Umale’s bare negative assertions and found Umale’s version incredible, reasoning that it was implausible for a businessman to enter into a lease contract, pay lease rentals, accept an offer to sell, and agree to waive rentals without a sliver of evidence. The CA likewise found that ASB Realty discharged its burden to prove the lease contract and grounds for eviction, and that the veracity of the lease terms was bolstered by Umale’s admission that he paid monthly rents in accordance with the contract; it found the rent payments were made monthly, not annually.

• Real Party-in-Interest and Receiver’s Exclusive Power: Petitioners maintained that the appointment of a rehabilitation receiver for ASB Realty deprived its corporate officers of the power to recover corporate property and transferred such power to the receiver. They invoked Section 6, Rule 59 of the Rules of Court, Presidential Decree No. 902-A, and the Interim Rules, arguing that the receiver has the power to bring actions in his own name and take custody and control of the corporation’s assets. Since the receiver did not file the complaint, the trial court did not acquire jurisdiction over the subject property. They cited Villanueva vs. Court of Appeals, Yam vs. Court of Appeals, and Abacus Real Estate Development Center, Inc. vs. The Manila Banking Corporation.
• No Lease with ASB Realty: Petitioners argued that ASB Realty had no cause of action because it was not Umale’s lessor. Umale allegedly entered into a verbal lease agreement with Amethyst Pearl only, as shown by his possession and construction of buildings without protest from Amethyst Pearl or ASB Realty.
• Article 1687 Lease Extension: Petitioners argued that under Article 1687, the period for rent payments determines the lease period; because the official receipt covered the 12-month period June 2001 to May 2002, the lease period should be annual. ASB Realty allegedly violated Article 1687 by terminating the lease on June 30, 2003, at the beginning of the new period, and the lease should be extended until May 2004. They also argued that assuming a lease existed, it was at most an implied lease whose period depended on rent payments, and since Umale paid rent annually, ASB Realty had to respect the lease for the entire year and could not terminate it at the end of the month.
• Review of Factual Findings: Petitioners conceded that they may have raised questions of fact but insisted on review because the appellate court’s ruling was allegedly grounded entirely on speculations, surmises, and conjectures and its conclusions regarding termination were manifestly absurd, mistaken, and impossible.

• Corporate Officers Retain Power to Sue: ASB Realty countered that no provision in Presidential Decree No. 902-A, the Interim Rules, or Rule 59 of the Rules of Court divests corporate officers of their power to sue upon appointment of a rehabilitation receiver. Section 14, Rule 4 of the Interim Rules expressly limits the receiver’s power, providing that the rehabilitation receiver does not take over management and control but closely oversees and monitors the debtor’s operations. The SEC Rules of Procedure on Corporate Recovery do not include among the receiver’s powers the exclusive right to file suits for the corporation.
• Lease with ASB Realty Exists: ASB Realty replied that it was impossible for Umale to have entered into a lease with Amethyst Pearl in 1999 because Amethyst Pearl had been liquidated in 1996. It insisted that, as evidenced by the written lease contract, Umale contracted with ASB Realty, not Amethyst Pearl, and cited the official receipt evidencing rent payments made by Umale to ASB Realty.

• Real Party-in-Interest / Corporate Rehabilitation: Whether a corporate officer of ASB Realty, duly authorized by the Board of Directors, may file suit to recover unlawfully detained corporate property despite the corporation having been placed under rehabilitation.
• Existence of Lease: Whether a contract of lease exists between ASB Realty and Umale.
• Article 1687 Lease Period: Whether Umale is entitled to avail of the lease periods provided in Article 1687 of the Civil Code.

• Real Party-in-Interest / Corporate Rehabilitation: Yes. ASB Realty, as owner and lessor, is the real party-in-interest; corporate rehabilitation does not ipso facto deprive the corporation and its officers of the power to sue. The debtor corporation remains in control as debtor-in-possession, subject to the receiver’s monitoring, and the receiver was not shown to have been given exclusive authority to sue.
• Existence of Lease: Yes. A lease contract between ASB Realty and Umale was established by the written lease contract and Umale’s payment of rentals to ASB Realty; the factual findings supporting this are binding under Rule 45.
• Article 1687 Lease Period: No. Article 1675 bars a lessee who commits grounds for ejectment under Article 1673, including non-payment, from availing the lease periods in Article 1687; the extension is equitable and was not warranted.

• Real Party-in-Interest / Corporate Rehabilitation: ASB Realty, as owner of the leased premises, is the real party-in-interest, defined as the party who stands to be benefited or injured by the judgment in the suit or the party entitled to the avails of the suit. Petitioners argued that ASB Realty’s corporate officer was incapacitated because a rehabilitation receiver had been appointed. Corporations are juridical entities existing by operation of law, and among the general powers granted by law is the power to sue in their own name under the Corporation Code, unless specifically revoked by another law. Corporate rehabilitation, introduced through Presidential Decree No. 902-A, aims to restore the debtor to successful operation and solvency and to preserve a floundering business as a going concern. The concept is debtor-in-possession or debtor-in-place: the debtor corporation, through its Board of Directors and corporate officers, remains in control of its business and properties, subject only to the monitoring of the appointed rehabilitation receiver. The SEC Rules state that the interim rehabilitation receiver does not take over control and management of the debtor corporation, and the replacement receiver monitors implementation of the rehabilitation plan. Nothing in corporate rehabilitation ipso facto deprives the Board of Directors and corporate officers of control such that they can no longer enforce the right to recover property from an errant lessee. The prohibited corporate actions and transactions during rehabilitation mostly involve disposition or encumbrance of assets and do not touch the right to sue. Rule 59 is of general application to different kinds of receivers and situations; the SEC has discretion to authorize a rehabilitation receiver to exercise Rule 59 powers, but such authorization cannot be assumed, and there was no allegation that the SEC gave ASB Realty’s receiver the exclusive right to sue. The cases cited by petitioners—Villanueva, Yam, and Abacus Real Estate—are inapplicable because they involved banking and financial institutions governed by different laws, particularly Section 29 of the Central Bank Act, which forbids a bank or quasi-bank from doing business upon insolvency, and the nullified transactions involved dispositions of assets and claims, which are prohibited even in rehabilitation. The instant case involves recovery of assets and collection of receivables, for which there is no prohibition in Presidential Decree No. 902-A. Nonetheless, the rehabilitation receiver must be kept apprised of the proceedings and its results, so ASB Realty was ordered to furnish the receiver a copy of the Decision and inform the Court of compliance.
• Existence of Lease: Petitioners maintained that ASB Realty had no cause of action because it was not their lessor and that Umale entered into a verbal lease agreement with Amethyst Pearl only. These arguments involve factual findings, the review of which is not within the Court’s functions under Rule 45, particularly when there is adequate evidentiary support on record. Although petitioners assailed the authenticity of the written lease contract by pointing out the inconsistency in the name of the lessor in two separate pages, they failed to account for Umale’s actions consistent with the terms of the contract—the payment of lease rentals to ASB Realty, instead of his alleged lessor Amethyst Pearl, for a 12-month period. These matters cannot be brushed off as sheer happenstance, especially when weighed against Umale’s incredible version of the facts: that he entered into a verbal lease contract with Amethyst Pearl; that the term of the lease was for a “very long period of time”; that Amethyst Pearl offered to sell the leased premises and Umale accepted the offer, with both parties not demanding any written documentation and without any mention of the purchase price; and that Amethyst Pearl agreed that Umale need not pay rentals until perfection of the sale. It is inconceivable that a businessman, such as petitioners’ predecessor-in-interest, would enter into commercial transactions with and pay substantial rentals to a corporation without a single documentation. Thus, the lease between ASB Realty and Umale was established.
• Article 1687 Lease Period: Petitioners invoked Article 1687 of the Civil Code, arguing that the period for rent payments determines the lease period and that because the official receipt covered the 12-month period from June 2001 to May 2002, the lease period should be annual. They concluded that ASB Realty violated Article 1687 when it terminated the lease on June 30, 2003, at the beginning of the new period, and asked that the lease be extended until May 2004. In arguing for an extension under Article 1687, petitioners lost sight of the restriction in Article 1675 of the Civil Code, which states that a lessee who commits any of the grounds for ejectment cited in Article 1673, including non-payment of lease rentals and devoting the leased premises to uses other than those stipulated, cannot avail of the periods established in Article 1687. Moreover, the extension in Article 1687 is granted only as a matter of equity; the law recognizes instances when it would be unfair to abruptly end the lease and cause eviction, and it is only for clearly unjust situations that the court is given discretion to extend the lease. The circumstances did not inspire equitable relief: petitioners had not paid, much less offered to pay, the rent for 14 months and had disregarded the pay-and-vacate notice served on them. An extension would only benefit the wrongdoer and punish the long-suffering property owner.

• Debtor-in-Possession or Debtor-in-Place — In corporate rehabilitation, the debtor corporation, through its Board of Directors and corporate officers, remains in control of its business and properties, subject only to the monitoring of the appointed rehabilitation receiver. The receiver does not take over management and control. The Court applied this doctrine to hold that ASB Realty and its corporate officers retained the power to sue to recover unlawfully detained property; rehabilitation did not ipso facto deprive them of control.
• Real Party-in-Interest — The party who stands to be benefited or injured by the judgment in the suit, or the party entitled to the avails of the suit. ASB Realty, as owner and lessor, was the real party-in-interest in the unlawful detainer suit.
• Corporate Power to Sue — A corporation, as a juridical entity created by law, has the power to sue in its own name under the Corporation Code unless specifically revoked by another law. Corporate rehabilitation laws did not revoke ASB Realty’s power to sue, and the receiver was not shown to have exclusive authority to sue.
• Rehabilitation Receiver’s Powers Under Rule 59 — Rule 59 is of general application to different kinds of receivers and situations; the SEC has discretion to authorize a rehabilitation receiver to exercise Rule 59 powers, but such authorization cannot be assumed. No showing existed that the SEC gave ASB Realty’s receiver the exclusive right to sue.
• Article 1675 Bar to Article 1687 Extension — A lessee who commits any of the grounds for ejectment cited in Article 1673, including non-payment of lease rentals and devoting the leased premises to uses other than those stipulated, cannot avail of the periods established in Article 1687. Umale’s non-payment and disregard of the pay-and-vacate notice barred the requested extension.
• Equitable Extension of Lease Under Article 1687 — Extension under Article 1687 is granted only as a matter of equity for clearly unjust situations; it is not available to benefit a wrongdoer. No extension was granted because petitioners did not pay or offer to pay rent for 14 months and ignored the pay-and-vacate notice.
• Factual Findings Binding on Rule 45 Review — Factual findings with adequate evidentiary support are not reviewable under Rule 45. The lease existence and monthly rent payments were factual findings supported by evidence.

• "Being placed under corporate rehabilitation and having a receiver appointed to carry out the rehabilitation plan do not ipso facto deprive a corporation and its corporate officers of the power to recover its unlawfully detained property." — This states the core ratio of the decision on the effect of corporate rehabilitation on the corporation’s power to sue.
• "This concept of preserving the corporation’s business as a going concern while it is undergoing rehabilitation is called debtor-in-possession or debtor-in-place. This means that the debtor corporation (the corporation undergoing rehabilitation), through its Board of Directors and corporate officers, remains in control of its business and properties, subject only to the monitoring of the appointed rehabilitation receiver." — This defines the debtor-in-possession doctrine that the Court applied to uphold ASB Realty’s power to sue.
• "In arguing for an extension of lease under Article 1687, petitioners lost sight of the restriction provided in Article 1675 of the Civil Code. It states that a lessee that commits any of the grounds for ejectment cited in Article 1673, including non-payment of lease rentals and devoting the leased premises to uses other than those stipulated, cannot avail of the periods established in Article 1687." — This is the ratio for rejecting Umale’s claim to an extended lease period.
• "The implication therefore is that our concept of rehabilitation does not restrict this particular power, save for the caveat that all its actions are monitored closely by the receiver, who can seek an annulment of any prohibited or anomalous transaction or agreement entered into by the officers of the debtor corporation." — This explains that the right to sue is not restricted by rehabilitation, although corporate actions remain subject to the receiver’s monitoring.

• Villanueva vs. Court of Appeals, 314 Phil. 297 (1995) — Cited by petitioners for the rule that appointment of a receiver suspends corporate authority; distinguished because it involved a banking institution governed by the Central Bank Act, where insolvency restricted capacity to act, and the nullified transaction was a sale contract.
• Yam vs. Court of Appeals, 362 Phil. 344 (1999) — Cited by petitioners; distinguished because it involved Manphil Investment Corporation under Central Bank receivership and a nullified compromise agreement, not a rehabilitation receiver under Presidential Decree No. 902-A.
• Abacus Real Estate Development Center, Inc. vs. The Manila Banking Corporation, 495 Phil. 86 (2005) — Cited by petitioners; distinguished because Manila Bank was under liquidation and its president lacked authority to execute an option to purchase, a disposition of assets governed by banking laws.
• Consumido vs. Ros, G.R. No. 166875, July 31, 2007, 528 SCRA 696, 702 — Cited for the definition of real party-in-interest.
• China Banking Corporation vs. ASB Holdings, G.R. No. 172192, December 23, 2008, 575 SCRA 247, 260 — Cited for the purpose of rehabilitation: preserving a floundering business as a going concern because assets are often more valuable when maintained than liquidated.
• LL and Company Development & Agro-Industrial Corporation vs. Huang Chao Chun, 428 Phil. 665, 674-675 (2002) — Cited for the Article 1675 restriction and the equitable nature of Article 1687 extension.
• Lo Chua vs. Court of Appeals, 408 Phil. 877, 893 (2001) and Guiang vs. Samano, G.R. No. 50501, April 22, 1991, 196 SCRA 114, 120 — Cited to support denial of equitable extension where the lessee is a wrongdoer who disregarded the pay-and-vacate notice.
• U-bix Corporation vs. Milliken & Company, G.R. No. 173318, September 23, 2008, 566 SCRA 284, 288 and Solar Harvest Inc. vs. Davao Corrugated Carton Corporation, G.R. No. 176868, July 26, 2010, 625 SCRA 448, 457 — Cited for the rule that factual findings with adequate evidentiary support are not reviewable under Rule 45.

• Section 14(s), Rule 4, Administrative Memorandum No. 00-8-10-SC (Interim Rules of Procedure on Corporate Rehabilitation) — Cited by petitioners for the rehabilitation receiver’s power to take possession, control, and custody of the debtor’s assets. The Court noted that Section 14, Rule 4 limits the receiver, who does not take over management and control but closely oversees and monitors the debtor’s operations.
• Section 6, Rule 59, Rules of Court — Cited by petitioners for the receiver’s power to bring actions in his own name and collect debts due to the corporation. The Court ruled that Rule 59 is of general application and that SEC authorization for a rehabilitation receiver to exercise such powers cannot be assumed; no showing existed that the SEC gave ASB Realty’s receiver the exclusive right to sue.
• Presidential Decree No. 902-A, as amended — The law that introduced corporate rehabilitation and governed the SEC’s rehabilitation jurisdiction over ASB Realty’s pending petition. It provides that the receiver shall have the powers under Rule 59, but the Court held this does not ipso facto strip corporate officers of the power to sue; the SEC may place a corporation under a management committee in warranted cases, but no such committee was alleged.
• SEC Rules of Procedure on Corporate Recovery — Provide that the interim rehabilitation receiver does not take over control and management of the debtor corporation and that the rehabilitation receiver monitors implementation of the plan. They also list prohibited acts, such as sale, encumbrance, transfer, or disposition of the debtor’s property outside the normal course of business and payment of outstanding liabilities, none of which covers the right to sue.
• Corporation Code, Sections 2 and 36(1) — Corporations are juridical entities existing by operation of law, and among their general powers is the power to sue in their own name. Applied to hold that ASB Realty retained that power despite rehabilitation.
• Rule 3, Section 2, Rules of Court — Defines real party-in-interest as the party who stands to be benefited or injured by the judgment or the party entitled to the avails of the suit. Applied to ASB Realty as owner and lessor.
• Article 1687, Civil Code — Cited by petitioners: when the lease period is not fixed, the period depends on the rent payments. The Court held it could not be invoked because of Article 1675.
• Article 1675, Civil Code — A lessee who commits any of the grounds for ejectment cited in Article 1673 cannot avail of the periods established in Article 1687. Applied to bar Umale’s requested extension.
• Article 1673, Civil Code — Lists grounds for ejectment, including non-payment of lease rentals and devoting the leased premises to uses other than those stipulated. Cited as the predicate for Article 1675.
• Rule 45, Rules of Court — Review by the Supreme Court is limited; factual findings with adequate evidentiary support are not within the Court’s functions under Rule 45. Applied to reject petitioners’ factual challenges to the lease.
• Section 21, 1991 Revised Rules on Summary Procedure — Cited as the basis for ASB Realty’s motion for issuance of a writ of execution after the RTC decision. The RTC granted the motion.
• Section 29, Central Bank Act (Republic Act No. 265, as amended) — Cited in distinguishing Villanueva, Yam, and Abacus; it expressly forbids a bank or quasi-bank from doing business in the Philippines upon insolvency, unlike rehabilitation where the corporation retains control.
• Republic Act No. 10142 (Financial Rehabilitation and Insolvency Act of 2010) — Noted in a footnote; Section 146 states it governs rehabilitation petitions filed after its effectivity, so it did not apply to ASB Realty’s pending rehabilitation case.
• Republic Act No. 8799 (Securities Regulation Code) — Noted that it transferred SEC jurisdiction over corporate rehabilitation to regular courts but retained pending rehabilitation cases as of June 30, 2000 within SEC jurisdiction; ASB Realty’s petition was filed May 2, 2000 and remained pending as of June 30, 2000.

Presbitero J. Velasco, Jr. (Acting Chairperson), Teresita J. Leonardo-De Castro, Lucas P. Bersamin, and Jose Portugal Perez concurred. No separate concurring opinions are summarized in the text.