THE Supreme Court (SC) has nullified the ruling issued by the Court of Appeals, which held that the Regional Trial Court in Manila has jurisdiction to settle the dispute involving the P6-billion Smokey Mountain Development and Rehabilitation Project (SMDRP).

In a 28-page ruling written by Associate Justice Jose Portugal Perez, the Court ordered the dismissal of the complaint filed by R-II Builders, developer of the SMDRP, seeking to enjoin the Home Guaranty Corp. from selling some of the properties in the project’s so-called Smokey Mountain Asset Pool (Smap) even before obligations to creditors have been paid.

“The complaint of R-II Builders docketed as Civil Case 05-113407 first before Branch 24 and thereafter before Branch 22 both of the RTC in Manila is hereby dismissed,” the SC ruled.

In 2005 R-II Builders filed a civil suit before Branch 24 of the RTC in Manila, which was designated as a Special Commercial Court.

However, Branch 24 subsequently “declared itself to be without authority to hear the case” since the complaint was an ordinary civil action and not an intracorporate controversy.

Subsequently, the complaint was transferred to Branch 22 of the RTC in Manila presided by Judge Marino de la Cruz.

In its order on March 3, 2009, the Branch 22 denied HGC’s motion to dismiss the suit and granted R-II’s motion to admit the amended complaint.

In the September 29, 2009 order, the RTC denied HGC’s motion for reconsideration.

Both orders of Branch 22, however, were also nullified by the SC.

In giving credence to the petition for review filed by HGC, the Court held that the CA erred for not finding that Branch 24 had no authority to order the transfer of the case to Branch 22.

“With its acknowledged lack of jurisdiction over the case, Branch 24 of the RTC in Manila should have ordered the dismissal of the complaint, since a court without subject matter jurisdiction cannot transfer the case to another court,” the SC explained.

“Instead, it should have simply ordered the dismissal of the complaint, considering that the affirmative defenses for which HGC sought hearing included its lack of jurisdiction over the case,” it added.

The SC also said the appellate court erred in not ruling that Branch 22 has no jurisdiction over the case owing to the failure of the R-II Builders to pay the correct docket fees.

In 1993 the National Housing Authority (NHA) and R-II Builders entered into a joint-venture agreement (JVA) for the implementation of the SMDRP.

The JVA was aimed at implementing a two-phase conversion of the Smokey Mountain Dump into a habitable housing project inclusive of the reclamation of the area on Radial Road (R-10).

In 1994 NHA and R-II Builders, alongside with HGC as guarantor and the Philippine National bank as trustee, entered into an Asset Pool Formation Trust Agreement, which provided the mechanics for the implementation of the project.

To back the project, an Asset Pool was created composed of assets such as the 21.2-hectare Smokey Mountain site in Tondo in Manila; the 79-hectare Manila Bay foreshore property in the name of NHA; the Smokey Mountain Project Participation Certificates (SMPPCs) to be issued or their money proceeds; disposable assets due to R-II Builders or its proceeds or both; the resulting values inputted by R-II Builders for preimplementation activities amounting to P300 million; the 2,992 temporary housing facilities to be constructed by R-II Builders and all pertinent documents and records of the project.

Likewise, the parties executed a contract guaranty whereby HGC undertook to redeem the regular SMPPCs upon maturity and to pay simple interest thereon to the extent of 8.5 percent every year.

The agreements led to the securitization of the project through the issuance of 5,216 SMMPCs upon the Asset Pool with a par value of P1 million each.

Following the issuance of the SMPPCs and the termination of PNB’s services, the NHA, R-II Builders and HGC agreed on the institution of Planters Development Bank (PDB) as trustee on January 29, 2001.

However, in October 2002, all the regular SMPPCs issued had reached maturity and, unredeemed, already amounted to an aggregate face value of P2.513 billion.

The lack of liquid assets to effect redemption of the regular SMPPCs prompted PDB to make a call on HGC’s guaranty and to execute in the latter’s favor a deed of assignment and conveyance (DAC) of the entire asset pool consisting of 105 parcels of land comprising the Smokey Mountain Site and the Reclamation Area, with a total area of 539,471.47 square meters, and all the buildings and improvements thereon; shares of stock of Harbour Centre Port Terminal and other documents.

On September 1, 2005, R-II Builders filed a complaint against HGC and NHA.

It contended that HGC’s failure to redeem the outstanding regular SMPPCs despite obtaining possession of the Asset Pool ballooned the interests and prejudiced its stake on the residual values of the Asset Pool.

R-II Builders insisted that the DAC should be rescinded since PDB exceeded its authority in executing the same prior to HGC’s redemption and payment of the guaranteed SMPPCs.

It further argued that while the estimated value of the Asset Pool amounted to P5.91 billion as of June 30, 2005, its total liabilities was estimated P2.79 billion.

Thus, R-II Builders sought a temporary restraining order or a writ of preliminary and permanent injunction or both, enjoining the disposition of the properties in the Asset Pool; the nullification of the DAC; HGC’s rendition of an accounting of the assets and the conveyance thereof in favor R-II Builders; and P500,000 in attorney’s fees.