The Stay Order of the Rehabilitation Court

did not divest the RTC's jurisdiction to hear

and decide respondent PVB's Complaint.

With respect to the first ground raised by petitioner TIDCORP, the Court holds that the Stay Order
issued by the Rehabilitation Court did not preclude the R TC from hearing and deciding respondent
PVB' s Complaint.

First and foremost, it must be noted that the Stay Order relied upon by petitioner TIDCORP merely
ordered the staying and suspension of enforcement of all claims and proceedings against the
petitioner PhilPhos and not against all the other persons or entities solidarily liable with the debtor.
The tenor of the Stay Order itself belies the theory of petitioner TIDCORP. According to the Stay
Order, the said order only covers "all claims, actions, or proceedings against the petitioner
[referring to debtor PhilPhos]." 27

Second, Section 18(c) of the FRIA explicitly states that a stay order shall not apply "to the
enforcement of claims against sureties and other persons solidarily liable with the debtor,
and third party or accommodation mortgagors as well as issuers of letters of credit, x x x." 28

In addition, under Rule 4, Section 6 of A.M. No. 00-8-10-SC or the Interim Rules of Procedure on
Corporate Rehabilitation, a stay order has the effect of staying enforcement only with respect to
claims made against the debtor, its guarantors and persons not solidarity liable with the debtor:

Section 6. Stay Order.- If the court finds the petition to be sufficient in form and substance, it shall,
not later than five (5) working days from the filing of the petition, issue an order: (a) appointing a
rehabilitation receiver and fixing his bond; (b) staying enforcement of all claims, whether for
money or otherwise and whether such enforcement is by court action or otherwise, against
the debtor, its guarantors and persons not solidarily liable with the debtor x x x. 29

In Situs Dev. Corporation, et al. v. Asiatrust Bank, et al.,  the Court held that when a stay order is
30

issued, the rehabilitation court is only empowered to suspend claims against the debtor, its
guarantors, and sureties who are not solidarity liable with the debtor. Hence, the making of claims
against sureties and other persons solidarily liable with the debtor is not barred by a stay
order.

Upon a simple perusal of the Guarantee Agreement, to which petitioner TIDCORP readily admitted it
is bound, the answer to the aforementioned question becomes a clear and unmistakable
yes. Petitioner TIDCORP indubitably engaged to be solidarily liable with PhilPhos under the
Guarantee Agreement.

The Guarantee Agreement unequivocally states that petitioner TIDCORP waived its right of
excussion under Article 2058 of the Civil Code  and that, consequently, the Series A Noteholders
31

can claim under the Guarantee Agreement DIRECTLY against petitioner TIDCORP without having
to exhaust all the properties of PhilPhos and without need of any prior recourse against PhilPhos:

5.1 ORDINARY GUARANTEE. TIDCORP, with the ISSUER's express conformity, hereby waives
the provision of Article 2058 of the New Civil Code of the Philippines on excussion, as well as
presentment, demand, protest or notice of any kind with respect to this Guarantee
Agreement. It is therefore understood that the SERIES A NOTEHOLDERS can claim under this
Guarantee Agreement directly with TIDCORP without the SERIES A NOTEHOLDERS having to
exhaust all the properties of the ISSUE and without need of prior recourse to the ISSUER. 32
Under a normal contract of guarantee, the guarantor binds himself to the creditor to fulfill the
obligation of the principal debtor in case the latter should fail to do so. The guarantor who pays for a
debtor, in turn, must be indemnified by the latter. However, the guarantor cannot be compelled to
pay the creditor unless the latter has exhausted all the property of the debtor and resorted to
all the legal remedies against the debtor. This is what is otherwise known as the benefit of
excussion.  Conversely, if this benefit of excussion is waived,   the guarantor can be directly
33 34

compelled by the creditor to pay the entire debt even without the exhaustion of the debtor's
properties.

In other words, a guarantor who engages to directly shoulder the debt of the debtor, waiving the
benefit of excussion and the requirement of prior presentment, demand, protest or notice of any
kind, undoubtedly makes himself/herself solidarily liable to the creditor.

In the instant case, without any shadow of doubt, petitioner TIDCORP had expressly renounced
the benefit of excussion and in no uncertain terms made itself directly and principally liable
without any qualification to the Series A Noteholders and without the need of any prior
recourse to PhilPhos.

In effect, the nature of the guarantee obligation assumed by petitioner TIDCORP under the
Guarantee Agreement was transformed into a suretyship. This is the case because the defining
characteristic that distinguishes a guarantee from a suretyship is that in the latter, the obligor
promises to pay the principal's debt if the principal will not pay, while in the former, the obligor
agrees that the creditor, after proceeding against the principal and exhausting all of the principal's
properties, may proceed against the obligor. 40

Sec. 146 of the FRIA, which makes it applicable to "all further proceedings in insolvency, suspension
of payments and rehabilitation cases x x x except to the extent that in the opinion of the court their
application would not be feasible or would work injustice," still presupposes a prospective
application. The wording of the law clearly shows that it is applicable to all further proceedings. In no
way could it be made retrospectively applicable to the Stay Order issued by the rehabilitation court
back in 2002.

At the time of the issuance of the Stay Order, the rules in force were the 2000 Interim Rules of
Procedure on Corporate Rehabilitation (the "Interim Rules"). Under those rules, one of the effects of
a Stay Order is the stay of the "enforcement of all claims, whether for money or otherwise and
whether such enforcement is by court action or otherwise, against the debtor, its guarantors and
sureties not solidarily liable with the debtor." 7 Nowhere in the Interim Rules is the rehabilitation court
authorized to suspend foreclosure proceedings against properties of third-party mortgagors

when the Stay Order was issued, the rehabilitation court was only empowered to suspend claims
against the debtor, its guarantors, and sureties not solidarily liable with the debtor. Thus, it was
beyond the jurisdiction of the rehabilitation court to suspend foreclosure proceedings against
properties of third-party mortgagors.
Section 1, Rule 4 of the Interim Rules on the Procedure on Corporate Rehabilitation provides for the
qualifications of a corporation to file a petition for corporate rehabilitation, to wit:

Sec. 1. Who May Petition. -  Any debtor who foresees the impossibility of meeting its debts when
they respectively fall due, or any creditor or creditors holding at least twenty-five percent (25%) of
the debtor's total liabilities, may petition the proper Regional Trial Court to have the debtor placed
under rehabilitation. (Emphasis Ours)

In Philippine Bank of Communications v. Basic Polyprinters and Packaging Corporation, 40 the Court
underscored that despite the insolvency of a corporation, it cannot be hindered to file a petition for
corporate rehabilitation. To conclude otherwise will defeat its purpose of restoring a corporation to its
former position of successful operation and solvency. 41

A better and more sound interpretation adheres to the very purpose of corporate rehabilitation, which
is to allow the debtor-corporation to be restored "to a position of successful operation and solvency, if
it is shown that its continuance of operation is economically feasible and its creditors can recover by
way of the present value of payments projected in the plan." 43

Thus, the condition that triggers rehabilitation proceedings is  not the maturation of a
corporation's debts but the inability of the  debtor to pay these

Despite this Court's finding that Fortuna may petition for court rehabilitation, being qualified to do
does not mean that such a petition will automatically be validated.

if the results of the financial examination and analysis clearly indicate that there lies no
reasonable probability that the distressed corporation could be revived and that
liquidation would, in fact, better subserve the interests of its stakeholders, then it may be
said that a rehabilitation wouldnot be feasible. In such case, the rehabilitation court may convert
the proceedings into one for liquidation

Corporate rehabilitation is a type of proceeding available to a business that is insolvent. In general,

insolvency proceedings provide for predictability that commercial obligations will be met despite
business downturns. Stability in the economy results when there is assurance to the investing public
that obligations will be reasonably paid. It is considered state policy to encourage debtors, both
juridical and natural persons, and their creditors to collectively and realistically resolve  and adjust
competing claims and property rights