Kaizen Builders vs. Apostol

[ G.R. No.
226894, September 03, 2020 ]
KAIZEN BUILDERS, INC. (FORMERLY KNOWN AS MEGALOPOLIS

PROPERTIES, INC.) AND CECILLE F. APOSTOL, VS. COURT OF APPEALS AND
THE HEIRS OF OFELIA URSAIS.
FACTS:
In 2004, Ofelia Ursais purchased from Kaizen Builders, Inc. (formerly Megalopolis
Properties, Inc.) a house and lot situated in White Pine Street, Camp 7, Baguio City. In
2007, the parties executed a contract to sell where Kaizen Builders bought back from
Ofelia the property for P2,700,000.00 and swapped it with another house and lot in
Kingstone Ville, Camp 1, Baguio City. They deducted from the price the P300,000.00
unpaid balance of Ofelia in White Pine property and the P2,200,000.00 value of Kingstone
Ville property. The remaining P200,000.00 shall be paid in cash. Later, the parties replaced
the contract to sell with another agreement where Ofelia invested the P2,200,000.00 in
Kaizen Builders' development of the Kingstone Ville project. In 2008, however, the parties
rescinded the investment agreement where Ofelia received P320,000.00 from Kaizen
Builders. The parties then stipulated that the amount of P380,000.00 will be paid on
installment basis while the remaining P1,500,000.00 shall bear an interest of 1.5% or
P22,500.00 per month.
Despite repeated demands, Kaizen Builders stopped remitting the monthly interest
beginning November 2009 and refused to deliver the P380,000.00. In 2011, Ofelia filed
against Kaizen Builders and its CEO Cecille F. Apostol (Cecille) a complaint for sum of
money before the RTC. The RTC in its Decision ordered Kaizen Builders and Cecille
solidarity liable to pay Ofelia. Meantime, Ofelia died and was substituted by her heirs.
Aggrieved, Kaizen Builders and Cecille elevated the case to the CA. Meantime, Kaizen
Builders filed before the special commercial court a petition for corporate rehabilitation
which in turn issued a Commencement Order consolidating all legal proceedings by and
against Kaizen Builders and suspended all actions for the enforcement of claims against
it. Accordingly, Kaizen Builders and Cecille moved to consolidate the appealed case with
the rehabilitation proceedings. On December 8, 2015, however, the CA denied the motion
and affirmed the Decision of the RTC with some modifications.
ISSUE:
WON the CA erred in holding Kaizen Builders and Cecille liable to pay Ofelia’s heirs.
RULING:
YES. The CA erred in holding Kaizen Builders and Cecille liable to pay Ofelia’s heirs.
Republic Act No. 10142 or the Financial Rehabilitation and Insolvency Act of 2010
statutorily defined "rehabilitation" as the restoration of the debtor to a condition of
successful operation and solvency, if it is shown that its continuance of operation is
economically feasible and its creditors can recover by way of the present value of
payments projected in the plan, more if the debtor continues as a going concern than if it
is immediately liquidated. Case law explains that rehabilitation is an attempt to conserve
and administer the assets of an insolvent corporation in the hope of its eventual return
from financial stress to solvency. A corporate rehabilitation case is a special proceeding
in rem where the basic issues concern the viability and desirability of continuing the
business operations of the distressed corporation. The purpose is to enable the company
to gain a new lease on life and allow its creditors to be paid their claims out of its earnings.
The rationale is to resuscitate businesses in financial distress because assets are often
more valuable when so maintained than they would be when liquidated.
To achieve these objectives, Sections 16 and 17 of RA No. 10142 authorizes the

rehabilitation court to issue a Commencement Order that includes a Stay Order, which
have the effects of suspending all actions for the enforcement of claims against the debtor
and consolidating the resolution of all legal proceedings by and against it.
Here, the Commencement Order ipso jure suspended the proceedings in the CA at
whatever stage it may be, considering that the appeal emanated from a money claim
against a distressed corporation which is deemed stayed pending the rehabilitation case.
Moreover, the appeal before the CA is not one of the instances where a suspension order
is inapplicable. The CA should have abstained from resolving the appeal. Taken together,
the CA clearly defied the effects of a Commencement Order and disregarded the state
policy to encourage debtors and their creditors to collectively and realistically resolve
and adjust competing claims and property rights.
POINTS TO REMEMBER:
• "Rehabilitation" is defined as the restoration of the debtor to a condition of

successful operation and solvency, if it is shown that its continuance of operation
is economically feasible and its creditors can recover by way of the present value
of payments projected in the plan, more if the debtor continues as a going concern
than if it is immediately liquidated. That it is an attempt to conserve and
administer the assets of an insolvent corporation in the hope of its eventual return
from financial stress to solvency. A corporate rehabilitation case is a special
proceeding in rem where the basic issues concern the viability and desirability of
continuing the business operations of the distressed corporation. The purpose is
to enable the company to gain a new lease on life and allow its creditors to be paid
their claims out of its earnings. The rationale is to resuscitate businesses in
financial distress because assets are often more valuable when so maintained than
they would be when liquidated. When a rehabilitation court issues a
Commencement Order that includes a Stay Order, it will have the effect of
suspending all actions for the enforcement of claims against the debtor and
consolidating the resolution of all legal proceedings by and against it.

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[ G.R. No.

226894, September 03, 2020 ]

KAIZEN BUILDERS, INC. (FORMERLY KNOWN AS MEGALOPOLIS

To achieve these objectives, Sections 16 and 17 of RA No. 10142 authorizes the

• "Rehabilitation" is defined as the restoration of the debtor to a condition of

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