14 January, 2016
Legal System
The Philippine legal system is a blend of the Roman civil law and the Anglo-American common-law systems.
The civil law system operates in the areas of family relations, property, succession, contracts and criminal law while statutes and principles of common-law origin are evident in such fields as constitutional law, procedure, corporation law, negotiable instruments, taxation, insurance, labor relations and banking laws. Islamic personal law is recognized and operative in some parts of Mindanao with the establishment of Shari’ah courts and the Shari’ah Bar.
The main sources of Philippine law are the Constitution, statutes, treaties and conventions, and judicial decisions. The Constitution is the fundamental law of the land and as such, it is authority of the highest order against which no law can prevail. Every official action to be valid must conform to it. On the other hand, statutes are enactments passed by the Philippine legislature. Statutes also include presidential decrees issued during the martial law period, and executive orders issued by the president under the 1986 Provision “Freedom” Constitution.
Having the same force of authority as legislative enactments are treaties entered into by the Philippines with other states. Philippine law is also derived from case decisions because the Civil Code provides that “judicial decisions applying or interpreting the laws or the Constitution shall form part of the legal system of the Philippines.” Only decisions of the Supreme Court, however, establish jurisprudence and are binding on all other courts.
The judicial system of the Philippines consists of a hierarchy of courts with the Supreme Court at the apex. The Congress has the power to define, prescribe and apportion the jurisdiction of the various courts but may not deprive the Supreme Court of its jurisdiction over certain cases granted in the Constitution.
There is no trial by jury in the Philippines. The judge determines all questions of law and fact of a case brought before him. The Rules of Court govern the pleading, practice and procedure before the courts.
Courts
Regular Courts First-Level Courts
At the first level are the metropolitan trial courts, the municipal trial courts in cities or municipalities, and municipal circuit trial courts. Metropolitan trial courts are stationed by law in the cities and municipalities making up the metropolitan areas such as Metro Manila, Cebu and Davao. In cities outside the metropolitan areas, courts of the first level are called municipal trial courts. There is a municipal trial court in every municipality, and a municipal circuit trial court presides over two or more municipalities grouped into a circuit.
Courts of the first level are essentially trial courts. They try and decide only cases specified by law. These courts have jurisdiction over cases of ejectment, recovery of personal property with a value of not more than PHP300,000 (or PHP400,000 in Metro Manila), exclusive of interest, damages of whatever kind, attorney’s fees, litigation expenses and costs, the amount of which must be specifically alleged. These courts also have delegated jurisdiction over cadastral or land registration cases covering lots where there is no controversy or opposition, or contested lots where the value does not exceed PHP100,000.
First-level trial courts have also been given jurisdiction over small claims cases, which are defined as actions for payment of money where the value of the claim does not exceed one hundred thousand pesos (PHP100,000), exclusive of interest and costs. The action is commenced by filing a statement of claims, in a standard form issued by the Supreme Court, together with supporting affidavits and documents. No formal pleading is necessary. The defendant, once summoned, is required to file a response within 10 days from receipt of the summons. The parties must appear personally, and lawyers are not allowed to appear unless they are the plaintiffs or defendants. At the hearing, the judge is required to exert efforts to bring the parties to an amicable settlement. If such efforts fail, the judge shall proceed to hear the case and issue a decision on the same day as the hearing. The decision is final and unappealable.
Second-Level Courts
At the second level are Regional Trial Courts. The Philippines is divided into 13 regions and in each region there is a Regional Trial Court that may have one or more branches.
Like the first-level courts, Regional Trial Courts are trial courts. They are courts of general jurisdiction. They try and decide not only the particular classes or kinds of cases assigned to them by law, but also those which are not otherwise within the exclusive jurisdiction of courts of the first level or any other tribunal.
Regional Trial Courts also exercise appellate jurisdiction over decisions rendered by the first-level courts.
Regional Trial Courts have jurisdiction over cases the subject matter of which is incapable of pecuniary estimation, or those involving title to or possession of real property where the assessed value of the property exceeds PHP20,000 (or PHP50,000 in Metro Manila) except cases of ejectment; all actions in admiralty and maritime jurisdiction where the demand or claim exceeds PHP300,000 (or PHP400,000 in Metro Manila); and those where the demand, exclusive of interest, damages of whatever kind, attorney’s fees, litigation expenses, and costs, or the value of the personal property in controversy exceeds PHP300,000 (or PHP400,000 in Metro Manila).
Court of Appeals
At the third level is the Court of Appeals. It is essentially an appellate court. While it exercises exclusive original jurisdiction over actions for annulment of judgments of Regional Trial Courts, the Court of Appeals principally exercises exclusive appellate jurisdiction over all final judgments, decisions, resolutions, orders or awards of Regional Trial Courts and quasi-judicial agencies, instrumentalities, boards or commissions, except those falling within the appellate jurisdiction of the Supreme Court in accordance with the Constitution. The
Court of Appeals may review questions of fact or mixed questions of fact and law.
Appeal of decisions rendered by the Regional Trial Courts in the exercise of the latter’s original jurisdiction is a matter of right. But appeal of decisions rendered by the Regional Trial Courts in the exercise of appellate jurisdiction is a matter of discretion.
Supreme Court
The Supreme Court is the highest court of the land. It is the court of last resort, from whose judgment no appeal lies. It exercises appellate jurisdiction over cases decided by the Court of Appeals and the Regional Trial Courts. As a general rule, appeals to the Supreme Court are not a matter of right and only questions of law may be raised in such appeals. The only exception is found in criminal cases where the penalty of death, reclusion perpetua, or life imprisonment has been imposed by the lower courts. Such cases are subject to automatic review by the Supreme Court and both issues of fact and law may be raised.
Special Courts
Court of Tax Appeals
The Court of Tax Appeals is a special court created pursuant to Republic Act No. 1125, as amended by Republic Act No. 9282.
The Court of Tax Appeals exercises exclusive original jurisdiction over all criminal offenses arising from violations of the National Internal Revenue Code, the Tariff and Customs Code and other laws administered by the Bureau of Internal Revenue or the Bureau of Customs, where the principal amount of taxes and fees claimed, exclusive of charges and penalties, is at least PHP1,000,000. It also exercises original jurisdiction in cases involving final and executory assessments for taxes, fees, charges and penalties, where the principal amount of taxes and fees claimed, exclusive of charges and penalties, is at least PHP1,000,000. Cases involving criminal offenses under tax and customs laws and final and executory assessments, where the principal amount claimed is less than PHP1,000,000, shall be under the jurisdiction of the regular courts.
The Court of Tax Appeals exercises exclusive appellate jurisdiction, among others, over the following:
(a) decisions and inaction of the BIR Commissioner in cases involving disputed assessments, refunds of internal revenue taxes, fees or other charges, penalties in relation thereto, or other matters arising under the National Internal Revenue Code or other laws administered by the Bureau of Internal Revenue;
(b) decisions of the Commissioner of Customs in cases involving liability for customs duties, fees or other money charges, seizure, detention or release of property affected, fines, forfeitures or other penalties in relation thereto, or other matters arising under the Customs Law or other laws administered by the Bureau of Customs;
(c) appeals from the judgments, resolutions or orders of the Regional Trial Courts in tax collection cases originally decided by them, in their respective territorial jurisdiction; and
(d) petitions for review of the judgments, resolutions or orders of the Regional Trial Courts in the exercise of their appellate jurisdiction over tax collection cases originally decided by the Metropolitan
Trial Courts, Municipal Trial Courts and Municipal Circuit Trial Courts, in their respective jurisdiction.
Sandiganbayan
The Sandiganbayan is a special court that exercises jurisdiction over criminal and civil cases involving graft and corrupt practices and such other offenses committed by public officers and employees in relation to their office.
In particular, the Sandiganbayan exercises exclusive original jurisdiction in all cases, where one or more of the accused are public officers and employees classified as Grade “27” or higher under the Compensation and Position Classification Act of 1989, for
(a) violations of Republic Act No. 3019, as amended, otherwise known as the Anti-Graft and Corrupt Practices Act;
(b) Republic Act No. 1379 (or the law providing forfeiture of unlawfully acquired property by public officers in favor of the State);
(c) direct bribery, indirect bribery or corruption of public officials under Articles 210 to 212 of the Revised Penal Code; and
(d) other offenses or felonies committed by the public officials and employees in relation to their office.
The Sandiganbayan also exercises concurrent jurisdiction (with the Supreme Court, the Court of Appeals and the Regional Trial Court) over petitions for a writ of amparo and petitions for a writ of habeas data.
Legal Profession
Only persons duly admitted as a member of the bar, and who are in good and regular standing, are entitled to practice law. The 1987
Constitution grants the Supreme Court the power to promulgate rules concerning admission to the practice of law and the integrated bar.
Bar examinations are conducted annually by the Committee of Bar Examiners appointed by the Supreme Court. An applicant must obtain an average of 75 percent in all subjects, without falling below 50 percent in any subject. The clerk of the Supreme Court keeps a Roll of Attorneys admitted to practice.
The Integrated Bar of the Philippines (IBP) was created by the Supreme Court through a resolution in 1973, and was constituted into a corporate body by a presidential decree in the same year. Membership in the IBP is compulsory, and default in the payment of annual dues is a ground for removal of the name of the delinquent member from the Roll of Attorneys.
As part of its power to regulate the practice of law, the Supreme Court can discipline, suspend or disbar any unfit and unworthy member of the bar, reinstate any disbarred or suspended lawyer, punish for contempt any person for unauthorized practice of law, and in general exercise overall supervision of the legal profession.
Procedure for Claims
Commencement of Proceedings
An action is commenced by the filing of a complaint containing a statement of the plaintiff’s cause or causes of action. The complaint is required to contain a certification against forum shopping to the effect that the plaintiff has not commenced any action or filed any claim involving the same issue(s) in any court, tribunal or quasi-judicial agency and to the best of his knowledge, no such other action or claim is pending therein. Failure to comply with this requirement is a ground for dismissal of the case. The filing of the complaint must also be accompanied by the payment of the prescribed docket fee, otherwise the trial court will not acquire jurisdiction over the case.
Summons
Upon the filing of the complaint and the payment of the requisite legal fees, the clerk of court will issue the corresponding summons to the defendant, together with a copy of the complaint. Jurisdiction cannot be acquired over the defendant without a proper service of summons, unless the defendant voluntarily submits to the jurisdiction of the court.
When the defendant is a foreign private juridical entity which has transacted business in the Philippines, service may be made on its resident agent designated in accordance with law for that purpose, or, if there be no such agent, on the government official designated by law to that effect, or on any of its officers or agents within the Philippines.
If the foreign private juridical entity is not registered in the Philippines or has no resident agent, service may, with leave of court, be effected out of the Philippines through any of the following means:
(a) By personal service coursed through the appropriate court in the foreign country with the assistance of the Department of Foreign Affairs;
(b) By publication once in a newspaper of general circulation in the country where the defendant may be found and by serving a copy of the summons and the court order by registered mail at the last known address of the defendant;
(c) By facsimile or any recognized electronic means that could generate proof of service; or
(d) By such other means as the court may in its discretion direct.
Motion to Dismiss
Within 15 days from the service of summons, the defendant may file either an answer or motion to dismiss. A motion to dismiss may be filed based on one or more of the following grounds:
lack of jurisdiction over the person or the subject matter;
improper venue;
plaintiff’s lack of legal capacity to sue; •
prescription;
failure to state a cause of action; •
claim is unenforceable under the Statute of Frauds; and
non-compliance with a condition precedent for filing a claim.
Defenses or objections not pleaded in either a motion to dismiss or in the answer are deemed waived except for the following: (a) lack of jurisdiction over the subject matter; (b) litis pendentia; (c) res judicata; and (d) prescription of the action.
An order granting a motion to dismiss based on res judicata, prescription, statute of frauds, and payment, waiver, abandonment or extinction of the claim or demand shall bar the refiling of the same action or claim. If the motion to dismiss is denied, the movant shall file his answer within the balance of the period prescribed by the rules, but in no case less than five days.
pendency of another action between the parties for the same cause
(litis pendentia), or the cause of action is barred by a prior
judgment (res judicata);
claim or demand has been paid, waived, abandoned or otherwise
extinguished;
Answer
An answer is a pleading wherein a defending party sets forth his defenses. The defendant should, as a general rule, file his answer within 15 days after service of summons. The granting of additional time to the defendant within which to file an answer is a matter largely addressed to the sound discretion of the trial court.
If the defendant fails to file his answer within the reglementary period, the court may issue an order of default upon motion of the plaintiff. The court shall then proceed to render judgment as the pleading may warrant, unless the court in its discretion requires the claimant to submit evidence. A judgment rendered against a party in default shall not exceed the amount or be different in kind from that prayed for. The court may not award unliquidated damages.
The order of default may be set aside, upon motion filed by the party declared in default at any time after notice and before judgment, by a showing that the failure to answer was due to fraud, accident, mistake or excusable negligence and that the defaulting party has a meritorious defense.
Judgment on the Pleadings
Where an answer fails to tender an issue, or otherwise admits the material allegations of the adverse party’s pleading, the court may, on motion of that party, direct judgment on such pleading.
Summary Judgment
A summary judgment, upon motion of either party, is granted by the court for an expeditious settlement of the case if it appears from the pleadings, affidavits, depositions and admissions that there are no important questions or issues of fact involved and that the movant is entitled to a judgment as a matter of law. Summary judgment may be rendered upon the whole case or only on parts thereof where some facts appear to be without substantial controversy.
Pretrial
After the issues have been joined through the filing of the pleadings, the case is set for pretrial conference for the purpose of exploring all appropriate means that may aid in the early disposition of the case. Pretrial conference is mandatory. At least three days before the pretrial conference, the parties are required to file with the court and serve on the adverse party their respective pretrial briefs that must
contain the matters enumerated under the Rules of Court.
It is the duty of the parties and their counsel to appear at the pretrial conference. The failure of the plaintiff to appear at the pretrial conference shall be a cause for the dismissal of the action with prejudice, unless otherwise ordered by the court. A similar failure on the part of the defendant to appear shall be a cause to allow the plaintiff to present his evidence ex parte and the court to render judgment on the basis thereof.
Failure to file the pretrial brief shall have the same effect as failure to appear at the pretrial conference.
Discovery
It is the duty of each contending party to lay before the court all the material and relevant facts known to him, suppressing or concealing nothing, nor preventing another party from also presenting all the facts within his knowledge. As only the ultimate facts are set forth in pleadings, evidentiary matters may be inquired into and learned by the parties before the trial through the deposition-discovery mechanism.
Refusal to comply with an order for discovery may result in the following:
Refusal to allow the disobedient party to support or oppose
designated claims or defenses;
Prohibition on the disobedient party from introducing in evidence designated documents or things or items of testimony;
Striking out of pleadings or parts thereof;
Dismissal of the action; and
Rendition of a judgment by default against the disobedient party.
Despite the several provisions on discovery (e.g., depositions, interrogatories, request for admissions), the use of the same is still not prevalent in the Philippine legal system.
Demurrer to Evidence
After the plaintiff has completed the presentation of his evidence, the defendant may move for dismissal on grounds that upon the facts and the law the plaintiff has shown no right to relief. If his motion is denied, he shall have the right to present evidence. If the motion is granted but on appeal, the order of dismissal is reversed; he shall be deemed to have waived the right to present evidence.
Remedies Special Civil Actions Certiorari
The writ of certiorari may be availed of only if there is no appeal or any plain, speedy or adequate remedy in the ordinary course of law from the acts of the respondent. It is intended to correct a discretionary act performed without or in excess of jurisdiction, or with grave abuse of discretion amounting to lack or excess of jurisdiction. It will lie only against a respondent exercising judicial or quasi judicial function.
An original action for certiorari is an independent action and does not interrupt the course of the principal action nor the running of the reglementary periods involved in the proceedings. It is commenced through a verified petition, accompanied by a certified true copy of the judgment, order or resolution complained of, pertinent pleadings and documents, and a sworn certification of non-forum shopping.
Certiorari is not a remedy for errors of judgment, which are correctible by appeal. It is not a substitute for appeal, especially when the remedy was lost through the fault of the party. But before certiorari may be availed of, the petitioner must generally have filed a motion for reconsideration by the lower court of the act complained of.
Questions of fact cannot be raised in an original action for certiorari. Only established and admitted facts can be considered.
Prohibition
Prohibition is a preventive remedy. It is intended to prevent the commission or carrying out of a discretionary or ministerial act by a respondent who exercises either judicial or non-judicial, but not legislative, functions. Like in certiorari, respondent must have acted without or in excess of jurisdiction, or with grave abuse of discretion amounting to lack or excess of jurisdiction.
Generally, prohibition does not lie to restrain an act that is already fait accompli. To prevent respondent from performing the act sought to be prevented during the pendency of the proceedings for the writ, the petitioner should obtain a restraining order or a writ of preliminary injunction.
In order that prohibition will lie against an executive officer, the petitioner must first exhaust all administrative remedies, as prohibition is available only when there are no other plain, speedy and adequate remedies in the ordinary course of law. Prohibition is the remedy where a motion to dismiss is improperly denied.
The proceedings for issuance of the writ of prohibition is commenced through a verified petition, accompanied by a certified true copy of the judgment, order or resolution complained of, pertinent pleadings and documents, and a sworn certification of non-forum shopping.
Mandamus
Mandamus will lie to compel the performance of a ministerial, not discretionary, duty. Petitioner must show that he has a well-defined, clear and certain right to the grant thereof. It is available against respondents who exercise judicial and/or non-judicial functions.
The general rule is that in the performance of an official duty or act involving discretion, mandamus can only direct the official to act, but not to act one way or another. An exception to this is where there has been gross abuse of discretion, manifest injustice, or palpable excess of authority, in which case the respondent can be ordered to act in a particular manner.
In a special civil action for mandamus, the court has the power to award damages prayed for as an incident or the result of the respondent’s wrongful act in failing and refusing to do the act required to be done.
A petition for mandamus is premature if there are administrative remedies available to the petitioner. It is commenced by verified petition.
Petitions for certiorari, prohibition and mandamus may be filed not later than 60 days from notice of the order or resolution to be assailed, in the Supreme Court. Or, if the petitions relate to the acts or omissions of a lower court or a corporation, board, officer or person, they may be filed in the Regional Trial Court exercising jurisdiction over the territorial area. They may also be filed in the Court of Appeals whether or not the same is in aid of its appellate jurisdiction, or in the Sandiganbayan if it is in aid of its appellate jurisdiction. If the petitions involve the acts or omissions of a quasi-judicial agency, they shall be filed in the Court of Appeals.
Provisional Remedies
The following are the provisional remedies provided in the Rules of Court: preliminary attachment, preliminary injunction, receivership, replevin and support pendente lite.
Preliminary Attachment
A plaintiff or any proper party may, at the commencement of the action or at any time before entry of judgment, have the property of the adverse party attached as security for the satisfaction of any judgment that may be recovered in specific cases. A writ of preliminary attachment may be sought and issued ex parte. The only requisites for the issuance of the writ are the affidavit and bond of the applicant. The levy on attachment may not be made unless preceded or contemporaneously accompanied by service of summons together with a copy of the complaint, application for attachment, affidavit and bond of the applicant, and the writ of attachment, except in certain circumstances.
Preliminary Injunction
Injunction is a judicial writ, process or proceeding whereby a party is ordered to do or refrain from doing a particular act. It may be an action in itself, brought specifically to restrain or command the performance of an act, or it may just be a provisional remedy for and as an incident in the main action that may be for other reliefs. Its primary purpose is to preserve the status quo by restraining action or interference or by furnishing preventive relief.
Injunction may be preliminary or final. Preliminary injunction is an order granted at any stage of an action prior to judgment or final order. A final injunction is one issued in the judgment in the case permanently restraining the defendant or making the preliminary injunction permanent.
Injunction may also be classified as preventive or mandatory. A preventive injunction requires a person to refrain from doing a particular act, while a mandatory injunction requires the performance of a particular act.
A preliminary injunction may be granted by the judge of any court where the action is pending, or by a justice of the Court of Appeals, or of the Supreme Court if pending therein. The application must be verified, and must show facts entitling the applicant to the relief.
Unless exempted by the court, the applicant must file a bond executed to the party or person enjoined in an amount to be fixed by the court. Notice and hearing are required. Notice to the adverse party must be preceded or contemporaneously accompanied by a service of summons, together with a copy of the complaint or initiatory pleading and the applicant’s affidavit and bond.
Receivership
Receivership, like injunction, may be the principal action itself or just an ancillary remedy. It involves the appointment of a receiver by the court in behalf of all parties to an action for the purpose of preserving the property involved in the suit and to protect the rights of all the parties under the direction of the court.
Receivership proceeding is commenced by filing a verified application in the court where the action is pending, the Court of Appeals or the Supreme Court. Unlike other provisional remedies that can be availed of only before final judgment, receivership may be resorted to even after the judgment has become final and executory. It can be availed of to aid execution or to carry the judgment into effect.
Replevin
The provisional remedy of replevin is available where the principal purpose of the action is to recover the possession of personal property. It must be applied for at the commencement of the action or at any time before the answer. It can be sought only where the defendant is in actual or constructive possession of the personalty, where the personalty is capable of manual delivery. The applicant must file an affidavit and bond.
Support Pendente Lite
A verified application for support pendente lite may be filed by any party at the commencement of the proper action or proceeding, or at any time prior to the judgment or order. The application must state the grounds for the claim and the financial conditions of both parties. It must be accompanied by affidavits, depositions or other authentic supporting documents. The adverse party is given the right to file a comment. Hearing is required.
Costs
Generally, costs are allowed to the prevailing party, but the court may, for special reasons adjudge that either party pay the costs, or that the same be divided equitably. Attorney’s fees and expenses of litigation, other than judicial costs, are not recoverable in the absence of stipulation, except in specific cases enumerated in the Civil Code.
Upon filing of the complaint or initiatory pleading, the fees prescribed in the Rules of Court must be paid in full. The amount of fees payable vary according to the remedy availed of, relief prayed for and the value of the subject matter of the action. In addition to filing fees, the party requesting the process of any court must pay the sheriff’s expenses in serving or executing the process or safeguarding the property levied upon.
Appeals
Amendment of Judgment
Courts have the inherent power to amend their judgments, to make them conformable to the applicable law provided that said judgments have not yet attained finality. When a final judgment becomes executory, it may no longer be modified in any respect, even if the modification is meant to correct what is perceived to be an erroneous conclusion of fact or law. The only recognized exceptions are the correction of clerical errors or the making of so-called nunc pro tunc entries, which cause no prejudice to any party, and, of course, where the judgment is void.
Motion for New Trial
The aggrieved party may seasonably move for a new trial to set aside the judgment based on the following grounds: (1) fraud, accident, mistake or excusable negligence; or (2) newly discovered evidence. If the motion is granted, the original judgment is vacated and the action shall stand for trial de novo. The recorded evidence taken upon the former trial, in so far as the same is material and competent to establish the issues, shall be used at the new trial without retaking the same.
Motion for Reconsideration
The aggrieved party may seasonably move for reconsideration on the following grounds: (1) damages awarded are excessive; (2) evidence is insufficient to justify the decision or final order; or (3) the decision or final order is contrary to law. As a general rule, a second motion for reconsideration is a prohibited pleading.
Relief from Judgment
A petition for relief from judgment may be filed on the grounds of fraud, accident, mistake or excusable negligence. Such petition must be filed within 60 days after the petitioner learns of the judgment and not more than six months after such judgment was entered. If granted, the judgment is set aside and the case shall stand as if the judgment had never been ordered. The court shall then proceed to hear and determine the case.
Annulment of Judgment
When ordinary remedies are no longer available through no fault of the petitioner, he may file an action for annulment of judgment based only on the grounds of extrinsic fraud and lack of jurisdiction. If based on extrinsic fraud, the action must be filed within four years from its discovery; if based on lack of jurisdiction, before it is barred by laches or estoppel. A judgment of annulment shall set aside the questioned judgment or final order or resolution without prejudice to the original action being re-filed in the proper court. However, when the judgment is set aside on grounds of extrinsic fraud, the court may order the trial court to try the case.
Appeal
Only judgments that finally dispose of the merits of the case may be the subject of appeal. As a general rule, an interlocutory order may only be assigned as error in the appeal from the final judgment. However, if the interlocutory order was rendered without or in excess of jurisdiction or with grave abuse of discretion, the petitioner may avail of the remedy of certiorari, prohibition or mandamus, depending on the facts of the case.
From the First-Level Courts
Appeals from the courts of the first level can be taken only to the proper Regional Trial Courts. The appeal is a matter of right and made by filing a notice of appeal within 15 days after notice to the appellant of the judgment or final order appealed from. Where a record on appeal is required, the appellant shall file a notice of appeal and a record on appeal within 30 days after notice of the judgment or final order.
From the Second-Level Courts
The mode of appeal from decisions rendered by the Regional Trial Court depends on several factors (i.e., whether the judgment was rendered in its original or appellate jurisdiction and whether the appeal involves questions of fact and/or law). When the Regional Trial Court renders a decision in the exercise of its original jurisdiction, the appeal normally goes to the Court of Appeals. The appeal is a matter of right and questions of fact as well as of law may be raised. The appeal is made by the filing of a notice of appeal with the Regional Trial Court within 15 days from notice of the judgment or final order appealed from. In the event that a losing party files a motion for new trial or reconsideration within the 15-day period for filing of appeal, the said party has 15 days from receipt of a denial of the motion within which to file a notice of appeal. No motion for extension of time to file a motion for new trial or reconsideration shall be allowed.
When the judgment to be appealed is rendered by the Regional Trial Court in the exercise of its appellate jurisdiction, appeal is not a matter of right. It will be given due course by the Court of Appeals only when the petition shows prima facie that the lower court has committed errors in its conclusions of fact or law that will warrant reversal or modification of the decision sought to be reviewed. The method of appeal is by petition for review which should be filed and served within 15 days from notice of the decision sought to be reviewed. Upon proper motion and the payment of the full amount of fees before the expiration of the reglementary period, the Court of Appeals may grant an additional period of 15 days only within which to file the petition for review. No further extension shall be granted except for the most compelling reason and in no case to exceed 15 days.
When the appellant intends to raise only pure questions of law, the appeal from the Regional Trial Court may be taken directly to the Supreme Court, by petition for review on certiorari. This is true whether the case was decided by the Regional Trial Court in the exercise of its original or appellate jurisdiction. The appeal, in this instance, is not a matter of right but of discretion on the part of the Supreme Court. The petition must be filed within 15 days from notice of the judgment or final order appealed from. On motion duly filed and served, with full payment of fees before the expiration of the reglementary period, the Supreme Court may for justifiable reasons grant an extension of 30 days only within which to file the petition.
From the Court of Appeals, the Court of Tax Appeals and the Sandiganbayan
Appeals from the Court of Appeals, the Court of Tax Appeals and the Sandiganbayan are taken to the Supreme Court by petition for review on certiorari, the appeal being discretionary and generally limited to questions of law. The petition must be filed within 15 days from notice of the judgment or final order appealed from. On motion duly filed and served, with full payment of fees before the expiration of the reglementary period, the Supreme Court may for justifiable reasons grant an extension of 30 days only within which to file the petition.
From the Quasi-Judicial Agencies
Appeals from quasi-judicial agencies are generally taken only to the Court of Appeals by petition for review. The petition must be filed within 15 days from notice of the award, judgment, final order or resolution, or from the date of its last publication, if publication is required by law for its effectivity. Upon proper motion and payment of full amount of docket fee before the expiration of the reglementary period, the Court of Appeals may grant an additional period of 15 days only within which to file the petition for review. No further extension shall be granted except for the most compelling reason and in no case to exceed 15 days.
The appeal is not a matter of right. The Court of Appeals will decline to give due course to the petition unless it makes out a prima facie showing that the agency has committed an error of fact or law that will warrant a reversal or modification of the order, ruling or decision sought to be reviewed.
Enforcement of Judgments
Execution shall issue as a matter of right, on motion, with respect to a judgment or order that disposes of the action or proceeding, upon the expiration of the period to appeal. If the appeal has been duly perfected and finally resolved, the execution may forthwith be applied for in the court of origin, on motion of the judgment obligee, submitting therewith certified true copies of the judgment or judgments or final order or orders sought to be enforced and of the entry thereof, with notice to the adverse party.
By way of exception, the prevailing party may file a motion for execution of a judgment or final order that has been seasonably appealed. The motion shall be filed with the trial court while it still has jurisdiction over the case and is in possession of either the original record or the record on appeal, as the case may be. After the trial court has lost jurisdiction, the motion for execution pending appeal may be filed in the appellate court. The adverse party must be given notice. Discretionary execution may only issue upon good reasons to be stated in the order after due hearing.
Judgments in actions for injunction, receivership, accounting and support are immediately executory and are not stayed by appeal, unless otherwise ordered by the trial court. In cases of appeals from decisions of quasi-judicial agencies to the Court of Appeals, the appeal shall not stay the award, judgment, final order or resolution sought to be reviewed unless the Court of Appeals directs otherwise.
A final and executory judgment or order may be executed on motion within five years from the date of its entry. After the lapse of such time, and before it is barred by the statute of limitations, a judgment may be enforced by action. The revived judgment may also be enforced by motion within five years from the date of its entry and thereafter by action before it is barred by the statute of limitations.
Judgments for money may be enforced through the following:
Immediate payment on demand – The judgment obligor shall pay
in cash, certified bank check payable to the judgment obligee, or
any other form of payment acceptable to the latter.
Satisfaction by levy – If the judgment obligor cannot pay all or part of the obligation in cash, certified bank check or other mode
of acceptable payment, the officer shall levy upon the properties of the judgment obligor of every kind and nature whatsoever
which may be disposed of for value and not otherwise exempt from execution, giving the latter the option to immediately choose which property or part thereof may be levied upon, sufficient to satisfy the judgment.
The rules prescribe the following methods for enforcement of judgments for specific acts:
Garnishment of debts and credits – The officer may levy on debts
due the judgment obligor and other credits, including bank
deposits, financial interests, royalties, commissions and other
personal property not capable of manual delivery. Levy shall be
made by serving notice upon the person owing such debts or
having in his possession or control such credits.
Conveyance, delivery of deeds, or other specific acts – If a judgment directs a party to perform a specific act and the party
fails to comply within the time specified, the court may direct the act to be done at the cost of the disobedient party.
Sale of real or personal property – If the judgment be for the sale of real or personal property, to sell such property and apply the proceeds in conformity with the judgment.
Delivery or restitution of real property – The officer shall demand of the person against whom the judgment is rendered to peaceably
vacate the property within three working days and restore possession thereof to the judgment obligee. Otherwise, the officer shall oust such person from the property, with the assistance of appropriate peace officers.
Removal of improvements on property subject to execution – The officer shall not destroy or demolish such improvements except upon special order of the court.
Delivery of personal property – The officer shall take possession of the personalty and deliver it to the party entitled thereto.
In executing special judgments (those which require the performance of any act other than those mentioned above), a certified copy of the judgment must be attached to the writ of execution which shall be served by the officer upon the judgment obligor, and such party may be punished for contempt if he disobeys the judgment.
The Rules of Court enumerate certain properties exempt from execution.
Recognition and Enforcement of Foreign Judgments
A judgment of another state may not be directly enforced in the Philippines. A separate action must be filed in the Philippines for the foreign judgment to be recognized or enforced. The Philippine courts must be convinced that there has been opportunity for a full and fair trial abroad before a court of competent jurisdiction. Moreover, a foreign judgment will not be enforced or recognized when it runs counter to laws which have for their object public order, public policy and good customs.
In case of a judgment in rem (i.e., actions affecting title to or possession of real property or any interest therein), the judgment is
conclusive upon the title of the thing. However, in the case of a judgment in personam (i.e., actions against a person for his personal liability), the judgment is merely presumptive evidence of a right as between the parties and their successors in interest by a subsequent title. In either case, the judgment may be repelled by evidence of want of jurisdiction, want of notice to the party, collusion, fraud, or clear mistake of law or fact.
Comity and reciprocity are also factors to be considered in the recognition and enforcement of a foreign judgment by a Philippine court.
Arbitration Law/Role of Courts in Arbitration
The following laws and rules govern arbitration in the Philippines, to wit:
Republic Act No. 876 (known as the Arbitration Law)
Congress enacted R.A. No. 876 in 1953 and R.A. No. 9285 in 2004. On the other hand, the Supreme Court promulgated the Special ADR Rules in September 2009.
R.A. No. 876 applies to domestic arbitration, while R.A. No. 9285, which adopted the UNCITRAL Model Law, applies to international arbitration.
Arbitration is considered international if any of the following conditions apply:
(a) the parties to an arbitration agreement have, at the time of the conclusion of such agreement, their places of business in different states (countries); or
(b) one of the following places is situated outside the state in which the parties have their places of business:
Republic Act No. 9285 (known as the Alternative Dispute
Resolution Act of 2004) Implementing Rules and Regulations of the ADR Act (ADR Act IRR)
Executive Order No. 1008 (known as Construction Industry Arbitration Law, for construction disputes)
Special Rules of Court on Alternative Dispute Resolution (Special ADR Rules).
the place of arbitration if determined in, or pursuant to, the arbitration agreement; or any place where a substantial part of the obligations of the commercial relationship is to be performed or the place with which the subject matter of the dispute is most closely connected; or
(c) the parties have expressly agreed that the subject matter of the arbitration agreement relates to more than one country.
On the other hand, domestic arbitration is simply defined as arbitration that is not international. Thus, if the dispute is between parties who have their place of business in the Philippines, and their obligations are to be performed in the Philippines, and there is no stipulation in their arbitration agreement that the subject matter of the arbitration agreement relates to another country, the arbitration will be considered domestic.
Despite the distinction between international and domestic arbitration, there are a few vital distinctions between the two regimes. The reason for this is that the Alternative Dispute Resolution Act of 2004 (ADR Act of 2004) has grafted several of the UNCITRAL Model Law provisions onto Republic Act No. 876.
All types of commercial disputes may be referred to arbitration. The word “commercial” is broadly defined as “matters arising from all relationships of a commercial nature, whether contractual or not.”
The following disputes may not be submitted to arbitration:
(a) labor disputes covered by Presidential Decree No. 442, otherwise known as the Labor Code of the Philippines, as amended, and its Implementing Rules and Regulations;
(b) the civil status of persons;
(c) the validity of a marriage;
(d) any ground for legal separation (of married persons); (e) the jurisdiction of courts;
(f) futurelegitime;
(g) criminal liability; and
(h) those disputes which by law cannot be compromised.
Domestic Arbitration
Form of arbitration agreement
The arbitration agreement must be in writing and subscribed by the party sought to be charged, or by his lawful agent. An agreement that incorporates by reference a document that contains an arbitration clause gives rise to a valid arbitration agreement.
Third parties
Where a civil action is commenced in court by or against multiple parties, one or more of whom are parties to an arbitration agreement, the court shall refer to arbitration those parties who are bound by the arbitration agreement, although the civil action may continue as to those who are not bound by such arbitration agreement.
Qualifications of an arbitrator
An arbitrator must possess the following qualifications: of legal age, in full enjoyment of his civil rights, and can read and write. Furthermore, the arbitrator should not be related by blood or marriage up to the sixth degree to either party to the controversy. Neither should he have a financial, fiduciary, or other interest in the controversy, or any personal bias, which might prejudice the right of any party to a fair and impartial award.
The law prohibits an arbitrator from “championing” or “advocating” the cause of either party.
Interim measures
A party may apply for provisional relief or interim measures to the courts prior to the constitution of the arbitral tribunal or even during the arbitration proceedings to the extent that the arbitral tribunal has no power to act or is unable to act effectively.
Grounds for vacating/setting aside a domestic arbitral award
A domestic arbitral award could be vacated on the following grounds:
(a) The award was procured by corruption, fraud, or other undue means.
(b) There was evident partiality or corruption in the arbitrators or any of them.
(c) The arbitrators were guilty of misconduct in refusing to postpone the hearing upon sufficient cause shown, or in refusing to hear evidence pertinent and material to the controversy; or one or more of the arbitrators were disqualified to act as such under Section 10 of Republic Act No. 876 and willfully refrained from disclosing such disqualifications; or were guilty of any other misbehavior by which the rights of any party were materially prejudiced.
(d) The arbitrators exceeded their powers, or so imperfectly executed them, that a mutual, final and definite award upon the subject matter submitted to them was not made.
Where an award is vacated, the court, in its discretion, may direct a new hearing either before the same arbitrators or before a new arbitrator or arbitrators to be chosen in the manner provided in the submission or contract for the selection of the original arbitrator or arbitrators, and any provision limiting the time in which the arbitrators may make a decision shall be deemed applicable to the new arbitration and to commence from the date of the court’s order.
The petition to vacate a domestic arbitral award must be filed with the appropriate Regional Trial Court within 30 days from receipt of the award.
Confirmation of domestic arbitral award
An arbitral award is not self-executory. In order to convert the domestic arbitral award into an enforceable judgment, the winning party has to file with the appropriate Regional Trial Court a petition for confirmation of the arbitral award. The court should, as a matter of course, grant the petition, unless there are grounds to vacate the award.
A party may petition the court to confirm the award at any time after the lapse of 30 days from receipt of the arbitral award.
International Arbitration
Interpretation of the UNCITRAL Model Law (Model Law)
The provisions on domestic arbitration are more or less similar to the provisions on international arbitration. The one area where the two arbitration regimes may possibly part ways is in the interpretation of the applicable laws, Republic Act No. 876 (for domestic arbitration) and the Model Law (for international arbitration).
The ADR Act of 2004 provides that, in interpreting the Model Law, there must be regard to its international origin and to the need for uniformity in its interpretation, and resort may be made to the travaux preparatories and the report of the secretary general of the United Nations Commission on International Trade Law dated 25 March 1985, entitled “International Commercial Arbitration: Analytical Commentary on Draft Text identified by reference number a/CN. 9/264.”
For example, since other jurisdictions tend to interfere less with international arbitral awards, domestic arbitration and international arbitration will most likely diverge with respect to the scope of judicial review. While domestic arbitration awards may be reviewed on appeal on both questions of fact and law, Philippine courts, having regard to the international origin of the Model Law and to the need for uniformity in its interpretation, should limit the scope of its review to the grounds to set aside an arbitral award under the Model Law.
Form
The arbitration agreement shall be in writing. The definition of “writing” under the Model Law is broader than the definition of “writing” under Republic Act No. 876. The Model Law considers an agreement to be in writing “if it is contained in a document signed by the parties or in an exchange of letters, telex, telegrams, or other means of telecommunication which provide a record of the agreement, or in an exchange of statements of claim and defense in which the existence of an agreement is alleged by one party and not denied by another. The reference in a contract to a document containing an arbitration clause constitutes an arbitration agreement provided that the contract is in writing and the reference is such as to make that clause part of the contract.”
Interim measures
As with domestic arbitration, a party in an international arbitration may apply for provisional relief or interim measures to the courts prior to the constitution of the arbitral tribunal or even during the arbitration proceedings to the extent that the arbitral tribunal has no power to act or is unable to act effectively.
Grounds for setting aside/vacating an international arbitral award
An international arbitral award may be set aside by the courts only if the party making the application furnishes proof that:
(a) a party to the arbitration agreement referred to in Article 7 of the Model Law is under some incapacity; or the said agreement is not valid under the law to which the parties have subjected it or, failing any indication thereon, under the law of this state;
(b) the party making the application was not given proper notice of the appointment of an arbitrator or of the arbitral proceedings or was otherwise unable to present his case;
(c) the award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration, or contains decisions on matters beyond the scope of the submission to arbitration, provided that, if the decisions on matters submitted to arbitration could be separated from those not so submitted, only that part of the award which contains decisions on matters not submitted to arbitration could be set aside; or
(d) the composition of the arbitral tribunal or the arbitral procedure was not in accordance with the agreement of the parties, unless such agreement was in conflict with a provision of the Model Law from which the parties could not derogate, or, failing such agreement, was not in accordance with the Model Law.
An international arbitral award could also be set aside if the court finds that
(a) the subject matter of the dispute is not capable of settlement by arbitration under the law of this state (the Philippines); or
(b) the award is in conflict with the public policy of this state.
An application for setting aside an international arbitral award has to be filled within three months from receipt of the award.
Recognition and enforcement of international arbitral award
An international arbitral award, irrespective of the country in which it was made, shall be recognized as binding and, upon application in writing to the competent court, shall be enforced unless there exists any of the grounds to set aside/vacate the award.
The petition for enforcement and recognition of an arbitral award may be filed any time from receipt of the award.
Special ADR Rules
The Special ADR Rules govern the various stages of court participation in arbitration proceedings: challenge to the existence, validity, and enforceability of arbitration agreements; referral to arbitration; interim measures of protection; appointment, challenge, and termination of arbitrators; assistance in taking evidence; confidentiality/protective orders; confirmation, correction, or vacation of award in domestic arbitration; recognition and enforcement or setting aside of an international commercial arbitration award; recognition and enforcement of foreign arbitral award; and appeals to the Court of Appeals and the Supreme Court.
The Special ADR Rules reiterate the state policy of promoting arbitration: “It is the policy of the State to actively promote the use of various modes of ADR and to respect party autonomy or the freedom of the parties to make their own arrangements in the resolution of disputes with the greatest cooperation of and the least intervention from the courts. To this end, the objectives of the Special ADR
Rules are to encourage and promote the use of ADR, particularly arbitration and mediation, as an important means to achieve speedy and efficient resolution of disputes, impartial justice, curb a litigious culture and to de-clog court dockets.”
The following are some of the salient provisions of the Special ADR Rules:
A party may challenge before the courts the existence, validity,
and enforceability of an arbitration agreement. The challenge may be done either before or after the commencement of the arbitration.
Despite the pendency of the petition for judicial determination of the existence, validity, and/or enforceability of an arbitration agreement, the arbitral proceedings may nevertheless be commenced and continue to the rendition of an award while the issue is pending before the court.
In resolving the petition, the court must exercise judicial restraint, deferring as much as possible to the competence or jurisdiction of the arbitral tribunal to rule on its competence or jurisdiction.
A party to a pending action filed in violation of the arbitration agreement may request the court to refer the parties to arbitration in accordance with such agreement. The request for referral shall be made not later than the pretrial conference. After the pretrial conference, the court will act upon the request for referral only if it is made with the agreement of all parties to the case.
Despite the pendency of the court action, the arbitral proceedings may nevertheless be commenced or continued, and an award may be made, while the action is pending before the court.
A petition for an interim measure of protection may be made
(a) before arbitration is commenced,
(b) after arbitration is commenced but before the constitution of the arbitral tribunal, or
(c) after the constitution of the arbitral tribunal and at any time during arbitral proceedings but, at this stage, only to the extent that the arbitral tribunal has no power to act or is unable to act effectively.
Any court order granting or denying interim measure/s of protection is issued without prejudice to subsequent grant, modification, amendment, revision, or revocation by the arbitral tribunal as may be warranted. An interim measure of protection issued by the arbitral tribunal shall, upon its issuance, be deemed to have ipso jure modified, amended, revised, or revoked an interim measure of protection previously issued by the court to the extent that it is inconsistent with the subsequent interim measure of protection issued by the arbitral tribunal.
The court shall assist in the enforcement of an interim measure of protection issued by the arbitral tribunal which it is unable to enforce effectively.
Assistance may be sought at any time during the course of the arbitral proceedings when the need arises.
Any party to an arbitration, whether domestic or foreign, may request the court to provide assistance in taking evidence.
A party, counsel, or witness who disclosed or who was compelled to disclose information under circumstances that would create a
reasonable expectation, on behalf of the source, that the information shall be kept confidential has the right to prevent such
information from being further disclosed without the express written consent of the source or the party who made the disclosure.
A party could request a protective order any time there is a need to enforce the confidentiality of the information obtained, or to be obtained, in the arbitration proceedings.
The order enjoining a person or persons from divulging confidential information shall be immediately executory and could not be enjoined while the order is being questioned at the appellate courts.
Any person who disobeys the order of the court to cease from divulging confidential information shall be given the proper sanction by the court.
In deciding the petition to vacate a domestic arbitral award, the court shall disregard any grounds other than those specified in Republic Act No. 876.
If the court finds that there is a need to conduct an oral hearing, the court shall set the case for hearing. This case shall have preference over other cases before the court, except criminal cases.
Unless a ground to vacate an arbitral award is fully established, the court shall confirm the award. An arbitral award shall enjoy the presumption that it was made and released in due course of arbitration and is subject to confirmation by the court.
The court may set aside or refuse the enforcement of the international arbitral award only on grounds under the Model Law.
The court shall disregard any grounds to set aside or enforce the arbitral award other than those specified in the Model Law.
Recourse to a court against an arbitral award shall be made only through a petition to set aside the arbitral award and on grounds prescribed by the law that governs international commercial arbitration. Any other recourse from the arbitral award, such as by appeal or petition for review or petition for certiorari or otherwise, shall be dismissed by the court.4
The prevailing party shall be entitled to an award of costs, which shall include reasonable attorney’s fees of the prevailing party against the unsuccessful party. The court shall determine the reasonableness of the claim for attorney’s fees.
A Philippine court shall not set aside a foreign arbitral award but may refuse it recognition and enforcement on any or all of the
grounds under Section V of the New York Convention.
The court shall disregard any grounds for opposing the recognition and enforcement of a foreign arbitral award other than those specified in the New York Convention.
4 This provision effectively overturns previous court decisions holding that an arbitral award may be questioned by directly filing a petition for review (on questions of fact and law) or petition for certiorari (on a question of jurisdiction) with the Court of Appeals.
The court shall give due priority to hearings on petitions under this rule.
The decision of the court recognizing and enforcing a foreign arbitral award is immediately executory.
In resolving the petition for recognition and enforcement of a foreign arbitral award in accordance with the Special Rules, the court shall either (a) recognize and enforce or (b) refuse to recognize and enforce the arbitral award. The court shall not disturb the arbitral tribunal’s determination of facts and/or interpretation of law.
An agreement to refer a dispute to arbitration shall mean that the arbitral award shall be final and binding. Consequently, a party to
an arbitration is precluded from filing an appeal or a petition for certiorari questioning the merits of an arbitral award.
As a general rule, the court may vacate or set aside the decision of an arbitral tribunal only upon a clear showing that the award suffers from any of the infirmities or grounds for vacating an arbitral award under Section 24 of Republic Act No. 876 or under Rule 34 of the Model Law in a domestic arbitration, or for setting aside an award in an international arbitration under Article 34 of the Model Law, or for
such other grounds provided under these Special Rules.
The court shall not set aside or vacate the award of the arbitral tribunal merely on grounds that the arbitral tribunal committed errors of fact, or of law, or of fact and law, as the court may not substitute the arbitral tribunal’s judgment with that of its own.
An appeal to the Court of Appeals shall not stay the award, judgment, final order, or resolution sought to be reviewed unless
the Court of Appeals directs otherwise upon such terms as it may deem just.
The Court of Appeals shall render judgment within 60 days from the time the case is submitted for decision.
If the decision of the Regional Trial Court refusing to recognize and/or enforce, vacating, and/or setting aside an arbitral award is premised on a finding of fact, the Court of Appeals may inquire only into such fact to determine the existence or nonexistence of the specific ground under the arbitration laws of the Philippines relied upon by the Regional Trial Court in refusing to recognize and/or enforce, vacate, and/or set aside an award. Any such inquiry into a question of fact shall not be resorted to for the purpose of substituting the court’s judgment with that of the arbitral tribunal as regards the latter’s ruling on the merits of the controversy.
The Court of Appeals shall require the party appealing from the decision or a final order of the Regional Trial Court either confirming or enforcing an arbitral award, or denying a petition to set aside or vacate the arbitral award, to post a bond equal to the amount of the award executed in favor of the prevailing party. Failure of the petitioner to post such bond shall be a ground for the Court of Appeals to dismiss the petition.
When the Regional Trial Court, in making a ruling under the Special ADR Rules, has acted without or in excess of its
jurisdiction, or with grave abuse of discretion resulting in lack or excess of jurisdiction, and there is no appeal or any plain, speedy,
and adequate remedy in the ordinary course of law, a party may file a special civil action for certiorari to annul or set aside a ruling
of the Regional Trial Court.
The Court of Appeals shall not, during the pendency of the proceedings before it, prohibit or enjoin the commencement of arbitration, the constitution of the arbitral tribunal, or the continuation of arbitration.
A party desiring to appeal by certiorari from a judgment or final order or resolution of the Court of Appeals issued pursuant to the
Special Rules may file with the Supreme Court a verified petition for review of certiorari. The petition shall raise only questions of
law.
The fee5 for filing a petition to confirm or enforce, vacate, or set aside an arbitral award in a domestic arbitration or in an international commercial arbitration shall be as follows:
PhP10,000.00 – if the award does not exceed PhP1,000,000.00
PhP20,000.00 – if the award does not exceed PhP20,000,000.00
PhP30,000.00 – if the award does not exceed PhP50,000,000.00
PhP40,000.00 – if the award does not exceed PhP100,000,000.00
PhP50,000.00 – if the award exceeds PhP100,000,000.00
The prevailing party shall be entitled to an award of costs with respect to the proceedings before the court, which shall include the reasonable attorney’s fees of the prevailing party against the unsuccessful party.
5 Prior to the passage of the Special Rules, there was no standard or schedule for computing the filing fees. Some courts charged fixed filing fees; others based the computation of the filing fees on the amount found in the arbitral award.
At the time the case is submitted to the court for decision, the party praying for confirmation or vacation of an arbitral award
shall submit a statement under oath confirming the costs he has incurred only in the proceedings for confirmation or vacation of an arbitral award. The costs shall include the attorney’s fees the party has paid or is committed to pay to his counsel of record.
The court shall determine the reasonableness of the claim for attorney’s fees.
Construction Industry Arbitration Commission
Executive Order No. 1008 established the Construction Industry Arbitration Commission (CIAC). The CIAC has original and exclusive jurisdiction over construction disputes, which shall “include those between or among parties to, or who are otherwise bound by, an arbitration agreement, directly or by reference whether such parties are project owner, contractor, subcontractor, fabricator, project manager, design professional, consultant, quantity surveyor, bondsman or issuer of an insurance policy in a construction project.”
The CIAC is a hybrid of voluntary arbitration and compulsory arbitration.
If the parties do not enter into an arbitration agreement, then the construction dispute between them shall be resolved by the courts.
On the other hand, the Philippine Supreme Court has held that “as long as the parties agree to submit their dispute to voluntary arbitration, regardless of what forum they may choose, their agreement will fall within the jurisdiction of the CIAC, such that, even if they specifically choose another forum, the parties will not be precluded from electing to submit their dispute before the CIAC because this right has been vested by law.” Thus, for example, if the parties to a construction contract designate Singapore arbitration as the venue of any dispute that may arise between them, either party may still elect to file a request for arbitration with the CIAC, notwithstanding the agreement of the parties to submit their dispute to arbitration in Singapore, and the CIAC shall assume jurisdiction over the dispute.
The CIAC is known for its efficiency. It takes the CIAC an average of around six months from the time of filing of the request for arbitration to hear the case and render an award.
Institutional and Ad Hoc Arbitration Philippine Dispute Resolution Center, Inc.
The Philippine Dispute Resolution Center, Inc. (PDRCI) is a non- stock, nonprofit organization incorporated in 1996 out of the Arbitration Committee of the Philippine Chamber of Commerce and Industry. It was formed for the purpose of promoting and encouraging the use of arbitration as an alternative mode of settling commercial transaction disputes and providing dispute resolution services to the business community. PDRCI’s membership includes prominent lawyers and members of the judiciary, private practitioners, academicians, arbitrators, bankers and businessmen.
The arbitration rules of the PDRCI have been amended effective January 2015 to include provisions relating to consolidation of arbitration, joinder of parties, expedited arbitration and emergency relief, among others.
It takes the PDRCI an average of around 10 months from the time of filing of the request for arbitration to hear the case and render an award.
Ad Hoc Arbitration
There is no prohibition in the Philippines regarding the recognition and conduct of ad hoc arbitration in accordance with the existing policy in favor of arbitration.
Enforcement of Arbitration Awards
The Philippines is a party to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958. An action for enforcement of a foreign arbitral award must be filed in the Philippine courts and copies of the award and the original agreement must likewise be filed. If the said award or agreement is not made in an official language of the Philippines, the party-applicant shall produce a translation of the documents into the official language. The translation shall be certified by an official or sworn translator or by a diplomatic or consular agent.
Mediation and Conciliation
Mediation or conciliation is a speedy, inexpensive and simplified mode of dispute resolution. There have been increased efforts in recent years to institutionalize mediation proceedings in the Philippine legal system to aid in the speedy administration of justice.
Court-Annexed Mediation
In 2001, the Supreme Court, in the exercise of its supervisory and regulatory powers over the Philippine judicial system, implemented a trial mediation or conciliation proceedings in certain pilot areas in the Philippines.
By 2011, the Supreme Court has expanded the cases covered by the Court-Annexed Mediation (CAM) to cover the following:
(1) all civil cases and the civil liability of criminal cases covered by the Rules on Summary Procedure, including the civil liability for violation of the Bouncing Checks Law,
(2) special proceedings for the settlement of estates,
(3) all civil and criminal cases requiring a certificate to file action under the Revised Katarungang Pambarangay Law,
(4) the civil aspect of quasi-offenses under the Revised Penal Code,
(5) the civil aspect of less grave felonies not exceeding six years of imprisonment where the offended party is a private person,
(6) civil aspect of estafa (swindling), theft and libel,
(7) all civil cases and probate proceedings brought on appeal from the first-level courts,
(8) all cases of forcible entry and unlawful detainer brought on appeal from the first-level courts,
(9) all civil cases involving title or possession of real property or interest therein brought on appeal from first-level courts,
(10) habeas corpus cases brought up on appeal from the first-level courts.
On the other hand, the following cases cannot be subject of CAM:
(1) civil cases which by law cannot be compromised,
(2) other criminal cases not covered by numbers 3 to 6 above,
(3) habeas corpus petitions,
(4) all cases under the Violence Against Women and Children Act, and
(5) cases with pending applications for restraining orders or preliminary injunctions.
The court, before whom a case was filed involving any of the aforementioned disputes, calls the parties to a conference before a mediator appointed by the trial court from the list provided by the Supreme Court. During the mediation period, the court orders the suspension of the proceedings before it for 30 days.
Individual parties are required to personally appear for mediation unless they send a representative who is fully authorized to appear, negotiate and enter into a compromise, through a special power of attorney. Corporations, partnerships or other juridical entities shall be represented by a ranking corporate officer fully authorized by a board resolution to offer, negotiate, accept, decide and enter into a compromise agreement, without need of further approval by or notification to the authorizing party.
In case a settlement is reached, the compromise agreement entered into between the parties is submitted to the court and serves as basis for the rendition of a judgment by compromise that may be enforced by execution. Otherwise, the case is returned to the court.
The mediation proceedings and all incidents thereto are kept strictly confidential.
The period during which the case is undergoing mediation or conciliation is excluded from the regular and mandatory periods for trial and rendition of judgment in ordinary cases as well as in cases under summary procedure.
Judicial Dispute Resolution
Judicial Dispute Resolution (JDR) is governed by A.M. No. 11-1-6- SC-PHILJA and is promulgated pursuant to the ADR Act of 2004.
Together with court-annexed mediation, JDR is intended to put an end to pending litigation through a compromise agreement and help unclog court dockets in the country. Cases covered by CAM are also subject to JDR.
Judicial proceedings covered by JDR shall be divided into two stages: (1) from the filing of the complaint to the conduct of court-annexed mediation and JDR, and (2) pretrial proper to trial and judgment. The judge to whom the case had been originally raffled shall be referred as the JDR judge who shall preside over the first stage. Another judge, who shall be called the trial judge, shall preside over the second stage. At the initial stage of the preliminary conference, the JDR judge briefs the parties of court-annexed mediation and JDR. Upon failing to secure a settlement of the dispute during the court-annexed mediation, a second attempt of arriving at a compromise agreement is done through the JDR. In the JDR, the JDR judge becomes a mediator- conciliator-early neutral evaluator in a continuing effort to secure an settlement. As mediator and conciliator, the judge facilitates the settlement discussions between the parties and tries to reconcile their differences. As a neutral evaluator, the judge assesses the relative strengths and weaknesses of each party’s case and makes a non-binding and impartial evaluation of the chances of each party’s success in the case. On the basis of such neutral evaluation, the judge persuades the parties to a fair and mutually acceptable settlement of their dispute. The JDR judge shall not preside over the trial of the case when the parties did not settle their dispute at JDR.
To complete the JDR process, judges of the first-level courts shall have a period of not exceeding 30 days, while judges of the second- level courts shall have a period of not exceeding 60 days. A longer period, however, may be granted upon the discretion of the JDR judge if there is a high probability of settlement and upon joint written motion of the parties. Both periods shall be computed from the date when the parties first appeared for JDR proceedings as directed in the respective orders issued by the judge.
If full settlement of the dispute is reached, the parties, assisted by their respective counsels, shall draft the compromise agreement which shall be submitted to the court for a judgment upon compromise, enforceable by execution. Only upon failure of the JDR will parties proceed to trial proper when the case is turned over to another judge, the trial judge, who shall continue the pretrial proper and thereafter, proceed to try and decide the case.
Any and all matters discussed or communications made, including requests for mediation, and documents presented during the JDR proceedings before the trial judge, shall be privileged and confidential, and the same shall be inadmissible as evidence for any purpose in any other proceedings. Further, the JDR judge shall not pass any information obtained in the course of conciliation and early neutral evaluation to the trial judge or to any other person.
Philippine Mediation Center ‒ Appeals Court Mediation
During the appeal to the Court of Appeals, cases covered by court- annexed mediation and JDR shall be referred to the Philippine Mediation Center ‒ Appeals Court Mediation unit for mediation.
Commercial ADR
The ADR Act of 2004, without limiting the modes of ADR that the parties can avail of, provide for, in addition to arbitration, the following modes of ADR:
Mediation
Mediation is a voluntary process in which a mediator, selected by the disputing parties, facilitates communication and negotiation, and assists the parties in reaching a voluntary agreement regarding a dispute. Information obtained through mediation is privileged and confidential. A party, a mediator, or a non-party participant may refuse to disclose and may prevent any other person from disclosing a mediation communication.
A mediated settlement agreement may be deposited with the appropriate clerk of a Regional Trial Court of the place where one of the parties resides. Where there is a need to enforce the settlement agreement, a petition may be filed by any of the parties with the same court. Pursuant to the Special ADR Rules, after a summary hearing, if the court finds that the agreement is a valid mediated settlement agreement, that there is no merit in any of the affirmative or negative defenses raised, and the respondent has breached that agreement, in whole or in part, the court shall order the enforcement thereof; otherwise, it shall dismiss the petition.
The parties may agree in the settlement agreement that the mediator shall become a sole arbitrator for the dispute and shall treat the settlement agreement as an arbitral award which shall be subject to enforcement.
Early Neutral Evaluation
Early neutral evaluation is an ADR process wherein parties and their lawyers are brought together early in the pretrial phase to present summaries of their cases and to receive a non-binding assessment by an experienced neutral person, with expertise in the subject matter or substance of the dispute.
All papers and written presentations communicated to the neutral third person, including any paper prepared by a party to be communicated to the neutral third person or to the other party as part of the dispute resolution process, and the neutral third person’s written non-binding assessment or evaluation, shall be treated as confidential.
The proceedings are governed by the rules and procedure agreed upon by the parties. By default, the ADR Act IRR shall govern.
Mediation-Arbitration or Med-Arb
Med-Arb is a two-step dispute resolution process involving mediation and then followed by arbitration. It is governed by the rules and procedure agreed upon by the parties. Otherwise, the ADR Act IRR shall govern. As a general rule, a mediator may not act as an arbitrator in respect of the same dispute, or vice-versa.
Mini-trial
Mini-trial is a structured dispute resolution method in which the merits of a case are argued before a panel comprising of senior decision- makers, with or without the assistance of a neutral third person, before which the parties seek a negotiated settlement. It shall be governed by the rules and procedure agreed upon by the parties. Otherwise, the ADR Act IRR shall govern.
Insolvency
There are three types of remedies available to a financially distressed individual or juridical person: suspension of payments, corporate rehabilitation (voluntary/involuntary, pre-negotiated, or out-of-court or informal restructuring agreements) and insolvency. The applicable laws and regulations are the Civil Code of the Philippines (Civil Code), the Financial Rehabilitation and Insolvency Act (FRIA),
Presidential Decree No. 902-A (PD 902-A)6 the FRIA Rehabilitation Rules of Procedure (FRIA Rehabilitation Rules)7 and the Financial Liquidation and Suspension of Payments Rules for Procedure for Insolvent Debtors (FLSP Rules).8 The type of proceeding that applies to a debtor depends on the particular relief sought.
The FRIA became effective on 31 August 2010. It provides for a more comprehensive framework for rehabilitation and liquidation of debtors, whether corporate or individual. More importantly, the FRIA has made available to partnerships and individuals, the benefits of rehabilitation proceedings. This is advantageous for small businesses as they are more commonly formed as partnerships or individual enterprises. Banks, insurance companies and pre-need companies, and national and local government agencies or units, however, are not covered under the FRIA.
On 27 August 2013, the Supreme Court promulgated the FRIA Rehabilitation Rules, which provides for the procedure governing rehabilitation proceedings under the FRIA. On 21 April 2015, the Supreme Court promulgated the FLSP Rules, which outline the procedure in proceedings for financial liquidation, insolvency and suspension of payments.
If what is sought is merely a little financial breathing space, then the remedy is a suspension of payments, which provides for the deferment of payments and temporary protection against actions/executions by unsecured creditors. If, on the other hand, the rehabilitation of a company entails more radical measures such as changes in organization, management and/or strategy, and requires temporary protection against both secured and unsecured creditors, then the remedy is to seek corporate rehabilitation. Finally, if the debtor company has become insolvent and incapable of being rehabilitated, it may apply for liquidation and have its assets distributed accordingly among its creditors.
6 After the promulgation of Republic Act 8799 or the Securities Regulation Code, jurisdiction over petitions of corporations, partnerships or associations to be declared in the state of suspension of payments was transferred from the SEC to the Regional Trial Court. The SEC, however, retained jurisdiction over pending suspension of payments and rehabilitation cases filed as of 30 June 2000 until final disposition of such cases.
7 Supreme Court Administrative Matter No 12-12-11
8 Supreme Court Administrative Matter No. 15-04-06-SC.
Each of these remedies is discussed in more detail below.
Proceedings for Solvent Debtors (Individuals or Corporations)
Suspension of Payments
An individual debtor who possesses sufficient property to cover all of his or her debts, but foresees the impossibility of meeting them when they respectively fall due, may file a petition with a Regional Trial Court (the court) to be declared in a state of suspension of payments. The petition must be filed with the court of the place where the debtor has resided at least six months prior to the filing of the petition.
a. Action on the Petition for Suspension of Payments
If the court finds the petition for suspension of payments sufficient in form and substance, it will issue an order:
calling a meeting of all the creditors named in the schedule of debts and liabilities (creditors’ meeting);
directing such creditors to prepare and present written evidence of their claims before the creditors’ meeting;
directing the publication of the said order in a newspaper of general circulation;
directing the clerk of court to cause the sending of a copy of the order to all creditors named in the schedule of debts and liabilities;
forbidding the individual debtor from selling, transferring, encumbering or disposing of in any manner his or her property, except those used in the ordinary operations of commerce or of industry in which the petitioning individual debtor is engaged so long as the proceedings relative to the suspension of payments are pending;
prohibitingtheindividualdebtorfrommakinganypayment outside of the necessary or legitimate expenses of his or her business or industry, so long as the proceedings relative to the suspension of payments are pending; and
appointing a commissioner to preside over the creditors’ meeting.
b. Actions Suspended
Upon motion filed by the individual debtor, the Court may issue an order suspending any pending execution against the individual debtor, provided that properties held as security by secured creditors will not be the subject of such suspension order.
A creditor may not sue or institute proceedings to collect his or her claim from the debtor from the time of the filing of the petition for suspension of payments and for as long as proceedings remain pending except:
creditors having claims for personal labor, maintenance, expense of last illness and funeral of the wife or children of the debtor incurred in the sixty (60) days immediately prior to the filing of the petition; and secured creditors.
c. Agreement for Suspension of Payments
The petition for suspension of payments must include a statement of the debtor’s assets and liabilities, and the debtor’s proposed agreement with the creditors for the suspension of payments. The presence of creditors holding claims amounting to at least three-fifths (3/5) of the liabilities is necessary for holding a creditors’ meeting. The proposed agreement must be approved by two-thirds (2/3) of the creditors representing at least three-fifths (3/5) of the debtor’s total liabilities. The proposed agreement will be deemed rejected if the number of creditors required for holding a creditors’ meeting is not attained, or if the required vote is not achieved. In such instances, the proceeding will be terminated and the creditors may enforce their respective credits.
If the required vote is achieved without any objection from the creditors, or the decision of the majority of the creditors to approve the proposed agreement or any amendment thereof made during the creditors’ meeting is upheld by the court, the latter will issue an order that the proposed agreement be carried out, and such agreement shall be binding on all creditors that have been properly summoned and included in the schedule of debts and liabilities. However, the agreement will not be binding upon those creditors mentioned in b (i) and (ii) above.
If the required vote is achieved but there is an objection from any of the creditors, the Court will conduct a hearing on the objection. If the objection is found to be meritorious, the proceeding will terminate. If the objection is found to be unmeritorious, the Court will proceed as though no objection has been made.
The amount of the debts of the debtor is not affected by a suspension of payments. However, the payment for such debts is delayed.
d. Objections to the debtor’s proposed agreement
The possible grounds for objecting to the proposed agreement are:
defects in the call for the meeting of the creditors, in the holding thereof, and in the deliberations thereat, which prejudice the rights of the creditors;
fraudulent connivance between one or more creditors and the debtor to vote in favor of the proposed agreement; and
iii. fraudulent conveyance of claims for the purpose of obtaining the required majority.
If the debtor fails wholly or in part to perform the court-approved agreement, the rights which the creditors had against the debtor before the agreement shall re-vest in them. In such case the individual debtor may be made subject to the insolvency proceedings in the manner established by the FRIA.
Court-Supervised Rehabilitation
Some of the salient provisions of the FRIA on court-supervised rehabilitation are as follows:
Under the FRIA, obligations incurred after the commencement date9 to finance the rehabilitation of the debtor are considered
administrative expenses. Thus, these obligations can be paid in the ordinary course of business during the rehabilitation period and
enjoy priority in preference of credits. This provision improves creditor rights for creditors coming in during rehabilitation.
The FRIA also provides for a waiver of taxes and fees due to the government (national and local) upon issuance of the
commencement order by the court and until approval of the rehabilitation plan or dismissal of the petition, whichever is
earlier.
9 Under the FRIA, the commencement date refers to the date on which the court issues the commencement order, which shall be retroactive to the date of filing of the petition for voluntary/involuntary proceedings.
The duration of a stay order extends from the issuance of the commencement order until the termination of the proceedings.
Compensation of employees required to carry on the business shall be considered an administrative expense. Claims for salary
and separation pay for work performed after the commencement date shall also be an administrative expense. However, claims of separation pay for months worked prior to the commencement date shall be considered a pre-commencement claim.
The FRIA provides further clarifications on the treatment of contracts. Under the FRIA, unless cancelled by a final judgment
of a court of competent jurisdiction issued prior to the issuance of the commencement order, or at any time thereafter by the court
before which the rehabilitation proceedings are pending, all valid and subsisting contracts of the debtor with creditors and other
third parties as at the commencement date shall continue in force:
provided, that within 90 days following the issuance of the commencement order, the debtor, with the written consent of the
rehabilitation receiver, must notify in writing each contractual counter-party whether it is confirming the particular contract.
Contractual obligations of the debtor arising or performed during this period, and afterwards for confirmed contracts, are considered
administrative expenses. Contracts not confirmed within the required deadline shall be considered terminated. Claims for
actual damages, if any, arising as a result of the election to terminate a contract shall be considered pre-commencement
claims against the debtor, to be filed with the rehabilitation court as a separate claim. The claim will be considered in the
rehabilitation plan with the other claims against the debtor. The provisions of the FRIA do not prevent the cancellation or
termination of any contract of the debtor for any ground provided by law.
The ability of the debtor’s directors or officers to dispose of the debtor’s assets is restricted. Directors or officers may be held
liable for double the value of the property involved if having notice of the commencement of the proceedings under the FRIA,
or having reason to believe that proceedings are about to be commenced, or in contemplation of the proceedings, willfully: (a)
dispose or cause to be disposed of any property of the debtor other than in the ordinary course of business or authorize or approve
any transaction in fraud of creditors or in a manner grossly disadvantageous to the debtor and/or creditors; or (b) conceal or authorize or approve the concealment, from the creditors, or embezzles or misappropriates, any property of the debtor. The
liability of the director or officer shall be determined by considering the amount of shareholding or equity interest of such
director or officer, the degree of his control, and the extent of his involvement in the actual management of the operations of the
corporation.
a) Types of Proceedings
Court-supervised rehabilitation proceedings are either voluntary or involuntary.
i. Voluntary Proceedings
An insolvent debtor (whether a sole proprietorship, partnership or corporation) may initiate voluntary proceedings by filing a petition for rehabilitation with the Philippine Regional Trial Court, which has jurisdiction over the principal office of the debtor, as specified in its articles of incorporation or partnership or, in cases of sole proprietorships, in its registration papers with the Department of Trade and Industry (DTI). A group of debtors may also jointly file a petition for rehabilitation when one or more of its members foresee the impossibility of meeting debts when they respectively fall due, and the financial distress would likely adversely affect the financial condition and/or operations of the other members of the group, and/or the participation of the other members of the group is essential under the terms and conditions of the proposed rehabilitation plan.
ii. Involuntary Proceedings
Any creditor or group of creditors with a claim of, or the aggregate of whose claims is, at least PHP1,000,000 or at least 25 percent of the subscribed capital stock or partners’ contributions, whichever is higher, may initiate involuntary proceedings against the debtor by filing a petition for rehabilitation with the court if:
b) Action on the Petition and Commencement of Proceedings
If the court finds the petition sufficient in form and substance, it will, not later than five working days from the filing of the petition, issue a “commencement order” which, among others: (1) declares that the debtor is under rehabilitation; (2) appoints a rehabilitation receiver;
(3) prohibits the debtor from selling, encumbering, transferring or disposing of in any manner any of its properties except in the ordinary course of business; (4) prohibits the debtor from making any payment of its liabilities outstanding as at the date of filing of the petition; (5) prohibits the debtor’s suppliers of goods or services from withholding the supply of goods and services in the ordinary course of business for as long as the debtor makes payments for the services and goods supplied after the issuance of the commencement order; (6) authorizes the payment of administrative expenses as they become due; (7) suspends all actions or proceedings, in court or otherwise, for the enforcement of claims against the debtor; (8) suspends all actions to enforce any judgment, attachment or other provisional remedies against the debtor;10 (9) sets an initial hearing on the petition; and (10) there is no genuine issue of fact or law on the claim/s of the petitioner/s, and that the due and demandable payments thereon have not been made for at least 60 days or that the debtor has failed generally to meet its liabilities as they fall due; or a creditor, other than the petitioner/s, has initiated foreclosure
proceedings against the debtor that will prevent the debtor from paying its debts as they become due or will render it insolvent.
directs all creditors and interested parties to file their claims at least five days before the said initial hearing.
10 The issuance of a stay or suspension order suspending all actions or proceedings for enforcement of all claims against the debtor, any judgment, attachment or other provisional remedies against the debtor and prohibiting the debtor from selling, encumbering, transferring or disposing of any of its properties except in the ordinary course of business and from making any payment for its outstanding liabilities as of commencement date does not affect the right to commence actions or proceedings in order to preserve ad cautelam a claim against the debtor and to toll the running of the prescriptive period to file the claim.
If, within the same period, the court finds the petition deficient in form or substance, it may give the petitioner/s not more than five working days to amend or supplement the petition. If the deficiency is not cured within the extended five-day period, the court must dismiss the petition.
Upon issuance of the commencement order and until approval of the rehabilitation plan or dismissal of the petition, whichever is earlier, the imposition of all taxes and fees including penalties, interests and charges thereof due to the national government or to local government units will be considered waived, in furtherance of the objectives of rehabilitation.
c) Effectivity and Duration of Commencement Order
Unless lifted by the court, or where the rehabilitation plan is seasonably confirmed or approved, or the rehabilitation proceedings are ordered terminated by the court, the commencement order will be effective for the duration of the rehabilitation proceedings for as long as there is a substantial likelihood that the debtor will be successfully rehabilitated.
d) Court Proceedings
If, after the initial hearing on the petition for rehabilitation, the court is satisfied that there is merit in the petition, it will give due course to the petition and refer the same to the rehabilitation receiver. The rehabilitation receiver will evaluate the rehabilitation plan and submit his or her recommendations to the court within a period of not more than 90 days. However, the court may also refer any dispute relating to the rehabilitation plan or the rehabilitation proceedings to arbitration or other modes of dispute resolution.
If the petition is dismissed because of a finding that: (1) debtor is not insolvent; (2) the petition is a sham filing intended only to delay the enforcement of the rights of the creditor/s or of any group of creditors; (3) the petition, the rehabilitation plan and the attachments thereto contain any materially false or misleading statements; (4) the debtor has committed acts of misrepresentation or in fraud of its creditor/s or a group of creditors, the court may, in its discretion, order the petitioner to pay damages to any creditor or to the debtor, as the case may be, who may have been injured by the filing of the petition, to the extent of any such injury.
The court may also convert the proceedings into one for the liquidation of the debtor upon a finding that (1) the debtor is insolvent; (2) there is no substantial likelihood for the debtor to be successfully rehabilitated as determined in accordance with the rules promulgated by the Supreme Court; and (3) there is failure of rehabilitation.
The court may also convert the proceedings into liquidation:
upon motion of the debtor (juridical debtor) at any time during the pendency of court-supervised or pre-negotiated rehabilitation proceedings;
when, one year from the date of filing of the petition to confirm a rehabilitation plan, no rehabilitation plan is confirmed within the said period;
in cases of termination of proceedings due to failure of rehabilitation or dismissal of petition for reasons other than technical grounds; or
upon verified motion of three or more creditors whose aggregate claims total at least one million pesos (PHP1,000,000) or at least 25 percent of the subscribed capital or partners’ contributions of the debtor, whichever is higher.
Management of the Juridical Debtor
Unless otherwise ordered by the court upon motion of any interested party, the management of the juridical debtor will remain with the existing management subject to the applicable laws and agreements, if any, on the election or appointment of directors, managers or managing partner. However, all disbursements, payments or sale, disposal, assignment, transfer or encumbrance of property, or any other act affecting title or interest in property, will be subject to the approval of the rehabilitation receiver and/or the court.
e) Claw-back Provisions
The court may, upon motion and after notice and hearing, rescind or declare as null and void any sale, payment, transfer or conveyance of the debtor’s unencumbered property or any encumbering thereof by the debtor or its agents or representatives after the commencement date which are not in the ordinary course of the business of the debtor.
The court may also rescind or declare as null and void any transaction that occurred prior to the commencement date entered into by the debtor or involving its funds or assets, on the ground that the same was executed with intent to defraud a creditor or creditors or which constitute undue preference of creditors.
f) Rehabilitation Plan
i. Confirmation of the Rehabilitation Plan
If no objections to the rehabilitation plan are filed within the relevant period or if the objections filed are found by the court to be lacking in merit or have been cured or have been resolved pursuant to an order to cure issued by the court, then the court must issue an order confirming such rehabilitation plan. The court may confirm the rehabilitation plan notwithstanding the existence of unresolved disputes over claims, if the rehabilitation plan has made adequate provisions for paying such claims.
ii. Effect of Confirmation of the Rehabilitation Plan •
Pre-Negotiated Rehabilitation
An insolvent debtor, by itself or jointly with any of its creditors, may file a verified petition with the court for the approval of a pre- negotiated rehabilitation plan, supported by an affidavit showing the written endorsement or approval of creditors holding at least two- thirds (2/3) of the total liabilities of the debtor, including secured creditors holding more than 50 percent of the total secured claims of the debtor and unsecured creditors holding more than 50 percent of the total unsecured claims of the debtor.
The confirmed rehabilitation plan will be binding upon the debtor and all persons who may be affected by it, including the creditors,
whether or not they participated in the proceedings, opposed the rehabilitation plan or whether or not their claims have been
included in the schedule.
The debtor must comply with the provisions of the rehabilitation plan and take all actions necessary to carry them out.
Payments will be made to the creditors in accordance with the provisions of the rehabilitation plan.
Contracts and other arrangements between the debtor and its creditors will be deemed as continuing in application but only to
the extent that they do not conflict with the provisions of the rehabilitation plan.
Any compromise on amounts or rescheduling of timing of payments by the debtor will be binding on creditors regardless of
the successful implementation of the rehabilitation plan.
Claims arising after approval of the rehabilitation plan that are otherwise not treated by the rehabilitation plan are not subject to any suspension order.
Out-of-Court or Informal Restructuring Agreements and Rehabilitation Plans
In addition to the existing court-supervised and pre-negotiated rehabilitation, the FRIA introduces out- of-court rehabilitation (OCRA) or
informal restructuring.
Minimum Requirements
The following are the minimum requirements for an out-of-court or informal restructuring/work-out agreement or Rehabilitation Plan under the FRIA:
The debtor must agree to the out-of-court or informal restructuring/workout agreement or Rehabilitation Plan.
It must be approved by creditors representing at least 67 percent of the secured obligations of the debtor.
It must be approved by creditors representing at least 75 percent of the unsecured obligations of the debtor.
It must be approved by creditors holding at least 85 percent of the total liabilities, secured and unsecured, of the debtor.
A standstill period, not exceeding 120 days, may be agreed upon by the parties pending negotiation and finalization of the out-of-court or informal restructuring. The standstill period will be effective and enforceable not only against the contracting parties but also against the other creditors; provided that the necessary creditor approval on the standstill period is obtained and notice thereof is published in a newspaper of general circulation once a week for two consecutive weeks.
Cram-Down Effect
A restructuring/workout agreement or rehabilitation plan that is approved pursuant to an informal work-out framework will have the same legal effect as a court-approved rehabilitation plan.
Any court action or other proceedings arising from, or relating to, the out-of-court or informal restructuring shall not stay its implementation, unless the relevant party is able to secure a temporary restraining order or injunctive relief from the court of appeals.
Liquidation Proceedings (Individuals or Corporations)
In cases where the debtor does not have enough assets/properties to cover his/her obligations or is generally unable to pay his or her liabilities as they fall due in the ordinary course of business, a liquidation proceeding may be initiated. It may be voluntary or involuntary.
Voluntary Liquidation
An insolvent debtor may apply for liquidation by filing a verified petition for liquidation with the court. The petition must establish the insolvency of the debtor, and must contain the following:
(a) A schedule of the debtor’s debts and liabilities including a list of creditors with their addresses, amounts of claims and collaterals, or securities, if any;
(b) An inventory of all its assets including receivables and claims against third parties; and
(c) The names of at least three nominees to the position of liquidator.
At any time during the pendency of court-supervised or pre-negotiated rehabilitation proceedings, the debtor may also initiate liquidation proceedings by filing a motion to convert the rehabilitation proceedings into liquidation proceedings in the same court where the rehabilitation proceedings are pending.
If the court finds the petition or the motion, as the case may be, to be sufficient in form and substance, the court will issue a liquidation order.
Involuntary Liquidation
Three or more creditors of a corporate debtor whose total credits amount to at least PHP1,000,000 or at least 25 percent of the subscribed capital stock or partners’ contribution of the debtor, whichever is higher, may seek the liquidation of an insolvent corporate debtor by filing a petition for liquidation of the debtor with the court.
At any time during the pendency of or after a rehabilitation court- supervised or pre-negotiated rehabilitation proceedings, three or more creditors whose claims are at least either PHP1,000,000 or at least 25 percent of the subscribed capital or partner’s contributions of the debtor, whichever is higher, may also initiate liquidation proceedings by filing a motion in the same court where the rehabilitation proceedings are pending to convert the rehabilitation proceedings into liquidation proceedings.
If the court determines the petition or motion to be meritorious, it will issue a liquidation order.
On the other hand, any creditor or group of creditors with a claim of, or with claims aggregating at least PHP500,000 against an individual debtor may file a verified petition for liquidation with the court of the city or province in which the debtor resides. The court will issue an order requiring the individual debtor to show cause why he or she should not be declared an insolvent. If the individual debtor shall default or if, after trial, the issues are found in favor of the petitioning creditors, the court will issue the liquidation order.
Effects of the Liquidation Order
Upon the issuance of the liquidation order:
(a) the juridical debtor will be deemed dissolved and its corporate or juridical existence terminated;
(b) legal title to and control of all the assets of the debtor, except those that may be exempt from execution, will be deemed vested in the liquidator or, pending his or her election or appointment, with the court;
(c) all contracts of the debtor will be deemed terminated and/or breached, unless the liquidator, within 90 days from the date of his or her assumption of office, declares otherwise and the contracting party agrees;
(d) no separate action for the collection of an unsecured claim will be allowed. Such actions already pending will be transferred to the liquidator to accept and settle or contest. If the liquidator contests or disputes the claim, the court will allow, hear and resolve such contest except when the case is already on appeal. In such a case, the suit may proceed to judgment, and any final and executory judgment therein for a claim against the debtor will be filed and allowed in court; and
(e) no foreclosure proceeding will be allowed for a period of 180 days.
Rights of Secured Creditors
The liquidation order will not affect the right of a secured creditor to enforce his or her lien in accordance with the applicable contract or law. A secured creditor may:
(a) waive his or her right under the security or lien, prove his or her claim in the liquidation proceedings and share in the distribution of the assets of the debtor; or
(b) maintain his or her rights under the security or lien.
If the secured creditor maintains his or her rights under the security or lien:
(a) the value of the property may be fixed in a manner agreed upon by the creditor and the liquidator. When the value of the property is less than the claim it secures, the liquidator may convey the property to the secured creditor and the latter will be admitted in the liquidation proceedings as a creditor for the balance. If its value exceeds the claim secured, the liquidator may convey the property to the creditor and waive the debtor’s right of redemption upon receiving the excess from the creditor;
(b) the liquidator may sell the property and satisfy the secured creditor’s entire claim from the proceeds of the sale; or
(c) the secured creditor may enforce the lien or foreclose on the property pursuant to applicable laws.
Liquidation Plan
Within three months from assumption into office, the liquidator must submit a liquidation plan to the court. The liquidation plan must, as a minimum, enumerate all the assets of the debtor, all the claims against the debtor and a schedule of liquidation of the assets and payment of the claims.
The liquidator must implement the liquidation plan as approved by the court. Payments must be made to creditors only in accordance with the provisions of the liquidation plan. But if the debtor and creditor are mutually debtor and creditor of each other, one may be set off against the other. If there is any balance, then the balance may be claimed in the liquidation proceedings.
Concurrence and Preference of Credits
The liquidation plan must ensure that the concurrence and preference of credits as enumerated in the Civil Code and other relevant laws will be observed, unless a preferred creditor voluntarily waives his or her preferred right. Credits for services rendered by employees or laborers to the debtor shall enjoy first preference, unless the claims constitute legal liens under relevant provisions of the
Civil Code.
Certain types of credits enjoy preference with respect to specific movable or immovable properties (special preferred credits).
Among the special preferred credits, taxes and assessments due upon the property to which the claims relate enjoy absolute preference. All the remaining classes of special preferred credits with respect to specific movable or immovable property (e.g., credits secured by a pledge or mortgage) do not enjoy priority among themselves, but must be paid concurrently and pro rata, i.e., in proportion to the amount of the respective credits.
Credits that do not enjoy any preference with respect to specific property are satisfied in the order established in Article 2244 of the Civil Code. Article 2244 provides for the preference of certain claims and credits which, without special privilege, appear in (i) a public instrument (i.e., the instrument is notarized); or (ii) a final judgment. These credits have preference among themselves in the order of priority of the dates of the instruments and of the judgments, respectively.
Claw-Back Provisions
Any transaction occurring prior to the issuance of the liquidation rrder or, in case of the conversion of the rehabilitation proceedings, prior to the commencement date, entered into by the debtor or involving its assets, may be rescinded or declared null and void on the ground that the same was executed with intent to defraud a creditor/s or which constitute undue preference of creditors.
The liquidator or, with his or her conformity, a creditor may initiate and prosecute any action to rescind, or declare null and void, any transaction described in the immediately preceding paragraph.
Cross-Border Insolvency Proceedings
The FRIA provides for recognition of foreign insolvency proceedings and adopts the Model Law on Cross-Border Insolvency of the
UNCITRAL, subject to the FRIA Rules.
Foreign creditors are accorded the same rights as creditors in the Philippines in proceedings involving court-supervised rehabilitation, pre-negotiated rehabilitation and OCRA governed by the FRIA Rules.
However, courts must refuse to take any action in any cross-border insolvency proceeding where (a) the action would be manifestly
contrary to the public policy of the Philippines; and (b) the court finds that the country where the foreign rehabilitation proceeding is taking place does not extend recognition to a Philippine rehabilitation proceeding, or that the country of which the petitioner-foreign creditor is a national does not grant the same rights to a Philippine creditor in a manner substantially in accordance with the FRIA Rules.
The FRIA Rules apply when assistance is sought before a Philippine court by a foreign court or a foreign representative in connection with a foreign proceeding;
Assistance is sought in a foreign state in connection with a proceeding governed by the FRIA and the FRIA Rules;
A foreign proceeding and a proceeding governed by the FRIA and the FRIA Rules are concurrently taking place; and Creditors in a foreign state have an interest in requesting the commencement of, or participating in, a proceeding under the FRIA Rules for court-supervised rehabilitation, pre-negotiated rehabilitation or OCRA.
Rules of Procedure
The FRIA provides that the Supreme Court shall designate the court/s that will hear and resolve cases brought under its provisions and shall promulgate the rules of pleading, practice and procedure to govern the said proceedings.
To this end, the Supreme Court issued a resolution11 designating the branches of the various Regional Trial Courts in the Philippines that will try and decide cases previously under the jurisdiction of the Securities and Exchange Commission under PD 902-A, including petitions of corporations, partnerships or associations to be declared in the state of suspension of payments.
The Supreme Court also issued the FRIA Rehabilitation Rules12 on 27 August 2013 to, among others, implement the FRIA provisions
on rehabilitation proceedings. The FRIA Rehabilitation Rules apply to petitions for rehabilitation filed pursuant to the FRIA, as well as to
all further proceedings in suspension of payments and rehabilitation proceedings already pending, except to the extent that, in the opinion of the court, its application would not be feasible or would work injustice, in which event the procedures originally applicable shall continue to govern. Prior to the promulgation of the FRIA Rehabilitation Rules, the rules that the Supreme Court followed were contained in the Rules of Procedure on Corporate Rehabilitation.
Under the FRIA Rehabilitation Rules, all petitions pursuant to the said rules are filed in the Regional Trial Court, which has jurisdiction over the principal office of the debtor alleged to be insolvent as specified in its articles of incorporation or partnership or in its registration papers with the DTI in cases of sole proprietorships. If the principal office of the corporation, partnership or association is in Metro Manila, the action is filed in the Regional Trial Court of the city or municipality where the head office is located. In addition, if the petition involves a group of debtors, the petition is filed in the Regional Trial Court which has jurisdiction over the principal office of any of the debtors alleged to be insolvent.
11 Supreme Court Administrative Matter No 00-11-03. 12 Supreme Court Administrative Matter No 12-12-11.
On 21 April 2015, the Supreme Court promulgated the FLSP Rules, which shall govern the practice, pleading and procedure for the liquidation of insolvent juridical and individual debtors, and suspension of payments of insolvent individual debtors. The FLSP Rules apply to petitions for liquidation and suspension of payments filed pursuant to the FRIA, and to all further proceedings in insolvency cases then pending, except to the extent that, in the opinion of the court, its application would not be feasible or would work injustice, in which event the procedures originally applicable shall continue to govern.
Under the FLSP Rules, all petitions pursuant to the said rules are filed in the Regional Trial Court which has jurisdiction over the principal office of the juridical debtor alleged to be insolvent as specified in its articles of incorporation or partnership, or the residence of the individual insolvent debtor. If the principal office of the corporation or partnership is in Metro Manila, the action is filed in the Regional Trial Court of the city or municipality where the head office is located.
Special Rules of Procedure/Writs Issued by Courts
Rules of Procedure for Environmental Cases (A.M. No. 09-6-8-SC)
The Rules of Procedure for Environmental Cases govern the procedure in civil, criminal and special civil actions before the first- and second-level courts involving enforcement or violations of environmental laws, rules, and regulations.
Any real party in interest, including the government and juridical entities required by law, may file a civil action involving the enforcement or violation of any environmental law. A “citizen’s suit” may also be instituted by any Filipino citizen in representation of others, including minors or generations yet unborn, to enforce rights or obligations under environmental laws.
In case of grave injustice and irreparable injury, and the matter is of extreme urgency, the courts may also issue a Temporary Environmental Protection Order (TEPO) effective for 72 days, unless extended. The court where the case is assigned is required to periodically monitor the existence of acts that are the subject matter of the TEPO, and may lift the same as circumstances may warrant.
Other than the Supreme Court, no other court is authorized to issue a temporary restraining order or writ of preliminary injunction against lawful actions of government agencies that enforce environmental laws or prevent violations.
If warranted, the court may grant to the plaintiff proper reliefs which shall include the protection, preservation or rehabilitation of the environment and the payment of attorney’s fees, costs of suit and other litigation expenses. The court may also require the violator to submit a program of rehabilitation or restoration of the environment, the costs of which shall be borne by the violator, or to contribute to a special trust fund for that purpose subject to the control of the court.
Any judgment directing the performance of acts for the protection, preservation or rehabilitation of the environment shall be executory pending appeal unless restrained by the appellate court.
The court may also convert the TEPO to a permanent EPO or issue a writ of continuing mandamus directing the performance of acts which shall be effective until the judgment is fully satisfied. The court may, by itself or through the appropriate government agency, monitor the execution of the judgment and require the party concerned to submit written reports of a quarterly basis or sooner as may be necessary, detailing the progress of the execution and satisfaction of the judgment. The other party may, at its option, submit its comments or observations on the execution of the judgment.
The rules also define a strategic lawsuit against public participation (SLAPP), which is a legal action filed to harass, vex, exert undue pressure or stifle any legal recourse that any person, institution or the government has taken or may take in the enforcement of environmental laws.
In addition to a SLAPP, the rules also provides for a writ of kalikasan (Environment), which is a remedy available to a natural or juridical person, entity authorized by law, people’s organization, non- governmental organization, or any public interest group accredited by or registered with any government agency, on behalf of persons whose constitutional right to a balanced and healthful ecology is violated, or threatened with violation by an unlawful act or omission of a public official or employee, or private individual or entity, involving environmental damage of such magnitude as to prejudice the life, health or property of inhabitants in two or more cities or provinces.
The petition for the issuance of the writ of kalikasan is filed with the Supreme Court or with any of the stations of the Court of Appeals.
The reliefs that may be granted under the writ of kalikasan are the following:
(a) Directing respondent to permanently cease and desist from committing acts or neglecting the performance of a duty in violation of environmental laws resulting in environmental destruction or damage;
(b) Directing the respondent public official, government agency, private person or entity to protect, preserve, rehabilitate or restore the environment;
(c) Directing the respondent public official, government agency, private person or entity to monitor strict compliance with the decision and orders of the court;
(d) Directing the respondent public official, government agency, or private person or entity to make periodic reports on the execution of the final judgment; and
(e) Such other reliefs which relate to the right of the people to a balanced and healthful ecology or to the protection, preservation, rehabilitation or restoration of the environment, except the award of damages to individual petitioners.
Another writ issued under the rules is the writ of continuing mandamus. The writ commands the respondent to do an act or series of acts until the judgment is fully satisfied, and to pay damages sustained by the petitioner by reason of the malicious neglect to perform the duties of the respondent, under environmental laws, rules or regulations. The petition for its issuance is filed at the Regional Trial Court exercising jurisdiction over the territory where the actionable neglect or omission occurred, or with the Court of Appeals or the
Supreme Court.
The rules also require courts to adopt the precautionary principle in resolving cases before it. The precautionary principle is defined as follows: “When there is a lack of full scientific certainty in establishing a causal link between human activity and environmental effect, the court shall apply the precautionary principle in resolving the case before it. The constitutional right of the people to a balanced and healthful ecology shall be given the benefit of the doubt.”
In applying the precautionary principle, the court may consider the following factors: (1) threats to human life or health; (2) inequity to present or future generations; or (3) prejudice to the environment without legal consideration of the environmental rights of those affected.
The Rule on the Writ of Amparo (A.M. No. 07-9-12-SC)
A writ of amparo is a remedy available to any person whose right to life, liberty and security is violated or threatened with violation by an unlawful act or omission of a public official or employee, or of a private individual or entity. It covers extralegal killings and enforced disappearances or threats thereof.
The petition for the issuance of the writ may be filed by the aggrieved party or a qualified person on any day and at any time with the Regional Trial Court of the place where the threat, act or omission was committed or any of its elements occurred or with the Sandiganbayan, Court of Appeals, Supreme Court or any justice of such courts. The writ is enforceable anywhere in the Philippines.
Upon the filing of the petition, the court, justice or judge shall immediately order the issuance of the writ if on its face it ought to issue. The clerk of court shall issue the writ under the seal of the court; or in case of urgent necessity, the justice or the judge may issue the writ under his or her own hand, and may deputize any officer or person to serve it. The writ shall also set the date and time for summary hearing of the petition, which shall not be later than seven days from the date of its issuance.
Within 72 hours after service of the writ, the respondent shall file a verified written return together with supporting affidavits which shall, among other things, contain the following:
(a) The lawful defenses to show that the respondent did not violate or threaten with violation the right to life, liberty and security of the aggrieved party, through any act or omission;
(b) The steps or actions taken by the respondent to determine the fate or whereabouts of the aggrieved party and the person or persons responsible for the threat, act or omission;
(c) All relevant information in the possession of the respondent pertaining to the threat, act or omission against the aggrieved party; and
(d) If the respondent is a public official or employee, the return shall further state the actions that have been or will still be taken: (i) to verify the identity of the aggrieved party; (ii) to recover and preserve evidence related to the death or disappearance of the person identified in the petition which may aid in the prosecution of the person or persons responsible; (iii) to identify witnesses and obtain statements from them concerning the death or disappearance; (iv) to determine the cause, manner, location and time of death or disappearance as well as any pattern or practice that may have brought about the death or disappearance; (v) to identify and apprehend the person or persons involved in the death or disappearance; and (vi) to bring the suspected offenders before a competent court.
Upon filing of the petition or at any time before final judgment, the court, justice or judge may grant any of the following reliefs:
(a) Temporary Protection Order, which is an order that the petitioner or the aggrieved party and any member of the immediate family be protected in a government agency or by an accredited person or private institution capable of keeping and securing their safety. If the petitioner is an organization, association or institution, the protection may be extended to the officers involved.
(b) Inspection Order, which is an order to any person in possession or control of a designated land or other property to permit entry for the purpose of inspecting, measuring, surveying, or photographing the property or any relevant object or operation thereon.
(c) Production Order, which is an order to any person in possession, custody or control of any designated documents, papers, books, accounts, letters, photographs, objects or tangible things, or objects in digitized or electronic form, which constitute or contain evidence relevant to the petition or the return, to produce and permit their inspection, copying or photographing by or on behalf of the movant.
(d) Witness Protection Order, which is an order referring the witnesses to the Department of Justice for admission to the Witness Protection, Security and Benefit Program, pursuant to Republic Act No. 6981. The court, justice or judge may also refer the witnesses to other government agencies or to accredited persons or private institutions capable of keeping and securing their safety.
The court shall render judgment within 10 days from the time the petition is submitted for decision. If the allegations in the petition are proven by substantial evidence, the court shall grant the privilege of the writ and such reliefs as may be proper and appropriate; otherwise, the privilege shall be denied.
Rule on the Writ of Habeas Data (A.M. No. 08-1-16-SC)
The writ of habeas data is a remedy available to any person whose right to privacy in life, liberty or security is violated or threatened by an unlawful act or omission of a public official or employee, or of a private individual or entity engaged in the gathering, collecting or storing of data or information regarding the person, family, home and correspondence of the aggrieved party.
Any aggrieved party may file a petition for the writ of habeas data. However, in cases of extralegal killings and enforced disappearances, the petition may be filed by
(a) Any member of the immediate family of the aggrieved party, namely: the spouse, children and parents; or
(b) Any ascendant, descendant or collateral relative of the aggrieved party within the fourth civil degree of consanguinity or affinity, in default of those mentioned in the preceding paragraph.
The petition may be filed with the Regional Trial Court where the petitioner or respondent resides, or that which has jurisdiction over the place where the data or information is gathered, collected or stored, at the option of the petitioner.
The petition may also be filed with the Supreme Court or the Court of Appeals or the Sandiganbayan when the action concerns public data files of government offices.
The writ of habeas data is enforceable anywhere in the Philippines.
Upon the filing of the petition, the court, justice or judge shall immediately order the issuance of the writ if on its face it ought to issue.
The clerk of court shall issue the writ under the seal of the court and cause it to be served within three days from its issuance; or, in case of urgent necessity, the justice or judge may issue the writ under his or her own hand, and may deputize any officer or person to serve it. The writ shall also set the date and time for summary hearing of the petition which shall not be later than 10 work days from the date of its issuance.
The respondent shall file a verified written return together with supporting affidavits within five work days from service of the writ, a period that may be reasonably extended by the court for justifiable reasons. The return shall, among other things, contain the following:
(a) The lawful defenses such as national security, state secrets, privileged communication, confidentiality of the source of information of media and others;
(b) In case of respondent in charge, in possession or in control of the data or information subject of the petition: (i) a disclosure of the data or information about the petitioner, the nature of such data or information, and the purpose for its collection; (ii) the steps or actions taken by the respondent to ensure the security and confidentiality of the data or information; and (iii) the currency and accuracy of the data or information held; and
(c) Other allegations relevant to the resolution of the proceeding.
A general denial of the allegations in the petition is not allowed.
The court shall render judgment within 10 days from the time the petition is submitted for decision. If the allegations in the petition are proven by substantial evidence, the court shall enjoin the act complained of, or order the deletion, destruction, or rectification of the erroneous data or information and grant other relevant reliefs as may be just and equitable; otherwise, the privilege of the writ shall be denied.
For further information, please contact:
Wynn Pakdeejit, Partner, Baker & McKenzie
milton.cheng@bakermckenzie.com
