Case Summary (G.R. No. 177382)
Key Dates
• October 4, 2005 – Viva files Petition for Corporate Rehabilitation with RTC, Lucena City
• October 17, 2005 – Viva files Amended Petition
• October 19, 2005 – RTC issues stay order and appoints Judge Mendoza as rehabilitation receiver
• October 30, 2006 – RTC lifts stay, dismisses Amended Petition for infeasibility and noncompliance
• January 5, 2007 – Court of Appeals dismisses Viva’s Rule 43 Petition for Review on procedural grounds
• March 30, 2007 – CA denies Viva’s motion for reconsideration
• February 17, 2016 – Supreme Court denies petition for certiorari
Applicable Law
• 1987 Philippine Constitution (due process, equity jurisdiction)
• Interim Rules of Procedure on Corporate Rehabilitation (A.M. No. 00-8-10-SC)
• Rule 43, Rules of Court (mode and requirements for petition for review)
• Presidential Decree No. 902-A (corporate suspension of payments)
• Securities Regulation Code (jurisdiction transfer to RTC)
• Financial Rehabilitation and Insolvency Act of 2010 (not yet effective for this case)
Procedural History
Viva’s initial petition was denied for noncompliance with Interim Rule 4 filing requirements. After filing an Amended Petition alleging certain vessels, real properties, and debts, the RTC found form and substance sufficient, issued a stay of claims, and appointed a rehabilitation receiver. Creditors and other stakeholders filed oppositions and comments. Viva failed to produce documents and a memorandum as ordered. The receiver resigned; subsequent nominations ensued. Former employees and other creditors lodged claims. On October 30, 2006, the RTC lifted the stay and dismissed the Amended Petition for lack of viability and feasibility. Viva appealed by filing a Rule 43 Petition for Review in the Court of Appeals but did not implead or properly serve its creditors. The CA dismissed the appeal on January 5, 2007, upheld on reconsideration. Viva then filed a certiorari petition to the Supreme Court.
Issues on Appeal
- Whether the Court of Appeals erred in dismissing Viva’s Petition for Review on procedural grounds under Rule 43.
- Whether Viva was denied substantial justice by the CA’s refusal to give due course to its petition.
Legal Framework for Corporate Rehabilitation
Corporate rehabilitation aims to restore an insolvent debtor to solvency and continued operation under court supervision, balancing rehabilitative and equitable objectives: preserving asset value, ensuring creditor recovery, and maintaining commercial stability. If rehabilitation is not economically feasible, liquidation is appropriate. Interim Rules under PD 902-A and Rule 43 govern procedure in this transitional period before FRIA’s enactment.
Mode of Appeal under Rule 43
Rule 43 mandates a verified petition for review, seven copies, proof of service on all adverse parties and the court below, and strict compliance with content and service requirements. Noncompliance with service, impleading indispensable parties, or docket obligations warrants dismissal under Section 7.
Liberal Construction and Equity Jurisdiction
While procedural rules are liberally construed to secure just and expeditious disposition, liberality is an exception requiring clear factual basis and absence of negligence or design. Courts may invoke equity only to remedy unforeseen procedural gaps, not to override due process or impair creditor rights.
Fundamental Procedural Defects
• Failure to implead creditors as indispensable respondents deprived them of notice and the opportunity to comment, violating due process.
• Failure to serve former employees who had registered claims further truncated their participation.
• Failure to serve the RTC with a copy of the petition below breached Rule 43’s proof-of-service requirement.
These lapses are incurable by mere belated service or informal n
Case Syllabus (G.R. No. 177382)
Facts of the Case
- Viva Shipping Lines, Inc. filed a Petition for Corporate Rehabilitation on October 4, 2005 before the Regional Trial Court (RTC) of Lucena City.
- RTC initially denied the petition for failure to comply with Rule 4, Sections 2 and 3 of the Interim Rules of Procedure on Corporate Rehabilitation.
- Viva Shipping filed an Amended Petition on October 17, 2005 claiming ownership of 19 vessels and a downtown mall; alleged total assets at ₱45,172,790.00.
- Attached Property Inventory List showed only two vessels (M/V Viva Penafrancia V and M/V Marian Queen) and assessed assets at ₱447,860,000.00, of which only ₱147,630,000.00 were free from encumbrances.
- Viva Shipping’s declared creditors and debts in the Amended Petition:
• Metropolitan Bank & Trust Company: secured loan of ₱176,428,745.50
• Keppel Philippines Marine, Inc.: vessel repair charges ₱9,000,000.00+
• Province of Quezon & cities of Lucena and Batangas: realty taxes ₱35,000,000.00+
• Total: ₱220,428,745.50+ - Cited causes of insolvency: peso devaluation, increased competition, mismanagement, and aging, unserviceable vessels.
- Proposed rehabilitation plan: sale of old vessels and sister-company lots; conversion of mall to hotel; acquisition of new vessels; re-operation of an oil mill.
- Initial rehabilitator nominees: Armando F. Ragudo and Atty. Calixto Ferdinand B. Dauz III; later, Former Judge Jose F. Mendoza.
Procedural History
- October 19, 2005: RTC found Amended Petition sufficient in form and substance; issued stay order and appointed Judge Mendoza as receiver.
- Multiple creditors and stakeholders (Metrobank, Keppel, Pilipinas Shell, City of Batangas, former employees, SEC) filed comments and oppositions.
- March 24, 2006: Judge Mendoza withdrew; Viva nominated Atty. Antonio Acyatan; Metrobank nominated Atty. Rosario S. Bernaldo; Keppel adopted Bernaldo.
- April 4, 2006: Metrobank’s motion to produce documents granted; Viva Shipping failed to comply and to submit a memorandum.
- September 27, 2006: Former employees Alejandro Olit, et al. filed their comment, citing pending labor complaints.
- October 30, 2006: RTC lifted the stay and dismissed the Amended Petition for failure to prove company viability and rehabilitation feasibility; summarized creditors’ claims and free assets; noted assets were non-performing and no consent for sister-company property sale.
- November 21, 2006: Viva Shipping filed a Petition for Review under Rule 43 before the Court of Appeals (CA), impleading only the RTC judge and serving some but not all creditors.
- January 5, 2007: CA dismissed the petition for failure to implead creditors, citing Rule 43 non-compliance.
- March 30, 2007: CA denied Viva’s motion for reconsideration.
- Viva filed a Petition for Review on Certiorari to the Supreme Court; respondents (creditors, local treasurers, former employees) filed comme