G.R. No. 168616 - Home Guaranty Corp. vs. La Savoie Development Corp.

Case Summary (G.R. No. 168616)

Petitioner, Respondent and Reliefs Sought

Home Guaranty Corporation petitioned for review on certiorari from the Court of Appeals decision that reinstated an RTC stay order and gave due course to La Savoie’s petition for corporate rehabilitation. Alternatively, HGC sought exclusion of certain properties (the “Asset Pool”) from La Savoie’s rehabilitation plan on the ground that HGC obtained ownership of those properties following its payment on the guaranty for redemption of LSDC holders.

Key Dates

La Savoie incorporated April 2, 1990. La Savoie filed its petition for declaration of suspension of payments with approval of proposed rehabilitation plan on April 25, 2003. RTC issued Stay Order June 4, 2003. RTC denied due course to the petition and lifted the Stay Order October 1, 2003. La Savoie appealed to the Court of Appeals and the CA reinstated the Stay Order and gave due course to the petition by Decision dated June 21, 2005. The present petition to the Supreme Court was filed August 12, 2005. (1987 Constitution governs analysis, as the decision postdates 1990.)

Applicable Law and Rules

Procedural and substantive framework invoked in the decision: the Interim Rules of Procedure on Corporate Rehabilitation (A.M. No. 00-8-10-SC, 2000) in force at the time; Rule 4 (contents of petition) and Rule 4, Sec. 6 (Stay Order) of the Interim Rules; Rule 3, Sec. 5 (executory nature of orders) of the Interim Rules; Civil Code provisions on pactum commissorium and subrogation (Arts. 2067, 2088, 2137) and provisions recognizing constructive trusts (Arts. 1450, 1454, 1455, 1456); Contract of Guaranty and Trust Agreement among La Savoie, Planters Development Bank (trustee), and HGC; and later statutory developments (FRIA and Financial Rehabilitation Rules) cited for context.

Factual Background — Asset Pool, LSDCs, Guaranty and Alleged Default

La Savoie conveyed certain project properties in trust to Planters Development Bank to form the La Savoie Asset Pool, intended to back LSDC asset participation certificates sold to investors. HGC issued a guaranty (Contract of Guaranty) for LSDCs and was designated financial controller under the Trust Agreement. La Savoie allegedly collected sales proceeds (approximately P60,569,134.30) from buyers of properties within the Asset Pool but failed to remit them to the trust; the Asset Pool thus defaulted in the redemption and interest payments on LSDCs, prompting investors to call on HGC’s guaranty.

Petition for Rehabilitation and RTC Stay Order

La Savoie filed a petition for suspension of payments with a proposed rehabilitation plan. After initial compliance with documentary requirements, the RTC found the petition sufficient in form and substance and issued a Stay Order dated June 4, 2003. The Stay Order stayed enforcement of all claims against La Savoie, prohibited disposition of assets except in the ordinary course of business, prohibited payments of liabilities outstanding as of the petition date, appointed a rehabilitation receiver and directed publication and submission of creditor objections.

Opposition by HGC and La Savoie’s Response

HGC, although not then a creditor, opposed the petition asserting material and beneficial interests arising from the Trust Agreement and Contract of Guaranty. HGC claimed preferential rights over the Asset Pool properties and sought their exclusion from rehabilitation. La Savoie countered that the asset assignment to the Asset Pool was conditional and that the properties remained its assets until HGC paid LSDC holders.

RTC Dismissal of Petition and Subsequent Appellate Proceedings

The rehabilitation receiver’s verification report identified alleged inaccuracies and missing supporting documents in La Savoie’s petition. On October 1, 2003, the RTC denied due course to the petition and lifted the Stay Order, concluding the petition contained flawed, inaccurate or unverifiable material allegations. La Savoie appealed to the Court of Appeals. In the interim, HGC processed the guaranty call and, through Planters Development Bank, paid certificate holders P128.5 million; Planters executed a Deed of Assignment and Conveyance transferring the Asset Pool to HGC. The Court of Appeals, however, reversed the RTC on June 21, 2005, characterizing the petition’s inaccuracies as minor, reinstated the Stay Order, gave due course to the petition, and remanded for further proceedings.

Issues Presented to the Supreme Court

The Court distilled the central issues: (1) whether HGC was barred from making payment on the guaranty call and whether Planters was barred from conveying the Asset Pool after the RTC’s October 1, 2003 Order and pending appeal; (2) whether HGC’s payment and the conveyance made HGC a creditor of La Savoie and whether recognizing the transfer amounted to an impermissible preference among creditors; and (3) procedural issues whether Atty. Danilo C. Javier was authorized to sign HGC’s pleadings and whether HGC engaged in forum shopping.

Authorization to Sign Pleadings

The Supreme Court found that Atty. Danilo C. Javier was authorized to sign HGC’s verification and certification of non-forum shopping. Board Resolution No. 30, Series of 2001, delegated authority to the HGC President to designate officers to institute legal actions and to verify pleadings; Javier, as Officer-in-Charge and VP for Legal, thus had authority under that corporate resolution.

Forum Shopping Determination

HGC had filed a separate civil action (Civil Case No. 05314) seeking remittance of funds and injunctive relief against La Savoie. The Court applied established tests for forum shopping—elements of litis pendentia and identity of parties, rights, causes of action, and reliefs—and concluded that, although the specific remedies differed, both proceedings were rooted in the same core claim of HGC’s asserted ownership of the Asset Pool properties. Filing both actions constituted forum shopping because the same right (asserted ownership) and cause of action were pursued in two fora. The Court emphasized that the forum-shopping violation derived from HGC’s filing of the separate civil action, not from the appellate proceedings that were offshoots of the rehabilitation petition.

Effect of the RTC October 1, 2003 Order and Executory Nature of Rehabilitation Orders

The Court analyzed Rule 3, Sec. 5 of the Interim Rules, which declares orders in rehabilitation proceedings immediately executory and provides that an appeal does not stay execution unless the appellate court orders otherwise. The Court held that the RTC’s October 1, 2003 Order dismissing the petition and lifting the Stay Order was immediately executory; La Savoie’s appeal did not restrain its operation because the Court of Appeals did not issue an injunction or restraining order. Consequently, the lifting of the Stay Order remained effective in the interim, thereby freeing creditors and guarantors to enforce or satisfy claims pending appellate review.

Validity of HGC’s Payment and Planters’ Conveyance in Light of the Stay Lifting

Because the RTC’s lifting of the Stay Order became immediately executory and was not restrained, the Court determined HGC was capacitated to process and effect payment on the guaranty and Planters Development Bank was capacitated to execute the Deed of Assignment and Conveyance in favor of HGC, pursuant to Sections 12–13 of the Contract of Guaranty and Section 3.4 of the Trust Agreement, provided contractual conditions for such conveyance were satisfied.

Pactum Commissorium and Invalidity of Automatic Transfer Provision

Despite the contractual mechanisms authorizing transfer of the Asset Pool to the guarantor upon payment, the Court held that Sections 13.1–13.2 of the Contract of Guaranty effectively allowed automatic appropriation of the security by the paying guarantor without foreclosure. Such sti

Case Syllabus (G.R. No. 168616)

Procedural Posture and Relief Sought

Petition for Review on Certiorari under Rule 45 seeking reversal of the Court of Appeals Decision dated June 21, 2005 (CA G.R. CV No. 80241) which: reversed the Regional Trial Court (RTC) Order of October 1, 2003; reinstated the June 4, 2003 Stay Order; gave due course to La Savoie's Petition for Corporate Rehabilitation; and remanded the case to the RTC for further proceedings.
In the alternative, petitioner Home Guaranty Corporation (HGC) prayed that certain properties allegedly conveyed by respondent La Savoie Development Corporation (La Savoie) to HGC be excluded from La Savoie's rehabilitation plan should the Petition for Corporate Rehabilitation be given due course.
The present Petition to the Supreme Court complains of the Court of Appeals' reinstatement of the Stay Order and recognition of La Savoie's rehabilitation proceedings and seeks recognition of the Deed of Assignment and Conveyance executed in favor of HGC.

Parties, Corporate Identity and Background Facts

Petitioner: Home Guaranty Corporation (formerly Home Insurance and Guaranty Corporation, renamed as per R.A. No. 8763); described as guarantor and financial controller under certain agreements.
Respondent: La Savoie Development Corporation (incorporated April 2, 1990); engaged in real estate development, subdivision and brokering.
La Savoie faced financial difficulty after the 1997 Asian financial crisis and other causes (peso devaluation, lack of working capital, high interest and penalties, low demand, security issues) and filed a petition for declaration of suspension of payments with approval of proposed rehabilitation plan on April 25, 2003 before the RTC, Makati City, under the Interim Rules of Procedure on Corporate Rehabilitation (Interim Rules).

Initial RTC Proceedings and June 4, 2003 Stay Order

La Savoie's initial petition proceedings were held in abeyance for lack of certain Rule 4, Section 2 requirements; upon compliance and a finding that the petition was “sufficient in form and substance,” then-RTC Judge Estela Perlas-Bernabe issued the Stay Order dated June 4, 2003.
The June 4, 2003 Stay Order (full text supplied in record) included:
- Finding sufficiency of petition form and substance.
- Staying enforcement of all claims, monetary or otherwise, and whether in court or otherwise, against La Savoie, its guarantors and sureties not solidarily liable with it.
- Prohibiting petitioner from selling, encumbering, transferring, or disposing of properties except in the ordinary course of business; prohibiting payments of liabilities outstanding as of April 25, 2003.
- Direction that suppliers not withhold goods/services in ordinary course as long as payments are made for post-stay supplies; petitioner to pay administrative expenses incurred after issuance.
- Appointment of Rito C. Manzana as Rehabilitation Receiver, bond fixed at P100,000 and duties to be performed after oath and bond.
- Notice, publication and initial hearing schedule and procedural directives to creditors and interested parties to file verified comments/oppositions.

Creditors’ Responses and HGC’s Opposition

Creditors (Planters Development Bank, Philippine Veterans Bank, Robinsons Savings Bank) filed Comments/Oppositions; HGC filed an Opposition despite acknowledging it was “not a creditor of Petitioner.”
HGC asserted material and beneficial interest relative to the interests of PVB, PDB, and LBP vis-à-vis properties that might be taken cognizance of or placed under custody of the Court or Rehabilitation Receiver.
HGC invoked its role under the La Savoie Asset Pool Formation and Trust Agreement and the Contract of Guaranty with Planters Development Bank and La Savoie to explain its claimed rights and duties.

Trust Agreement, LSDC Certificates, Asset Pool and HGC’s Role

The Trust Agreement provided that La Savoie conveyed certain project real properties into an Asset Pool (La Savoie Asset Pool) to back the issuance of La Savoie Development Certificates (LSDCs) issued nominally by Planters Development Bank as trustee/nominal issuer.
The projects financed included properties in General Trias, Cavite; Sto. Tomas, Batangas; Los Baños, Laguna; and Quezon City; properties were conveyed in trust by La Savoie to Planters Development Bank to form the Asset Pool.
LSDCs were backed/collateralized by the assets in the Asset Pool; Planters Development Bank was the nominal issuer and expressly not liable for payment to LSDC holders (Section 4.5).
HGC guaranteed the LSDCs by a Contract of Guaranty and was designated in Section 17 of the Contract to “undertake financial controllerships of the Projects” and to ensure funds due to the Asset Pool were collected and disbursed for intended purposes.
La Savoie reportedly collected P60,569,134.30 from buyers of Asset Pool properties but allegedly did not remit these collections to the Trust, contributing to defaults in redemption and interest payments on LSDCs and leading to a call on HGC’s guaranty.

La Savoie’s Answer, RTC Verification and RTC October 1, 2003 Order

La Savoie filed a Consolidated Answer arguing the assignment to the Asset Pool was not absolute and conditioned upon HGC first paying LSDC holders, thus asserting the properties remained La Savoie’s assets.
A Verification Report on Accuracy of Petition was filed by the Rehabilitation Receiver.
On October 1, 2003, the RTC denied due course to La Savoie’s Petition for Rehabilitation and lifted the June 4, 2003 Stay Order, reasoning:
- Sufficiency finding had been flawed, with “various inaccuracies in the material allegations of the petition and its annexes” per the Receiver’s Report.
- La Savoie allegedly failed to present concrete and feasible plans to secure additional funds for project development.
- Because of inaccuracies, the Court could not countenance a petition based on inaccurate/unverifiable allegations or false representations.

Appeal and Court of Appeals Decision (June 21, 2005)

La Savoie appealed to the Court of Appeals and filed its Appellant’s Brief on May 5, 2004; HGC filed its Appellee’s Brief on August 18, 2004 and attached the Deed of Assignment and Conveyance executed by Planters Development Bank conveying the Asset Pool to HGC.
The Court of Appeals (Special Twelfth Division) in its Decision dated June 21, 2005:
- Reversed and set aside the RTC October 1, 2003 Order;
- Reinstated the June 4, 2003 Stay Order;
- Gave due course to La Savoie’s Petition for Rehabilitation; and
- Remanded the case to the RTC for further proceedings.
The Court of Appeals characterized RTC-noted inaccuracies as “minor” and “trivial,” insufficient to render La Savoie’s allegations false, and found La Savoie showed feasible marketing and financing options to support rehabilitation.
The Court of Appeals held that HGC’s payment on the guaranty call was made after the filing of the Petition for Rehabilitation and after issuance of the Stay Order; thus it had no right to make such payment.

HGC’s Payment, Deed of Assignment and Timing Issue

Between La Savoie’s filing of its Appellant’s Brief and HGC’s filing of its Appellee’s Brief, HGC “approved and processed the call on the guaranty” and, through Planters Development Bank, paid P128.5 million as redemption value to LSDC certificate holders.
Following payment, Planters Development Bank executed a Deed of Assignment and Conveyance purporting to absolutely convey and assign ownership and possession of the entire Asset Pool to HGC and the right to collect La Savoie’s cash receivables that had not been remitted to the Trust.
La Savoie countered that the conveyance was ineffectual because: (a) the June 4, 2003 Stay Order was in effect at the time of the guaranty call; (b) the Asset Pool remained within the jurisdiction of the RTC; (c) HGC’s payment made it a creditor and excluding the Asset Pool would unfairly prefer one creditor over others; and