Cases On Insolvency

Cases on Insolvency
Classification of Credits
I. De Barreto vs. Villanueva (1961)

II. De Barreto vs. Villanueva (1962)
III. DBP vs. SEC
IV. J.L. Bernardo vs. CA
Common Credits
I. Cordova vs. Reyes
Effects and Coverage of the Commencement Order and Stay or Suspension Order
I. RCBC vs. IAC

II. Sobrejaunite vs. ASB Development Corporation
Exceptions to Stay or Suspension Order
I. MWSS vs. Daway

II. Panlilio, et. Al. VS. RTC, Branch 51, City of Manila
Cram Down Effects
I. BPI vs. SEC
Treatment of Claims
I. Consuelo Metal Corporation vs. Planters Development Bank
CLASSIFICATION OF CREDITS
1
G.R. No. L-14938 January 28, 1961
MAGDALENA C. DE BARRETO, ET AL., plaintiffs-appellants,

vs.
JOSE G. VILLANUEVA, ET AL., defendants-appellees.
Bausa, Ampil & Suarez for plaintiffs-appellants.

Esteban Ocampo for defendants-appellees.
GUTIERREZ DAVID, J.:
On May 10, 1948, Rosario Cruzado, for herself and as administratix of the intestate estate of her deceased husband Pedro Cruzado in Special
Proceedings No. 4959 of the Court of First Instance of Manila, obtained from the defunct Rehabilitation Finance Corporation (hereinafter referred to as
the RFC a loan in the amount of P11,000.00. To secure payment thereof, she mortgaged the land then covered by Transfer Certificate of Title No. 61358
issued in her name and that of her deceased. husband. As she failed to pay certain installments on the loan, the mortgage was foreclosed and the RFC
acquired the property for P11,000.00, subject to her rights as mortgagor to re-purchase the same. On July 26, 1951, upon her application, the land was
sold back to her conditionally for the amount of P14,269.03, payable in seven years.
About two years thereafter, or on February 13, 1953 Rosario Cruzado, as guardian of her minor children in Special Proceedings No. 14198 of the Court
of First Instance of Manila, was authorized by the court, to sell with the previous consent of the RFC the land in question together with the improvements
thereon for a sum not less than P19,000. Pursuant to such authority and with the consent of the RFC, she sold to Pura L. Villanueva for P19,000.00 "all
their rights, interest,' title and dominion and over the herein described parcel of land together with the existing improvements thereon, including one use
and an annex thereon; free from all charges and encumbrances, , with the exception of the sum of P11,009.52, is stipulated interest thereon, which the
vendor, is still presently obligated to the RFC and which the vendee herein now assumes to pay to the RFC under the same terms and conditions
specified in that deed of sale dated July 26, 1951." Having paid in advance the sum of P500.00, Pura L. Villanueva, the vendee, in consideration of the
aforesaid sale, executed in favor of the vendor Rosario Cruzado a promissory note dated March 9, 1953, undertaking to pay the balance of P17,500.00
in monthly installments. On April 22, 1953, she made an additional payment of P5,500.00 on the promissory note. She was, subsequently, able to secure
in her name Transfer Certificate of Title No. 32526 covering the house and lot above referred to, and on July 10, 1953, she mortgaged the said property
to Magdalena C. Barretto as security for a loan the amount of P30,000.00.
As said Pura L. Villanueva had failed to pay the remaining installments on the unpaid balance of P12,000.00 her promissory note for the sale of the
property in question, a complaint for the recovery of the same from her and her husband was filed on September 21, 1963 by Rosario Cruzado in her
own right and in her capacity as judicial guardian of her minor children. Pending trial of the case, a lien was constituted upon the property in the nature of
a levy in attachment in favor of the Cruzados said lien being annotated at the back of Transfer Certificate of Title No. 32526. After trial, decision was
rendered ordering Pura Villanueva and her husband, jointly and severally, to pay Rosario Cruzado the sum of P12,000.00, with legal interest thereon
from the date of the filing of the complaint until fully paid plus the sum of P1,500.00 as attorney's fees.
Pura Villanueva having, likewise, failed to pay her indebtedness of P30,000.00 to Magdalena C. Barretto, the latter, jointly with her husband, instituted
against the Villanueva spouses an action for foreclosure of mortgage, impleading Rosario Cruzado and her children as parties defendants. On
November 11, 1956, decision was rendered in the case absolving the Cruzados from the complaint and sentencing the Villanuevas to pay the Barrettos,
jointly and severally, the sum of P30,000.00, with interest thereon at the rate of 12% per annum from January 11, 1954 plus the sum of P4,000.00 as
attorney's fees. Upon the finality of this decision, the Barrettos filed a motion for the issuance of a writ of execution which was granted by the lower court
on July 31, 1958. On August 14, 1958, the Cruzados filed their "Vendor's Lien" in the amount of P12,000.00, plus legal interest, over the real property
subject of the foreclosure suit, the said amount representing the unpaid balance of the purchase price of the said property. Giving due course to the line,
the court on August 18, 1958 ordered the same annotated in Transfer Certificate of Title No. 32526 of the Registry of Deeds of Manila, decreeing that
should the realty in question be sold at public auction in the foreclosure proceedings, the Cruzados shall be credited with their pro-rata share in the
proceeds thereof, "pursuant to the provision of articles 2248 and 2249 of the new Civil Code in relation to Article 2242, paragraph 2 of the same Code."
The Barrettos filed a motion for reconsideration on September 12, 1958, but on that same date, the sheriff of Manila, acting in pursuance of the order of
the court granting the writ of execution, sold at public auction the property in question. As highest bidder, the Barrettos themselves acquired the
properties for the sum of P49,000.00.
On October 4, 1958, 'the Court of First Instance issued an order confirming the aforesaid sale and directing the Register of Deeds of the City of Manila to
issue to the Barrettos the corresponding certificate of title, subject, however, to the order of August 18, 1958 concerning,. the vendor's lien. On the same
date, the motion of the Barettos seeking reconsideration of the order of the court giving due course to the said vendor's lien was denied. From this last
order, the Barretto spouses interposed the present appeal.
The appeal is devoid of merit.
In claiming that the decision of the Court, of First Instance of Manila in Civil Case No. 20075 . awarding the amount of P12,000.00 in favor of Rosario
Cruzado and her minor children . cannot constitute a basis for the vendor's lien filed by the appellee Rosario Cruzado, appellants allege that the action in
said civil case was merely to recover the balance of a promissory note. But while, apparently, the action was to recover the remaining obligation of
promissor Pura Villanueva on the note, the fact remains that Rosario P. Cruzado as guardian of her minor children, was an unpaid vendor., of the realty
in question, and the promissory note, was, precisely, for the unpaid balance of the price of the property bought by, said Pura Villanueva.
Article 2242 of the new Civil, Code enumerates the claims, mortgage and liens that constitute an encumbrance on specific immovable property, and
among them are: .
2
(2) For the unpaid price of real property sold, upon the immovable sold; and
(5) Mortgage credits recorded in the Registry of Property."
Article 2249 of the same Code provides that "if there are two or more credits with respect to the same specific real property or real rights, they shall be
satisfied pro-rata after the payment of the taxes and assessment upon the immovable property or real rights.
Application of the above-quoted provisions to the case at bar would mean that the herein appellee Rosario Cruzado as an unpaid vendor of the property
in question has the right to share pro-rata with the appellants the proceeds of the foreclosure sale.
The appellants, however, argue that inasmuch as the unpaid vendor's lien in this case was not registered, it should not prejudice the said appellants'
registered rights over the property. There is nothing to this argument. Note must be taken of the fact that article 2242 of the new Civil Code enumerating
the preferred claims, mortgages and liens on immovables, specifically requires that . unlike the unpaid price of real property sold . mortgage credits, in
order to be given preference, should be recorded in the Registry of Property. If the legislative intent was to impose the same requirement in the case of
the vendor's lien, or the unpaid price of real property sold, the lawmakers could have easily inserted the same qualification which now modifies the
mortgage credits. The law, however, does not make any distinction between registered and unregistered vendor's lien, which only goes to show that any
lien of that kind enjoys the preferred credit status.
Appellants also argue that to give the unrecorded vendor's lien the same standing as the registered mortgage credit would be to nullify the principle in
land registration system that prior unrecorded interests cannot prejudice persons who subsequently acquire interests over the same property. The Land
Registration Act itself, however, respects without reserve or qualification the paramount rights of lien holders on real property. Thus, section 70 of that
Act provides that .
Registered land, and ownership therein shall in all respects be subject to the same burdens and incidents attached by law to unregistered land. Nothing
contained in this Act shall in any way be construed to relieve registered land or the owners thereof from any rights incident to the relation of husband and
wife, or from liability to attachment on mesne process or levy, on execution, or from liability to any lien of any description established by law on land and
the buildings thereon, or the interest of the owners of such land or buildings, or to change the laws of descent, or the rights of partition between co-
owners, joint tenants and other co-tenants or the right to take the same by eminent domain, or to relieve such land from liability to be appropriated in any
lawful manner for the payment of debts, or to change or affect in any other way any other rights or liabilities created by law and applicable to
unregistered land, except as otherwise expressly provided in this Act or in the amendments thereof, (Emphasis supplied)
As to the point made that the articles of the Civil Code on concurrence and preference of credits are applicable only to the insolvent debtor, suffice it to
say that nothing in the law shows any such limitation. If we are to interpret this portion of the Code as intended only for insolvency cases, then other
creditor-debtor relationships where there are concurrence of credits would be left without any rules to govern them, and it would render purposeless the
special laws an insolvency.
Premises considered, the order appealed from is hereby affirmed. Costs against the appellants.
Bengzon, Padilla, Bautista Angelo, Labrador, Paredes and Dizon, JJ., concur.
Concepcion, Reyes, J.B.L. and Barrera, JJ., concur in the result.
RESOLUTION ON MOTION TO RECONSIDER
December 29, 1962
REYES, J.B.L., J.:
Appellants, spouses Barretto, have filed a motion vigorously urging, for reason to be discussed in the course of this resolution, that our decision of 28
January 1961 be reconsidered and set aside, and a new one entered declaring that their right as mortgagees remain superior to the unrecorded claim of
herein appellee for the balance of the purchase price of her rights, title, and interests in the mortgaged property.
It will be recalled that, with Court authority, Rosario Cruzado sold all her right, title, and interest and that of her children in the house and lot herein
involved to Pura I. Villanueva for P19,000.00. The purchaser paid Pl,500 in advance, and executed a promissory note for the balance of P17,506.00.
However, the buyer could only pay P5,500 On account of the note, for which reason the vendor obtained judgment for the unpaid balance. In the
meantime, the buyer Villanueva was able to secure a clean certificate of title (No. 32626), and mortgaged the property to appellant Magdalena C.
Barretto, married to Jose C. Barretto, to secure a loan of P30,000.03, said mortgage having been duly recorded.
Pura Villanueva defaulted on the mortgage loan in favor of Barretto. The latter foreclosed the mortgage in her favor, obtained judgment, and upon its
becoming final asked for execution on 31 July 1958. On 14 August 1958, Cruzado filed a motion for recognition for her "vendor's lien" in the amount of
Pl2,000.00, plus legal interest, invoking Articles 2242, 2243, and 2249 of the new Civil Code. After hearing, the court below ordered the "lien" annotated
on the back of Certificate of Title No. 32526, with the proviso that in case of sale under the foreclosure decree the vendor's lien and the mortgage credit
of appellant Barretto should be paid pro rata from the proceeds. Our original decision affirmed this order of the Court of First Instance of Manila.
Appellants insist that:
(1) The vendor's lien, under Articles 2242 and 2243 of the new, Civil Code of the Philippines, can only become effective in the event of insolvency of the
vendee, which has not been proved to exist in the instant case; and .
3
(2) That the appellee Cruzado is not a true vendor of the foreclosed property. We have given protracted and mature consideration to the facts and law of
this case, and have reached the conclusion that our original decision must be reconsidered and set aside, for the following reasons:
A. The previous decision failed to take fully into account the radical changes introduced by the Civil Code of the Philippines into the system of priorities
among creditors ordained by the Civil Code of 1889.
Pursuant to the former Code, conflicts among creditors entitled to preference as to specific real property under Article 1923 were to be resolved
according to an order of priorities established by Article 1927, whereby one class of creditors could exclude the creditors of lower order until the claims of
the former were fully satisfied out of the proceeds of the sale of the real property subject of the preference, and could even exhaust proceeds if
necessary.
Under the system of the Civil Code of the Philippines however, only taxes enjoy a similar absolute preference. All the remaining thirteen classes of
preferred creditors under Article 2242 enjoy no priority among themselves, but must be paid pro-rata i.e., in proportion to the amount of the respective
credits. Thus, Article 2249 provides:
If there are two or more credits with respect to the same specific real property or real rights, they, shall be satisfied pro-rata after the payment of the
taxes and assessments upon the immovable property or real rights."
But in order to make this prorating fully effective, the preferred creditors enumerated in Nos. 2 to 14 of Article 2242 (or such of their, as have credits
outstanding) must necessarily be convened, and the import of their claims ascertained. It is thus apparent that the full, application (of Articles 2249 and
2242 demands that there must be first some proceedings where the claims of all the preferred creditors may be bindingly adjudicated, such as
insolvency, the settlement of decedents estate under Rule 87 of the Rules of Court, or other liquidation proceedings of similar import.
This explains the rule of Article 2243 of the new Civil Code that —
The claims or credits enumerated in the two preceding articles" shall be considered as mortgages or pledges of real or personal property, or liens within
the purview of legal provisions governing insolvency . . . (Emphasis supplied),
And the rule is further clarified in he Report of the Code Commission, as follows:
The question as to whether the Civil Code and the insolvency Law can be harmonized is settled by this Article (2243). The preferences named in Articles
2261 and 2262 (now 2241 and 2242) are to be enforced in accordance with the Insolvency Law." (Emphasis supplied) .
Thus, it becomes evident that one preferred creditor's third-party claim to the proceeds of a foreclosure sale (as in the case now before us) is not the
proceeding contemplated by law for the enforcement of preferences under Article 2242, unless the claimant were enforcing a credit for taxes that enjoy
absolute priority. If none of the claims is for taxes, a dispute between two creditors will not enable the Court to ascertain the pro-rata dividend
corresponding to each, because the rights of the other creditors likewise" enjoying preference under Article 2242 can not be ascertained. Wherefore, the
order of the Court of First Instance of Manila now appealed from, decreeing that the proceeds of the foreclosure sale be apportioned only between
appellant and appellee, is incorrect, and must be reversed.
In the absence of insolvency proceedings (or other equivalent general liquidation of the debtor's estate), the conflict between the parties now before us
must be decided pursuant to the well established principle concerning registered lands; that a purchaser in good faith and for value (as the appellant
concededly is) takes registered property free from liens and encumbrances other than statutory liens and those recorded in the certificate of title. There
being no insolvency or liquidation, the claim of the appellee, as unpaid vendor, did not require the character and rank of a statutory lien co-equal to the
mortgagee's recorded encumbrance, and must remain subordinate to the latter.
We are understandably loathed (absent a clear precept of law so commanding) to adopt a rule that would undermine the faith and credit to be accorded
to registered Torrens titles and nullify the beneficient objectives sought to be obtained by the Land Registration Act. No argument is needed to stress that
if a person dealing with registered land were to be held to take it in every instance subject to all the fourteen preferred claims enumerate in Article 2242
of the new Civil Code, even if the existence and import thereof can not be ascertained from the records, all confidence in Torrens titles would be
destroyed, and credit transactions on the faith of such titles would be hampered, if not prevented, with incalculable results. Loans on real estate security
would become aleatory and risky transactions, for no, prospective lender could accurately estimate the hidden liens on the property offered as security,
unless he indulged in complicated, tedious investigations, . The logical result might well be a contraction of credit unforeseeable proportions that could
lead to economic disaster.
Upon the other hand, it does not appear excessively burdensome to require the privileged creditors to cause their claims to be recorded in the books of
the Register of deeds should they desire to protect their rights even outside of insolvency or liquidation proceedings.
B. The close study of the facts disclosed by the records lasts strong doubt on the proposition that appellees Cruzados should be regarded as unpaid
vendors of the property( land, buildings, and improvements ) involved in the case at bar so as to be entitled to preference under Article 2242. The record
on appeal, specially the final decision of the Court of First Instance of Manila in the suit of the ,Cruzados against Villanueva, clearly establishes that after
her husband's death, and with due court authority, Rosario Cruzado, for herself and as administratrix of her husband's state, mortgaged the property to
the Rehabilitation Finance Corporation (RFC) to secure payment of a loan of P11,000, installments, but that the debtor failed to pay some of the
installments; wherefore the RFC, on 24 August 1949, foreclosed the mortgage, and acquired the property, subject to the debtor's right to redeem or
repurchase the said property; and that on 25 September 1950, the RFC consolidated its ownership, and the certificate of title of the Cruzados was
cancelled and a new certificate issued in the name of the RFC.
4
While on 26 July 1951 the RFC did execute a deed selling back the property to the erstwhile mortgagors and former owners Cruzados in installments,
subject to the condition (among others) that the title to the property and its improvements "shall remain in the name of Corporation (RFC) until after said
purchase price, advances and interests shall have been fully paid", as of 27 September 1952, Cruzado had only paid a total of P1,360, and had
defaulted on six monthly amortizations; for which reason the RFC rescinded the sale, and forfeited the payments made, in accordance with the terms of
the contract of 26 July 1951.
It was only on 10 March 1953 that the Cruzados sold to Pura L. Villanueva all "their rights, title, interest and dominion on and over" the property, lot,
house, and improvements for P19,000.00, the buyer undertaking to assume payment of the obligation to the RFC, and by resolution of 30 April 1953, the
RFC approved "the transfer of the rights and interest of Rosario P. Cruzado and her children in their property herein above-described in favor of Pura L.
Villanueva"; and on 7 May 1953 the RFC executed a deed of absolute sale of the property to said party, who had fully paid the price of P14,269.03.
Thereupon, the spouses Villanueva obtained a new Transfer Certificate of Title No. 32526 in their name.
On 10 July 1953, the Villanuevas mortgaged the property to the spouses Barretto, appellants herein.
It is clear from the facts above-stated that ownership of the property had passed to the Rehabilitation Finance Corporation since 1950, when it
consolidated its purchase at the foreclosure sale and obtained a certificate of title in its corporate name. The subsequent contract of resale in favor of the
Cruzados did not revest ownership in them, since they failed to comply with its terms and conditions, and the contract itself provided that the title should
remain in the name of the RFC until the price was fully paid.
Therefore, when after defaulting in their payments due under the resale contract with the RFC the appellants Cruzados sold to Villanueva "their rights,
title, interest and dominion" to the property, they merely assigned whatever rights or claims they might still have thereto; the ownership of the property
rested with the RFC. The sale from Cruzado to Villanueva, therefore, was not so much a sale of the land and its improvements as it was a quit-claim
deed in favor of Villanueva. In law, the operative sale was that from the RFC to the latter, and it was the RFC that should be regarded as the true vendor
of the property. At the most, the Cruzados transferred to Villanueva an option to acquire the property, but not the property itself, and their credit,
therefore, can not legally constitute a vendor's lien on the corpus of that property that should stand on an equal footing with the mortgaged credit held by
appellant Barretto.
In view of the foregoing, the previous decision of this Court, promulgated on 28 January 1961, is hereby reconsidered and set aside, and a new one
entered reversing the judgment appealed from and declaring the appellants Barretto entitled to full satisfaction of their mortgaged credit out of the
proceeds of the foreclosure sale in the hands of the Sheriff of the City of Manila. No costs.
G.R. No. L-14938 December 29, 1962
MAGDALENA C. DE BARRETTO and JOSE G. BARRETTO, plaintiffs-appellants,

vs.
JOSE G. VILLANUEVA, ET AL., defendants-appellees.
Bausa, Ampil and Suarez for plaintiffs-appellants.

Esteban Ocampo and Mariano H. de Joya for defendants-appellees.
RESOLUTION
REYES, J.B.L., J.:
Appellants, spouses Barretto, have filed a motion vigorously urging, for reason to be discussed in the courts of this resolution, that our decision of 28
January 1961 be reconsidered and set aside, and a new one entered declaring that their right as mortgagees remain superior to the unrecorded claim of
herein appellee for the balance of the purchase price of her rights, title, and interest in the mortgaged property.
It will be recalled that, with Court authority, Rosario Cruzado sold all her right, title, and interest and that of her children in the house and lot herein
involved to Pura L. Villanueva for P19,000.00. The purchaser paid P1,500 in advance, and executed a promissory note for the balance of P17,500.00.
However, the buyer could only pay P5,500 on account of the note, for which reason the vendor obtained judgment for the unpaid balance. In the
meantime, the buyer Villanueva was able to secure a clean certificate of title (No. 32526), and mortgaged the property to appellant Magdalena C.
Barretto, married to Jose G. Barretto, to secure a loan of P30,000.03, said mortgage having been duly recorded.
P12,000.00 plus legal interest, invoking Articles 2242, 2243, and 2249 of the new Civil Code. After hearing, the court below ordered the "lien" annotated
Appellants insist that:
(1) The vendor's lien, under Articles 2242 and 2243 of the new Civil Code of the Philippines, can only become effective in the event of insolvency
of the vendee, which has not been proved to exist in the instant case; and
(2) That the appellee Cruzado is not a true vendor of the foreclosed property.
5
We have given protracted and mature consideration to the facts and law of this case and have reached the conclusion that our original decision must be
reconsidered and set aside, for the following reasons:
A. The previous decision failed to take fully into account the radical changes introduced by the Civil Code the Philippines into the system of
priorities among creditors ordained by the Civil Code of 1889.
the former were fully satisfied out of the proceeds of the sale of the real property subject of the preference, and could even exhaust such proceeds if
necessary.
Under the system of the Civil Code of the Philippine however, only taxes enjoy a similar absolute preference. All the remaining thirteen classes of
preferred creditors under Article 2242 enjoy no priority among themselves but must be paid pro rata, i.e., in proportion to the amount of the respective
if there are two or more credits with respect to specific real property or real rights, they shall be satisfied pro rata, after the payment of the taxes and
assessments upon the immovable property or real right.
But in order to make this prorating fully effective, the preferred creditors enumerated in Nos. 2 to 14 of Article 2242 (or such of them as have credits
outstanding) must necessarily be convened, and the import of their claims ascertained. It is thus apparent that the full application of Articles 2249 and
2242 demands that there must first some proceeding where the claims of all the preferred creditors may be bindingly adjudicated, such as insolvency,
the settlement of a decedent's estate under Rule 87 of the Rules of Court, or other liquidation proceedings of similar import.
The claims or credits enumerated in the two preceding articles1 shall be considered as mortgages or pledges of real or personal property or liens within
the purview of legal provision governing insolvency . . . . (Emphasis supplied).
and the rule is further clarified in the Report of the Code Commission, as follows:
The question as to whether the Civil Code and the Insolvency Law can be harmonized is settled by this Article (2243). The preferences named in Articles
2261 and 2262 (now 2241 and 2242) are to be enforced in accordance with the Involvency Law. (Emphasis supplied.)
absolute priority. If none of the claims is for taxes, a dispute between two creditors will not enable the Court to ascertain the pro rata dividend
corresponding to each, because the rights of the other creditors likewise enjoying preference under Article 2242 can not be ascertained. Wherefore, the
order of the Court of First Instance of Manila now appealed from decreeing that the proceeds of the foreclosure sale be apportioned only between
appellant and appellee, is incorrect and must be reversed.
In the absence of insolvency proceedings (or other equivalent general liquidation of the debtor's estate), the conflict between the parties now before us
must be decided pursuant to the well established principle concerning register lands; that a purchaser in good faith and for value (as the appellant
concededly is) takes registered property free from liens and encumbrances other than statutory liens and those recorded in the certificate of title. There
being no insolvency or liquidation, the claim of the appellee, as unpaid vendor, did not acquire the character and rank of a statutory lien co-equal to the
mortgagee's recorded encumbrance, and must remain subordinate to the latter.
We are understandably loath (absent a clear precept of law so commanding) to adopt a rule that would undermine the faith and credit to be accorded to
registered Torrens titles and nullify the beneficient objectives sought to be obtained by the Land Registration Act. No argument is needed to stress that if
a person dealing with registered land were to be held to take it in every instance subject to all the fourteen preferred claims enumerate in Article 2242 of
the new Civil Code, even if the existence and import thereof can not be ascertained from the records, all confidence in Torrens titles would be destroyed,
and credit transactions on the faith of such titles would be hampered, if not prevented, with incalculable results. Loans on real estate security would
become aleatory and risky transactions, for no prospective lender could accurately estimate the hidden liens on the property offered as security, unless
he indulged in complicated, tedious investigations. The logical result might well be contraction of credit to unforeseable proportions that could lead to
economic disaster.lawphil.net
Upon the other hand, it does not appear excessively burdensome to require the privileged creditors to cause their claims to be recorded in the books of
the Register of Deeds should they desire to protect their rights even outside of insolvency or liquidation proceedings.
B. The close study of the facts disclosed by the records casts strong doubt on the proposition that appelle Cruzados should be regarded as
unpaid vendors of the property (land, buildings, and improvements) involved in the case at bar so as to be entitled to preference under Article 2242. The
record on appeal, specially the final decision of the Court of First Instance of Manila in the suit of the Cruzados against Villanueva, clearly establishes
that after her husband's death, and with due court authority, Rosario Cruzado, for herself and as administratrix of her husband's estate, mortgaged the
property to the Rehabilitation Finance Corporation (RFC) to secure repayment of a loan of P11,000, in installments, but that the debtor failed to pay
some of the installment wherefore the RFC, on 24 August 1949, foreclosed the mortgage, and acquired the property, subject to the debtors right to
redeem or repurchase the said property; and that on 25 September 1950, the RFC consolidated its ownership, and the certificate of title of the Cruzados
was cancelled and a new certificate issued in the name of the RFC.
6
While on 26 July 1951 the RFC did execute a deed selling back the property to the erstwhile mortgagors and former owners Cruzados in installments,
subject to the condition (among others) that the title to the property and its improvements "shall remain in the name of the Corporation (RFC) until after
said purchase price, advances and interest shall have been fully paid", as of 27 September 1952, Cruzado had only paid a total of P1,360, and had
defaulted on six monthly amortizations; for which reason the RFC rescinded the sale, and forfeited the payments made, in accordance with the terms of
the contract of 26 July 1951.
It was only on 10 March 1953 that the Cruzados sold to Pura L. Villanueva all "their rights, title, interest and dominion on and over" the property, lot,
house, and improvements for P19,000.00, the buyer undertaking to assume payment of the obligation to the RFC, and by resolution of 30 April 1953, the
RFC approved "the transfer of the rights and interests of Rosario P. Cruzado and her children in their property herein above-described in favor of Pura L.
Villanueva"; and on 7 May 1953 the RFC executed a deed of absolute sale of the property to said party, who had fully paid the price of P14,269.03.
Thereupon, the spouses Villanueva obtained a new Transfer Certificate of Title No. 32526 in their name.
On 10 July 1953, the Villanuevas mortgaged the property to the spouses Barretto, appellants herein.
It is clear from the facts above-stated that ownership of the property had passed to the Rehabilitation Finance Corporation since 1950, when it
consolidated its purchase at the foreclosure sale and obtained a certificate of title in its corporate name. The subsequent contract of resale in favor of the
Cruzados did not revest ownership in them, since they failed to comply with its terms and conditions, and the contract itself provided that the title should
remain in the name of the RFC until the price was fully paid.
Therefore, when after defaulting in their payments due under the resale contract with the RFC the appellant Cruzados sold to Villanueva "their rights,
title, interest and dominion" to the property, they merely assign whatever rights or claims they might still have thereto; the ownership of the property
rested with the RFC. The sale from Cruzado to Villanueva, therefore, was not much a sale of the land and its improvements as it was a quitclaim deed in
favor of Villanueva. In law, operative sale was that from the RFC to the latter, and it was the RFC that should be regarded as the true vendor of the
property. At the most, the Cruzados transferred to Villanueva an option to acquire the property, but not the property itself, and their credit, therefore, can
not legally constitute a vendor's lien on the corpus of the property that should stand on an equal footing with mortgaged credit held by appellants
Barretto.
IN VIEW OF THE FOREGOING, the previous decision of this Court, promulgated on 28 January 1961, is hereby reconsidered and set aside, and a new
one entered reverse the judgment appealed from and declaring the appellant Barrettos entitled to full satisfaction of their mortgage credit out of the
proceeds of the foreclosure sale in the hands of the Sheriff of the City of Manila. No costs.
G.R. No. 126200 August 16, 2001
DEVELOPMENT BANK OF THE PHILIPPINES, petitioner,

vs.
HONORABLE COURT OF APPEALS and REMINGTON INDUSTRIAL SALES CORPORATION, respondents.
KAPUNAN, J.:
Before the Court is a petition for review on certiorari under Rule 45 of the Rules of Court, seeking a review of the Decision of the Court of Appeals dated
October 6, 1995 and the Resolution of the same court dated August 29, 1996.
The facts are as follows:
Marinduque Mining-Industrial Corporation (Marinduque Mining), a corporation engaged in the manufacture of pure and refined nickel, nickel and cobalt
in mixed sulfides; copper ore/concentrates, cement and pyrite conc., obtained from the Philippine National Bank (PNB) various loan accommodations. To
secure the loans, Marinduque Mining executed on October 9, 1978 a Deed of Real Estate Mortgage and Chattel Mortgage in favor of PNB. The
mortgage covered all of Marinduque Mining's real properties, located at Surigao del Norte, Sipalay, Negros Occidental, and at Antipolo, Rizal, including
the improvements thereon. As of November 20, 1980, the loans extended by PNB amounted to P4 Billion, exclusive of interest and charges.1
On July 13, 1981, Marinduque Mining executed in favor of PNB and the Development Bank of the Philippines (DBP) a second Mortgage Trust
Agreement. In said agreement, Marinduque Mining mortgaged to PNB and DBP all its real properties located at Surigao del Norte, Sipalay, Negros
Occidental, and Antipolo, Rizal, including the improvements thereon. The mortgage also covered all of Marinduque Mining's chattels, as well as assets of
whatever kind, nature and description which Marinduque Mining may subsequently acquire in substitution or replenishment or in addition to the
properties covered by the previous Deed of Real and Chattel Mortgage dated October 7, 1978. Apparently, Marinduque Mining had also obtained loans
totaling P2 Billion from DBP, exclusive of interest and charges.2
On April 27, 1984, Marinduque Mining executed in favor of PNB and DBP an Amendment to Mortgage Trust Agreement by virtue of which Marinduque
Mining mortgaged in favor of PNB and DBP all other real and personal properties and other real rights subsequently acquired by Marinduque Mining.3
For failure of Marinduque Mining to settle its loan obligations, PNB and DBP instituted sometime on July and August 1984 extrajudicial foreclosure
proceedings over the mortgaged properties.
The events following the foreclosure are narrated by DBP in its petition, as follows:
7
In the ensuing public auction sale conducted on August 31, 1984, PNB and DBP emerged and were declared the highest bidders over the foreclosed
real properties, buildings, mining claims, leasehold rights together with the improvements thereon as well as machineries [sic] and equipments [sic] of
MMIC located at Nonoc Nickel Refinery Plant at Surigao del Norte for a bid price of P14,238,048,150.00 [and] [o]ver the foreclosed chattels of MMIC
located at Nonoc Refinery Plant at Surigao del Norte, PNB and DBP as highest bidders, bidded for P170,577,610.00 (Exhs. "5" to "5-A", "6", "7" to "7-
AA-" PNB/DBP). For the foreclosed real properties together with all the buildings, major machineries & equipment and other improvements of MMIC
located at Antipolo, Rizal, likewise held on August 31, 1984, were sold to PNB and DBP as highest bidders in the sum of P1,107,167,950.00 (Exhs. "10"
to "10-X"-PNB/ DBP).
At the auction sale conducted on September 7, 1984[,] over the foreclosed real properties, buildings, & machineries/equipment of MMIC located at
Sipalay, Negros Occidental were sold to PNB and DBP, as highest bidders, in the amount of P2,383,534,000.00 and P543,040.000.00 respectively
(Exhs. "8" to "8-BB", "9" to "90-GGGGGG"-PNB/DBP).
Finally, at the public auction sale conducted on September 18, 1984 on the foreclosed personal properties of MMIC, the same were sold to PNB and
DBP as the highest bidder in the sum of P678,772,000.00 (Exhs. "11" and "12-QQQQQ"-PNB).
PNB and DBP thereafter thru a Deed of Transfer dated August 31, 1984, purposely, in order to ensure the continued operation of the Nickel refinery
plant and to prevent the deterioration of the assets foreclosed, assigned and transferred to Nonoc Mining and Industrial Corporation all their rights,
interest and participation over the foreclosed properties of MMIC located at Nonoc Island, Surigao del Norte for an initial consideration of
P14,361,000,000.00 (Exh. "13"-PNB).
Likewise, thru [sic] a Deed of Transfer dated June 6, 1984, PNB and DBP assigned and transferred in favor of Maricalum Mining Corp. all its rights,
interest and participation over the foreclosed properties of MMIC at Sipalay, Negros Occidental for an initial consideration of P325,800,000.00 (Exh.
"14"-PNB/DBP).
On February 27, 1987, PNB and DBP, pursuant to Proclamation No. 50 as amended, again assigned, transferred and conveyed to the National
Government thru [sic] the Asset Privatization Trust (APT) all its existing rights and interest over the assets of MMIC, earlier assigned to Nonoc Mining
and Industrial Corporation, Maricalum Mining Corporation and Island Cement Corporation (Exh. "15" & "15-A" PNB/DBP).4
In the meantime, between July 16, 1982 to October 4, 1983, Marinduque Mining purchased and caused to be delivered construction materials and other
merchandise from Remington Industrial Sales Corporation (Remington) worth P921,755.95. The purchases remained unpaid as of August 1, 1984 when
Remington filed a complaint for a sum of money and damages against Marinduque Mining for the value of the unpaid construction materials and other
merchandise purchased by Marinduque Mining, as well as interest, attorney's fees and the costs of suit.
On September 7, 1984, Remington's original complaint was amended to include PNB and DBP as co-defendants in view of the foreclosure by the latter
of the real and chattel mortgages on the real and personal properties, chattels, mining claims, machinery, equipment and other assets of Marinduque
Mining.5
On September 13, 1984, Remington filed a second amended complaint to include as additional defendant, the Nonoc Mining and Industrial Corporation
(Nonoc Mining). Nonoc Mining is the assignee of all real and personal properties, chattels, machinery, equipment and all other assets of Marinduque
Mining at its Nonoc Nickel Factory in Surigao del Norte.6
On March 26, 1986, Remington filed a third amended complaint including the Maricalum Mining Corporation (Maricalum Mining) and Island Cement
Corporation (Island Cement) as co-defendants. Remington asserted that Marinduque Mining, PNB, DBP, Nonoc Mining, Maricalum Mining and Island
Cement must be treated in law as one and the same entity by disregarding the veil of corporate fiction since:
1. Co-defendants NMIC, Maricalum and Island Cement which are newly created entities are practically owned wholly by defendants PNB and
DBP, and managed by their officers, aside from the fact that the aforesaid co-defendants NMIC, Maricalum and Island Cement were organized in such a
hurry and in such suspicious circumstances by co-defendants PNB and DBP after the supposed extrajudicial foreclosure of MMIC's assets as to make
their supposed projects assets, machineries and equipment which were originally owned by co-defendant MMIC beyond the reach of creditors of the
latter.
2. The personnel, key officers and rank-and-file workers and employees of co-defendants NMIC, Maricalum and Island Cement creations of co-
defendants PNB and DBP were the personnel of co-defendant MMIC such that . . . practically there has only been a change of name for all legal
purpose and intents
3. The places of business not to mention the mining claims and project premises of co-defendants NMIC, Maricalum and Island Cement likewise
used to be the places of business, mining claims and project premises of co-defendant MMIC as to make the aforesaid co-defendants NMIC, Maricalum
and Island Cement mere adjuncts and subsidiaries of co-defendants PNB and DBP, and subject to their control and management.
On top of everything, co-defendants PNB, DBP NMIC, Maricalum and Island Cement being all corporations created by the government in the pursuit of
business ventures should not be allowed to ignore, x x x or obliterate with impunity nay illegally, the financial obligations of x x x MMIC whose operations
co-defendants PNB and DBP had highly financed before the alleged extrajudicial foreclosure of defendant MMIC's assets, machineries and equipment
to the extent that major policies of co-defendant MMIC were being decided upon by co-defendants PNB and DBP as major financiers who were
represented in its board of directors forming part of the majority thereof which through the alleged extrajudicial foreclosure culminated in a complete
take-over by co-defendants PNB and DBP bringing about the organization of their co-defendants NMIC, Maricalum and Island Cement to which were
transferred all the assets, machineries and pieces of equipment of co-defendant MMIC used in its nickel mining project in Surigao del Norte, copper
mining operation in Sipalay, Negros Occidental and cement factory in Antipolo, Rizal to the prejudice of creditors of co-defendant MMIC such as plaintiff
Remington Industrial Sales Corporation whose stockholders, officers and rank-and-file workers in the legitimate pursuit of its business activities, invested
8
considerable time, sweat and private money to supply, among others, co-defendant MMIC with some of its vital needs for its operation, which co-
defendant MMIC during the time of the transactions material to this case became x x x co-defendants PNB and DBP's instrumentality, business conduit,
alter ego, agency (sic), subsidiary or auxiliary corporation, by virtue of which it becomes doubly necessary to disregard the corporation fiction that co-
defendants PNB, DBP, MMIC, NMIC, Maricalum and Island Cement, six (6) distinct and separate entities, when in fact and in law, they should be treated
as one and the same at least as far as plaintiff's transactions with co-defendant MMIC are concerned, so as not to defeat public convenience, justify
wrong, subvert justice, protect fraud or confuse legitimate issues involving creditors such as plaintiff, a fact which all defendants were as (sic) still are
aware of during all the time material to the transactions subject of this case.7
On April 3, 1989, Remington filed a motion for leave to file a fourth amended complaint impleading the Asset Privatization Trust (APT) as co-defendant.
Said fourth amended complaint was admitted by the lower court in its Order dated April 29, 1989.
On April 10, 1990, the Regional Trial Court (RTC) rendered a decision in favor of Remington, the dispositive portion of which reads:
WHEREFORE, judgment is hereby rendered in favor of the plaintiff, ordering the defendants Marinduque Mining & Industrial Corporation, Philippine
National Bank, Development Bank of the Philippines, Nonoc Mining and Industrial Corporation, Maricalum Mining Corporation, Island Cement
Corporation and Asset Privatization Trust to pay, jointly and severally, the sum of P920,755.95, representing the principal obligation, including the
stipulated interest as of June 22, 1984, plus ten percent (10%) surcharge per annum by way of penalty, until the amount is fully paid; the sum equivalent
to 10% of the amount due as and for attorney's fees; and to pay the costs.8
Upon appeal by PNB, DBP, Nonoc Mining, Maricalum Mining, Island Cement and APT, the Court of Appeals, in its Decision dated October 6, 1995,
affirmed the decision of the RTC. Petitioner filed a Motion for Reconsideration, which was denied in the Resolution dated August 29, 1996.
Hence, this petition, DBP maintaining that Remington has no cause of action against it or PNB, nor against their transferees, Nonoc Mining, Island
Cement, Maricalum Mining, and the APT.
On the other hand, private respondent Remington submits that the transfer of the properties was made in fraud of creditors. The presence of fraud,
according to Remington, warrants the piercing of the corporate veil such that Marinduque Mining and its transferees could be considered as one and the
same corporation. The transferees, therefore, are also liable for the value of Marinduque Mining's purchases.
In Yutivo Sons Hardware vs. Court of Tax Appeals,9 cited by the Court of Appeals in its decision,10 this Court declared:
It is an elementary and fundamental principle of corporation law that a corporation is an entity separate and distinct from its stockholders and from other
corporations to which it may be connected. However, when the notion of legal entity is used to defeat public convenience, justify wrong, protect fraud, or
defend crime, the law will regard the corporation as an association of persons or in case of two corporations, merge them into one". (Koppel [Phils.], Inc.,
vs. Yatco, 71 Phil. 496, citing 1 Fletcher Encyclopedia of Corporation, Permanent Ed., pp. 135-136; U.S. vs. Milwaukee Refrigeration Transit Co., 142
Fed., 247, 255 per Sanborn, J.). x x x.
In accordance with the foregoing rule, this Court has disregarded the separate personality of the corporation where the corporate entity was used to
escape liability to third parties.11 In this case, however, we do not find any fraud on the part of Marinduque Mining and its transferees to warrant the
piercing of the corporate veil.
It bears stressing that PNB and DBP are mandated to foreclose on the mortgage when the past due account had incurred arrearages of more than 20%
of the total outstanding obligation. Section 1 of Presidential Decree No. 385 (The Law on Mandatory Foreclosure) provides:
It shall be mandatory for government financial institutions, after the lapse of sixty (60) days from the issuance of this decree, to foreclose the collateral
and/or securities for any loan, credit accommodation, and/or guarantees granted by them whenever the arrearages on such account, including accrued
interest and other charges, amount to at least twenty percent (20%) of the total outstanding obligations, including interest and other charges, as
appearing in the books of account and/or related records of the financial institution concerned. This shall be without prejudice to the exercise by the
government financial institution of such rights and/or remedies available to them under their respective contracts with their debtors, including the right to
foreclose on loans, credits, accommodations and/or guarantees on which the arrearages are less than twenty (20%) percent.
Thus, PNB and DBP did not only have a right, but the duty under said law, to foreclose upon the subject properties. The banks had no choice but to obey
the statutory command.
The import of this mandate was lost on the Court of Appeals, which reasoned that under Article 19 of the Civil Code, "Every person must, in the exercise
of his rights and in the performance of his duties, act with justice, give everyone his due, and observe honesty and good faith." The appellate court,
however, did not point to any fact evidencing bad faith on the part of the Marinduque Mining and its transferees. Indeed, it skirted the issue entirely by
holding that the question of actual fraudulent intent on the part of the interlocking directors of DBP and Marinduque Mining was irrelevant because:
As aptly stated by the appellee in its brief, "x x x where the corporations have directors and officers in common, there may be circumstances under which
their interest as officers in one company may disqualify them in equity from representing both corporations in transactions between the two. Thus, where
one corporation was 'insolvent and indebted to another, it has been held that the directors of the creditor corporation were disqualified, by reason of self-
interest, from acting as directors of the debtor corporation in the authorization of a mortgage or deed of trust to the former to secure such indebtedness x
x x" (page 105 of the Appellee's Brief). In the same manner that "x x x when the corporation is insolvent, its directors who are its creditors can not secure
to themselves any advantage or preference over other creditors. They can not thus take advantage of their fiduciary relation and deal directly with
themselves, to the injury of others in equal right. If they do, equity will set aside the transaction at the suit of creditors of the corporation or their
representatives, without reference to the question of any actual fraudulent intent on the part of the directors, for the right of the creditors does not
depend upon fraud in fact, but upon the violation of the fiduciary relation to the directors." x x x (page 106 of the Appellee's Brief)
9
We also concede that "x x x directors of insolvent corporation, who are creditors of the company, can not secure to themselves any preference or
advantage over other creditors in the payment of their claims. It is not good morals or good law. The governing body of officers thereof are charged with
the duty of conducting its affairs strictly in the interest of its existing creditors, and it would be a breach of such trust for them to undertake to give any
one of its members any advantage over any other creditors in securing the payment of his debts in preference to all others. When validity of these
mortgages, to secure debts upon which the directors were indorsers, was questioned by other creditors of the corporation, they should have been
classed as instruments rendered void by the legal principle which prevents directors of an insolvent corporation from giving themselves a preference
over outside creditors. x x x" (page 106-107 of the Appellee's Brief.)12
The Court of Appeals made reference to two principles in corporation law. The first pertains to transactions between corporations with interlocking
directors resulting in the prejudice to one of the corporations. This rule does not apply in this case, however, since the corporation allegedly prejudiced
(Remington) is a third party, not one of the corporations with interlocking directors (Marinduque Mining and DBP).
The second principle invoked by respondent court involves "directors x x x who are creditors" which is also inapplicable herein. Here, the creditor of
Marinduque Mining is DBP, not the directors of Marinduque Mining.
Neither do we discern any bad faith on the part of DBP by its creation of Nonoc Mining, Maricalum and Island Cement. As Remington itself concedes,
DBP is not authorized by its charter to engage in the mining business.13 The creation of the three corporations was necessary to manage and operate
the assets acquired in the foreclosure sale lest they deteriorate from non-use and lose their value. In the absence of any entity willing to purchase these
assets from the bank, what else would it do with these properties in the meantime? Sound business practice required that they be utilized for the
purposes for which they were intended.
Remington also asserted in its third amended complaint that the use of Nonoc Mining, Maricalum and Island Cement of the premises of Marinduque
Mining and the hiring of the latter's officers and personnel also constitute badges of bad faith.
Assuming that the premises of Marinduque Mining were not among those acquired by DBP in the foreclosure sale, convenience and practicality dictated
that the corporations so created occupy the premises where these assets were found instead of relocating them. No doubt, many of these assets are
heavy equipment and it may have been impossible to move them. The same reasons of convenience and practicality, not to mention efficiency, justified
the hiring by Nonoc Mining, Maricalum and Island Cement of Marinduque Mining's personnel to manage and operate the properties and to maintain the
continuity of the mining operations.
To reiterate, the doctrine of piercing the veil of corporate fiction applies only when such corporate fiction is used to defeat public convenience, justify
wrong, protect fraud or defend crime.14 To disregard the separate juridical personality of a corporation, the wrongdoing must be clearly and convincingly
established. It cannot be presumed.15 In this case, the Court finds that Remington failed to discharge its burden of proving bad faith on the part of
Marinduque Mining and its transferees in the mortgage and foreclosure of the subject properties to justify the piercing of the corporate veil.
The Court of Appeals also held that there exists in Remington's favor a "lien" on the unpaid purchases of Marinduque Mining, and as transferee of these
purchases, DBP should be held liable for the value thereof.
In the absence of liquidation proceedings, however, the claim of Remington cannot be enforced against DBP. Article 2241 of the Civil Code provides:
ARTICLE 2241. With reference to specific movable property of the debtor, the following claims or liens shall be preferred:
xxx xxx xxx
(3) Claims for the unpaid price of movables sold, on said movables, so long as they are in the possession of the debtor, up to the value of the
same; and if the movable has been resold by the debtor and the price is still unpaid, the lien may be enforced on the price; this right is not lost by the
immobilization of the thing by destination, provided it has not lost its form, substance and identity, neither is the right lost by the sale of the thing together
with other property for a lump sum, when the price thereof can be determined proportionally;
(4) Credits guaranteed with a pledge so long as the things pledged are in the hands of the creditor, or those guaranteed by a chattel mortgage,
upon the things pledged or mortgaged, up to the value thereof;
xxx xxx xxx
In Barretto vs. Villanueva,16 the Court had occasion to construe Article 2242, governing claims or liens over specific immovable property. The facts that
gave rise to the case were summarized by this Court in its resolution as follows:
x x x Rosario Cruzado sold all her right, title, and interest and that of her children in the house and lot herein involved to Pura L. Villanueva for
P19,000.00. The purchaser paid P1,500 in advance, and executed a promissory note for the balance of P17,500.00. However, the buyer could only pay
P5,500 on account of the note, for which reason the vendor obtained judgment for the unpaid balance. In the meantime, the buyer Villanueva was able
to secure a clean certificate of title (No. 32626), and mortgaged the property to appellant Magdalena C. Barretto, married to Jose C. Baretto, to secure a
loan of P30,000.03, said mortgage having been duly recorded.
P12,000.00, plus legal interest, invoking Articles 2242, 2243, and 2249 of the new Civil Code. After hearing, the court below ordered the "lien" annotated
10
In its decision upholding the order of the lower court, the Court ratiocinated thus:
Article 2242 of the new Civil Code enumerates the claims, mortgages and liens that constitute an encumbrance on specific immovable property, and
among them are:
"(2) For the unpaid price of real property sold, upon the immovable sold"; and
"(5) Mortgage credits recorded in the Registry of Property."
Article 2249 of the same Code provides that "if there are two or more credits with respect to the same specific real property or real rights, they shall be
satisfied pro-rata, after the payment of the taxes and assessments upon the immovable property or real rights."
Application of the above-quoted provisions to the case at bar would mean that the herein appellee Rosario Cruzado as an unpaid vendor of the property
in question has the right to share pro-rata with the appellants the proceeds of the foreclosure sale.
xxx xxx xxx
As to the point made that the articles of the Civil Code on concurrence and preference of credits are applicable only to the insolvent debtor, suffice it to
say that nothing in the law shows any such limitation. If we are to interpret this portion of the Code as intended only for insolvency cases, then other
creditor-debtor relationships where there are concurrence of credits would be left without any rules to govern them, and it would render purposeless the
special laws on insolvency.17
Upon motion by appellants, however, the Court reconsidered its decision. Justice J.B.L. Reyes, speaking for the Court, explained the reasons for the
reversal:
A. The previous decision failed to take fully into account the radical changes introduced by the Civil Code of the Philippines into the system of
priorities among creditors ordained by the Civil Code of 1889.
the former were fully satisfied out of the proceeds of the sale of the real property subject of the preference, and could even exhaust proceeds if
necessary.
Under the system of the Civil Code of the Philippines, however, only taxes enjoy a similar absolute preference. All the remaining thirteen classes of
preferred creditors under Article 2242 enjoy no priority among themselves, but must be paid pro rata, i.e., in proportion to the amount of the respective
"If there are two or more credits with respect to the same specific real property or real rights, they shall be satisfied pro rata, after the payment of the
taxes and assessments upon the immovable property or real rights."
But in order to make this prorating fully effective, the preferred creditors enumerated in Nos. 2 to 14 of Article 2242 (or such of them as have credits
outstanding) must necessarily be convened, and the import of their claims ascertained. It is thus apparent that the full application of Articles 2249 and
2242 demands that there must be first some proceeding where the claims of all the preferred creditors may be bindingly adjudicated, such as insolvency,
the settlement of decedent's estate under Rule 87 of the Rules of Court, or other liquidation proceedings of similar import.
"The claims or credits enumerated in the two preceding articles shall be considered as mortgages or pledges of real or personal property, or liens within
the purview of legal provisions governing insolvency x x x (Italics supplied).
And the rule is further clarified in the Report of the Code Commission, as follows
"The question as to whether the Civil Code and the Insolvency Law can be harmonized is settled by this Article (2243). The preferences named in
Articles 2261 and 2262 (now 2241 and 2242) are to be enforced in accordance with the Insolvency Law." (Italics supplied)
absolute priority. If none of the claims is for taxes, a dispute between two creditors will not enable the Court to ascertain the pro rata dividend
corresponding to each, because the rights of the other creditors likewise enjoying preference under Article 2242 can not be ascertained. Wherefore, the
order of the Court of First Instance of Manila now appealed from, decreeing that the proceeds of the foreclosure sale be apportioned only between
appellant and appellee, is incorrect, and must be reversed. [Emphasis supplied]
The ruling in Barretto was reiterated in Phil. Savings Bank vs. Hon. Lantin, Jr., etc., et al.,18 and in two cases both entitled Development Bank of the
Philippines vs. NLRC.19
11
Although Barretto involved specific immovable property, the ruling therein should apply equally in this case where specific movable property is involved.
As the extrajudicial foreclosure instituted by PNB and DBP is not the liquidation proceeding contemplated by the Civil Code, Remington cannot claim its
pro rata share from DBP.
WHEREFORE, the petition is GRANTED. The decision of the Court of Appeals dated October 6, 1995 and its Resolution promulgated on August 29,
1996 is REVERSED and SET ASIDE. The original complaint filed in the Regional Trial Court in CV Case No. 84-25858 is hereby DISMISSED.
SO ORDERED.
G.R. No. 105827 January 31, 2000
J.L. BERNARDO CONSTRUCTION, represented by attorneys-in-fact Santiago R. Sugay, Edwin A. Sugay and Fernando S.A. Erana, SANTIAGO
R. SUGAY, EDWIN A. SUGAY and FERNANDO S. A. ERANA, petitioners,
vs.
COURT OF APPEALS and MAYOR JOSE L. SALONGA, respondents.
GONZAGA-REYES, J.:
This petition for certiorari under Rule 65 seeks to annul and set aside the following:
1. Decision dated February 6, 1992 issued by the Eleventh Division of the Court of Appeals in CA-G.R. No. 26336 which nullified the order of the
Regional Trial Court of Cabanatuan City in Civil Case No. 1016-AF granting plaintiffs (petitioners herein) a writ of attachment and a contractor's lien upon
the San Antonio Public Market; and
2. Resolution dated June 10, 1992 issued by the former Eleventh Division of the Court of Appeals in CA-G.R. No. 26336 denying the motions for
reconsideration filed by both parties.
The factual antecedents of this case, as culled from the pleadings, are as follows:
Sometime in 1990, the municipal government of San Antonio, Nueva Ecija approved the construction of the San Antonio Public Market. The construction
of the market was to be funded by the Economic Support Fund Secretariat (ESFS), a government agency working with the USAID. Under ESFS' "grant-
loan-equity" financing program, the funding for the market would be composed of a (a) grant from ESFS, (b) loan extended by ESFS to the Municipality
of San Antonio, and (c) equity or counterpart funds from the Municpality.
It is claimed by petitioners Santiago R. Sugay, Edwin A. Sugay, Fernando S.A. Erana and J.L. Bernardo Construction, a single proprietorship owned by
Juanito L. Bernardo, that they entered into a business venture for the purpose of participating in the bidding for the public market. It was agreed by
petitioners that Santiago Sugay would take the lead role and be responsible for the preparation and submission of the bid documents, financing the
entire project, providing and utilizing his own equipment, providing the necessary labor, supplies and materials and making the necessary
representations and doing the liaison work with the concerned government agencies.
On April 20, 1990, J.L. Bernardo Construction, thru petitioner Santiago Sugay, submitted its bid together with other qualified bidders. After evaluating the
bids, the municipal pre-qualification bids and awards committee, headed by respondent Jose L. Salonga (then incumbent municipal mayor of San
Antonio) as Chairman, awarded the contract to petitioners. On June 8, 1990, a Construction Agreement was entered into by the Municipality of San
Antonio thru respondent Salonga and petitioner J.L. Bernardo Construction.
It is claimed by petitioners that under this Construction Agreement, the Municipality agreed to assume the expenses for the demolition, clearing and site
filling of the construction site in the amount of P1,150,000 and, in addition, to provide cash equity of P767,305.99 to be remitted directly to petitioners.
Petitioners allege that, although the whole amount of the cash equity became due, the Municipality refused to pay the same, despite repeated demands
and notwithstanding that the public market was more than ninety-eight percent (98%) complete as of July 20, 1991. Furthermore, petitioners maintain
that Salonga induced them to advance the expenses for the demolition, clearing and site filling work by making representations that the Municipality had
the financial capability to reimburse them later on. However, petitioners claim that they have not been reimbursed for their expenses.1
On July 31, 1991, J.L. Bernardo Construction, Santiago Sugay, Edwin Sugay and Fernando Erana, with the latter three bringing the case in their own
personal capacities and also in representation of J.L. Bernardo Construction, filed a complaint for breach of contract, specific performance, and
collection of a sum of money, with prayer for preliminary attachment and enforcement of contractor's lien against the Municipality of San Antonio, Nueva
Ecija and Salonga, in his personal and official capacity as municipal mayor. After defendants filed their answer, the Regional Trial Court held hearings on
the ancillary remedies prayed for by plaintiffs.2
On September 5, 1991, the Regional Trial Court issued the writ of preliminary attachment prayed for by plaintiffs. It also granted J.L. Bernardo
Construction the right to maintain possession of the public market and to operate the same. The dispositive portion of the decision provides:
IN VIEW OF THE FOREGOING DISQUISITION, the Court finds the auxiliary reliefs of attachment prayed for by the plaintiffs to be well-taken and the
same is hereby GRANTED. Conformably thereto, let a writ of preliminary attachment be issued upon the filing by the plaintiffs of a bond in the amount of
P2,653,576.84 to answer for costs and damages which the defendants may suffer should the Court finally adjudged (sic) that the plaintiffs are not
entitled to the said attachment, and thereafter, the Deputy Sheriff of this court is hereby ordered to attach the properties of the defendants JOSE LAPUZ
SALONGA and the MUNICIPALITY OF SAN ANTONIO, NUEVA ECIJA which are not exempt from execution.
12
CORROLARILY, the Court grants the plaintiffs J.L. BERNARDO CONSTRUCTION, represented by SANTIAGO R. SUGAY, EDWIN A. SUGAY and
FERNANDO S.A. ERANA, the authority to hold on to the possession of the public market in question and to open and operate the same based on fair
and reasonable guidelines and other mechanics of operation to be submitted by plaintiffs within fifteen (15) days from their receipt of this Order which
shall be subject to Court's approval and to deposit the income they may derive therefrom to the Provincial Treasurer of Nueva Ecija after deducting the
necessary expenses for the operation and management of said market, subject to further orders from this Court.
SO ORDERED.
The trial court gave credence to plaintiffs' claims that defendants were guilty of fraud in incurring their contractual obligations as evidenced by the
complaint and the affidavits of plaintiffs Santiago Sugay and Erana. The court ruled that defendants' acts of ". . . obtaining property, credit or services by
false representations as to material facts made by the defendant to the plaintiff with intent to deceive constitutes fraud warranting attachment" and that ".
. . a debt is considered fradulently contracted if at the time of contracting it, the debtor entertained an intention not to pay."
With regards to the contractor's lien, the trial court held that since plaintiffs have not been reimbursed for the cash equity and for the demolition, clearing
and site filling expenses, they stand in the position of an unpaid contractor and as such are entitled, pursuant to articles 2242 and 2243 of the Civil
Code, to a lien in the amount of P2,653,576.84 (as of August 1, 1991), excluding the other claimed damages, attorney's fees and litigation expenses,
upon the public market which they constructed. It was explained that, although the usual way of enforcing a lien is by a decree for the sale of the
property and the application of the proceeds to the payment of the debt secured by it, it is more practical and reasonable to permit plaintiffs to operate
the public market and to apply to their claims the income derived therefrom, in the form of rentals and goodwill from the prospective stallholders of the
market, as prayed for by plaintiffs.
The trial court made short shrift of defendants' argument that the case was not instituted in the name of the real parties-in-interest. It explained that the
plaintiff in the cause of action for money claims for unpaid cash equity and demolition and site filling expenses is J.L. Bernardo Construction, while the
plaintiffs in the claim for damages for violation of their rights under the Civil Code provisions on human relations are plaintiffs Santiago Sugay, Edwin
Sugay and Erana.3
The defendants moved for reconsideration of the trial court's order, to which the plaintiffs filed an opposition. On October 10, 1991 the motion was
denied. The following day, the trial court approved the guidelines for the operation of the San Antonio Public Market filed by plaintiffs.
Respondent Salonga filed a motion for the approval of his counterbond which was treated by the trial court in its October 29, 1991 order as a motion to
fix counterbond and for which it scheduled a hearing on November 19, 1991.
On October 21, 1991, during the pendency of his motion, respondent Salonga filed with the Court of Appeals a petition for certiorari under Rule 65 with
prayer for a writ of preliminary injunction and temporary restraining order which case was docketed as CA-G.R. SP No. 26336.4 Petitioners opposed the
petition, claming that respondent had in fact a plain, speedy and adequate remedy as evidenced by the filing of a motion to approve counter-bond with
the trial court.5
On February 6, 1992, the Court of Appeals reversed the trial court's decision and ruled in favor of Salonga. The dispositive portion of its decision states
—
FOR ALL THE FOREGOING, the petition is hereby granted as follows:
1. The respondent judge's ORDER dated September 5, 1991 for the issuance of a writ of attachment and for the enforcement of a contractor's lien, is
hereby NULLIFIED and SET ASIDE; the writ of attachment issued pursuant thereto and the proceedings conducted by the Sheriffs assigned to
implement the same are, as a consequence, also hereby NULLIFIED and SET ASIDE;
2. The respondent judge's ORDER dated October 11, 1991 further enforcing the contractor's lien and approving the guidelines for the operation of the
San Antonio Public Market is also NULLIFIED and SET ASIDE.
Petitioner's prayers for the dismissal of Civil Case No. 1016 (now pending before respondent judge) and for his deletion from said case as defendant in
his private capacity are, however, DENIED.
The respondent judge may now proceed to hearing of Civil Case No. 1016 on the merits.
SO ORDERED.
The appellate court reasoned that since the Construction Agreement was only between Juanito Bernardo and the Municipality of San Antonio, and since
there is no sworn statement by Juanito Bernardo alleging that he had been deceived or misled by Mayor Salonga or the Municipality of San Antonio, it is
apparent that the applicant has not proven that the defendants are guilty of inceptive fraud in contracting the debt or incurring the obligation, pursuant to
Rule 57 of the Rules of Court, and therefore, the writ of attachment should be struck down for having been improvidently and irregularly issued.
The filing of a motion for the approval of counter-bond by defendants did not, according to the Court of Appeals, render the petition for certiorari
premature. The appellate court held that such motion could not cure the defect in the issuance of the writ of attachment and that, moreover, the
defendants' motion was filed by them "without prejudice to the petition for certiorari."
As to the contractor's lien, the appellate court ruled that Articles 2242 of the Civil Code finds application only in the context of insolvency proceedings, as
expressly stated in Article 2243. Even if it is conceded that plaintiffs are entitled to retain possession of the market under its contractor's lien, the
13
appellate court held that the same right cannot be expanded to include the right to use the building. Therefore, the trial court's grant of authority to
plaintiffs to operate the San Antonio Public Market amounts to a grave abuse of discretion.
With regard to the allegations of defendants that plaintiffs are not the proper parties, the Court of Appeals ruled that such issue should be assigned as an
error by defendants later on should the outcome of the case be adverse to the latter.6
Petitioners are now before this Court assailing the appellate court's decision. In their petition, they make the following assignment of errors:
1. THE DECISION IS CONTRARY TO LAW IN THAT THE COURT OF APPEALS OVERLOOKED AND/OR DISREGARDED THE FUNDAMENTAL
REQUIREMENT AND ESTABLISHED SUPREME COURT DECISIONS IN ACTIONS FOR CERTIORARI CONSIDERING THAT THE FILING OF THE
PETITION BY RESPONDENT SALONGA WITH THE COURT OF APPEALS IS OBVIOUSLY PREMATURE AND IMPROPER SINCE THERE
ADMITTEDLY EXISTS A PLAIN, SPEEDY AND ADEQUATE REMEDY AVAILABLE TO RESPONDENT SALONGA WHICH IS HIS UNRESOLVED
"MOTION TO APPROVE COUNTERBOND" PENDING WITH THE TRIAL COURT.
2. IN COMPLETE DISREGARD OF ESTABLISHED JURISPRUDENCE, THE COURT OF APPEALS HAS SKIRTED AND/OR FAILED TO
CONSIDER/DISREGARDED THE EQUALLY CRUCIAL ISSUE THAT THE QUESTIONED ORDERS ARE CLEARLY AND ADMITTEDLY
INTERLOCUTORY IN NATURE AND THEREFORE THEY CANNOT BE THE PROPER SUBJECT OF AN ACTION FOR CERTIORARI; PROOF THAT
THE ORDERS ASSAILED BY RESPONDENT SALONGA ARE INTERLOCUTORY IN CHARACTER IS THE DISPOSITIVE PORTION OF THE
DECISION WHEN THE COURT OF APPEALS SAID "THE RESPONDENT JUDGE MAY NOW PROCEED TO HEARING OF SAID CIVIL CASE NO.
1016 ON THE MERITS"; PETITION FILED BY RESPONDENT SALONGA WITH THE COURT OF APPEALS SHOULD HAVE BEEN DISMISSED
OUTRIGHTLY AS SOUGHT BY HEREIN PETITIONERS IN THEIR VARIOUS UNACTED PLEADINGS.
3. THE DECISION IS BASED ON FINDINGS OF FACTS AND CONCLUSIONS WHICH ARE NOT ONLY GROSSLY ERRONEOUS BUT ARE
SQUARELY CONTRADICTED BY THE EVIDENCE ON RECORD.
4. THE COURT OF APPEALS HAS CLEARLY MAISAPPRECIATED, MISREAD AND DISREGARDED HEREIN PETITIONERS' CAUSES OF ACTION
AGAINST RESPONDENT SALONGA AND HIS CO-RESPONDENT MUNICIPALITY OF SAN ANTONIO, NUEVA ECIJA.
5. THE COURT OF APPEALS HAS MADE ERRONEOUS AND CONTRADICTORY CONCLUSIONS AND FINDINGS ON THE ISSUE OF "REAL
PARTY IN INTEREST" IN COMPLETE DISREGARD OF THE POWERS AND AUTHORITY GRANTED BY JUANITO L. BERNARDO CONSTRUCTION
TO HEREIN PETITIONERS.
6. THE COURT OF APPEALS HAS SKIRTED THE IMPORTANT ISSUE OF "AGENCY COUPLED WITH AN INTEREST."
7. THE COURT OF APPEALS WENT BEYOND THE ISSUES OF THE CERTIORARI CASE AND ITS FINDINGS AND CONCLUSIONS ON ISSUES
NOT RELATED TO THE CASE FOR CERTIORARI ARE CONTRARY TO THE PLEADINGS AND DO NOT CONFORM TO THE EVIDENCE ON
RECORD.
8. THE COURT OF APPEALS HAS LIKEWISE DISREGARDED THE PRECEPT THAT CONCLUSIONS AND FINDINGS OF FACT OF THE TRIAL
COURT ARE ENTITLED TO GREAT WEIGHT ON APPEAL AND SHOULD NOT BE DISTURBED SINCE THERE IS NO STRONG AND COGENT
REASON WHATSOVER TO OVERCOME THE WELL-WRITTEN AND DETAILED AND ESTABLISHED FACTUAL FINDINGS OF THE TRIAL COURT.
9. PETITIONERS HAVE STRONG REASONS TO BELIEVE THAT THE DECISION OF THE COURT OF APPEALS WAS ISSUED WITH SERIOUS
INJUSTICE AND AGAINST THE TENETS OF FAIR PLAY SINCE THE DECISION HAD BEEN KNOWN TO AS IT WAS OPENLY AND PUBLICLY
ANNOUNCED BY RESPONDENT SALONGA LONG BEFORE IT WAS "PROMULGATED" BY THE COURT OF APPEALS.
The various issues raised by petitioners may be restated in a more summary manner as —
1. Whether or not the Court of Appeals correctly assumed jurisdiction over the petition for certiorari filed by respondents herein assailing the trial court's
interlocutory orders granting the writ of attachment and the contractor's lien?
2. Whether or not the Court of Appeals committed reversible errors of law in its decision?
A petition for certiorari may be filed in case a tribunal, board or officer exercising judicial or quasi-judicial functions has acted without or in excess of
jurisdiction, or with grave abuse of discretion amounting to lack or excess of jurisdiction, and there is no appeal, or any plain, speedy, and adequate
remedy in the ordinary course of law.7
The office of a writ of certiorari is restricted to truly extraordinary cases wherein the act of the lower court or quasi-judicial body is wholly void.8 We held
in a recent case that certiorari may be issued "only where it is clearly shown that there is a patent and gross abuse of discretion as to amount to an
evasion of positive duty or to virtual refusal to perform a duty enjoined by law, or to act at all in contemplation of law, as where the power is exercised in
an arbitrary and despotic manner by reason of passion or personal hostility."9
As a general rule, an interlocutory order is not appealable until after the rendition of the judgment on the merits for a contrary rule would delay the
administration of justice and unduly burden the courts.10 However, we have held that certiorari is an appropriate remedy to assail an interlocutory order
(1) when the tribunal issued such order without or in excess of jurisdiction or with grave abuse of discretion and (2) when the assailed interlocutory order
is patently erroneous and the remedy of appeal would not afford adequate and expeditious relief.11
14
We hold that the petition for certiorari filed by Salonga and the Municipality with the Court of Appeals questioning the writ of attachment issued by the
trial court should not have been given due course for they still had recourse to a plain, speedy and adequate remedy — the filing of a motion to fix the
counter-bond, which they in fact filed with the trial court, the grant of which would effectively prevent the issuance of the writ of attachment. Moreover,
they could also have filed a motion to discharge the attachment for having been improperly or irregularly issued or enforced, or that the bond is
insufficient, or that the attachment is excessive.12 With such remedies still available to the Municipality and Salonga, the filing of a petition for certiorari
with the Court of Appeals insofar as it questions the order of attachment was clearly premature.
However, with regards to the contractor's lien, we uphold the appellate court's ruling reversing the trial court's grant of a contractor's lien in favor of
petitioners.
Art.'s 2241 and 2242 of the Civil Code enumerates certain credits which enjoy preference with respect to specific personal or real property of the debtor.
Specifically, the contractor's lien claimed by petitioners is granted under the third paragraph of Article 2242 which provides that the claims of contractors
engaged in the construction, reconstruction or repair of buildings or other works shall be preferred with respect to the specific building or other
immovable property constructed.13
However, Article 2242 only finds application when there is a concurrence of credits, i.e. when the same specific property of the debtor is subjected to the
claims of several creditors and the value of such property of the debtor is insufficient to pay in full all the creditors. In such a situation, the question of
preference will arise, that is, there will be a need to determine which of the creditors will be paid ahead of the others.14 Fundamental tenets of due
process will dictate that this statutory lien should then only be enforced in the context of some kind of a proceeding where the claims of all the preferred
creditors may be bindingly adjudicated, such as insolvency proceedings.15
This is made explicit by Article 2243 which states that the claims and liens enumerated in articles 2241 and 2242 shall be considered as mortgages or
pledges of real or personal property, or liens within the purview of legal provisions governing insolvency.16
The action filed by petitioners in the trial court does not partake of the nature of an insolvency proceeding. It is basically for specific performance and
damages.17 Thus, even if it is finally adjudicated that petitioners herein actually stand in the position of unpaid contractors and are entitled to invoke the
contractor's lien granted under Article 2242, such lien cannot be enforced in the present action for there is no way of determining whether or not there
exist other preferred creditors with claims over the San Antonio Public Market. The records do not contain any allegation that petitioners are the only
creditors with respect to such property. The fact that no third party claims have been filed in the trial court will not bar other creditors from subsequently
bringing actions and claiming that they also have preferred liens against the property involved.18
Our decision herein is consistent with our ruling in Philippine Savings Bank v. Lantin,19 wherein we also disallowed the contractor from enforcing his lien
pursuant to Article 2242 of the Civil Code in an action filed by him for the collection of unpaid construction costs.
It not having been alleged in their pleadings that they have any rights as a mortgagee under the contracts, petitioners may only obtain possession and
use of the public market by means of a preliminary attachment upon such property, in the event that they obtain a favorable judgment in the trial court.
Under our rules of procedure, a writ of attachment over registered real property is enforced by the sheriff by filing with the registry of deeds a copy of the
order of attachment, together with a description of the property attached, and a notice that it is attached, and by leaving a copy of such order,
description, and notice with the occupant of the property, if any.20 If judgment be recovered by the attaching party and execution issue thereon, the
sheriff may cause the judgment to be satisfied by selling so much of the property as may be necessary to satisfy the judgment.21 Only in the event that
petitioners are able to purchase the property will they then acquire possession and use of the same.
Clearly, the trial court's order of September 5, 1991 granting possession and use of the public market to petitioners does not adhere to the procedure for
attachment laid out in the Rules of Court. In issuing such an order, the trial court gravely abused its discretion and the appellate court's nullification of the
same should be sustained.1awp++i1
At this stage of the case, there is no need to pass upon the question of whether or not petitioners herein are the real parties-in-interest. In the event that
judgment is rendered against Salonga and the Municipality, this issue may be assigned as an error in their appeal from such judgment.
WHEREFORE, we UPHOLD the Court of Appeal's Decision dated February 6, 1992 in CA-G.R. SP No. 26336 insofar as it nullifies the contractor's lien
granted by the trial court in favor of petitioners in its September 5, 1991 Order. Consequently, we also UPHOLD the appellate court's nullification of the
trial court's October 11, 1991 Order approving the guidelines for the operation of the San Antonio Public Market. However, we REVERSE the appellate
court's order nullifying the writ of attachment granted by the trial court.1âwphi1.nêt
No pronouncement as to costs.
SO ORDERED.
COMMON CREDITS
G.R. No. 146555 July 3, 2007
JOSE C. CORDOVA, Petitioner,

vs.
15
REYES DAWAY LIM BERNARDO LINDO ROSALES LAW OFFICES, ATTY. WENDELL CORONEL and the SECURITIES AND EXCHANGE
COMMISSION,*** Respondents.
DECISION
CORONA, J.:
This is a petition for review on certiorari1 of a decision2 and resolution3 of the Court of Appeals (CA) dated July 31, 2000 and December 27, 2000,
respectively, in CA-G.R. SP No. 55311.
Sometime in 1977 and 1978, petitioner Jose C. Cordova bought from Philippine Underwriters Finance Corporation (Philfinance) certificates of stock of
Celebrity Sports Plaza Incorporated (CSPI) and shares of stock of various other corporations. He was issued a confirmation of sale.4 The CSPI shares
were physically delivered by Philfinance to the former Filmanbank5 and Philtrust Bank, as custodian banks, to hold these shares in behalf of and for the
benefit of petitioner.6
On June 18, 1981, Philfinance was placed under receivership by public respondent Securities and Exchange Commission (SEC). Thereafter, private
respondents Reyes Daway Lim Bernardo Lindo Rosales Law Offices and Atty. Wendell Coronel (private respondents) were appointed as liquidators.7
Sometime in 1991, without the knowledge and consent of petitioner and without authority from the SEC, private respondents withdrew the CSPI shares
from the custodian banks.8 On May 27, 1996, they sold the shares to Northeast Corporation and included the proceeds thereof in the funds of
Philfinance. Petitioner learned about the unauthorized sale of his shares only on September 10, 1996.9 He lodged a complaint with private respondents
but the latter ignored it10 prompting him to file, on May 6, 1997,11 a formal complaint against private respondents in the receivership proceedings with
the SEC, for the return of the shares.
Meanwhile, on April 18, 1997, the SEC approved a 15% rate of recovery for Philfinance’s creditors and investors.12 On May 13, 1997, the liquidators
began the process of settling the claims against Philfinance, from its assets.13
On April 14, 1998, the SEC rendered judgment dismissing the petition. However, it reconsidered this decision in a resolution dated September 24, 1999
and granted the claims of petitioner. It held that petitioner was the owner of the CSPI shares by virtue of a confirmation of sale (which was considered as
a deed of assignment) issued to him by Philfinance. But since the shares had already been sold and the proceeds commingled with the other assets of
Philfinance, petitioner’s status was converted into that of an ordinary creditor for the value of such shares. Thus, it ordered private respondents to pay
petitioner the amount of P5,062,500 representing 15% of the monetary value of his CSPI shares plus interest at the legal rate from the time of their
unauthorized sale.
On October 27, 1999, the SEC issued an order clarifying its September 24, 1999 resolution. While it reiterated its earlier order to pay petitioner the
amount of P5,062,500, it deleted the award of legal interest. It clarified that it never meant to award interest since this would be unfair to the other
claimants.
On appeal, the CA affirmed the SEC. It agreed that petitioner was indeed the owner of the CSPI shares but the recovery of such shares had become
impossible. It also declared that the clarificatory order merely harmonized the dispositive portion with the body of the resolution. Petitioner’s motion for
reconsideration was denied.
Hence this petition raising the following issues:
1) whether petitioner should be considered as a preferred (and secured) creditor of Philfinance;
2) whether petitioner can recover the full value of his CSPI shares or merely 15% thereof like all other ordinary creditors of Philfinance and
3) whether petitioner is entitled to legal interest.14
To resolve these issues, we first have to determine if petitioner was indeed a creditor of Philfinance.
There is no dispute that petitioner was the owner of the CSPI shares. However, private respondents, as liquidators of Philfinance, illegally withdrew said
certificates of stock without the knowledge and consent of petitioner and authority of the SEC.15 After selling the CSPI shares, private respondents
added the proceeds of the sale to the assets of Philfinance.16 Under these circumstances, did the petitioner become a creditor of Philfinance? We rule
in the affirmative.
The SEC, after holding that petitioner was the owner of the shares, stated:
Petitioner is seeking the return of his CSPI shares which, for the present, is no longer possible, considering that the same had already been sold by the
respondents, the proceeds of which are ADMITTEDLY commingled with the assets of Philfinance.
This being the case, [petitioner] is now but a claimant for the value of those shares. As a claimant, he shall be treated as an ordinary creditor in so far as
the value of those certificates is concerned.17
The CA agreed with this and elaborated:
Much as we find both detestable and reprehensible the grossly abusive and illicit contrivance employed by private respondents against petitioner, we,
nevertheless, concur with public respondent that the return of petitioner’s CSPI shares is well-nigh impossible, if not already an utter impossibility,
16
inasmuch as the certificates of stocks have already been alienated or transferred in favor of Northeast Corporation, as early as May 27, 1996, in
consequence whereof the proceeds of the sale have been transmuted into corporate assets of Philfinance, under custodia legis, ready for distribution to
its creditors and/or investors. Case law holds that the assets of an institution under receivership or liquidation shall be deemed in custodia legis in the
hands of the receiver or liquidator, and shall from the moment of such receivership or liquidation, be exempt from any order, garnishment, levy,
attachment, or execution.
Concomitantly, petitioner’s filing of his claim over the subject CSPI shares before the SEC in the liquidation proceedings bound him to the terms and
conditions thereof. He cannot demand any special treatment [from] the liquidator, for this flies in the face of, and will contravene, the Supreme Court
dictum that when a corporation threatened by bankruptcy is taken over by a receiver, all the creditors shall stand on equal footing. Not one of them
should be given preference by paying one or some [of] them ahead of the others. This is precisely the philosophy underlying the suspension of all
pending claims against the corporation under receivership. The rule of thumb is equality in equity.18
We agree with both the SEC and the CA that petitioner had become an ordinary creditor of Philfinance.
Certainly, petitioner had the right to demand the return of his CSPI shares.19 He in fact filed a complaint in the liquidation proceedings in the SEC to get
them back but was confronted by an impossible situation as they had already been sold. Consequently, he sought instead to recover their monetary
value.
Petitioner’s CSPI shares were specific or determinate movable properties.20 But after they were sold, the money raised from the sale became generic21
and were commingled with the cash and other assets of Philfinance. Unlike shares of stock, money is a generic thing. It is designated merely by its class
or genus without any particular designation or physical segregation from all others of the same class.22 This means that once a certain amount is added
to the cash balance, one can no longer pinpoint the specific amount included which then becomes part of a whole mass of money.
It thus became impossible to identify the exact proceeds of the sale of the CSPI shares since they could no longer be particularly designated nor
distinctly segregated from the assets of Philfinance. Petitioner’s only remedy was to file a claim on the whole mass of these assets, to which
unfortunately all of the other creditors and investors of Philfinance also had a claim.
Petitioner’s right of action against Philfinance was a "claim" properly to be litigated in the liquidation proceedings.23 In Finasia Investments and Finance
Corporation v. CA,24 we discussed the definition of "claims" in the context of liquidation proceedings:
We agree with the public respondent that the word ‘claim’ as used in Sec. 6(c) of P.D. 902-A,25 as amended, refers to debts or demands of a pecuniary
nature. It means "the assertion of a right to have money paid. It is used in special proceedings like those before [the administrative court] on insolvency."
The word "claim" is also defined as:
Right to payment, whether or not such right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed,
undisputed, legal, equitable, secured, or unsecured; or right to an equitable remedy for breach of performance if such breach gives rise to a right to
payment, whether or not such right to an equitable remedy is reduced to judgment, fixed, contingent, matured, unmatured, disputed, undisputed,
secured, unsecured.26
Undoubtedly, petitioner had a right to the payment of the value of his shares. His demand was of a pecuniary nature since he was claiming the monetary
value of his shares. It was in this sense (i.e. as a claimant) that he was a creditor of Philfinance.
The Civil Code provisions on concurrence and preference of credits are applicable to the liquidation proceedings.27 The next question is, was petitioner
a preferred or ordinary creditor under these provisions?
Petitioner argues that he was a preferred creditor because private respondents illegally withdrew his CSPI shares from the custodian banks and sold
them without his knowledge and consent and without authority from the SEC. He quotes Article 2241 (2) of the Civil Code:
With reference to specific movable property of the debtor, the following claims or liens shall be preferred:
xxx xxx xxx
(2) Claims arising from misappropriation, breach of trust, or malfeasance by public officials committed in the performance of their duties, on the
movables, money or securities obtained by them;
xxx xxx xxx
(Emphasis supplied)
He asserts that, as a preferred creditor, he was entitled to the entire monetary value of his shares.
Petitioner’s argument is incorrect. Article 2241 refers only to specific movable property. His claim was for the payment of money, which, as already
discussed, is generic property and not specific or determinate.
Considering that petitioner did not fall under any of the provisions applicable to preferred creditors, he was deemed an ordinary creditor under Article
2245:
17
Credits of any other kind or class, or by any other right or title not comprised in the four preceding articles, shall enjoy no preference.
This being so, Article 2251 (2) states that:
Common credits referred to in Article 2245 shall be paid pro rata regardless of dates.
Like all the other ordinary creditors or claimants against Philfinance, he was entitled to a rate of recovery of only 15% of his money claim.
One final issue: was petitioner entitled to interest?
The SEC argues that awarding interest to petitioner would have given petitioner an unfair advantage or preference over the other creditors.28 Petitioner
counters that he was entitled to 12% legal interest per annum under Article 2209 of the Civil Code from the time he was deprived of the shares until fully
paid.
The guidelines for awarding interest were laid down in Eastern Shipping Lines, Inc. v. CA:29
I. When an obligation, regardless of its source, i.e., law, contracts, quasi-contracts, delicts or quasi-delicts is breached, the contravenor can be held
liable for damages. The provisions under Title XVIII on "Damages" of the Civil Code govern in determining the measure of recoverable damages.
II. With regard particularly to an award of interest in the concept of actual and compensatory damages, the rate of interest, as well as the accrual thereof,
is imposed, as follows:
1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or forbearance of money, the interest due should be
that which may have been stipulated in writing. Furthermore, the interest due shall itself earn legal interest from the time it is judicially demanded. In the
absence of stipulation, the rate of interest shall be 12% per annum to be computed from default, i.e., from judicial or extrajudicial demand under and
subject to the provisions of Article 1169 of the Civil Code.
2. When an obligation, not constituting a loan or forbearance of money, is breached, an interest on the amount of damages awarded may be imposed at
the discretion of the court at the rate of 6% per annum. No interest, however, shall be adjudged on unliquidated claims or damages except when or until
the demand can be established with reasonable certainty.
Accordingly, where the demand is established with reasonable certainty, the interest shall begin to run from the time the claim is made judicially or
extrajudicially (Art. 1169, Civil Code) but when such certainty cannot be so reasonably established at the time the demand is made, the interest shall
begin to run only from the date of the judgment of the court is made (at which time the quantification of damages may be deemed to have been
reasonably ascertained). The actual base for the computation of legal interest shall, in any case, be on the amount of finally adjudged.
3. When the judgment of the court awarding a sum of money becomes final and executory, the rate of legal interest, whether the case falls under
paragraph 1 or paragraph 2, above, shall be 12% per annum from such finality until its satisfaction, this interim period being deemed to be by then an
equivalent to a forbearance of credit.30 (Emphasis supplied)
Under this ruling, petitioner was not entitled to legal interest of 12% per annum (from demand) because the amount owing to him was not a loan31 or
forbearance of money.32
Neither was he entitled to legal interest of 6% per annum under Article 2209 of the Civil Code33 since this provision applies only when there is a delay in
the payment of a sum of money.34 This was not the case here. In fact, petitioner himself manifested before the CA that the SEC (as liquidator) had
already paid him P5,062,500 representing 15% of P33,750,000.35
Accordingly, petitioner was not entitled to interest under the law and current jurisprudence.
Considering that petitioner had already received the amount of P5,062,500, the obligation of the SEC as liquidator of Philfinance was totally
extinguished.36
We note that there is an undisputed finding by the SEC and CA that private respondents sold the subject shares without authority from the SEC.
Petitioner evidently has a cause of action against private respondents for their bad faith and unauthorized acts, and the resulting damage caused to
him.37
WHEREFORE, the petition is hereby DENIED.
EFFECTS AND COVERAGE OF TE COMMENCEMENT ORDER AND STAY OR SUSPENSION ORDER
RIZAL COMMERCIAL BANKING CORPORATION, petitioner, vs. INTERMEDIATE APPELLATE COURT AND BF HOMES, INC., respondents.
RESOLUTION
MELO, J.:
18
On September 14, 1992, the Court passed upon the case at bar and rendered its decision, dismissing the petition of Rizal Commercial Banking
Corporation (RCBC), thereby affirming the decision of the Court of Appeals which canceled the transfer certificate of title issued in favor of RCBC, and
reinstating that of respondent BF Homes.
This will now resolve petitioner’s motion for reconsideration which, although filed in 1992 was not deemed submitted for resolution until in late 1998. The
delay was occasioned by exchange of pleadings, the submission of supplemental papers, withdrawal and change of lawyers, not to speak of the case
having been passed from one departing to another retiring justice. It was not until May 3, 1999, when the case was re-raffled to herein ponente, but the
record was given to him only sometime in the late October 1999.
By way of review, the pertinent facts as stated in our decision are reproduced herein, to wit:
On September 28, 1984, BF Homes filed a “Petition for Rehabilitation and for Declaration of Suspension of Payments” (SEC Case No. 002693) with the
Securities and Exchange Commission (SEC).
One of the creditors listed in its inventory of creditors and liabilities was RCBC.
On October 26, 1984, RCBC requested the Provincial Sheriff of Rizal to extra-judicially foreclose its real estate mortgage on some properties of BF
Homes. A notice of extra-judicial foreclosure sale was issued by the Sheriff on October 29, 1984, scheduled on November 29, 1984, copies furnished
both BF Homes (mortgagor) and RCBC (mortgagee).
On motion of BF Homes, the SEC issued on November 28, 1984 in SEC Case No. 002693 a temporary restraining order (TRO), effective for 20 days,
enjoining RCBC and the sheriff from proceeding with the public auction sale. The sale was rescheduled to January 29, 1985.
On January 25, 1985, the SEC ordered the issuance of a writ of preliminary injunction upon petitioner’s filing of a bond. However, petitioner did not file a
bond until January 29, 1985, the very day of the auction sale, so no writ of preliminary injunction was issued by the SEC. Presumably, unaware of the
filing of the bond, the sheriffs proceeded with the public auction sale on January 29, 1985, in which RCBC was the highest bidder for the properties
auctioned.
On February 5, 1985, BF Homes filed in the SEC a consolidated motion to annul the auction sale and to cite RCBC and the sheriff for contempt. RCBC
opposed the motion.
Because of the proceedings in the SEC, the sheriff withheld the delivery to RCBC of a certificate of sale covering the auctioned properties.
On February 13, 1985, the SEC in Case No. 002693 belatedly issued a writ of preliminary injunction stopping the auction sale which had been
conducted by the sheriff two weeks earlier.
On March 13, 1985, despite SEC Case No. 002693, RCBC filed with the Regional Trial Court, Br. 140, Rizal (CC 10042) an action for mandamus
against the provincial sheriff of Rizal and his deputy to compel them to execute in its favor a certificate of sale of the auctioned properties.
In answer, the sheriffs alleged that they proceeded with the auction sale on January 29, 1985 because no writ of preliminary injunction had been issued
by SEC as of that date, but they informed the SEC that they would suspend the issuance of a certificate of sale to RCBC.
On March 18, 1985, the SEC appointed a Management Committee for BF Homes.
On RCBC’s motion in the mandamus case, the trial court issued on May 8, 1985 a judgment on the pleadings, the dispositive portion of which states:
“WHEREFORE, petitioner’s ‘Motion for Judgment on the pleadings is granted and judgement is hereby rendered ordering respondents to execute and
deliver to petitioner the Certificate of the Auction Sale of January 29, 1985, involving the properties sold therein, more particularly those described in
Annex ‘C’ of their Answer.” (p. 87, Rollo.)
On June 4, 1985, B.F. Homes filed an original complaint with the IAC pursuant to Section 9 of B.P. 129 praying for the annulment of the judgment,
premised on the following:
“x x x: (1) even before RCBC asked the sheriff to extra-judicially foreclose its mortgage on petitioner’s properties, the SEC had already assumed
exclusive jurisdiction over those assets, and (2) that there was extrinsic fraud in procuring the judgment because the petitioner was not impleaded as a
party in the mandamus case, respondent court did not acquire jurisdiction over it, and it was deprived of its right to be heard.” (CA Decision, p. 88, Rollo).
On April 8, 1986, the IAC rendered a decision, setting aside the decision of the trial court, dismissing the mandamus case and suspending issuance to
RCBC of new land titles, “until the resolution of case by SEC in Case No. 002693,” disposing as follows:
WHEREFORE, the judgment dated May 8, 1985 in Civil Case No. 10042 is hereby annulled and set aside and the case is hereby dismissed. In view of
the admission of respondent Rizal Commercial Banking Corporation that the sheriff’s certificate of sale has been registered on BF Homes’ TCT’s . . .
(here the TCTs were enumerated) the Register of Deeds for Pasay City is hereby ordered to suspend the issuance to the mortgagee-purchaser, Rizal
Commercial Banking Corporation, of the owner’s copies of the new land titles replacing them until the matter shall have been resolved by the Securities
and Exchange Commission in SEC Case No. 002693.”
(p. 257-260, Rollo; also pp. 832-834, 213 SCRA 830[1992]; Emphasis in the original.)
19
On June 18, 1986, RCBC appealed the decision of the then Intermediate Appellate Court (now, back to its old revered name, the Court of Appeals) to
this Court, arguing that:
1. Petitioner did not commit extrinsic fraud in excluding private respondent as party defendant in Special Civil Case No. 10042 as private respondent
was not indispensable party thereto, its participation not being necessary for the full resolution of the issues raised in said case.
2. SEC Case No. 2693 cannot be invoked to suspend Special Civil Case No. 10042, and for that matter, the extra-judicial foreclosure of the real estate
mortgage in petitioner’s favor, as these do not constitute actions against private respondent contemplated under Section 6(c) of Presidential Decree No.
902-A.
3. Even assuming arguendo that the extra-judicial sale constitute an action that may be suspended under Section 6(c) of Presidential Decree No. 902-
A, the basis for the suspension thereof did not exist so as to adversely affect the validity and regularity thereof.
4. The Regional Trial court had jurisdiction to take cognizance of Special Civil Case No. 10042.
5. The Regional Trial court had jurisdiction over Special Civil Case No. 10042.”
(p. 5, Rollo.)
On November 12, 1986, the Court gave due course to the petition. During the pendency of the case, RCBC brought to the attention of the Court an
order issued by the SEC on October 16, 1986 in Case No.002693, denying the consolidated Motion to Annul the Auction Sale and to cite RCBC and the
Sheriff for Contempt, and ruling as follows:
WHEREFORE, the petitioner’s “Consolidated Motion to Cite Sheriff and Rizal Commercial Banking Corporation for Contempt and to Annul Proceedings
and Sale,” dated February 5, 1985, should be as is, hereby DENIED.
While we cannot direct the Register of Deeds to allow the consolidation of the titles subject of the Omnibus Motion dated September 18, 1986 filed by
the Rizal Commercial banking Corporation, and therefore, denies said Motion, neither can this Commission restrain the said bank and the Register of
Deeds from effecting the said consolidation.
SO ORDERED.
(p. 143, Rollo.)
By virtue of the aforesaid order, the Register of Deeds of Pasay City effected the transfer of title over subject pieces of property to petitioner RCBC, and
the issuance of new titles in its name. Thereafter, RCBC presented a motion for the dismissal of the petition, theorizing that the issuance of said new
transfer certificates of title in its name rendered the petition moot and academic.
In the decision sought to be reconsidered, a greatly divided Court (Justices Gutierrez, Nocon, and Melo concurred with the ponente, Justice Medialdea;
Chief Justice Narvasa, Justices Bidin, Regalado, and Bellosillo concurred only in the result; while Justice Feliciano dissented and was joined by Justice
Padilla, then Justice, now Chief Justice Davide, and Justice Romero; Justices Griño-Aquino and Campos took no part) denied petitioner’s motion to
dismiss, finding basis for nullifying and setting aside the TCTs in the name of RCBC. Ruling on the merits, the Court upheld the decision of the
Intermediate Appellate Court which dismissed the mandamus case filed by RCBC and suspended the issuance of new titles to RCBC. Setting aside
RCBC’s acquisition of title and nullifying the TCTs issued to it, the Court held that:
. . . whenever a distressed corporation asks the SEC for rehabilitation and suspension of payments, preferred creditors may no longer assert such
preference, but . . . stand on equal footing with other creditors. Foreclosure shall be disallowed so as not to prejudice other creditors, or cause
discrimination among them. If foreclosure is undertaken despite the fact that a petition for rehabilitation has been filed, the certificate of sale shall not be
delivered pending rehabilitation. Likewise, if this has also been done, no transfer of title shall be effected also, within the period of rehabilitation. The
rationale behind PD 902-A, as amended, is to effect a feasible and viable rehabilitation. This cannot be achieved if one creditor is preferred over the
others.
In this connection, the prohibition against foreclosure attaches as soon as a petition for rehabilitation is filed. Were it otherwise, what is to prevent the
petitioner from delaying the creation of a Management Committee and in the meantime dissipate all its assets. The sooner the SEC takes over and
imposes a freeze on all the assets, the better for all concerned.
(pp. 265-266, Rollo; also p. 838, 213 SCRA 830[1992].)
Then Justice Feliciano (joined by three other Justices), dissented and voted to grant the petition. He opined that the SEC acted prematurely and without
jurisdiction or legal authority in enjoining RCBC and the sheriff from proceeding with the public auction sale. The dissent maintain that Section 6 (c) of
Presidential Decree 902-A is clear and unequivocal that, claims against the corporations, partnerships, or associations shall be suspended only upon the
appointment of a management committee, rehabilitation receiver, board or body. Thus, in the case under consideration, only upon the appointment of
the Management Committee for BF Homes on March 18, 1985, should the suspension of actions for claims against BF Homes have taken effect and not
earlier.
In support of its motion for reconsideration, RCBC contends:
20
The restraining order and the writ of preliminary injunction issued by the Securities and Exchange Commission enjoining the foreclosure sale of the
properties of respondent BF Homes were issued without or in excess of its jurisdiction because it was violative of the clear provision of Presidential
Decree No. 902-A, and are therefore null and void; and
Petitioner, being a mortgage creditor, is entitled to rely solely on its security and to refrain from joining the unsecured creditors in SEC Case No. 002693,
the petition for rehabilitation filed by private respondent.
We find the motion for reconsideration meritorious.
The issue of whether or not preferred creditors of distressed corporations stand on equal footing with all other creditors gains relevance and materiality
only upon the appointment of a management committee, rehabilitation receiver, board, or body. Insofar as petitioner RCBC is concerned, the provisions
of Presidential Decree No. 902-A are not yet applicable and it may still be allowed to assert its preferred status because it foreclosed on the mortgage
prior to the appointment of the management committee on March 18, 1985. The Court, therefore, grants the motion for reconsideration on this score.
The law on the matter, Paragraph (c), Section 6 of Presidential Decree 902-A, provides:
Sec. 6. In order to effectively exercise such jurisdiction, the Commission shall possess the following powers:
c) To appoint one or more receivers of the property, real and personal, which is the subject of the action pending before the Commission in accordance
with the pertinent provisions of the Rules of Court in such other cases whenever necessary to preserve the rights of the parties-litigants to and/or protect
the interest of the investing public and creditors; Provided, however, that the Commission may, in appropriate cases, appoint a rehabilitation receiver of
corporations, partnerships or other associations not supervised or regulated by other government agencies who shall have, in addition to the powers of a
regular receiver under the provisions of the Rules of Court, such functions and powers as are provided for in the succeeding paragraph (d) hereof:
Provided, finally, That upon appointment of a management committee, rehabilitation receiver, board or body, pursuant to this Decree, all actions for
claims against corporations, partnerships or associations under management or receivership pending before any court, tribunal, board or body shall be
suspended accordingly. (As amended by PDs No. 1673, 1758 and by PD No. 1799. Emphasis supplied.)
It is thus adequately clear that suspension of claims against a corporation under rehabilitation is counted or figured up only upon the appointment of a
management committee or a rehabilitation receiver. The holding that suspension of actions for claims against a corporation under rehabilitation takes
effect as soon as the application or a petition for rehabilitation is filed with the SEC – may, to some, be more logical and wise but unfortunately, such is
incongruent with the clear language of the law. To insist on such ruling, no matter how practical and noble, would be to encroach upon legislative
prerogative to define the wisdom of the law– plainly judicial legislation.
It bears stressing that the first and fundamental duty of the Court is to apply the law. When the law is clear and free from any doubt or ambiguity, there is
no room for construction or interpretation. As has been our consistent ruling, where the law speaks in clear and categorical language, there is no
occasion for interpretation; there is only room for application (Cebu Portland Cement Co. vs. Municipality of Naga, 24 SCRA 708 [1968]).
Where the law is clear and unambiguous, it must be taken to mean exactly what it says and the court has no choice but to see to it that its mandate is
obeyed (Chartered Bank Employees Association vs. Ople, 138 SCRA 273 [1985]; Luzon Surety Co., Inc. vs. De Garcia, 30 SCRA 111 [1969]; Quijano
vs. Development Bank of the Philippines, 35 SCRA 270 [1970]).
Only when the law is ambiguous or of doubtful meaning may the court interpret or construe its true intent. Ambiguity is a condition of admitting two or
more meanings, of being understood in more than one way, or of referring to two or more things at the same time. A statute is ambiguous if it is
admissible of two or more possible meanings, in which case, the Court is called upon to exercise one of its judicial functions, which is to interpret the law
according to its true intent.
Furthermore, as relevantly pointed out in the dissenting opinion, a petition for rehabilitation does not always result in the appointment of a receiver or the
creation of a management committee. The SEC has to initially determine whether such appointment is appropriate and necessary under the
circumstances. Under Paragraph (d), Section 6 of Presidential Decree No. 902-A, certain situations must be shown to exist before a management
committee may be created or appointed, such as;
1. when there is imminent danger of dissipation, loss, wastage or destruction of assets or other properties; or
2. when there is paralization of business operations of such corporations or entities which may be prejudicial to the interest of minority stockholders,
parties-litigants or to the general public.
On the other hand, receivers may be appointed whenever:
1. necessary in order to preserve the rights of the parties-litigants; and/or
2. protect the interest of the investing public and creditors. (Section 6 (c), P.D. 902-A.)
These situations are rather serious in nature, requiring the appointment of a management committee or a receiver to preserve the existing assets and
property of the corporation in order to protect the interests of its investors and creditors. Thus, in such situations, suspension of actions for claims
against a corporation as provided in Paragraph (c) of Section 6, of Presidential Decree No. 902-A is necessary, and here we borrow the words of the late
Justice Medialdea, “so as not to render the SEC management Committee irrelevant and inutile and to give it unhampered ‘rescue efforts’ over the
distressed firm” (Rollo, p. 265).
21
Otherwise, when such circumstances are not obtaining or when the SEC finds no such imminent danger of losing the corporate assets, a management
committee or rehabilitation receiver need not be appointed and suspension of actions for claims may not be ordered by the SEC. When the SEC does
not deem it necessary to appoint a receiver or to create a management committee, it may be assumed, that there are sufficient assets to sustain the
rehabilitation plan and, that the creditors and investors are amply protected.
Petitioner additionally argues in its motion for reconsideration that, being a mortgage creditor, it is entitled to rely on its security and that it need not join
the unsecured creditors in filing their claims before the SEC-appointed receiver. To support its position, petitioner cites the Court’s ruling in the case of
Philippine Commercial International Bank vs. Court of Appeals, (172 SCRA 436 [1989]) that an order of suspension of payments as well as actions for
claims applies only to claims of unsecured creditors and cannot extend to creditors holding a mortgage, pledge, or any lien on the property.
Ordinarily, the Court would refrain from discussing additional matters such as that presented in RCBC’s second ground, and would rather limit itself only
to the relevant issues by which the controversy may be settled with finality.
In view, however, of the significance of such issue, and the conflicting decisions of this Court on the matter, coupled with the fact that our decision of
September 14, 1992, if not clarified, might mislead the Bench and the Bar, the Court resolved to discuss further.
It may be recalled that in the herein en banc majority opinion (pp. 256-275, Rollo, also published as RCBC vs. IAC, 213 SCRA 830 [1992]), we held that:
. . . whenever a distressed corporation asks the SEC for rehabilitation and suspension of payments, preferred creditors may no longer assert such
preference, but . . . stand on equal footing with other creditors. Foreclosure shall be disallowed so as not to prejudice other creditors, or cause
discrimination among them. If foreclosure is undertaken despite the fact that a petition for rehabilitation has been filed, the certificate of sale shall not be
delivered pending rehabilitation. Likewise, if this has also been done, no transfer of title shall be effected also, within the period of rehabilitation. The
rationale behind PD 902-A, as amended, is to effect a feasible and viable rehabilitation. This cannot be achieved if one creditor is preferred over the
others.
In this connection, the prohibition against foreclosure attaches as soon as a petition for rehabilitation is filed. Were it otherwise, what is to prevent the
petitioner from delaying the creation of a Management Committee and in the meantime dissipate all its assets. The sooner the SEC takes over and
imposes a freeze on all the assets, the better for all concerned.
(pp. 265-266, Rollo; also p. 838, 213 SCRA 830[1992]. Emphasis supplied.)
The foregoing majority opinion relied upon BF Homes, Inc. vs. Court of Appeals (190 SCRA 262 [1990] – per Cruz, J.: First Division) where it was held
that “when a corporation threatened by bankruptcy is taken over by a receiver, all the creditors should stand on an equal footing. Not anyone of them
should be given preference by paying one or some of them ahead of the others. This is precisely the reason for the suspension of all pending claims
against the corporation under receivership. Instead of creditors vexing the courts with suits against the distressed firm, they are directed to file their
claims with the receiver who is a duly appointed officer of the SEC” (pp. 269-270; emphasis in the original). This ruling is a reiteration of Alemar’s Sibal
& Sons, Inc. vs. Hon. Jesus M. Elbinias (pp. 99-100;186 SCRA 94 [1990] – per Fernan, C.J.: Third Division).
Taking the lead from Alemar’s Sibal & Sons, the Court also applied this same ruling in Araneta vs. Court of Appeals (211 SCRA 390 [1992] – per Nocon,
J.: Second Division).
All the foregoing cases departed from the ruling of the Court in the much earlier case of PCIB vs. Court of Appeals (172 SCRA 436 [1989] – per
Medialdea, J.: First Division) where the Court categorically ruled that:
SEC’s order for suspension of payments of Philfinance as well as for all actions of claims against Philfinance could only be applied to claims of
unsecured creditors. Such order can not extend to creditors holding a mortgage, pledge or any lien on the property unless they give up the property,
security or lien in favor of all the creditors of Philfinance. . .
(p. 440. Emphasis supplied)
Thus, in BPI vs. Court of Appeals (229 SCRA 223 [1994] – per Bellosillo, J.: First Division) the Court explicitly stated that “. . . the doctrine in the PCIB
Case has since been abrogated. In Alemar’s Sibal & Sons v. Elbinias, BF Homes, Inc. v. Court of Appeals, Araneta v. Court of Appeals and RCBC v.
Court of Appeals, we already ruled that whenever a distressed corporation asks SEC for rehabilitation and suspension of payments, preferred creditors
may no longer assert such preference, but shall stand on equal footing with other creditors. . .” (pp. 227-228).
It may be stressed, however, that of all the cases cited by Justice Bellosillo in BPI, which abandoned the Court’s ruling in PCIB, only the present case
satisfies the constitutional requirement that “no doctrine or principle of law laid down by the court in a decision rendered en banc or in division may be
modified or reversed except by the court sitting en banc” (Sec 4, Article VIII, 1987 Constitution). The rest were division decisions.
It behooves the Court, therefore, to settle the issue in this present resolution once and for all, and for the guidance of the Bench and the Bar, the
following rules of thumb shall are laid down:
1. All claims against corporations, partnerships, or associations that are pending before any court, tribunal, or board, without distinction as to whether or
not a creditor is secured or unsecured, shall be suspended effective upon the appointment of a management committee, rehabilitation receiver, board, or
body in accordance with the provisions of Presidential Decree No. 902-A.
22
2. Secured creditors retain their preference over unsecured creditors, but enforcement of such preference is equally suspended upon the appointment
of a management committee, rehabilitation receiver, board, or body. In the event that the assets of the corporation, partnership, or association are finally
liquidated, however, secured and preferred credits under the applicable provisions of the Civil Code will definitely have preference over unsecured ones.
In other words, once a management committee, rehabilitation receiver, board or body is appointed pursuant to P.D. 902-A, all actions for claims against
a distressed corporation pending before any court, tribunal, board or body shall be suspended accordingly.
This suspension shall not prejudice or render ineffective the status of a secured creditor as compared to a totally unsecured creditor. P.D. 902-A does
not state anything to this effect. What it merely provides is that all actions for claims against the corporation, partnership or association shall be
suspended. This should give the receiver a chance to rehabilitate the corporation if there should still be a possibility for doing so. (This will be in
consonance with Alemar’s, BF Homes, Araneta, and RCBC insofar as enforcing liens by preferred creditors are concerned.)
However, in the event that rehabilitation is no longer feasible and claims against the distressed corporation would eventually have to be settled, the
secured creditors shall enjoy preference over the unsecured creditors (still maintaining PCIB ruling), subject only to the provisions of the Civil Code on
Concurrence and Preferences of Credit (our ruling in State Investment House, Inc. vs. Court of Appeals, 277 SCRA 209 [1997]).
The majority ruling in our 1992 decision that preferred creditors of distressed corporations shall, in a way, stand on equal footing with all other creditors,
must be read and understood in the light of the foregoing rulings. All claims of both a secured or unsecured creditor, without distinction on this score, are
suspended once a management committee is appointed. Secured creditors, in the meantime, shall not be allowed to assert such preference before the
Securities and Exchange Commission. It may be stressed, however, that this shall only take effect upon the appointment of a management committee,
rehabilitation receiver, board, or body, as opined in the dissent.
In fine, the Court grants the motion for reconsideration for the cogent reason that suspension of actions for claims commences only from the time a
management committee or receiver is appointed by the SEC. Petitioner RCBC, therefore, could have rightfully, as it did, move for the extrajudicial
foreclosure of its mortgage on October 26, 1984 because a management committee was not appointed by the SEC until March 18, 1985.
WHEREFORE, petitioner’s motion for reconsideration is hereby GRANTED. The decision dated September 14, 1992 is vacated, the decision of
Intermediate Appellate Court in AC-G.R. No. SP-06313 REVERSED and SET ASIDE, and the judgment of the Regional Trial Court National Capital
Judicial Region, Branch 140, in Civil Case No. 10042 REINSTATED.
SO ORDERED.
Sps. Sobrejuannite vs. ASB Development Corporation
This petition for review on certiorari assails the June 29, 2004 Decision of the Court of Appeals in CA-G.R. SP No. 79420 which reversed and set aside
the Decision of the Office of the President; and its October 18, 2004 Resolution denying reconsideration thereof.
The antecedent facts show that on March 7, 2001, spouses Eduardo and Fidela Sobrejuanite (Sobrejuanite) filed a Complaint[1] for rescission of
contract, refund of payments and damages, against ASB Development Corporation (ASBDC) before the Housing and Land Use Regulatory Board
(HLURB).
Sobrejuanite alleged that they entered into a Contract to Sell with ASBDC over a condominium unit and a parking space in the BSA Twin Tower-B
Condominum located at Bank Drive, Ortigas Center, Mandaluyong City. They averred that despite full payment and demands, ASBDC failed to deliver
the property on or before December 1999 as agreed. They prayed for the rescission of the contract; refund of payments amounting to P2,674,637.10;
payment of moral and exemplary damages, attorney’s fees, litigation expenses, appearance fee and costs of the suit.
ASBDC filed a motion to dismiss or suspend proceedings in view of the approval by the Securities and Exchange Commission (SEC) on April 26,
2001 of the rehabilitation plan of ASB Group of Companies, which includes ASBDC, and the appointment of a rehabilitation receiver. The HLURB arbiter
however denied the motion and ordered the continuation of the proceedings.
The arbiter found that under the Contract to Sell, ASBDC should have delivered the property to Sobrejuanite in December 1999; that the latter had fully
paid their obligations except the P50,000.00 which should be paid upon completion of the construction; and that rescission of the contract with damages
is proper.
The dispositive portion of the Decision reads:
WHEREFORE, in view of the foregoing judgment is rendered ordering the rescission of the contracts to sell between the parties, and further ordering the
respondent [ASBDC] to pay the complainants [Sobrejuanite] the following:
a) all amortization payments by the complainants amounting to P2,674,637.10 plus 12% interest from the date of actual payment of each
amortization;
b) moral damages amounting to P200,000.00;
c) exemplary damages amounting to P100,000.00;
d) attorney’s fees amounting to P100,000.00;
e) litigation expenses amounting to P50,000.00.
All other claims and all counter-claims are hereby dismissed.
23
IT IS SO ORDERED.[2]
The HLURB Board of Commissioners[3] affirmed the ruling of the arbiter that the approval of the rehabilitation plan and the appointment of a
rehabilitation receiver by the SEC did not have the effect of suspending the proceedings before the HLURB. The board held that the HLURB could
properly take cognizance of the case since whatever monetary award that may be granted by it will be ultimately filed as a claim before the rehabilitation
receiver. The board also found that ASBDC failed to deliver the property to Sobrejuanite within the prescribed period. The dispositive portion of the
Decision reads:
Wherefore the petition for review is denied and the decision of the office below is affirmed. It shall be understood that all monetary awards shall still be
filed as claims before the rehabilitation receiver.[4]
ASBDC filed an appeal[5] before the Office of the President which was dismissed[6] for lack of merit. Hence, ASBDC filed a petition[7] under
Section 1, Rule 43 of the Rules of Court before the Court of Appeals, docketed as CA-G.R. SP No. 79420.
On June 29, 2004, the Court of Appeals rendered its assailed Decision,[8] the dispositive portion of which reads:
WHEREFORE, premises considered, the instant petition is GRANTED. The impugned decision dated June 27, 2003 of the Office of the President is
hereby REVERSED AND SET ASIDE. No pronouncement as to costs.
SO ORDERED.[9]
The Court of Appeals held that the approval by the SEC of the rehabilitation plan and the appointment of the receiver caused the suspension of the
HLURB proceedings. The appellate court noted that Sobrejuanite’s complaint for rescission and damages is a claim under the contemplation of
Presidential Decree (PD) No. 902-A or the SEC Reorganization Act and A.M. No. 00-8-10-SC or the Interim Rules of Procedure on Corporate
Rehabilitation, because it sought to enforce a pecuniary demand. Therefore, jurisdiction lies with the SEC and not HLURB. It also ruled that ASBDC
was obliged to deliver the property in December 1999 but its financial reverses warranted the extension of the period.
Sobrejuanite’s motion for reconsideration was denied[10] hence the instant petition which raises the following issues:
1. THE COURT OF APPEALS COMMITTED REVERSIBLE ERROR AND GRAVELY ABUSED ITS DISCRETION IN RULING THAT THE
SEC, NOT THE HLURB, HAS JURISDICTION OVER PETITIONER’S COMPLAINT, IN CONTRAVENTION TO LAW AND THE RULING OF THIS
HONORABLE COURT IN THE ARRANZA CASE.
2. THE COURT OF APPEALS COMMITTED REVERSIBLE ERROR AND GRAVELY ABUSED ITS DISCRETION WHEN IT RULED THAT
THE APPROVAL OF THE CORPORATE REHABILITATION PLAN AND THE APPOINTMENT OF A RECEIVER HAD THE EFFECT OF SUSPENDING
THE PROCEEDING IN THE HLURB, AND THAT THE MONETARY AWARD GIVEN BY THE HLURB COULD NOT [BE] FILED IN THE SEC FOR
PROPER DISPOSITION, NOT BEING IN ACCORDANCE WITH LAW AND JURISPRUDENCE.
3. THE COURT OF APPEALS COMMITTED REVERSIBLE ERROR AND GRAVELY ABUSED ITS DISCRETION IN RULING THAT RESPONDENT
“IS JUSTIFIED IN EXTENDING THE AGREED DATE OF DELIVERY BY INVOKING AS GROUND THE FINANCIAL CONSTRAINTS IT
EXPERIENCED,” BEING CONTRARY TO LAW AND IN EEFECT AN UNLAWFUL NOVATION OF THE AGREEMENT OF THE DATE OF DELIVERY
ENTERED INTO BY PETITIONERS AND RESPONDENT.[11]
The petition lacks merit.
Section 6(c) of PD No. 902-A empowers the SEC:
c) To appoint one or more receivers of the property, real and personal, which is the subject of the action pending before the Commission …
whenever necessary in order to preserve the rights of the parties-litigants and/or protect the interest of the investing public and creditors: … Provided,
finally, That upon appointment of a management committee, rehabilitation receiver, board or body, pursuant to this Decree, all actions for claims against
corporations, partnerships or associations under management or receivership pending before any court, tribunal, board or body shall be suspended
accordingly. [Emphasis added]
The purpose for the suspension of the proceedings is to prevent a creditor from obtaining an advantage or preference over another and to protect and
preserve the rights of party litigants as well as the interest of the investing public or creditors.[12] Such suspension is intended to give enough breathing
space for the management committee or rehabilitation receiver to make the business viable again, without having to divert attention and resources to
litigations in various fora.[13] The suspension would enable the management committee or rehabilitation receiver to effectively exercise its/his powers
free from any judicial or extra-judicial interference that might unduly hinder or prevent the “rescue” of the debtor company. To allow such other action to
continue would only add to the burden of the management committee or rehabilitation receiver, whose time, effort and resources would be wasted in
defending claims against the corporation instead of being directed toward its restructuring and rehabilitation.[14]
Thus, in order to resolve whether the proceedings before the HLURB should be suspended, it is necessary to determine whether the complaint for
rescission of contract with damages is a claim within the contemplation of PD No. 902-A.
In Finasia Investments and Finance Corp. v. Court of Appeals,[15] we construed claim to refer only to debts or demands pecuniary in nature.
Thus:
24
[T]he word ‘claim’ as used in Sec. 6(c) of P.D. 902-A refers to debts or demands of a pecuniary nature. It means “the assertion of a right to have money
paid. It is used in special proceedings like those before administrative court, on insolvency.”
The word “claim” is also defined as:
Right to payment, whether or not such right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed,
undisputed, legal, equitable, secured, or unsecured; or right to an equitable remedy for breach of performance if such breach gives rise to a right to
payment, whether or not such right to an equitable remedy is reduced to judgment, fixed, contingent, matured, unmatured, disputed, undisputed,
secured, unsecured.
In conflicts of law, a receiver may be appointed in any state which has jurisdiction over the defendant who owes a claim.
As used in statutes requiring the presentation of claims against a decedent’s estate, “claim” is generally construed to mean debts or demands of
a pecuniary nature which could have been enforced against the deceased in his lifetime and could have been reduced to simple money judgments; and
among these are those founded upon contract.
In Arranza v. B.F. Homes, Inc.,[16] claim is defined as referring to actions involving monetary considerations.
Finasia Investments and Finance Corp. v. Court of Appeals and Arranza v. B.F. Homes, Inc. were promulgated prior to the effectivity of the Interim
Rules of Procedure on Corporate Rehabilitation on December 15, 2000. The interim rules define a claim as referring to all claims or demands, of
whatever nature or character against a debtor or its property, whether for money or otherwise. The definition is all-encompassing as it refers to all
actions whether for money or otherwise. There are no distinctions or exemptions.
Incidentally, although the petition for rehabilitation with prayer for suspension of actions and proceedings was filed before the SEC on May 2,
2000,[17] or prior to the effectivity of the interim rules, the same would still apply pursuant to Section 1, Rule 1 thereof which provides:
Section 1. Scope – These Rules shall apply to petitions for rehabilitation filed by corporations, partnerships, and associations pursuant to Presidential
Decree No. 902-A, as amended.
Clearly then, the complaint filed by Sobrejuanite is a claim as defined under the Interim Rules of Procedure on Corporate Rehabilitation. Even
under our rulings in Finasia Investments and Finance Corp. v. Court of Appeals and Arranza v. B.F. Homes, Inc., the complaint for rescission with
damages would fall under the category of claim considering that it is for pecuniary considerations.
In their complaint, Sobrejuanite pray for the rescission of the contract and the refund of P2,674,637.10 representing their total payments to
ASBDC; P200,000.00 as moral damages; P100,000.00 as exemplary damages; P100,000.00 as attorney’s fees; P50,000.00 as litigation expenses;
P1,500.00 per hearing as appearance fees; and costs of the suit.
In the decision of the HLURB arbiter, ASBDC was ordered to pay P2,674,637.10 plus 12% interest from the date of actual payment of each amortization,
representing the refund of all the amortization payments made by Sobrejuanite; P200,000.00 as moral damages; P100,000.00 as exemplary damages;
P100,000.00 as attorney’s fees; and P50,000.00 as litigation expenses.
As such, the HLURB arbiter should have suspended the proceedings upon the approval by the SEC of the ASB Group of Companies’ rehabilitation plan
and the appointment of its rehabilitation receiver. By the suspension of the proceedings, the receiver is allowed to fully devote his time and efforts to the
rehabilitation and restructuring of the distressed corporation.
It is well to note that even the execution of final judgments may be held in abeyance when a corporation is under rehabilitation.[18] Hence, there
is more reason in the instant case for the HLURB arbiter to order the suspension of the proceedings as the motion to suspend was filed soon after the
institution of the complaint. By allowing the proceedings to proceed, the HLURB arbiter unwittingly gave undue preference to Sobrejuanite over the
other creditors and claimants of ASBDC, which is precisely the vice sought to be prevented by Section 6(c) of PD 902-A. Thus:
As between creditors, the key phrase is “equality is equity.” When a corporation threatened by bankruptcy is taken over by a receiver, all the
creditors should stand on equal footing. Not anyone of them should be given any preference by paying one or some of them ahead of the others. This
is precisely the reason for the suspension of all pending claims against the corporation under receivership. Instead of creditors vexing the courts with
suits against the distressed firm, they are directed to file their claims with the receiver who is a duly appointed officer of the SEC.[19]
Petitioners’ reliance on Arranza v. B.F. Homes, Inc.[20] is misplaced. In that case, we held that the HLURB retained its jurisdiction despite the
rehabilitation proceedings since the claim filed by the homeowners did not involve pecuniary considerations. The claim therein was for specific
performance to enforce the homeowners’ rights as regards right of way, open spaces, road and perimeter wall repairs, and security. However, it can
also be deduced therefrom that if the claim was for monetary awards, the proceedings before the HLURB should be suspended during the rehabilitation.
Thus:
No violation of the SEC order suspending payments to creditors would result as far as petitioners’ complaint before the HLURB is concerned. To
reiterate, what petitioners seek to enforce are respondent’s obligations as a subdivision developer. Such claims are basically not pecuniary in nature
although it could incidentally involve monetary considerations. All that petitioners’ claims entail is the exercise of proper subdivision management on the
part of the SEC-appointed Board of Receivers towards the end that homeowners shall enjoy the ideal community living that respondent portrayed they
would have when they bought real estate from it.
25
Neither may petitioners be considered as having “claims” against respondent within the context of the following proviso of Section 6 (c) of P.D. No. 902-
A, …to warrant suspension of the HLURB proceedings.
.…
In this case, under the complaint for specific performance before the HLURB, petitioners do not aim to enforce a pecuniary demand. Their claim for
reimbursement should be viewed in the light of respondent’s alleged failure to observe its statutory and contractual obligations to provide petitioners a
“decent human settlement” and “ample opportunities for improving their quality of life.” The HLURB, not the SEC, is equipped with the expertise to deal
with that matter.[21]
Finally, we agree with the Court of Appeals that under the Contract to Sell, ASBDC was obliged to deliver the property to Sobrejuanite on or before
December 1999. Nonetheless, the same was deemed extended due to the financial reverses experienced by the company. Section 7 of the Contract to
Sell allows the developer to extend the period of delivery on account of causes beyond its control, such as financial reverses.
WHEREFORE, the petition is DENIED. The assailed Decision of the Court of Appeals dated June 29, 2004 in CA-G.R. SP No. 79420 and its
Resolution dated October 18, 2004, are AFFIRMED.
SO ORDERED.
EXCEPTIONS TO THE STAY OR SUSPENSION ORDER
METROPOLITAN WATERWORKS AND SEWERAGE SYSTEM, petitioner, vs. HON. REYNALDO B. DAWAY, IN HIS CAPACITY AS PRESIDING
JUDGE OF THE REGIONAL TRIAL COURT OF QUEZON CITY, BRANCH 90 AND MAYNILAD WATER SERVICES, INC., respondents.
DECISION
AZCUNA, J.:
On November 17, 2003, the Regional Trial Court (RTC) of Quezon City, Branch 90, made a determination that the Petition for Rehabilitation with Prayer
for Suspension of Actions and Proceedings filed by Maynilad Water Services, Inc. (Maynilad) conformed substantially to the provisions of Sec. 2, Rule 4
of the Interim Rules of Procedure on Corporate Rehabilitation (Interim Rules). It forthwith issued a Stay Order[1] which states, in part, that the court was
thereby:
xxxxxxxxx
2. Staying enforcement of all claims, whether for money or otherwise and whether such enforcement is by court action or otherwise, against the
petitioner, its guarantors and sureties not solidarily liable with the petitioner;
3. Prohibiting the petitioner from selling, encumbering, transferring, or disposing in any manner any of its properties except in the ordinary course of
business;
4. Prohibiting the petitioner from making any payment of its liabilities, outstanding as at the date of the filing of the petition;
xxx xxx xxx
Subsequently, on November 27, 2003, public respondent, acting on two Urgent Ex Parte motions[2] filed by respondent Maynilad, issued the herein
questioned Order[3] which stated that it thereby:
“1. DECLARES that the act of MWSS in commencing on November 24, 2003 the process for the payment by the banks of US$98 million out of the
US$120 million standby letter of credit so the banks have to make good such call/drawing of payment of US$98 million by MWSS not later than
November 27, 2003 at 10:00 P. M. or any similar act for that matter, is violative of the above-quoted sub-paragraph 2.) of the dispositive portion of this
Court’s Stay Order dated November 17, 2003.
2. ORDERS MWSS through its officers/officials to withdraw under pain of contempt the written certification/notice of draw to Citicorp International
Limited dated November 24, 2003 and DECLARES void any payment by the banks to MWSS in the event such written certification/notice of draw is not
withdrawn by MWSS and/or MWSS receives payment by virtue of the aforesaid standby letter of credit.”
Aggrieved by this Order, petitioner Manila Waterworks & Sewerage System (MWSS) filed this petition for review by way of certiorari under Rule 65 of the
Rules of Court questioning the legality of said order as having been issued without or in excess of the lower court’s jurisdiction or that the court a quo
acted with grave abuse of discretion amounting to lack or excess of jurisdiction.[4]
Antecedents of the Case
On February 21, 1997, MWSS granted Maynilad under a Concession Agreement a twenty-year period to manage, operate, repair, decommission and
refurbish the existing MWSS water delivery and sewerage services in the West Zone Service Area, for which Maynilad undertook to pay the
26
corresponding concession fees on the dates agreed upon in said agreement[5] which, among other things, consisted of payments of petitioner’s mostly
foreign loans.
To secure the concessionaire’s performance of its obligations under the Concession Agreement, Maynilad was required under Section 6.9 of said
contract to put up a bond, bank guarantee or other security acceptable to MWSS.
In compliance with this requirement, Maynilad arranged on July 14, 2000 for a three-year facility with a number of foreign banks, led by Citicorp
International Limited, for the issuance of an Irrevocable Standby Letter of Credit[6] in the amount of US$120,000,000 in favor of MWSS for the full and
prompt performance of Maynilad’s obligations to MWSS as aforestated.
Sometime in September 2000, respondent Maynilad requested MWSS for a mechanism by which it hoped to recover the losses it had allegedly incurred
and would be incurring as a result of the depreciation of the Philippine Peso against the US Dollar. Failing to get what it desired, Maynilad issued a Force
Majeure Notice on March 8, 2001 and unilaterally suspended the payment of the concession fees. In an effort to salvage the Concession Agreement, the
parties entered into a Memorandum of Agreement (MOA)[7] on June 8, 2001 wherein Maynilad was allowed to recover foreign exchange losses under a
formula agreed upon between them. Sometime in August 2001 Maynilad again filed another Force Majeure Notice and, since MWSS could not agree
with the terms of said Notice, the matter was referred on August 30, 2001 to the Appeals Panel for arbitration. This resulted in the parties agreeing to
resolve the issues through an amendment of the Concession Agreement on October 5, 2001, known as Amendment No. 1,[8] which was based on the
terms set down in MWSS Board of Trustees Resolution No. 457-2001, as amended by MWSS Board of Trustees Resolution No. 487-2001,[9] which
provided inter alia for a formula that would allow Maynilad to recover foreign exchange losses it had incurred or would incur under the terms of the
Concession Agreement.
As part of this agreement, Maynilad committed, among other things, to:
a) infuse the amount of UD$80.0 million as additional funding support from its stockholders;
b) resume payment of the concession fees; and
c) mutually seek the dismissal of the cases pending before the Court of Appeals and with Minor Dispute Appeals Panel.
However, on November 5, 2002, Maynilad served upon MWSS a Notice of Event of Termination, claiming that MWSS failed to comply with its obligations
under the Concession Agreement and Amendment No. 1 regarding the adjustment mechanism that would cover Maynilad’s foreign exchange losses. On
December 9, 2002, Maynilad filed a Notice of Early Termination of the concession, which was challenged by MWSS. This matter was eventually brought
before the Appeals Panel on January 7, 2003 by MWSS.[10] On November 7, 2003, the Appeals Panel ruled that there was no Event of Termination as
defined under Art. 10.2 (ii) or 10.3 (iii) of the Concession Agreement and that, therefore, Maynilad should pay the concession fees that had fallen due.
The award of the Appeals Panel became final on November 22, 2003. MWSS, thereafter, submitted a written notice[11] on November 24, 2003, to
Citicorp International Limited, as agent for the participating banks, that by virtue of Maynilad’s failure to perform its obligations under the Concession
Agreement, it was drawing on the Irrevocable Standby Letter of Credit and thereby demanded payment in the amount of US$98,923,640.15.
Prior to this, however, Maynilad had filed on November 13, 2003, a petition for rehabilitation before the court a quo which resulted in the issuance of the
Stay Order of November 17, 2003 and the disputed Order of November 27, 2003.[12]
Petitioner’s Case
Petitioner hereby raises the following issues:
1. DID THE HONORABLE PRESIDING JUDGE GRAVELY ERR AND/OR ACT PATENTLY WITHOUT JURISDICTION OR IN EXCESS OF
JURISDICTION OR WITH GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OR EXCESS OF JURISDICTION IN CONSIDERING THE
PERFORMANCE BOND OR ASSETS OF THE ISSUING BANKS AS PART OR PROPERTY OF THE ESTATE OF THE PRIVATE RESPONDENT
MAYNILAD SUBJECT TO REHABILITATION.
2. DID THE HONORABLE PRESIDING JUDGE ACT WITH LACK OR EXCESS OF JURISDICTION OR COMMIT A GRAVE ERROR OF LAW IN
HOLDING THAT THE PERFORMANCE BOND OBLIGATIONS OF THE BANKS WERE NOT SOLIDARY IN NATURE.
3. DID THE HONORABLE PRESIDING JUDGE GRAVELY ERR IN ALLOWING MAYNILAD TO IN EFFECT SEEK A REVIEW OR APPEAL OF THE
FINAL AND BINDING DECISION OF THE APPEALS PANEL.
In support of the first issue, petitioner maintains that as a matter of law, the US$120 Million Standby Letter of Credit and Performance Bond are not
property of the estate of the debtor Maynilad and, therefore, not subject to the in rem rehabilitation jurisdiction of the trial court.
Petitioner argues that a call made on the Standby Letter of Credit does not involve any asset of Maynilad but only assets of the banks. Furthermore, a
call on the Standby Letter of Credit cannot also be considered a “claim” falling under the purview of the stay order as alleged by respondent as it is not
directed against the assets of respondent Maynilad.
Petitioner concludes that the public respondent erred in declaring and holding that the commencement of the process for the payment of US$98 million
is a violation of the order issued on November 17, 2003.
Respondent Maynilad’s Case
27
Respondent Maynilad seeks to refute this argument by alleging that:
a) the order objected to was strictly and precisely worded and issued after carefully considering/evaluating the import of the arguments and
documents referred to by Maynilad, MWSS and/or creditors Chinatrust Commercial Bank and Suez in relation to admissions, pleadings and/or pertinent
records[13] and that public respondent had the authority to issue the same;
b) public respondent never considered nor held that the Performance bond or assets of the issuing banks are part or property of the estate of
respondent Maynilad subject to rehabilitation and which respondent Maynilad has not and has never claimed to be;[14]
c) what is relevant is not whether the performance bond or assets of the issuing banks are part of the estate of respondent Maynilad but whether the
act of petitioner in commencing the process for the payment by the banks of US$98 million out of the US$120 million performance bond is covered
and/or prohibited under sub-paragraphs 2.) and 4.) of the stay order dated November 17, 2003;
d) the jurisdiction of public respondent extends not only to the assets of respondent Maynilad but also over persons and assets of “all those affected
by the proceedings x x x upon publication of the notice of commencement;[15]” and
e) the obligations under the Standby Letter of Credit are not solidary and are not exempt from the coverage of the stay order.
Our Ruling
We will discuss the first two issues raised by petitioner as these are interrelated and make up the main issue of the petition before us which is, did the
rehabilitation court sitting as such, act in excess of its authority or jurisdiction when it enjoined herein petitioner from seeking the payment of the
concession fees from the banks that issued the Irrevocable Standby Letter of Credit in its favor and for the account of respondent Maynilad?
The public respondent relied on Sec. 1, Rule 3 of the Interim Rules on Corporate Rehabilitation to support its jurisdiction over the Irrevocable Standby
Letter of Credit and the banks that issued it. The section reads in part “that jurisdiction over those affected by the proceedings is considered acquired
upon the publication of the notice of commencement of proceedings in a newspaper of general circulation” and goes further to define rehabilitation as an
in rem proceeding. This provision is a logical consequence of the in rem nature of the proceedings, where jurisdiction is acquired by publication and
where it is necessary that the assets of the debtor come within the court’s jurisdiction to secure the same for the benefit of creditors. The reference to
“all those affected by the proceedings“ covers creditors or such other persons or entities holding assets belonging to the debtor under rehabilitation
which should be reflected in its audited financial statements. The banks do not hold any assets of respondent Maynilad that would be material to the
rehabilitation proceedings nor is Maynilad liable to the banks at this point.
Respondent Maynilad’s Financial Statement as of December 31, 2001 and 2002 do not show the Irrevocable Standby Letter of Credit as part of its
assets or liabilities, and by respondent Maynilad’s own admission it is not. In issuing the clarificatory order of November 27, 2003, enjoining petitioner
from claiming from an asset that did not belong to the debtor and over which it did not acquire jurisdiction, the rehabilitation court acted in excess of its
jurisdiction.
Respondent Maynilad insists, however, that it is Sec. 6 (b), Rule 4 of the Interim Rules that supports its claim that the commencement of the process to
draw on the Standby Letter of Credit is an enforcement of claim prohibited by and under the Interim Rules and the order of public respondent.
Respondent Maynilad would persuade us that the above provision justifies a leap to the conclusion that such an enforcement is prohibited by said
section because it is a “claim against the debtor, its guarantors and sureties not solidarily liable with the debtor” and that there is nothing in the Standby
Letter of Credit nor in law nor in the nature of the obligation that would show or require the obligation of the banks to be solidary with the respondent
Maynilad.
We disagree.
First, the claim is not one against the debtor but against an entity that respondent Maynilad has procured to answer for its non-performance of certain
terms and conditions of the Concession Agreement, particularly the payment of concession fees.
Secondly, Sec. 6 (b) of Rule 4 of the Interim Rules does not enjoin the enforcement of all claims against guarantors and sureties, but only those claims
against guarantors and sureties who are not solidarily liable with the debtor. Respondent Maynilad’s claim that the banks are not solidarily liable with the
debtor does not find support in jurisprudence.
We held in Feati Bank & Trust Company v. Court of Appeals[16] that the concept of guarantee vis-à-vis the concept of an irrevocable letter of credit are
inconsistent with each other. The guarantee theory destroys the independence of the bank’s responsibility from the contract upon which it was opened
and the nature of both contracts is mutually in conflict with each other. In contracts of guarantee, the guarantor’s obligation is merely collateral and it
arises only upon the default of the person primarily liable. On the other hand, in an irrevocable letter of credit, the bank undertakes a primary obligation.
We have also defined a letter of credit as an engagement by a bank or other person made at the request of a customer that the issuer shall honor drafts
or other demands of payment upon compliance with the conditions specified in the credit.[17]
Letters of credit were developed for the purpose of insuring to a seller payment of a definite amount upon the presentation of documents[18] and is thus
a commitment by the issuer that the party in whose favor it is issued and who can collect upon it will have his credit against the applicant of the letter,
duly paid in the amount specified in the letter.[19] They are in effect absolute undertakings to pay the money advanced or the amount for which credit is
given on the faith of the instrument. They are primary obligations and not accessory contracts and while they are security arrangements, they are not
converted thereby into contracts of guaranty.[20] What distinguishes letters of credit from other accessory contracts, is the engagement of the issuing
28
bank to pay the seller once the draft and other required shipping documents are presented to it.[21] They are definite undertakings to pay at sight once
the documents stipulated therein are presented.
Letters of Credits have long been and are still governed by the provisions of the Uniform Customs and Practice for Documentary Credits of the
International Chamber of Commerce. In the 1993 Revision it provides in Art. 2 that “the expressions Documentary Credit(s) and Standby Letter(s) of
Credit mean any arrangement, however made or described, whereby a bank acting at the request and on instructions of a customer or on its own behalf
is to make payment against stipulated document(s)” and Art. 9 thereof defines the liability of the issuing banks on an irrevocable letter of credit as a
“definite undertaking of the issuing bank, provided that the stipulated documents are presented to the nominated bank or the issuing bank and the terms
and conditions of the Credit are complied with, to pay at sight if the Credit provides for sight payment.”[22]
We have accepted, in Feati Bank and Trust Company v. Court of Appeals[23] and Bank of America NT & SA v. Court of Appeals,[24] to the extent that
they are pertinent, the application in our jurisdiction of the international credit regulatory set of rules known as the Uniform Customs and Practice for
Documentary Credits (U.C.P) issued by the International Chamber of Commerce, which we said in Bank of the Philippine Islands v. Nery[25] was
justified under Art. 2 of the Code of Commerce, which states:
“Acts of commerce, whether those who execute them be merchants or not, and whether specified in this Code or not should be governed by the
provisions contained in it; in their absence, by the usages of commerce generally observed in each place; and in the absence of both rules, by those of
the civil law.”
The prohibition under Sec 6 (b) of Rule 4 of the Interim Rules does not apply to herein petitioner as the prohibition is on the enforcement of claims
against guarantors or sureties of the debtors whose obligations are not solidary with the debtor. The participating banks’ obligation are solidary with
respondent Maynilad in that it is a primary, direct, definite and an absolute undertaking to pay and is not conditioned on the prior exhaustion of the
debtor’s assets. These are the same characteristics of a surety or solidary obligor.
Being solidary, the claims against them can be pursued separately from and independently of the rehabilitation case, as held in Traders Royal Bank v.
Court of Appeals[26] and reiterated in Philippine Blooming Mills, Inc. v. Court of Appeals,[27] where we said that property of the surety cannot be taken
into custody by the rehabilitation receiver (SEC) and said surety can be sued separately to enforce his liability as surety for the debts or obligations of
the debtor. The debts or obligations for which a surety may be liable include future debts, an amount which may not be known at the time the surety is
given.
The terms of the Irrevocable Standby Letter of Credit do not show that the obligations of the banks are not solidary with those of respondent Maynilad.
On the contrary, it is issued at the request of and for the account of Maynilad Water Services, Inc., in favor of the Metropolitan Waterworks and
Sewerage System, as a bond for the full and prompt performance of the obligations by the concessionaire under the Concession Agreement[28] and
herein petitioner is authorized by the banks to draw on it by the simple act of delivering to the agent a written certification substantially in the form Annex
“B” of the Letter of Credit. It provides further in Sec. 6, that for as long as the Standby Letter of Credit is valid and subsisting, the Banks shall honor any
written Certification made by MWSS in accordance with Sec. 2, of the Standby Letter of Credit regardless of the date on which the event giving rise to
such Written Certification arose.[29]
Taking into consideration our own rulings on the nature of letters of credit and the customs and usage developed over the years in the banking and
commercial practice of letters of credit, we hold that except when a letter of credit specifically stipulates otherwise, the obligation of the banks issuing
letters of credit are solidary with that of the person or entity requesting for its issuance, the same being a direct, primary, absolute and definite
undertaking to pay the beneficiary upon the presentation of the set of documents required therein.
The public respondent, therefore, exceeded his jurisdiction, in holding that he was competent to act on the obligation of the banks under the Letter of
Credit under the argument that this was not a solidary obligation with that of the debtor. Being a solidary obligation, the letter of credit is excluded from
the jurisdiction of the rehabilitation court and therefore in enjoining petitioner from proceeding against the Standby Letters of Credit to which it had a
clear right under the law and the terms of said Standby Letter of Credit, public respondent acted in excess of his jurisdiction.
Additional Issues
We proceed to consider the other issues raised in the oral arguments and included in the parties’ memoranda:
1. Respondent Maynilad argues that petitioner had a plain, speedy and adequate remedy under the Interim Rules itself which provides in Sec.
12, Rule 4 that the court may on motion or motu proprio, terminate, modify or set conditions for the continuance of the stay order or relieve a claim from
coverage thereof. We find, however, that the public respondent had already accomplished this during the hearing set for the two Urgent Ex Parte
motions filed by respondent Maynilad on November 21 and 24, 2003,[30] where the parties including the creditors, Suez and Chinatrust Commercial
“presented their respective arguments.”[31] The public respondent then ruled, “after carefully considering/evaluating the import of the arguments and
documents referred to by Maynilad, MWSS and/or the creditors Chinatrust Commercial Bank and Suez in relation to the admissions, the pleadings,
and/or pertinent portions of the records, this court is of the considered and humble view that the issue must perforce be resolved in favor of
Maynilad.”[32] Hence to pursue their opposition before the same court would result in the presentation of the same arguments and issues passed upon
by public respondent.
Furthermore, Sec. 5, Rule 3 of the Interim Rules would preclude any other effective remedy questioning the orders of the rehabilitation court since they
are immediately executory and a petition for review or an appeal therefrom shall not stay the execution of the order unless restrained or enjoined by the
appellate court.” In this situation, it had no other remedy but to seek recourse to us through this petition for certiorari.
In Silvestre v. Torres and Oben,[33] we said that it is not enough that a remedy is available to prevent a party from making use of the extraordinary
remedy of certiorari but that such remedy be an adequate remedy which is equally beneficial, speedy and sufficient, not only a remedy which at some
29
time in the future may offer relief but a remedy which will promptly relieve the petitioner from the injurious acts of the lower tribunal. It is the inadequacy
-- not the mere absence -- of all other legal remedies and the danger of failure of justice without the writ, that must usually determine the propriety of
certiorari.[34]
2. Respondent Maynilad argues that by commencing the process for payment under the Standby Letter of Credit, petitioner violated an
immediately executory order of the court and, therefore, comes to Court with unclean hands and should therefore be denied any relief.
It is true that the stay order is immediately executory. It is also true, however, that the Standby Letter of Credit and the banks that issued it were not
within the jurisdiction of the rehabilitation court. The call on the Standby Letter of Credit, therefore, could not be considered a violation of the Stay Order.
3. Respondent’s claim that the filing of the petition pre-empts the original jurisdiction of the lower court is without merit. The purpose of the initial
hearing is to determine whether the petition for rehabilitation has merit or not. The propriety of the stay order as well as the clarificatory order had
already been passed upon in the hearing previously had for that purpose. The determination of whether the public respondent was correct in enjoining
the petitioner from drawing on the Standby Letter of Credit will have no bearing on the determination to be made by public respondent whether the
petition for rehabilitation has merit or not. Our decision on the instant petition does not pre-empt the original jurisdiction of the rehabilitation court.
WHEREFORE, the petition for certiorari is GRANTED. The Order of November 27, 2003 of the Regional Trial Court of Quezon City, Branch 90, is
hereby declared NULL AND VOID and SET ASIDE. The status quo Order herein previously issued is hereby LIFTED. In view of the urgency attending
this case, this decision is immediately executory.
JOSE MARCEL PANLILIO, ERLINDA PANLILIO, NICOLE MORRIS and MARIO T. CRISTOBAL vs. REGIONAL TRIAL COURT, BRANCH 51, CITY
OF MANILA, represented by HON. PRESIDING JUDGE ANTONIO M. ROSALES; PEOPLE OF THE PHILIPPINES; and the SOCIAL SECURITY
SYSTEM,
G.R. No. 173846
DECISION
PERALTA, J.:
Before this Court is a petition for review on certiorari[1] under Rule 45 of the Rules of Court, seeking to set aside the April 27, 2006 Decision[2] and
August 2, 2006 Resolution[3] of the Court of the Appeals (CA) in CA-G.R. SP No. 90947.
The facts of the case are as follows:
On October 15, 2004, Jose Marcel Panlilio, Erlinda Panlilio, Nicole Morris and Marlo Cristobal (petitioners), as corporate officers of Silahis International
Hotel, Inc. (SIHI), filed with the Regional Trial Court (RTC) of Manila, Branch 24, a petition for Suspension of Payments and Rehabilitation[4] in SEC
Corp. Case No. 04-111180.
On October 18, 2004, the RTC of Manila, Branch 24, issued an Order[5] staying all claims against SIHI upon finding the petition sufficient in form and
substance. The pertinent portions of the Order read:
Finding the petition, together with its annexes, sufficient in form and substance and pursuant to Section 6, Rule 4 of the Interim Rules on Corporate
Rehabilitation, the Court hereby:
xxxx
2) Stays 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.[6]
At the time, however, of the filing of the petition for rehabilitation, there were a number of criminal charges[7] pending against petitioners in Branch 51 of
the RTC of Manila. These criminal charges were initiated by respondent Social Security System (SSS) and involved charges of violations of Section 28
(h)[8] of Republic Act 8282, or the Social Security Act of 1997 (SSS law), in relation to Article 315 (1) (b)[9] of the Revised Penal Code, or Estafa.
Consequently, petitioners filed with the RTC of Manila, Branch 51, a Manifestation and Motion to Suspend Proceedings.[10] Petitioners argued that the
stay order issued by Branch 24 should also apply to the criminal charges pending in Branch 51. Petitioners, thus, prayed that Branch 51 suspend its
proceedings until the petition for rehabilitation was finally resolved.
On December 13, 2004, Branch 51 issued an Order[11] denying petitioners’ motion to suspend the proceedings. It ruled that the stay order issued by
Branch 24 did not cover criminal proceedings, to wit:
xxxx
Clearly then, the issue is, whether the stay order issued by the RTC commercial court, Branch 24 includes the above-captioned criminal cases.
30
The Court shares the view of the private complainants and the SSS that the said stay order does not include the prosecution of criminal offenses.
Precisely, the law “criminalizes” the non-remittance of SSS contributions by an employer to protect the employees from unscrupulous employers. Clearly,
in these cases, public interest requires that the said criminal acts be immediately investigated and prosecuted for the protection of society.
From the foregoing, the inescapable conclusion is that the stay order issued by RTC Branch 24 does not include the above-captioned cases which are
criminal in nature.[12]
Branch 51 denied the motion for reconsideration filed by petitioners.
On August 19, 2005, petitioners filed a petition for certiorari[13] with the CA assailing the Order of Branch 51.
On April 27, 2006, the CA issued a Decision denying the petition, the dispositive portion of which reads:
WHEREFORE, premises considered, the Petition is hereby DENIED and is accordingly DISMISSED. No costs.[14]
The CA discussed that violation of the provisions of the SSS law was a criminal liability and was, thus, personal to the offender. As such, the CA held that
the criminal proceedings against the petitioners should not be considered a claim against the corporation and, consequently, not covered by the stay
order issued by Branch 24.
Petitioners filed a Motion for Reconsideration,[15] which was, however, denied by the CA in a Resolution dated August 2, 2006.
Hence, herein petition, with petitioners raising a lone issue for this Court’s resolution, to wit:
x x x WHETHER OR NOT THE STAY ORDER ISSUED BY BRANCH 24, REGIONAL TRIAL COURT OF MANILA, IN SEC CORP. CASE NO. 04-111180
COVERS ALSO VIOLATION OF SSS LAW FOR NON-REMITTANCE OF PREMIUMS AND VIOLATION OF [ARTICLE] [3] 515 OF THE REVISED
PENAL CODE.[16]
The petition is not meritorious.
To begin with, corporate rehabilitation connotes the restoration of the debtor to a position of successful operation and solvency, if it is shown that its
continued operation is economically feasible and its creditors can recover more, by way of the present value of payments projected in the rehabilitation
plan, if the corporation continues as a going concern than if it is immediately liquidated.[17] It contemplates a continuance of corporate life and activities
in an effort to restore and reinstate the corporation to its former position of successful operation and solvency, the purpose being to enable the company
to gain a new lease on life and allow its creditors to be paid their claims out of its earnings.[18]
A principal feature of corporate rehabilitation is the suspension of claims against the distressed corporation. Section 6 (c) of Presidential Decree No. 902-
A, as amended, provides for suspension of claims against corporations undergoing rehabilitation, to wit:
Section 6 (c). x x x
x x x Provided, finally, that upon appointment of a management committee, rehabilitation receiver, board or body, pursuant to this Decree, all actions for
claims against corporations, partnerships or associations under management or receivership pending before any court, tribunal, board or body, shall be
suspended accordingly.[19]
In November 21, 2000, this Court En Banc promulgated the Interim Rules of Procedure on Corporate Rehabilitation,[20] Section 6, Rule 4 of which
provides a stay order on all claims against the corporation, thus:
Stay Order. - If the court finds the petition to be sufficient in form and substance, it shall, not later than five (5) days from the filing of the petition, issue
an Order x x x; (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 sureties not solidarily liable with the debtor; x x x[21]
In Finasia Investments and Finance Corporation v. Court of Appeals,[22] the term "claim" has been construed to refer to debts or demands of a
pecuniary nature, or the assertion to have money paid. The purpose for suspending actions for claims against the corporation in a rehabilitation
proceeding is to enable the management committee or rehabilitation receiver to effectively exercise its/his powers free from any judicial or extrajudicial
interference that might unduly hinder or prevent the rescue of the debtor company.[23]
The issue to be resolved then is: does the suspension of “all claims” as an incident to a corporate rehabilitation also contemplate the suspension of
criminal charges filed against the corporate officers of the distressed corporation?
This Court rules in the negative.
In Rosario v. Co[24] (Rosario), a case of recent vintage, the issue resolved by this Court was whether or not during the pendency of rehabilitation
proceedings, criminal charges for violation of Batas Pambansa Bilang 22 should be suspended, was disposed of as follows:
31
x x x the gravamen of the offense punished by B.P. Blg. 22 is the act of making and issuing a worthless check; that is, a check that is dishonored upon
its presentation for payment. It is designed to prevent damage to trade, commerce, and banking caused by worthless checks. In Lozano v. Martinez, this
Court declared that it is not the nonpayment of an obligation which the law punishes. The law is not intended or designed to coerce a debtor to pay his
debt. The thrust of the law is to prohibit, under pain of penal sanctions, the making and circulation of worthless checks. Because of its deleterious effects
on the public interest, the practice is proscribed by the law. The law punishes the act not as an offense against property, but an offense against public
order. The prime purpose of the criminal action is to punish the offender in order to deter him and others from committing the same or similar offense, to
isolate him from society, to reform and rehabilitate him or, in general, to maintain social order. Hence, the criminal prosecution is designed to promote the
public welfare by punishing offenders and deterring others.
Consequently, the filing of the case for violation of B.P. Blg. 22 is not a "claim" that can be enjoined within the purview of P.D. No. 902-A. True, although
conviction of the accused for the alleged crime could result in the restitution, reparation or indemnification of the private offended party for the damage or
injury he sustained by reason of the felonious act of the accused, nevertheless, prosecution for violation of B.P. Blg. 22 is a criminal action.
A criminal action has a dual purpose, namely, the punishment of the offender and indemnity to the offended party. The dominant and primordial objective
of the criminal action is the punishment of the offender. The civil action is merely incidental to and consequent to the conviction of the accused. The
reason for this is that criminal actions are primarily intended to vindicate an outrage against the sovereignty of the state and to impose the appropriate
penalty for the vindication of the disturbance to the social order caused by the offender. On the other hand, the action between the private complainant
and the accused is intended solely to indemnify the former.[25]
Rosario is at fours with the case at bar. Petitioners are charged with violations of Section 28 (h) of the SSS law, in relation to Article 315 (1) (b) of
the Revised Penal Code, or Estafa. The SSS law clearly “criminalizes” the non-remittance of SSS contributions by an employer to protect the
employees from unscrupulous employers. Therefore, public interest requires that the said criminal acts be immediately investigated and prosecuted for
the protection of society.
The rehabilitation of SIHI and the settlement of claims against the corporation is not a legal ground for the extinction of petitioners’ criminal liabilities.
There is no reason why criminal proceedings should be suspended during corporate rehabilitation, more so, since the prime purpose of the criminal
action is to punish the offender in order to deter him and others from committing the same or similar offense, to isolate him from society, reform and
rehabilitate him or, in general, to maintain social order.[26] As correctly observed in Rosario,[27] it would be absurd for one who has engaged in criminal
conduct could escape punishment by the mere filing of a petition for rehabilitation by the corporation of which he is an officer.
The prosecution of the officers of the corporation has no bearing on the pending rehabilitation of the corporation, especially since they are charged in
their individual capacities. Such being the case, the purpose of the law for the issuance of the stay order is not compromised, since the appointed
rehabilitation receiver can still fully discharge his functions as mandated by law. It bears to stress that the rehabilitation receiver is not charged to defend
the officers of the corporation. If there is anything that the rehabilitation receiver might be remotely interested in is whether the court also rules that
petitioners are civilly liable. Such a scenario, however, is not a reason to suspend the criminal proceedings, because as aptly discussed in Rosario,
should the court prosecuting the officers of the corporation find that an award or indemnification is warranted, such award would fall under the category
of claims, the execution of which would be subject to the stay order issued by the rehabilitation court.[28] The penal sanctions as a consequence of
violation of the SSS law, in relation to the revised penal code can therefore be implemented if petitioners are found guilty after trial. However, any civil
indemnity awarded as a result of their conviction would be subject to the stay order issued by the rehabilitation court. Only to this extent can the order of
suspension be considered obligatory upon any court, tribunal, branch or body where there are pending actions for claims against the distressed
corporation.[29]
On a final note, this Court would like to point out that Congress has recently enacted Republic Act No. 10142, or the Financial Rehabilitation and
Insolvency Act of 2010.[30] Section 18 thereof explicitly provides that criminal actions against the individual officer of a corporation are not subject to the
Stay or Suspension Order in rehabilitation proceedings, to wit:
The Stay or Suspension Order shall not apply:
xxxx
(g) any criminal action against individual debtor or owner, partner, director or officer of a debtor shall not be affected by any proceeding commenced
under this Act.
Withal, based on the foregoing discussion, this Court rules that there is no legal impediment for Branch 51 to proceed with the cases filed against
petitioners.
WHEREFORE, premises considered, the petition is DENIED. The April 27, 2006 Decision and August 2, 2006 Resolution of the Court of Appeals in CA-
G.R. SP No. 90947 are AFFIRMED. The Regional Trial Court of Manila, Branch 51, is ORDERED to proceed with the criminal cases filed against
petitioners.
SO ORDERED.
CRAM DOWN EFFECT
32
G.R. No. 164641 December 20, 2007
BANK OF THE PHILIPPINE ISLANDS, as successor of Far East Bank and Trust Company, petitioner,
vs.
SECURITIES AND EXCHANGE COMMISSION, REHABILITATION HOLDINGS, INC., VELASCO, JR., ASB DEVELOPMENT CORPORATION, ASB
LAND, INC., ASB FINANCE, INC., MAKATI HOPE CHRISTIAN SCHOOL, INC., BEL-AIR HOLDINGS CORP., WINCHESTER TRADING, INC., VYL
DEVELOPMENT CORP., GERRICK HOLDINGS CORP., NEIGHBORHOOD HOLDINGS, INC., and THE COURT OF APPEALS, respondents.
DECISION
TINGA, J.:
For resolution is a petition seeking to nullify the 30 January 2004 Decision1 of the Court of Appeals in CA-G.R. SP No. 773092 upholding the Securities
and Exchange Commission’s (SEC) approval of the rehabilitation of the ASB Group of Companies (ASB Group) in SEC En Banc Case No. EB-726.3
The antecedent facts are as follows:
The Bank of the Philippine Islands (BPI), through its predecessor-in- interest, Far East Bank and Trust Company (FEBTC), extended credit
accommodations to the ASB Group4 with an outstanding aggregate principal amount of P86,800,000.00, secured by a real estate mortgage over two (2)
properties located in Greenhills, San Juan.5 On 2 May 2000, the ASB Group filed a petition for rehabilitation and suspension of payments before the
SEC, docketed as SEC Case No. 05-00-6609.6 Thereafter, on 18 August 2000, the interim receiver submitted its Proposed Rehabilitation Plan
(Rehabilitation Plan)7 for the ASB Group. The Rehabilitation Plan provides, among others, a dacion en pago by the ASB Group to BPI of one of the
properties mortgaged to the latter at the ASB Group as selling value of P84,000,000.00 against the total amount of the ASB Group’s exposure to the
bank. In turn, ASB Group would require the release of the other property mortgaged to BPI, to be thereafter placed in the asset pool. Specifically, the
pertinent portion of the plan reads:
"x x x ASB plans to invoke a dacion en pago for its #35 Eisenhower property at ASB’s selling value of P84 million against the total amount of the ASB’s
exposure to the bank. In return, ASB requests the release of the #27 Annapolis property which will be placed in the ASB creditors’ asset pool." 8
The dacion would constitute full payment of the entire obligation due to BPI because the balance was then to be considered waived, as per the
Rehabilitation Plan.9
BPI opposed the Rehabilitation Plan and moved for the dismissal of the ASB Group’s petition for rehabilitation.10 However, on 26 April 2001, the SEC
hearing panel issued an order11 approving ASB Group’s proposed rehabilitation plan and appointed Mr. Fortunato Cruz as rehabilitation receiver.
BPI filed a petition for review12 of the 26 April 2001 order before the SEC en banc, imputing grave abuse of discretion on the part of the hearing panel. It
argued that the Order constituted an arbitrary violation of BPI’s freedom and right to contract since the Rehabilitation Plan compelled BPI to enter into a
dacion en pago agreement with the ASB Group.13 The SEC en banc denied the petition.14
BPI then filed a petition for review15 before the Court of Appeals (CA), claiming that the SEC en banc erred in affirming the approval of the Rehabilitation
Plan despite being violative of BPI’s contractual rights. BPI contended that the terms of the Rehabilitation Plan would impair its freedom to contract, and
alleged that the dacion en pago was a mode of payment beneficial to the ASB Group only.16
The CA dismissed the petition for lack of merit. It held that considering that the dacion en pago transaction could proceed only proceed upon the mutual
agreement of the parties, BPI’s assertion that it is being coerced could not be sustained. At no point would the Rehabilitation Plan compel secured
creditors such as BPI to agree to a settlement agreement against their will, the CA added. Moreover, BPI could refuse to accept any arrangement
contemplated by the receiver and just assert its preferred right in the liquidation and distribution of the assets of the ASB Group.17 BPI filed a motion for
reconsideration, but the same was denied for lack of merit.18
Before this Court, BPI asserts that the CA erred in ruling that the approval by the SEC of the ASB Group’s Rehabilitation Plan did not violate BPI’s rights
as a creditor.19 It maintains its position that the dacion en pago is a form of coercion or compulsion, and violative of the rights of secured creditors.20 It
asserts that in order for the Rehabilitation Plan to be feasible and legally tenable, it must reflect the express and free consent of the parties; i.e, that the
conditions should not be imposed but agreed upon by the parties. By approving the Rehabilitation Plan, the SEC hearing panel totally disregarded the
efficacy of the mortgage agreements between the parties, and sanctioned a mode of payment which is solely for the unilateral benefit of the ASB
Group.21 This is so because in the event that the secured creditors such as itself would not agree to dacion en pago, the ASB Group’s obligations would
be settled at the selling prices of the mortgaged properties to be dictated by the ASB Group,22 rendering BPI’s status as a preferred creditor illusory.23
BPI further claims that despite its rejection of the Rehabilitation Plan, no effort was made to resolve the impasse on the valuation of the mortgaged
properties. With no repayment scheme for secured creditors not accepting the Rehabilitation Plan, the same has become discriminatory.24 Moreover,
any interference on the rights of the secured creditors must not be so indefinite and open-ended as to effectively deprive secured creditors of their right
to their security,25 BPI adds.
In its Comment,26 the SEC, through the Office of the Solicitor General, claims that the terms and conditions of the Rehabilitation Plan do not violate
BPI’s right as a creditor because the dacion en pago transaction contemplated in the plan can only proceed upon mutual agreement of the parties.
Moreover, being a secured creditor, BPI enjoys preference over unsecured creditors, thus there is no reason for BPI to fear the non-payment of the loan,
or the inability to assert its preferred right over the mortgaged property.27
33
On the other hand, private respondents maintain that the non-impairment clause of the Constitution relied on by BPI is a limit on the exercise of
legislative power and not of judicial or quasi-judicial power. The SEC’s approval of the Rehabilitation Plan was an exercise of adjudicatory power by an
administrative agency and thus the non-impairment clause does not apply.28 In addition, they stress that there is no coercion or compulsion that would
be employed under the Rehabilitation Plan. If dacion en pago fails to materialize, the Rehabilitation Plan contemplates to settle the obligations to
secured creditors with mortgaged properties at selling prices.29 Finally, they claim that BPI failed to submit any valuation of the mortgage properties to
substantiate its objection to the Rehabilitation Plan, making its objection thereto totally unreasonable.30
The petition must be denied.
The very same issues confronted the Court in the case of Metropolitan Bank & Trust Company v. ASB Holdings, et al.31 In this case, Metropolitan Bank
& Trust Company (MBTC) refused to enter into a dacion en pago arrangement contained in ASB’s proposed Rehabilitation Plan.32 MBTC argued,
among others, that the forced transfer of properties and the diminution of its right to enforce its lien on the mortgaged properties violate its constitutional
right against impairment of contracts and right to due process. The Court ruled that there is no impairment of contracts because the approval of the
Rehabilitation Plan and the appointment of a rehabilitation receiver merely suspends the action for claims against the ASB Group, and MBTC may still
enforce its preference when the assets of the ASB Group will be liquidated. But if the rehabilitation is found to be no longer feasible, then the claims
against the distressed corporation would have to be settled eventually and the secured creditors shall enjoy preference over the unsecured ones.
Moreover, the Court stated that there is no compulsion to enter into a dacion en pago agreement, nor to waive the interests, penalties and related
charges, since these are merely proposals to creditors such as MBTC, such that in the event the secured creditors refuse the dacion, the Rehabilitation
Plan proposes to settle the obligations to secured creditors with mortgaged properties at selling prices.
Rehabilitation proceedings in our jurisdiction, much like the bankruptcy laws of the United States, have equitable and rehabilitative purposes. On the one
hand, they attempt to provide for the efficient and equitable distribution of an insolvent debtor’s remaining assets to its creditors; and on the other, to
provide debtors with a "fresh start" by relieving them of the weight of their outstanding debts and permitting them to reorganize their affairs.33 The
rationale of P.D. No. 902-A, as amended, is to "effect a feasible and viable rehabilitation,"34 by preserving a foundering business as going concern,
because the assets of a business are often more valuable when so maintained than they would be when liquidated.35
The Court reiterates that the SEC’s approval of the Rehabilitation Plan did not impair BPI’s right to contract.1âwphi1 As correctly contended by private
respondents, the non-impairment clause is a limit on the exercise of legislative power and not of judicial or quasi-judicial power.36 The SEC, through the
hearing panel that heard the petition for approval of the Rehabilitation Plan, was acting as a quasi-judicial body and thus, its order approving the plan
cannot constitute an impairment of the right and the freedom to contract.
Besides, the mere fact that the Rehabilitation Plan proposes a dacion en pago approach does not render it defective on the ground of impairment of the
right to contract. Dacion en pago is a special mode of payment where the debtor offers another thing to the creditor who accepts it as equivalent of
payment of an outstanding debt.37 The undertaking really partakes in a sense of the nature of sale, that is, the creditor is really buying the thing or
property of the debtor, the payment for which is to be charged against the debtor’s debt. As such, the essential elements of a contract of sale, namely;
consent, object certain, and cause or consideration must be present.38 Being a form of contract, the dacion en pago agreement cannot be perfected
without the consent of the parties involved.
We find no element of compulsion in the dacion en pago provision of the Rehabilitation Plan. It was not the only solution presented by the ASB to pay its
creditors. In fact, it was stated in the Rehabilitation Plan that:
x x x. If the dacion en pago herein contemplated does not materialize for failure of the secured creditors to agree thereto, the rehabilitation plan
contemplates to settle the obligations (without interest, penalties and other related charges accruing after the date of the initial suspension order) to
secured creditors with mortgaged properties at ASB selling prices for the general interest of the employees, creditors, unit buyers, government, general
public and the economy.39
Thus, if BPI does not find the dacion en pago modality acceptable, the ASB Group can propose to settle its debts at such amount as is equivalent to the
selling price of the mortgaged properties. If BPI still refuses this option, it can assert its rights in the liquidation and distribution of the ASB Group’s
assets. It will not lose its status as a secured creditor, retaining its preference over unsecured creditors when the assets of the corporation are finally
liquidated.40
WHEREFORE, in view of the foregoing, the petition is DENIED and the Decision dated 30 January 2004 of the Court of Appeals in CA-G.R. SP No.
77309 is AFFIRMED. Costs against petitioner.
SO ORDERED.
TREATMENT OF CLAIMS
G.R. No. 152580 June 26, 2008
CONSUELO METAL CORPORATION, petitioner,

vs.
PLANTERS DEVELOPMENT BANK and ATTY. JESUSA PRADO-MANINGAS, in her capacity as Ex-officio Sheriff of Manila, respondents.
DECISION
CARPIO, J.:
34
The Case
This is a petition for review1 seeking to reverse the 14 December 2001 Decision2 and the 6 March 2002 Resolution3 of the Court of Appeals in CA-G.R.
SP No. 65069. In its 14 December 2001 Decision, the Court of Appeals dismissed petitioner Consuelo Metal Corporation’s (CMC) petition for certiorari
and affirmed the 25 April 2001 Order4 of the Regional Trial Court, Branch 46, Manila (trial court). In its 6 March 2002 Resolution, the Court of Appeals
partially granted CMC’s motion for reconsideration and remanded the case to the Securities and Exchange Commission (SEC) for further proceedings.
The Facts
On 1 April 1996, CMC filed before the SEC a petition to be declared in a state of suspension of payment, for rehabilitation, and for the appointment of a
rehabilitation receiver or management committee under Section 5(d) of Presidential Decree No. 902-A.5 On 2 April 1996, the SEC, finding the petition
sufficient in form and substance, declared that "all actions for claims against CMC pending before any court, tribunal, office, board, body and/or
commission are deemed suspended immediately until further order" from the SEC.6
In an Order dated 13 September 1999, the SEC directed the creation of a management committee to undertake CMC’s rehabilitation and reiterated the
suspension of all actions for claims against CMC.7
On 29 November 2000, upon the management committee’s recommendation,8 the SEC issued an Omnibus Order directing the dissolution and
liquidation of CMC.9 The SEC also directed that "the proceedings on and implementation of the order of liquidation be commenced at the Regional Trial
Court to which this case shall be transferred."10
Thereafter, respondent Planters Development Bank (Planters Bank), one of CMC’s creditors, commenced the extra-judicial foreclosure of CMC’s real
estate mortgage. Public auctions were scheduled on 30 January 2001 and 6 February 2001.
CMC filed a motion for the issuance of a temporary restraining order and a writ of preliminary injunction with the SEC to enjoin the foreclosure of the real
estate mortgage. On 29 January 2001, the SEC issued a temporary restraining order to maintain the status quo and ordered the immediate transfer of
the case records to the trial court.11
The case was then transferred to the trial court. In its 25 April 2001 Order, the trial court denied CMC’s motion for issuance of a temporary restraining
order. The trial court ruled that since the SEC had already terminated and decided on the merits CMC’s petition for suspension of payment, the trial court
no longer had legal basis to act on CMC’s motion.
On 28 May 2001, the trial court denied CMC’s motion for reconsideration.12 The trial court ruled that CMC’s petition for suspension of payment could not
be converted into a petition for dissolution and liquidation because they covered different subject matters and were governed by different rules. The trial
court stated that CMC’s remedy was to file a new petition for dissolution and liquidation either with the SEC or the trial court.
CMC filed a petition for certiorari with the Court of Appeals. CMC alleged that the trial court acted with grave abuse of discretion amounting to lack of
jurisdiction when it required CMC to file a new petition for dissolution and liquidation with either the SEC or the trial court when the SEC clearly retained
jurisdiction over the case.
On 13 June 2001, Planters Bank extra-judicially foreclosed the real estate mortgage.13
The Ruling of the Court of Appeals
On 14 December 2001, the Court of Appeals dismissed the petition and upheld the 25 April 2001 Order of the trial court. The Court of Appeals held that
the trial court correctly denied CMC’s motion for the issuance of a temporary restraining order because it was only an ancillary remedy to the petition for
suspension of payment which was already terminated. The Court of Appeals added that, under Section 121 of the Corporation Code,14 the SEC has
jurisdiction to hear CMC’s petition for dissolution and liquidation.
CMC filed a motion for reconsideration. CMC argued that it does not have to file a new petition for dissolution and liquidation with the SEC but that the
case should just be remanded to the SEC as a continuation of its jurisdiction over the petition for suspension of payment. CMC also asked that Planters
Bank’s foreclosure of the real estate mortgage be declared void.
In its 6 March 2002 Resolution, the Court of Appeals partially granted CMC’s motion for reconsideration and ordered that the case be remanded to the
SEC under Section 121 of the Corporation Code. The Court of Appeals also ruled that since the SEC already ordered CMC’s dissolution and liquidation,
Planters Bank’s foreclosure of the real estate mortgage was in order.
Planters Bank filed a motion for reconsideration questioning the remand of the case to the SEC. In a resolution dated 19 July 2002, the Court of Appeals
denied the motion for reconsideration.
Not satisfied with the 6 March 2002 Resolution, CMC filed this petition for review on certiorari.
The Issues
CMC raises the following issues:
35
1. Whether the present case falls under Section 121 of the Corporation Code, which refers to the SEC’s jurisdiction over CMC’s dissolution and
liquidation, or is only a continuation of the SEC’s jurisdiction over CMC’s petition for suspension of payment; and
2. Whether Planters Bank’s foreclosure of the real estate mortgage is valid.
The Court’s Ruling
The petition has no merit.
The SEC has jurisdiction to order CMC’s dissolution

but the trial court has jurisdiction over CMC’s liquidation.
While CMC agrees with the ruling of the Court of Appeals that the SEC has jurisdiction over CMC’s dissolution and liquidation, CMC argues that the
Court of Appeals remanded the case to the SEC on the wrong premise that the applicable law is Section 121 of the Corporation Code. CMC maintains
that the SEC retained jurisdiction over its dissolution and liquidation because it is only a continuation of the SEC’s jurisdiction over CMC’s original
petition for suspension of payment which had not been "finally disposed of as of 30 June 2000."
On the other hand, Planters Bank insists that the trial court has jurisdiction over CMC’s dissolution and liquidation. Planters Bank argues that dissolution
and liquidation are entirely new proceedings for the termination of the existence of the corporation which are incompatible with a petition for suspension
of payment which seeks to preserve corporate existence.
Republic Act No. 8799 (RA 8799)15 transferred to the appropriate regional trial courts the SEC’s jurisdiction defined under Section 5(d) of Presidential
Decree No. 902-A. Section 5.2 of RA 8799 provides:
The Commission’s jurisdiction over all cases enumerated under Sec. 5 of Presidential Decree No. 902-A is hereby transferred to the Courts of general
jurisdiction or the appropriate Regional Trial Court: Provided, That the Supreme Court in the exercise of its authority may designate the Regional Trial
Court branches that shall exercise jurisdiction over these cases. The Commission shall retain jurisdiction over pending cases involving intra-corporate
disputes submitted for final resolution which should be resolved within one (1) year from the enactment of this Code. The Commission shall retain
jurisdiction over pending suspension of payments/rehabilitation cases filed as of 30 June 2000 until finally disposed. (Emphasis supplied)
The SEC assumed jurisdiction over CMC’s petition for suspension of payment and issued a suspension order on 2 April 1996 after it found CMC’s
petition to be sufficient in form and substance. While CMC’s petition was still pending with the SEC as of 30 June 2000, it was finally disposed of on 29
November 2000 when the SEC issued its Omnibus Order directing the dissolution of CMC and the transfer of the liquidation proceedings before the
appropriate trial court. The SEC finally disposed of CMC’s petition for suspension of payment when it determined that CMC could no longer be
successfully rehabilitated.
However, the SEC’s jurisdiction does not extend to the liquidation of a corporation. While the SEC has jurisdiction to order the dissolution of a
corporation,16 jurisdiction over the liquidation of the corporation now pertains to the appropriate regional trial courts. This is the reason why the SEC, in
its 29 November 2000 Omnibus Order, directed that "the proceedings on and implementation of the order of liquidation be commenced at the Regional
Trial Court to which this case shall be transferred." This is the correct procedure because the liquidation of a corporation requires the settlement of
claims for and against the corporation, which clearly falls under the jurisdiction of the regular courts. The trial court is in the best position to convene all
the creditors of the corporation, ascertain their claims, and determine their preferences.
Foreclosure of real estate mortgage is valid.
CMC maintains that the foreclosure is void because it was undertaken without the knowledge and previous consent of the liquidator and other lien
holders. CMC adds that the rules on concurrence and preference of credits should apply in foreclosure proceedings. Assuming that Planters Bank can
foreclose the mortgage, CMC argues that the foreclosure is still void because it was conducted in violation of Section 15, Rule 39 of the Rules of Court
which states that the sale "should not be earlier than nine o’clock in the morning and not later than two o’clock in the afternoon."
On the other hand, Planters Bank argues that it has the right to foreclose the real estate mortgage because of non-payment of the loan obligation.
Planters Bank adds that the rules on concurrence and preference of credits and the rules on insolvency are not applicable in this case because CMC
has been not been declared insolvent and there are no insolvency proceedings against CMC.
In Rizal Commercial Banking Corporation v. Intermediate Appellate Court,17 we held that if rehabilitation is no longer feasible and the assets of the
corporation are finally liquidated, secured creditors shall enjoy preference over unsecured creditors, subject only to the provisions of the Civil Code on
concurrence and preference of credits. Creditors of secured obligations may pursue their security interest or lien, or they may choose to abandon the
preference and prove their credits as ordinary claims.18
Moreover, Section 2248 of the Civil Code provides:
Those credits which enjoy preference in relation to specific real property or real rights, exclude all others to the extent of the value of the immovable or
real right to which the preference refers.
In this case, Planters Bank, as a secured creditor, enjoys preference over a specific mortgaged property and has a right to foreclose the mortgage under
Section 2248 of the Civil Code. The creditor-mortgagee has the right to foreclose the mortgage over a specific real property whether or not the debtor-
mortgagor is under insolvency or liquidation proceedings. The right to foreclose such mortgage is merely suspended upon the appointment of a
36
management committee or rehabilitation receiver19 or upon the issuance of a stay order by the trial court.20 However, the creditor-mortgagee may
exercise his right to foreclose the mortgage upon the termination of the rehabilitation proceedings or upon the lifting of the stay order.21
Foreclosure proceedings have in their favor the presumption of regularity and the burden of evidence to rebut the same is on the party that seeks to
challenge the proceedings.22 CMC’s challenge to the foreclosure proceedings has no merit. The notice of sale clearly specified that the auction sale will
be held "at 10:00 o’clock in the morning or soon thereafter, but not later than 2:00 o’clock in the afternoon."23 The Sheriff’s Minutes of the Sale stated
that "the foreclosure sale was actually opened at 10:00 A.M. and commenced at 2:30 P.M."24 There was nothing irregular about the foreclosure
proceedings.
WHEREFORE, we DENY the petition. We REINSTATE the 29 November 2000 Omnibus Order of the Securities and Exchange Commission directing
the Regional Trial Court, Branch 46, Manila to immediately undertake the liquidation of Consuelo Metal Corporation. We AFFIRM the ruling of the Court
of Appeals that Planters Development Bank’s extra-judicial foreclosure of the real estate mortgage is valid.
37

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Cases on Insolvency

I. De Barreto vs. Villanueva (1961)

I. Cordova vs. Reyes

I. RCBC vs. IAC

Exceptions to Stay or Suspension Order

I. MWSS vs. Daway

Cram Down Effects

I. BPI vs. SEC

I. Consuelo Metal Corporation vs. Planters Development Bank

MAGDALENA C. DE BARRETO, ET AL., plaintiffs-appellants,

Bausa, Ampil & Suarez for plaintiffs-appellants.

GUTIERREZ DAVID, J.:

The appeal is devoid of merit.

(5) Mortgage credits recorded in the Registry of Property."

RESOLUTION ON MOTION TO RECONSIDER

December 29, 1962

REYES, J.B.L., J.:

Appellants insist that:

G.R. No. L-14938 December 29, 1962

MAGDALENA C. DE BARRETTO and JOSE G. BARRETTO, plaintiffs-appellants,

Bausa, Ampil and Suarez for plaintiffs-appellants.

REYES, J.B.L., J.:

Appellants insist that:

G.R. No. 126200 August 16, 2001

DEVELOPMENT BANK OF THE PHILIPPINES, petitioner,

The facts are as follows:

xxx xxx xxx

xxx xxx xxx

"(5) Mortgage credits recorded in the Registry of Property."

xxx xxx xxx

G.R. No. 105827 January 31, 2000

FOR ALL THE FOREGOING, the petition is hereby granted as follows:

G.R. No. 146555 July 3, 2007

JOSE C. CORDOVA, Petitioner,

Hence this petition raising the following issues:

1) whether petitioner should be considered as a preferred (and secured) creditor of Philfinance;

3) whether petitioner is entitled to legal interest.14

The CA agreed with this and elaborated:

The word "claim" is also defined as:

xxx xxx xxx

xxx xxx xxx

This being so, Article 2251 (2) states that:

One final issue: was petitioner entitled to interest?

WHEREFORE, the petition is hereby DENIED.

EFFECTS AND COVERAGE OF TE COMMENCEMENT ORDER AND STAY OR SUSPENSION ORDER

(p. 143, Rollo.)

(pp. 265-266, Rollo; also p. 838, 213 SCRA 830[1992].)

In support of its motion for reconsideration, RCBC contends:

We find the motion for reconsideration meritorious.

On the other hand, receivers may be appointed whenever:

1. necessary in order to preserve the rights of the parties-litigants; and/or

(p. 440. Emphasis supplied)

Sps. Sobrejuannite vs. ASB Development Corporation

The dispositive portion of the Decision reads:

All other claims and all counter-claims are hereby dismissed.

The petition lacks merit.

Section 6(c) of PD No. 902-A empowers the SEC:

The word “claim” is also defined as:

EXCEPTIONS TO THE STAY OR SUSPENSION ORDER

xxx xxx xxx

Antecedents of the Case

As part of this agreement, Maynilad committed, among other things, to:

b) resume payment of the concession fees; and