SILAHIS INTERNATIONAL HOTEL, INCORPORATED, PETITIONER, VS. CYRILA G. GUZMAN, THE REGIONAL TRIAL COURT OF BAGUIO CITY, BRANCH 60, AND DELFIN E. ARIAGA, IN HIS CAPACITY AS SHERIFF…

Silahis International Hotel versus Guzman

The Case

This is a petition for certiorari filed by Silahis International Hotel, Incorporated against Cyrila G. Guzman, the Regional Trial Court of Baguio City, Branch 60, and its sheriff. The hotel asks the Supreme Court to annul the trial court's orders granting a writ of execution and refusing to suspend proceedings in a collection suit, despite a stay order issued by a rehabilitation court. The case matters because it settles the reach of a corporate rehabilitation stay order: whether it halts execution against a debtor even when a creditor was omitted from the debtor's schedule of debts and liabilities.

Procedural History

Cyrila G. Guzman sued the hotel and one Doods C. Mangente for collection of a sum of money with damages before the Regional Trial Court of Baguio City, Branch 60. On March 4, 2004, the trial court rendered judgment ordering the hotel to pay various sums. The hotel appealed to the Court of Appeals, but the appeal was dismissed on December 22, 2004 for failure to file its brief within the reglementary period.

Meanwhile, the hotel filed a petition for rehabilitation and suspension of payments before the Regional Trial Court of Manila, Branch 24, which issued a stay order on October 18, 2004. After the appeal was dismissed, the hotel moved to suspend proceedings before the Baguio trial court, invoking the stay order. The trial court granted the writ of execution on October 4, 2005, and later denied the motion to suspend as moot and academic, then denied reconsideration on January 27, 2006. The hotel then filed this petition for certiorari before the Supreme Court.

Facts

Guzman, doing business as Guzman Fruits and Vegetable Dealer, sold vegetables to the hotel. The hotel paid part of the price, leaving an unpaid balance. Guzman sued for collection, and the trial court found the hotel liable for the outstanding balance plus interest, compensatory damages, moral damages, exemplary damages, and attorney's fees.

The hotel appealed, but its appeal was dismissed for failure to file its brief. In the meantime, the hotel filed a petition for rehabilitation and suspension of payments before the Manila court, which issued a stay order directing the staying of enforcement of all claims against the debtor. The hotel then sought to suspend the Baguio collection case, but the trial court refused, reasoning that the hotel had failed to show that Guzman was listed as a creditor, that the Manila court was duly designated to hear rehabilitation cases, and that certain provisions of the Interim Rules applied.

The rehabilitation court eventually approved the hotel's rehabilitation plan on December 1, 2005. The trial court nonetheless maintained its refusal to suspend, prompting the hotel to elevate the matter to the Supreme Court.

Issues

• Whether or not the trial court committed grave abuse of discretion in denying the motion to suspend proceedings and in issuing the writ of execution despite the pendency of the rehabilitation proceeding.
• Whether or not the omission of a creditor from the schedule of debts and liabilities justifies denying the motion to suspend.

Applicable Provisions

Section 24 of the Interim Rules of Procedure on Corporate Rehabilitation provides:

Section 24. Effects of the Rehabilitation Plan. The approval of the rehabilitation plan by the court shall result in the following: The plan and its provisions shall be binding upon the debtor and all persons who may be affected by it, including the creditors, whether or not such persons have participated in the proceedings or opposed the plan or whether or not their claims have been scheduled.

This provision bears on the case because it shows that all creditors, whether or not listed, are bound by the rehabilitation plan and the stay order.

Section 3, paragraph n, of Rule 131 of the Revised Rules of Court provides:

A court or judge acting as such, whether in the Philippines or elsewhere, was acting in the lawful exercise of jurisdiction and has regularly performed its official duty.

This presumption bears on the case because it supports the regularity of the rehabilitation court's issuance of the stay order.

Ruling

On the first issue, the Court held that there was merit in the petition. Rehabilitation contemplates a continuance of corporate life to restore the corporation to solvency. Under the Interim Rules, a petition for rehabilitation may be filed by a debtor who foresees inability to meet its debts, and if the petition is sufficient in form and substance, the rehabilitation court issues a stay order staying enforcement of all claims against the debtor. The stay order is effective from issuance until dismissal of the petition or termination of proceedings. The Court stressed that all assets of a corporation under rehabilitation receivership are held in trust for the equal benefit of all creditors, so that no creditor obtains an advantage over another. The Court concluded that the trial court committed grave abuse of discretion in denying the motion to suspend.

On the second issue, the Court held that the hotel's failure to include Guzman in the list of creditors furnished no reason to deny the motion to suspend. Under Section 24, all creditors, whether or not their claims have been scheduled, are bound by the rehabilitation plan and the stay order. Guzman need only file the necessary motion for inclusion in the list of creditors before the rehabilitation court. The Court also rejected the challenge to the rehabilitation court's jurisdiction, invoking the presumption that a court acted in the lawful exercise of jurisdiction.

Doctrine

A stay order issued by a rehabilitation court stays the enforcement of all claims against the debtor, and it binds all creditors whether or not they were included in the schedule of debts and liabilities. A creditor omitted from the list is not left without remedy; the creditor may move for inclusion in the list before the rehabilitation court. All assets of a corporation under rehabilitation receivership are held in trust for the equal benefit of all creditors, and no creditor may obtain preference over another through execution or otherwise.

Disposition

The petition was granted; the trial court's order granting the writ of execution and its order denying reconsideration were vacated and set aside, without costs.

Remember This

The single line worth memorizing: a rehabilitation stay order binds all creditors, whether or not their claims were scheduled, and the remedy of an omitted creditor is to seek inclusion before the rehabilitation court. Examiners like to use this case to test the effects of a stay order and the equal-footing principle among creditors in corporate rehabilitation.