REPUBLIC OF THE PHILIPPINES

COURT OF APPEALS
MANILA

GM ANGELES FOOD CORPORATION

Petitioner-Appellant,

-versus- CA-GR CV No. 87402

WILLIAM KWONG
Oppositor-Appellee,
X ----------------------------X

APPELLANT’S BRIEF

Petitioner-Appellant, by counsel, respectfully submits

its Brief , and hereby alleges:

ASSSIGNMENT OF ERROR

I. The Court a quo erred in denying GM Angeles Food

Corporation its day in court when it refused to give

Petitioner-Appellant opportunity to comment on the Motion to

Dismiss.

II. The Court a quo erred in finding GM Angeles Food

Corporation’s Assets exceeded it Liabilities.

III. The Court a quo erred in finding “Advances from

Officers” synonymous to “Advances to Officers”.

IV. The Court a quo erred in concluding there was

dissipation of asset absent any proof thereof.

STATEMENT OF THE CASE

1. On August 3, 2005 GM Angeles Food Corporation

filed a Petition for Insolvency, attaching to the said

petition the schedule of liabilities, inventory of assets

and the verified affidavit of the authorized representative

of GM Angeles Food Corporation with the Regional Trial

Court, Branch 58, Angeles City, Pampanga (Record pg. 2-15);

2. On August 11, 2005, after all jurisdictional

matters were established, the Regional Trial Court, Branch

58, Angeles City, Pampanga, issued an order declaring GM

Angeles Food Corporation insolvent and directing the deputy

sheriff to take possession of and safely keep until the

appointment of a receiver or assignee, all deeds, vouchers,

books or accounts, papers, notices, bonds, bills, and

securities of the petitioner and all its real and personal

properties, estates and effects except such as may be by law

exempt from execution (Record p.16-17);

3. On October 5, 2005 the deputy sheriff submitted to

the Court a quo a listing of all existing and inventoried

assets, real and personal properties of GM Angeles Food

Corporation (Record p. 94-105);

4. On October 27, 2005 the Court a quo held a meeting

between the legal representative (Mr. Alvin Cuason Office

address: Room 1408 31 Atlanta Center, Annapolis St., San

Juan, Manila 1502) of GM Angeles Food Corporation and all

the creditors of GM Angeles Food Corporation. During the

said meeting, the Court a quo appointed its own Clerk of

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Court to be the receiver of all real and personal properties

of GM Angeles Food Corporation (Record p.170 and 176);

5. The assignee/receiver submitted to the court a quo

a report of the remaining assets, real and personal

properties of GM Angeles Food Corporation (Record p.180-

181);

6. In the said report the assignee/receiver noted

that “Items/properties are presently being utilized/used by

the Shanghai Palace Restaurant (owned by William Kwong,

Oppositor-Appelle). Preservation of the properties is

needed to protect the rights of all parties, dated November

10, 2005 (Record p.181);

7. On November 18, 2005, the court a quo gave GM

Angeles Food Corporation creditors 15 days to file their

opposition while petitioner-appellant’s counsel, submitted

and marked additional evidence to support the petition for

insolvency. The court a quo subpoenaed Mr. Benito Cataran of

Securities and Exchange Commission and the Regional Director

of the Bureau of Internal Revenue, San Fernando, Pampanga

(Record p.189);

8. On December 9, 2005 GM Angeles Food Corporation’s

counsel was indisposed and he sent a para-legal, Ms. Mildred

V. Hernandez, to receive the copy of the Opposition with

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Motion to Dismiss filed by creditor – claimant, William

Kwong (Record p.195-231);

9. Immediately after the lapse of seven (7) days, on

December 16, 2005 the Court a quo granted the Motion to

Dismiss filed by creditor- claimant William Kwong, finding

GM Angeles Foods Corporation solvent, the Order reads, as

follows (Record p.232-233):

The Court is now being called upon to resolve the

Motion to Dismiss filed by creditor-claimant William
Kwong on December 1, 2005. Said Motion was opposed by
Petitioner as per opposition on December 2005, thus,
this resolution.

A review on the petition would indeed show that

GM Angeles Food Corporation, the petitioner is a
juridical person duly registered with the laws of the
Republic of the Philippines. Said petitioner being
duly registered with the SEC on January 15, 2003 as
per SEC Reg. No. CS200301268 (Exhibit “F”). Petitioner
Corporation as per exhibit appears to have the
following capital structure and stockholders, to wit:

“SEVENTH : That the authorized capital stock of

the corporation is TWENTY MILLION pesos in lawful
money of the Philippines, divided into TWO HUNDRED
THOUSAND SHARES with PAR VALUE of ONE HUNDRED pesos
per share.

EIGHT: That the subscribers to the capital stock

and the amount paid-in to their subscriptions are as
follows:

Name Nationality No. of Amount Amount Paid

Shares Subscribed
Subscribed
BENSON Filipino 10,000.00 P1,000,000 P250,000.00
INT’L
HOLDINGS
CORP.
ONG LIAN -do- 20,000.00 2,000,000 P500,000.00
KUAY
TIMMY CHOI -do- 5,000.00 500,000 P125,000.00
BENJAMIN -do- 5,000.00 500,000 P125,000.00

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CUASON
ALVIN -do- 5,000.00 500,000 P125,000.00
CUASON
BENNIE -do- 2,500.00 250,000 P62,500.00
CUASON
EDMUNDO L. -do- 2,500.00 250,000 P62,500.00
TAN
TOTAL 50,000.00 P5,000,000 P1,250,000.00

The submitted indebtedness of said petitioner as

per its Annex “B” totaled P3,204,524.02 which was more
than the current P1,250,000.00 paid up capital of the
corporation. This being so the corporation indeed
appears to be on the red. However, said petitioner is
not insolvent as it wanted to impress this court.
This is clearly shown in the subscribed capital of the
petitioner which is P5,000,000.00 the petitioner’s
stockholders are indebted to the corporation in the
tune of about P3,750,000.00 which has yet to be
collected. The corporation petitioner is only to make
a “CALL” in accordance with the procedures set forth
in the Corporation Code for the stockholders to pay up
their unpaid subscription and if collected the
obligations of the petitioner can all be settled.
Should the corporate subscribers refuse payment, then
the veil of corporate entity may be pierced by the
corporation and/or by its creditors so that personal
of said stockholders could be lawfully attached.”

Thus, to the mind of this Court, the petitioner

through its authorized representative Mr. Alvin L .
Cuason lied in his testimony and was less than
truthful to the court when it filed and declared the
Petition of Insolvency. Said petitioner appears to be
merely invoking the Insolvency law only to escape from
its lawful obligations with their creditors. This
cannot be tolerated an allowed by the court, as it
strongly admonished the petitioner not to use the law
and the Courts in its unlawful scheme of skirting from
its obligations. The time honored doctrine which
states that ”He who comes to court must come with
clean hands” and the unparalleled principle of justice
and equity should be the foremost concern of the
court. The obviously appears to be absent in the case
at bar.

Wherefore, premises considered, the Motion to

Dismiss filed by the Oppositor – Creditor William
Kwong is GRANTED after finding merit on its
contentions. The instant Petition is ordered
DISMISSED for lack of cause of action and of merit.

A copy of the assailed Judgment is hereto attached as

Annex – “A”;

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 10. On January 4, 2006, GM Angeles Food Corporation

filed an Omnibus Motion for the inhibition of the Judge and

reconsideration of the Judgment (Record p. 237-245).

11. On May 11, 2006, the Omnibus Motion was set for

hearing. However, the oppositor – creditor William Kwong

merely asked for time to file his comment on the said motion

(Record p.253).

12. On May 24, 2006, oppositor – creditor William

Kwong, submitted an opposition to the Omnibus Motion filed

by GM Angeles Food Corporation (Record p. 257-263).

13. On May 30, 2006, the Court a quo issued an order

denying the Omnibus Motion for inhibition and

reconsideration (Record p. 264), the Order reads, as

follows:

After a careful reading on the Omnibus Motion

filed petitioner and the Opposition filed by Creditor-
Claimant, this Court find no issues raised in the
Omnibus Motion of the petitioner to warrant the
reversal of the earlier Order of the Court dated
December 16, 2005.

It must be emphasized that petitioner in this

case is GM Angeles food Corporation whose personality
is separate and distinct from that of all its
stockholders more particularly that of stockholder
Alvin Cuason, its alleged treasurer. The dissipation
of the corporate assets of the petitioner were
allegedly due to advances unlawfully extended by the
corporation to its stockholders to the prejudice and
damage of the creditors-claimants. The petition is
clearly seen by this Court as a devise employed by the
stockholders/officers in order to escape from its
obligations towards its lawful creditors. Even
assuming the same to be true, such advances are
considered in law as loans or account receivables
which the concerned stockholders should pay the
corporation. This being so, the petitioner corporation

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 could not lawfully claim to be insolvent as
contemplated by law.
On the issue of inhibition the same is
likewise denied for lack of merit. To mind of this
court, inhibition is being resorted to by petitioner
in order to obtain a favorable judgment on their
petition. Inhibition is not a remedy granted by law
for a party to resort into in any court proceeding.
It is seen as one designed by a party to the hope of
finding a forum that will be sympathetic to his cause
of action.
Considering the assailed Order of the Court
which was A Dismissal of the petition, to inhibit
would tantamount to ranting the Motion for
Reconsideration.
Wherefore, premises considered, the Omnibus
Motion for Inhibition and Reconsideration is DENIED.

Attached hereto and made integral part hereof is a

copy of the said order as, Annex “B”.

14. Hence, this Appeal.

STATEMENT OF FACTS

15. That Petitioner is a Domestic Corporation,

organized and incorporated under the Philippine laws, with

office address at Gloria Maris Restaurant, Mac Arthur

Highway, Balibago, Angeles City;

16. That Petitioner GM Angeles Foods Corporation was

established to operate and maintain restaurants, coffee

shops, refreshment parlors, cocktail lounges and cater

foods, however, due to business reverses and economic slump

besetting the corporation and the country, the corporation

suffered financial difficulties resulting in the inability

to pay all his debts and liabilities in full;

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 17. Due to legitimate business reverses and economical

hardship GM Angeles Food Corporation suffered severe losses

and was forced to cease doing business after only two (2)

years of operations;

18. Losing millions of pesos in capital investment, GM

Angeles Foods Corporation could no longer sustain the pain,

thus, it decided to pull the plug;

19. However, a greedy creditor of GM Angeles Food

Corporation wants to juice out more blood from a dead

corporation. This is evident by the illegal possession and

unlawful enjoyment of creditor-claimant, Mr. William Kwong,

of GM Angeles Food Corporations remaining assets in spite of

being under custodia legis (Record p.181).

ISSUES

20. The following issues are submitted for the

resolution of this Appeal:

A. WHETHER OR NOT THE COURT A QUO ACTED WITH

GRAVE ABUSE OF DISCRETION WHEN IT DID NOT GIVE THE

PETITIONER – GM ANGELES FOOD CORPORATION AMPLE

OPPORTUNITY TO COMMENT ON THE MOTION TO DISMISS.

B. WHETHER OR NOT THE COURT A QUO ERRED IN RULING

THAT GM ANGELES FOOD CORPORATION IS SOLVENT.

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 C. WHETHER OR NOT THE COURT A QUO ERRRED IN

FINDING THE ACCOUNTING TERM “ADVANCES FROM

OFFICERS” SYNONYMOUS TO “ADVANCES TO OFFICERS”.

D. WHETHER OR NOT THE COURT A QUO ERRED IN

FINDING THERE WAS DISSIPATION OF ASSET COMMITED BY

THE STOCKHOLDERS OF GM ANGELES FOOD CORPORATION.

ARGUMENT/DISCUSSION

A.

WHETHER OR NOT THE COURT A QUO ACTED WITH GRAVE

ABUSE OF DISCRETION WHEN IT DID NOT GIVE THE
PETITIONER – GM ANGELES FOOD CORPORATION A CHANCE
TO COMMENT ON THE MOTION TO DISMISS.

20. The dispositive part of the Order of the Court a

quo dated December 16, 2005, reads as follows:

1.1 The Court is now being called upon to

resolve the Motion to Dismiss filed by creditor-
claimant William Kwong on December 1, 2005. Said
Motion was opposed by Petitioner as per
opposition on December 2005, thus, this
resolution.

21. It is evident from the Court’s Order there was no

specific date indicated by the Court a quo when petitioner-

appellant, GM Angeles Food Corporation, could file its

opposition. It is very obvious that the petitioner was not

given the ample opportunity to oppose the motion to dismiss

filed by Creditor-Claimant Mr. William Kwong.

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 22. In fact the petitioner, GM Angeles Food

Corporation, was furnished by Mr. William Kwong, through his

counsel, with copy of the Motion to Dismiss only on December

9, 2005 (Friday) and the Court issued the said Order

December 16, 2005, only after the lapse of seven (7) days.

Even if GM Angeles Food Corporation filed its opposition on

December 12, 2005 (Monday), such opposition would not have

been received via registered mail on time before the Court a

quo issued the assailed Order.

Contrary to the recitation of facts in the Order,

appellant was unable to file the Opposition, precisely

because it never received the order directing it to comment

or given the ample opportunity to do so. Due process is not

served, and is in fact being prostituted, with this ruse or

misrepresentation.

23. Henceforth, the immediate resolution of the Motion

to Dismiss deprived the petitioner’s right to be afforded

its day in court, an affront to the rudiments of fair play.

B.

WHETHER OR NOT THE COURT A QUO

ERRED IN RULING THAT GM ANGELES FOOD
CORPORATIONS SOLVENT.

24. The Court a quo ruled:

“.2 A review on the petition would indeed show

that GM Angeles Food Corporation, the petitioner is a
juridical person duly registered with the laws of the
Republic of the Philippines. Said petitioner being
duly registered with the SEC on January 15, 2003 as
per SEC Reg. No. CS200301268 (Exhibit “F”). Petitioner
Corporation as per exhibit appears to have the
following capital structure and stockholders, to wit:

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 “SEVENTH : That the authorized capital stock of
the corporation is TWENTY MILLION pesos in lawful
money of the Philippines, divided into TWO HUNDRED
THOUSAND SHARES with PAR VALUE of ONE HUNDRED pesos
per share.

EIGHT: That the subscribers to the capital stock

and the amount paid-in to their subscriptions are as
follows:

Name Nationality No. of Amount Amount Paid

Shares Subscribed
Subscribed
BENSON Filipino 10,000.00 P1,000,000 P250,000.00
INT’L
HOLDINGS
CORP.
ONG LIAN -do- 20,000.00 2,000,000 P500,000.00
KUAY
TIMMY CHOI -do- 5,000.00 500,000 P125,000.00
BENJAMIN -do- 5,000.00 500,000 P125,000.00
CUASON
ALVIN -do- 5,000.00 500,000 P125,000.00
CUASON
BENNIE -do- 2,500.00 250,000 P62,500.00
CUASON
EDMUNDO L. -do- 2,500.00 250,000 P62,500.00
TAN
TOTAL 50,000.00 P5,000,000 P1,250,000.00

The submitted indebtedness of said petitioner as

per its Annex “B” totaled P3,204,524.02 which was more
than the current P1,250,000.00 paid up capital of the
corporation. This being so the corporation indeed
appears to be on the red. However, said petitioner is
not insolvent as it wanted to impress this court.
This is clearly shown in the subscribed capital of the
petitioner which is P5,000,000.00 the petitioner’s
stockholders are indebted to the corporation in the
tune of about P3,750,000.00 which has yet to be
collected. The corporation petitioner is only to make
a “CALL” in accordance with the procedures set forth
in the Corporation Code for the stockholders to pay up
their unpaid subscription and if collected the
obligations of the petitioner can all be settled.
Should the corporate subscribers refuse payment, then
the veil of corporate entity may be pierced by the
corporation and/or by its creditors so that personal
of said stockholders could be lawfully attached.”

25. The conclusion arrived at by the Court a quo based

on the foregoing Articles Seven and Eight of the Articles of

Incorporation of GM Angeles Food Corporation is patently

erroneous.

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 26. First, the Court a quo failed to consider the

Financial Statement submitted in evidence (Record p.184 and

Exhibit “I-2”) by the petitioner-appellant. It could be

easily seen from the records, that the schedule of

liabilities of GM Angles Food Corporation far exceeds its

remaining asset. Insolvency is the insufficiency of the

entire property and assets of an individual to pay his debts

(Black’s Law Dictionary p. 937; Philipps vs. Harding, 70 Feb

468, 30 LRA, 513). Indeed, GM Angeles Food Corporation is

insolvent.

27. Secondly, the Court, incorrectly relied on the

subscription receivables amounting to Php3,750,000.00 of GM

Angeles Food Corporation to settle all its obligations.

28. The records of the case would reveal that the

Balance Sheet as of December 31, 2004 showed a liability

account “Advances from Officers” amounting to

Php1,347,325.04. These “Advances from Officers” are

financial assistance extended to GM Angeles Food Corporation

by its incorporators.

29. As of December 31, 2004 the “Advance made by the

Officers” to GM Angeles Food Corporation increased. Such

increase continued to escalate until June 15, 2005, showing

efforts on the part of the incorporators to salvage the

financially sick and economically terminal corporation.

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 30. The advances made by the incorporators in favor of

GM Angeles exceeded the total amount of the unpaid

subscription of Php3,750,000.00.

31. Although seemingly, GM Angles Foods Corporation

has receivables from its incorporators amounting to PHP3,

750,000.00, however, this amount was already indirectly

paid-off by compensation or set-off through the additional

monies provided by the incorporators to shoulder the working

capital of GM Angeles Foods Corporation (Record p.184).

C.
WHETHER OR NOT THE COURT A QUO ERRRED IN
FINDING THE ACCOUNTING TERM “ADVANCES
FROM OFFICERS” SYNONYMOUS TO “ADVANCES
TO OFFICERS”

32. The Order of the Court a quo denying the Omnibus

Motion for inhibition and reconsideration dated May 30, 2006

indicated that:

It must be emphasized that petitioner in this

case is GM Angeles food Corporation whose personality
is separate and distinct from that of all its
stockholders more particularly that of stockholder
Alvin Cuason, its alleged treasurer. The dissipation
of the corporate assets of the petitioner were
allegedly due to advances unlawfully extended by the
corporation to its stockholders to the prejudice and
damage of the creditors-claimants. The petition is
clearly seen by this Court as a devise employed by the
stockholders/officers in order to escape from its
obligations towards its lawful creditors. Even
assuming the same to be true, such advances are
considered in law as loans or account receivables
which the concerned stockholders should pay the

13
 corporation. This being so, the petitioner corporation
could not lawfully claim to be insolvent as
contemplated by law.

33. We beg to disagree because accounting terminology

states that “Advances from Officers” differ from “Advances

to Officers” the former being a liability and the latter an

asset (Philippine Accounting Standards No.1 and No. 39

paragraph 11; Theory of Accounts by Conrado T. Valix p.330

7th edition).

34. The Court a quo committed a blatant error when it

confused “Advances from Officers” as synonymous to “Advances

to Officers”. “Advances from Officers” are liability

accounts of the GM Angeles Foods Corporation and an

obligation of the corporation towards its officers. While

“Advances to Officers” are assets or accounts receivables of

GM Angeles Foods Corporation from its debtors-officers.

35. The records reveal that there are no “Advances

made to Officers/Stockholders/Incorporators” by GM Angeles

Food Corporation. The Court a quo grossly misapprehended

the facts of the instant case.

D.
WHETHER OR NOT THE COURT A QUO ERRED IN
FINDING THERE WAS DISSIPATION OF ASSET
COMMITED BY THE STOCKHOLDERS OF GM ANGELES
FOOD CORPORATION

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 36. The May 30, 2006 order, denying the motion

for reconsideration, of the Court a quo states clearly

that:

The dissipation of the corporate assets of the

petitioner were allegedly due to advances unlawfully
extended by the corporation to its stockholders to the
prejudice and damage of the creditors-claimants.

37. The conclusion of the Court a quo that the asset

of petitioner-appellant GM Angeles Food Corporation is being

dissipated by the advances made by its stockholders is

blatant misapprehension of facts of the instant case.

38. GM Angeles Food Corporation did not advance, lend

or give money to its officers, stockholders or to its

treasurer, Mr. Alvin Cuason. The conclusion came out of

context and has no factual basis.

39. The records and evidence will show, that it was

the other way around. Mr. Alvin Cuason was the one who made

advances in favor of GM Angeles Food Corporation in order to

save the company from financial embarrassment.

40. These patent errors committed by the Court a quo

must be rectified by this Honorable Court.

PRAYER

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 WHEREFORE, premises considered, petitioner-appellant,

thru counsel, respectfully prays that the Judgment appealed

from be REVERSED AND SET ASIDE and that a new one be

promulgated declaring petitioner-appellant GM Angeles

Corporation insolvent. Other reliefs just and equitable

under the premises are likewise prayed for.

Makati City for the City of Manila, February 23, 2007.

MRREYES & ASSOCIATES

Counsel for the Petitioner-Appellant
501 One Corporate Plaza
845 A. Arnaiz Avnue, Legaspi Village
Makati City 1229

by:

JACK L. A. DE VERA
PTR No. 0304223; 1.9.07; Makati City
IBP Lifetime Membership No.05349
Attorney’s Roll No. 51124
CPA License No. 0097053

Copy furnished:

PANLILIO PARAS TIMBOL & PANLILIO

Counsel for Creditor/Claimant-Appellee
William Kwong
No. 7 Lachica Building, Marlim Avenue
Diamond Subd., Balibago, Angeles City 2009 Pampanga

ATTY. MANUELITO D. DELANI

Counsel for Creditor-Appellee
Room 224 Natividad Building
Escolta 1006 Manila
HON. PRESIDING JUDGE
Regional Trial Court, Branch 58
2009 Angeles City, Pampanga

EXPLANATION

Due to the distance of the office of the undersigned

counsel and the counsel for the petitioner-appellants, a

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copy of the foregoing Brief shall be served upon the
opposing counsel via registered mail.

Jack L. A. De Vera

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