Concept of Insolvency

Section 2. Declaration of Policy. - It is the policy of the

State to encourage debtors, both juridical and natural
persons, and their creditors to collectively and realistically
resolve and adjust competing claims and property rights.
In furtherance thereof, the State shall ensure a timely, fair,
transparent, effective and efficient rehabilitation or
liquidation of debtors. The rehabilitation or liquidation
shall be made with a view to ensure or maintain certainly
and predictability in commercial affairs, preserve and
maximize the value of the assets of these debtors,
recognize creditor rights and respect priority of claims,
and ensure equitable treatment of creditors who are
similarly situated. When rehabilitation is not feasible, it is
in the interest of the State to facilities a speedy and
orderly liquidation of these debtor's assets and the
settlement of their obligations.
Section 4.(p) Insolvent shall refer to the financial condition
of a debtor that is generally unable to pay its or his
liabilities as they fall due in the ordinary course of
business or has liabilities that are greater than its or his
assets.
(q) Insolvent debtor's estate shall refer to the estate of
the insolvent debtor, which includes all the property and
assets of the debtor as of commencement date, plus the
property and assets acquired by the rehabilitation
receiver or liquidator after that date, as well as all other
property and assets in which the debtor has an ownership
interest, whether or not these property and assets are in
the
debtor's
possession
as
of
commencement
date: Provided, That trust assets and bailment, and other
property and assets of a third party that are in the
possession of the debtor as of commencement date, are
excluded therefrom.
(r) Involuntary proceedings shall refer to proceedings
initiated by creditors.
Section
146. Application
to
Pending
Insolvency,
Suspension of Payments and Rehabilitation Cases. - This
Act shall govern all petitions filed after it has taken effect.
All further proceedings in insolvency, suspension of
payments and rehabilitation cases then pending, except
to the extent that in opinion of the court their application
would not be feasible or would work injustice, in which
event the procedures set forth in prior laws and
regulations shall apply.
Section 147. Application to Pending Contracts. - This Act
shall apply to all contracts of the debtor regardless of the
date of perfection.
Section 148. Repeating Clause. - The Insolvency Law
(Act No. 1956). As amended is hereby repealed. All other
laws, orders, rules and regulations or parts thereof
inconsistent with any provision of this Act are hereby
repealed or modified accordingly.
Concrrence and Preference of Credit

Section 133. Concurrence and Preference of Credits. The Liquidation Plan and its Implementation shall ensure
that the concurrence and preference of credits as
enumerated in the Civil Code of the Philippines and other
relevant laws shall be observed, unless a preferred
creditor voluntarily waives his preferred right. For
purposes of this chapter, credits for services rendered by
employees or laborers to the debtor shall enjoy first
preference under Article 2244 of the Civil Code, unless the
claims constitute legal liens under Article 2241 and 2242
thereof.
Section 136. Liquidation of a Securities Market
Participant. - The foregoing provisions of this chapter shall
be without prejudice to the power of a regulatory agency
or self- regulatory organization to liquidate trade-related
claims of clients or customers of a securities market
participant which, for purposes of investor protection, are
hereby deemed to have absolute priority over other
claims of whatever nature or kind insofar as trade-related
assets are concerned.
For purposes of this section, trade -related assets include
cash, securities, trading right and other owned and used
by the securities market participant in the ordinary course
of this business.
[G.R. NO. 180036 - July 25, 2012]
SITUS DEVELOPMENT
BANK,

CORPORATIONv. ASIATRUST

The instant Rule 45 Petition assails the Decision 1 and

Resolution2 of the Court of Appeals (CA) in CA-G.R. CV No.
80223. The CA reversed and set aside the Adjudication 3 of
the Regional Trial Court (RTC), Branch 93, Quezon City (the
Rehabilitation Court) in Civil Case No. Q-02-010, which had
approved the Second Amended Rehabilitation Plan of
petitioners
Situs
Development
Corporation,
Daily
Supermarket, Inc. and Color Lithographic Press, Inc.
(collectively, petitioners or petitioner corporations) over
the objections of respondents Asiatrust Bank (Asiatrust),
Allied Banking Corporation (Allied Bank) and Metropolitan
Bank and Trust Company (Metrobank). Respondent
Cameron Granville II Asset Management, Inc. (Cameron), a
Special Purpose Vehicle, was the transferee of Metrobank
s rights, title and interest in the instant case.
The facts are not in issue, and we quote with favor the
narration of the appellate court:
In 1972, the Chua Family, headed by its patriarch, Cua
Yong Hu, a.k.a. Tony Chua, started a printing business and
put up Color Lithographic Press, Inc. (COLOR). On June 6,
1995, the Chua Family ventured into real estate
development/leasing by organizing Situs Development
Corporation (SITUS) in order to build a shopping mall
complex, known as Metrolane Complex (COMPLEX) at 20th
Avenue corner P. Tuazon, Cubao, Quezon City. To finance
the construction of the COMPLEX, SITUS, COLOR and Tony
Chua and his wife, Siok Lu Chua, obtained several loans
from (1) ALLIED secured by real estate mortgages over
two lots covered by TCT Nos. RT-13620 and RT-13621; (2)

ASIATRUST secured by a real estate mortgage over a lot

covered by TCT No. 79915; and (3) Global Banking
Corporation, now METROBANK, secured by a real estate
mortgage over a lot covered by TCT No. 79916. The
COMPLEX was built on said four (4) lots, all of which are
registered in the names of Tony Chua and his wife, Siok Lu
Chua. On March 21, 1996, the Chua Family expanded into
retail merchandising and organized Daily Supermarket,
Inc. (DAILY). All three (3) corporations have interlocking
directors and are all housed in the COMPLEX. The Chua
Family also resides in the COMPLEX, while the other units
are being leased to tenants. SITUS, COLOR and DAILY
obtained additional loans from ALLIED, ASIATRUST and
METROBANK and their real estate mortgages were
updated and/or amended. Spouses Chua likewise
executed five (5) Continuing Guarantee/Comprehensive
Surety in favor of ALLIED to guarantee the payment of the
loans of SITUS and DAILY.
SITUS, COLOR, DAILY and the spouses Chua failed to pay
their obligations as they fell due, despite demands.

given a "breathing spell" from their obligations as they fall

due; and that their assets are more than sufficient to pay
off their debts. Petitioners submitted a program of
rehabilitation for the approval of creditors and the court a
quo.
A Stay Order dated June 17, 2002, was issued by the court
a quo directing as follows: lbrr
A. ) a stay in the enforcement of all claims, whether for
money or otherwise and whether such enforcement is by
court action or otherwise, against the petitioners Situs
Development Corporation, Daily Supermarket, Inc., &
Color Lithographic Press, Inc., their guarantors and
sureties not solidarily liable with them;
b.) prohibiting Situs Development Corporation, Daily
Supermarket, Inc., & Color Lithographic Press, Inc., from
selling, encumbering, transferring or disposing in any
manner any of their properties except in the ordinary
course of business;

On November 22, 2000, ALLIED filed with the Office of the

Clerk of Court and Ex-Officio Sheriff of Quezon City an
application for extrajudicial foreclosure of the mortgage on
the properties of spouses Chua covered by TCT Nos. RT13620 and RT-13621. The auction sale was scheduled on
February 6, 2001. However, on February 5, 2001, SITUS,
COLOR and spouses Chua filed a complaint for nullification
of foreclosure proceedings, with prayer for temporary
restraining order/injunction, with the Regional Trial Court,
Branch 87, Quezon City, docketed as Civil Case No. Q-0143280. As no temporary restraining order was issued, the
scheduled auction sale proceeded wherein ALLIED
emerged as the highest bidder in the amount of
P88,958,700.00. The Certificate of Sale dated March 9,
2001 in favor of ALLIED was approved by the Executive
Judge of the Regional Trial Court of Quezon City on
September 9, 2002 and the same was annotated on TCT
Nos. RT-13620 and RT-13621 on September 23, 2002.

c.) prohibiting Situs Development Corporation, Daily

Supermarket, Inc. & Color Lithographic Press, Inc., from
making any payment of their liabilities outstanding as of
the filing of the instant petition;

On July 26, 2001, METROBANK likewise filed an application

for extrajudicial foreclosure of the mortgage on the
property of spouses Chua covered by TCT No. 79916. The
auction sale was conducted on September 18, 2001, with
METROBANK as the highest bidder in the amount of
P95,282,563.86.

The court a quo appointed Mr. Antonio B. Garcia as the

Rehabilitation Receiver, set the initial hearing on the
petition on August 2, 2002 and directed all creditors and
interested parties, including the Securities and Exchange
Commission (SEC), to file their comment on or opposition
to the petition.

On May 16, 2002, ASIATRUST sent a demand letter to

DAILY and COLOR for the payment of their outstanding
obligations.

ALLIED filed its opposition and comment praying for the

dismissal of the petition and the lifting of the Stay Order
on the grounds that it is defective in form and substance;
that
it
contains
substantial
inaccuracies
and
inconsistencies; and that it does not contain a viable
rehabilitation plan.

On June 11, 2002, SITUS, DAILY and COLOR, herein

petitioners, filed a petition for the declaration of state of
suspension of payments with approval of proposed
rehabilitation plan, docketed as Civil Case No. Q-02-010,
with the Regional Trial Court, Branch 93, Quezon City.
Petitioners alleged that due to the 1997 Asian financial
crisis, peso devaluation and high interest rate, their loan
obligations ballooned and they foresee their inability to
meet their obligations as they fall due; that their loan
obligations are secured by the real properties of their
major stockholder, Tony Chua; that ALLIED has already
initiated foreclosure proceedings; that Global Banking
Corporation, now METROBANK, and ASIATRUST made final
demands for payment of their obligations; that they
foresee a very good future ahead of them if they would be

d.) prohibiting Situs Development Corporation, Daily

Supermarket, Inc. and Color Lithographic Press, Inc. s
suppliers of goods and services from withholding supply of
goods and services in the ordinary course of business for
as long as Situs Development Corporation, Daily
Supermarket, Inc. & Color Lithographic Press, Inc., make
payments for the goods and services supplied after the
issuance of this stay order; and
e.) directing the payment in full of all administrative
expenses incurred after the issuance of this stay
order.virtual law l

ASIATRUST filed its comment with partial opposition

praying likewise for the dismissal of the petition on the
grounds that it is not in due form and lacks substantial
allegations on its debt obligations with its various
creditors; that petitioners do not have a viable
rehabilitation plan; and that petitioners do not have a
clear source of repayment of their obligations.
No comment or opposition was filed by SEC.
In an Order dated August 2, 2002, the court a quo
found prima facie merit in the petition and gave due
course thereto. The Rehabilitation Receiver was given

forty-five (45) days within which to submit his report on

the proposed rehabilitation plan.
On October 15, 2002, METROBANK filed a Manifestation
stating that it was participating in the proceedings as a
mere observer inasmuch as the mortgage executed in its
favor by spouses Chua on the property covered by TCT No.
79916 was foreclosed by it on September 18, 2001, so
that it ceased to be a creditor of COLOR as its claim was
already fully satisfied.
On October 9, 2002, petitioners filed a motion for the
cancellation of the certificate of sale approved on
September 9, 2002 by the Executive Judge of the RTC of
Quezon City and the annotation thereof on TCT Nos. RT13620 and RT-13621, as the same were done in violation
of the Stay Order dated June 17, 2002. A vehement
opposition was filed by ALLIED arguing that the
foreclosure proceedings cannot be considered as a
"claim", as understood under Section 1, Rule 2 of the
Interim Rules of Procedure on Corporate Rehabilitation,
since the issuance of the Certificate of Sale and
annotation thereof on the certificates of titles do not
constitute demands for payment of debt or enforcement
of pecuniary liabilities; that the auction sale was
conducted more than one year before the filing of the
petition for rehabilitation; and that TCT Nos. RT-13620 and
RT-13621 are registered in the names of "Cua Yong
Hu/Tony Chua and Siok Lu Chua", hence, should not have
been included in the Inventory of Assets of petitioners.
On October 21, 2002, ASIATRUST filed an urgent
manifestation praying for the outright dismissal of the
petition inasmuch as METROBANK and ALLIED had already
foreclosed the mortgages on the properties that stood as
securities for petitioners obligations, as well as the lifting
of the Stay Order.
On October 19, 2002, the Rehabilitation Receiver
submitted
his
Report
on
petitioners
proposed
Rehabilitation Plan, to which oppositions were filed by
ALLIED and METROBANK.
On November 21, 2002, petitioners proposed to amend
their Rehabilitation Plan. On December 2, 2002,
petitioners filed and submitted an Amended Rehabilitation
Plan, which was opposed by ALLIED and ASIATRUST.
On January 8, 2003, petitioners filed a motion to admit
Second Amended Rehabilitation Program of Situs
Development Corporation, the pertinent provisions of
which read:brr
1. Situs will assume the outstanding obligations of its nonprofiting affiliate companies: Daily Supermarket, Inc. and
Color Lithographic Press, Inc.;
2. Situs will convert all its debts to equity;
3. Situs will lease the properties from the new owners at
P50.00 per square meter for a period of 25 years or at
P555,200.00 a month, with a yearly escalation of 5%;
4. The annual lease income will be distributed among the
new owners according to their percentage ownership and,
in the event that the property is sold, any profit will be
shared accordingly;

5. The new owners are Asiatrust with 21% ownership,

Metrobank with 17% ownership, Allied with 30%
ownership, and Tony Chua with 32% ownership;
6. The two properties in Cavite which were mortgaged to
ASIATRUST will be returned to its registered owner since
the properties where the Complex sits is enough to cover
the loan obligations; and
7. All unpaid interests, penalties and other charges
arewaived.law library
Comments on and oppositions to the Second Amended
Rehabilitation Plan were filed by ALLIED, ASIATRUST and
METROBANK.
On August 15, 2003, ALLIED filed a motion praying for the
dismissal of the petition as no Rehabilitation Plan was
approved upon the lapse of 180 days from the date of the
initial hearing on August 2, 2002, as mandated in Section
11 of the Interim Rules of Procedure on Corporate
Rehabilitation.
On August 14, 2003, the court a quo rendered an
ADJUDICATION
approving
the
Second
Amended
Rehabilitation Program as SITUS deserves a sporting
chance at rehabilitation, subject to the following
conditions: lbrr
1. The first phase of implementation shall cover
immediately the payment of the appurtenant shares to
the creditors/new owners out of the monthly rental income
of P555,200.00 as outlined in paragraph D.1 of the plan;
2. An automatic review of the progress of implementation
shall be undertaken six (6) months from and after the
initial payment described in condition no. 1 above;
3. The rehabilitation receiver, petitioner and creditors/new
owners to file written reports on the sixth month of
implementation and to seasonably prompt the court to set
up the matter for a monitoring hearing thereon;
4. At the end of one year from and after the initial
implementation of the plan, the court shall undertake a
review of the entire rehabilitation program for the purpose
of determining the desirability of terminating or continuing
with the rehabilitation;
5. The rehabilitation receiver, petitioner and creditors/new
owners to file written reports conformably with condition
no. 4 above and to seasonably prompt the court
accordingly.law library
In approving the Second Amended Rehabilitation Program,
the court a quo held:rl
From the original rehabilitation proposal which simply
involved a condoning and restructuring of the loan
obligations, the petitioners came out with an amended
rehabilitation plan that calls for, among others, a
concentration into the business of commercial leasing
coupled with the consolidation of the debts of Daily and
Color with that of Situs; a conversion of debt to equity in
proportionate terms; a reduction of the principal
stockholder s control of Situs Development; a

proportionate share in the monthly rental income of Situs

by creditors/new owners.
The creditor banks have consistently opposed the
rehabilitation plans submitted by the petitioners. To the
creditor banks, they would be [better-off] if the businesses
of the petitioners would be simply liquidated. A most
simple view indeed, except that such a view totally
ignores the susceptibility of petitioner Situs to
rehabilitation. The creditor banks are fully aware that the
real property on which the building structure of Situs
Development sits is more than sufficient to answer for all
the outstanding obligations of petitioners. This fact alone
should be enough to afford the petitioners a sporting
chance at business resuscitation. That the realties are
titled in the name of Mr. Tony Chua is of no moment
insofar as the rehabilitation is concerned, after all, the
creditor banks were fully aware of the real facts when they
willingly extended loans to the petitioners.
To the court the 2nd Amended Rehabilitation Program of
Situs Development Corporation Inc., a copy of which is
enclosed and made an integral part of this adjudication,
deserves due consideration. Although said plan is opposed
by the creditor banks, the court notes that it bears the
approval of the rehabilitation receiver who had the
opportunity to peruse it. Moreover, under the plan, the
shareholders of Situs Development will lose controlling
interest in the corporation. There is also no clear showing
that the properties of the debtor will be readily sold by a
liquidator within a three-month period from termination of
the herein proceedings and that the creditors would get
more from said sale than what they would get under the
plan. The court thus considers the creditors opposition to
be unreasonable.
In an Order dated August 25, 2003, the court a quo
declared that the motion to dismiss filed by ALLIED was
mooted with the issuance of the Adjudication.
Aggrieved, ALLIED, ASIATRUST and METROBANK filed their
separate notices of appeal.
On November 10, 2003, petitioners filed with the court a
quo a motion for declaration of nullity of the certificate of
sale in favor of ALLIED alleging that the issuance thereof
was in violation of the Stay Order, as well as a motion to
direct the Register of Deeds to annotate the Adjudication
on TCT Nos. RT-13620, RT-13621, TCT Nos. 79915 and
79916. Said motions were opposed by ALLIED on the
grounds that the properties foreclosed by it belonged to
spouses Chua and not to petitioners; that the auction sale
was conducted on February 6, 2001, or more than a year
prior to the filing of the petition for rehabilitation; and that
the issuance of the Certificate of Sale and its annotation
on the certificates of title are merely incidental to the
foreclosure proceedings; and that the Stay Order does not
cover the issuance of the Certificate of Sale and the
registration thereof on the certificates of title as they do
not in any way refer to its enforcement of a monetary
claim against petitioners.
In Separate Orders dated January 9, 2004, the court a quo
granted both motions of petitioners. The court a quo held
that while the foreclosure was conducted prior to the
issuance of the Stay Order, however, the foreclosure does
not fully and effectively terminate until after the issuance
of the title in the name of the creditor, such that until a

new title is issued, any action in the interregnum, judicial

or not, is deemed an enforcement of the claim arising
from such foreclosure, which in this case will be in patent
violation of the Stay Order.4rll
On 25 April 2007, the appellate court rendered the
assailed Decision, the dispositive portion of which
reads:rl
WHEREFORE,
the
appeals
are
GRANTED.
The
ADJUDICATION dated August 14, 2003 is REVERSED and
SET ASIDE, the petition for the declaration of state of
suspension of payments with approval of proposed
rehabilitation plan is DISMISSED and the Stay Order dated
June 17, 2002 is LIFTED.
The twin Orders dated January 9, 2004 declaring the
Certificate of Sale issued in favor of Allied Banking
Corporation null and void, with respect to the properties
covered by TCT No. RT-13620 and RT-13621, and directing
the Register of Deeds of Quezon City to cancel the
annotation of the Certificate of Sale on said titles, as well
as to annotate said ADJUDICATION thereon, are likewise
REVERSED and SET ASIDE. SO ORDERED.5rll
In so concluding, the CA reasoned that the Stay Order did
not affect the claims of Allied Bank and Metrobank,
because these claims were not directed against the
properties of petitioners, but against those of spouses
Chua.
The CA also reasoned that when the Stay Order was
issued, Allied Bank and Metrobank were already the
owners of the foreclosed properties, subject only to the
right of redemption of Spouses Tony and Siok Lu Chua
(spouses Chua), because the extrajudicial foreclosure
proceedings had taken place prior to the filing of the
Petition for Rehabilitation and the issuance of the Stay
Order.
Furthermore, the CA agreed with the contention of
respondents that the Petition was insufficient in form and
in substance. Among the reasons cited by the appellate
court was the fact that the inventory of assets of
petitioner corporations included properties that were not
owned by them, but registered in the names of spouses
Chua and already acquired by Allied Bank and Metrobank;
and that the financial statements submitted by petitioner
corporations showed that their total liabilities exceeded
their total assets.
Finally, the CA ruled that the Petition for Rehabilitation
should be dismissed, because the rehabilitation plan was
approved by the court more than 180 days from the date
of the initial hearing, contrary to the directive of Section
11, Rule 4 of the Interim Rules on Corporate
Rehabilitation.6rll
Aggrieved by the ruling of the appellate court, petitioners
then filed the instant Rule 45 Petition before this court and
prayed for the issuance of a status quo order.
On 10 December 2007, we resolved to direct the parties to
maintain the status quo as of the date of the issuance of
the Stay Order of the trial court.

On 17 March 2008, petitioners filed a "Manifestation and

Motion to Substitute Metro Bank with Cameron Granville II
Asset Management, Inc.,"7 alleging that since Metrobank
had sold, transferred and conveyed all its rights, title and
interest over the loans of petitioners to Cameron,
Metrobank was no longer a real party-in-interest in this
case. Furthermore, petitioners prayed that Metrobank and
Cameron be directed to disclose the transfer price or
discounted value of the sale allegedly because, under Art.
1634 of the Civil Code, they had the right of redemption of
the sold credits by paying only the transfer price to the
transferee.
THE ISSUES
The resolution of this case hinges on the following
issues:r
1. Whether the dismissal of the Petition for Rehabilitation
is in order;
2. Whether the Stay Order affects foreclosure proceedings
involving properties mortgaged by stockholders to secure
corporate debts; and
3. Whether petitioners can redeem the credit transferred
by Metrobank to Cameron by paying only the price paid by
the transferee.law library
THE COURT S RULING
We lift the status quo order and affirm the Decision of the
appellate court.
I
The dismissal of the Petition for Rehabilitation is in order
We find no reversible error on the part of the appellate
court when it dismissed the Petition for Rehabilitation.
The Rules provide that "the petition shall be dismissed if
no rehabilitation plan is approved by the court upon the
lapse of one hundred eighty (180) days from the date of
the initial hearing."8 While the Rules expressly provide that
the 180-day period may be extended, such extension may
be granted only "if it appears by convincing and
compelling evidence that the debtor may successfully be
rehabilitated."9rll
In this case, the Second Amended Rehabilitation Program
was approved by the trial court beyond the 180-day
period counted from the date of the initial hearing.
However, the evidence on record does not support the
lower court s finding that the debtor corporations may still
be successfully rehabilitated.
The trial court s only justification for approving the Second
Amended Rehabilitation Program is that "the creditor
banks are fully aware that the real property on which the
building structure of Situs Development sits is more than
sufficient to answer for all the outstanding obligations of
the petitioners."10 It then went on to conclude that "[t]his
fact alone should be enough to afford the petitioners a
sporting chance at business resuscitation."11rll
We do not agree.

It is a fundamental principle in corporate law that a

corporation is a juridical entity with a legal personality
separate and distinct from the people comprising
it.12 Hence, the rule is that assets of stockholders may not
be considered as assets of the corporation, and vice-versa.
The mere fact that one is a majority stockholder of a
corporation does not make one s property that of the
corporation, since the stockholder and the corporation are
separate entities.13rll
In this case, the parcels of land mortgaged to respondent
banks are owned not by petitioners, but by spouses
Chua.14 Applying the doctrine of separate juridical
personality, these properties cannot be considered as part
of the corporate assets. Even if spouses Chua are the
majority stockholders in petitioner corporations, they own
these properties in their individual capacities. Thus, the
parcels of land in question cannot be included in the
inventory of assets of petitioner corporations.
The fact that these properties were mortgaged to secure
corporate debts is of no moment. A mortgage is an
accessory undertaking to secure the fulfillment of a
principal obligation.15 In a third-party mortgage, the
mortgaged property stands as security for the loan
obtained by the principal debtor; but until the mortgaged
property is foreclosed, ownership thereof remains with the
third-party mortgagor.
Here, the properties owned by spouses Chua were
mortgaged as security for the debts contracted by
petitioner corporations. However, ownership of these
properties remained with the spouses notwithstanding the
fact that these were mortgaged to secure corporate debts.
We have ruled that "when a debtor mortgages his
property, he merely subjects it to a lien but ownership
thereof is not parted with."16 This leads to no other
conclusion than that, notwithstanding the mortgage, the
real properties in question belong to spouses Chua; hence,
these properties should not be considered as assets of
petitioner corporations.
Since the real properties in question cannot be considered
as corporate assets, the trial court s pronouncement that
petitioners were susceptible of rehabilitation was bereft of
any basis. Based on the rehabilitation court s narration of
facts, Situs Development Corporation has total assets of
P54,176,149.22 with total liabilities of P74,304,188.01;
Daily Supermarket, Inc. has total assets of P43,986,412.33
with total liabilities of P114,219,462.00; and Color
Lithographic Press, Inc. has total assets of P7,618,006.69
and total liabilities of P6,588,534.99.17Clearly, the
aggregate total liabilities of petitioner corporations far
exceed their aggregate total assets.
We take this opportunity to point out that rehabilitation
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.18 However, if the continued existence of the
corporation is no longer viable, rehabilitation can no
longer be an option. The purpose of rehabilitation
proceedings is to enable the company to gain a new lease
on life,19 and not to prolong its inevitable demise.
II

The Stay Order does not suspend the foreclosure of a

mortgage constituted over the property of a third-party
mortgagor
Petitioners insist that the Stay Order covers the
mortgaged properties, citing the Interim Rules on
Corporate Rehabilitation (the Rules). Under the Rules, one
of the effects of a Stay Order is the stay of the
"enforcement of all claims, whether for money or
otherwise and whether such enforcement is by court
action or otherwise, against the debtor, its guarantors and
sureties not solidarily liable with the debtor." 20rll
Based on a reading of the Rules, we rule that the Stay
Order cannot suspend foreclosure proceedings already
commenced over properties belonging to spouses Chua.
The Stay Order can only cover those claims directed
against petitioner corporations or their properties, against
petitioners guarantors, or against petitioners sureties who
are not solidarily liable with them.
Spouses Chua may not be considered as "debtors." The
Interim Rules on Corporate Rehabilitation (the Rules)
define the term "debtor" as follows:
"Debtor" shall mean any corporation, partnership, or
association, whether supervised or regulated by the
Securities and Exchange Commission or other government
agencies, on whose behalf a petition for rehabilitation has
been filed under these Rules.
Likewise, the enforcement of the mortgage lien cannot be
considered as a claim against a guarantor or a surety not
solidarily liable with the debtor corporations. While
spouses Chua executed Continuing Guaranty and
Comprehensive Surety undertakings in favor of Allied
Bank, the bank did not proceed against them as individual
guarantors or sureties. Rather, by initiating extrajudicial
foreclosure proceedings, the bank was directly proceeding
against the property mortgaged to them by the spouses
as security. The Civil Code provides that the property upon
which a mortgage is imposed directly and immediately
subjected to the fulfillment of the obligation for whose
security the mortgage was constituted.21 As such, a real
estate mortgage is a lien on the property itself,
inseparable from the property upon which it was
constituted.
In this case, we find that the undertaking of spouses Chua
with respect to the loans of petitioner corporations is the
sale at public auction of certain real properties belonging
to them to satisfy the indebtedness of petitioner
corporations in case of a default by the latter. This
undertaking is properly that of a third-party mortgagor or
an accommodation mortgagor, whereby one mortgages
one s property to stand as security for the indebtedness of
another.22rll
In Pacific Wide Realty and Development Corporation v.
Puerto Azul Land, Inc.,23 we ruled that the issuance of a
Stay Order cannot suspend the foreclosure of
accommodation mortgages, because the Stay Order may
only cover the suspension of the enforcement of all claims
against the debtor, its guarantors, and sureties not
solidarily liable with the debtor. 24 Thus, the suspension of
enforcement of claims does not extend to the foreclosure
of accommodation mortgages.

Moreover, the intent of the Rules is to exclude from the

scope of the Stay Order the foreclosure of properties
owned by accommodation mortgagors. The newly adopted
Rules of Procedure on Corporate Rehabilitation provides
for one of the effects of a Stay Order:
SEC. 7. Stay Order.
(b) staying enforcement of all claims, whether for money
or otherwise and whether such enforcement is by court
action or otherwise, against the debtor, its guarantors and
persons not solidarily liable with the debtor; provided, that
the stay order shall not cover claims against letters of
credit and similar security arrangements issued by a third
party to secure the payment of the debtor's obligations;
provided, further, that the stay order shall not cover
foreclosure by a creditor of property not belonging to a
debtor under corporate rehabilitation; provided, however,
that where the owner of such property sought to be
foreclosed is also a guarantor or one who is not solidarily
liable, said owner shall be entitled to the benefit of
excussion as such guarantor.25 (Emphasis supplied)
From the foregoing, we therefore hold that foreclosure
proceedings over the properties in question are not
suspended by the trial courts issuance of the Stay Order.
Furthermore, even assuming that the properties in
question fall under the ambit of the Stay Order, the
issuance thereof should not affect the execution of the
Certificate of Sale.
In Rizal Commercial Banking Corporation v. Intermediate
Appellate Court and BF Homes, Inc.,26 the debtor
corporation filed a Petition for Rehabilitation and
Declaration of Suspension of Payments before the
Securities and Exchange Commission (SEC). Prior to the
SEC s appointment of a management committee and
during the pendency of the case, the mortgagee-bank
foreclosed on the real estate mortgage over some of the
corporations mortgaged properties. An auction sale was
conducted, and the mortgagee-bank emerged as the
highest bidder. However, because of the pendency of the
rehabilitation case before the SEC, the Sheriff withheld the
delivery of the Certificate of Sale. Ruling on the validity of
the foreclosure proceedings, we held that the conduct of
the foreclosure sale was valid, because it was carried out
prior to the issuance of the SEC s order appointing a
management committee. We held that the appointment of
a management committee, rehabilitation receiver, board
or body pursuant to Presidential Decree No. 902-A is the
operative act that suspends all actions or claims against a
distressed corporation.
In the case at bar, the auction sale for the parcels of land
covered by TCT Nos. RT-13620 and RT-13621 and
mortgaged to respondent Allied Bank was conducted on 6
February 2001, while the foreclosure sale for the parcel of
land covered by TCT No. 79916 and mortgaged to
Metrobank was conducted on 18 September 2001. Clearly,
the foreclosure proceedings commenced and the auction
sale was conducted before the issuance of the Stay Order
and the appointment of the Rehabilitation Receiver on 17
June 2002. In fact, the public auctions took place almost a
year before petitioner corporations filed the Petition for
Rehabilitation with the court a quo on 11 June 2002.
Therefore, the execution of the Certificate of Sale may no
longer be suspended by the trial court s issuance of the

Stay Order, even if the questioned properties are assumed

to fall under the ambit of the Stay Order, since the
foreclosure proceedings and the auction sale were
conducted prior to the appointment of the Rehabilitation
Receiver.
III
Petitioners cannot redeem the credit transferred by
Metrobank to Cameron by reimbursing the transferee
Petitioners claim that, based on Republic Act (R.A.) No.
9182 or the Special Purpose Vehicle (SPV) Act of 2002,
they have the right of legal redemption by paying
Cameron the transfer price plus the cost of money up to
the time of redemption and the judicial costs in case of
sale or transfer of Non-Performing Loans (NPLs) under
litigation.27rll
Petitioners claim is anchored on Section 13 of the SPV Act,
which provides:rl
Sec. 13.Nature of Transfer. All sales or transfers of NonPerforming Assets to an SPV shall be in the nature of a
true sale after proper notice in accordance with the
procedures as provided for in section 12: Provided, That
GFIs and GOCCs shall be subject to existing law on the
disposition of assets: Provided, further, That in the transfer
of the NPLs, the provisions on subrogation and assignment
of credits under the New Civil Code shall apply.
In turn, Art. 1634 of the Civil Code on Assignment of
Credits and Other Incorporeal Rights provides:rl
Art. 1634. When a credit or other incorporeal right in
litigation is sold, the debtor shall have a right to
extinguish it by reimbursing the assignee for the price the
latter paid therefor, the judicial costs incurred by him, and
the interest on the price from the day on which the same
was paid.
A credit or other incorporeal right shall be considered in
litigation from the time the complaint concerning the
same is answered.
The debtor may exercise his right within thirty days from
the date the assignee demands payment from him.
At the outset, we find that the issue is only belatedly
raised in the instant Petition 28 and was never threshed out
in the proceedings below. Fundamental considerations of
fair play, justice and due process dictate that this Court
should not pass upon this question. 29 "Questions raised on
appeal must be within the issues framed by the parties;
consequently, issues not raised before the trial court
cannot be raised for the first time on appeal." 30rll
As early as 21 December 2005, Metrobank notified
petitioners that the credit had been transferred to
Cameron. However, petitioners only raised the issue of
their alleged equitable right of redemption in their
"Manifestation and Motion to Substitute Metro Bank with
Cameron Granville II Asset Management, Inc." dated 17
March 2008.31 They have not even raised this issue in the
instant Petition for Review filed on 26 November 2007.
This being so, the argument should not be considered,
having been belatedly raised on appeal.

Moreover, even if we were to consider the foregoing issue,

petitioners cannot take refuge in the provisions of the SPV
Act of 2004 in conjunction with Art. 1634 of the Civil Code.
For the debtor to be entitled to extinguish his credit by
reimbursing the assignee under Art. 1634, the following
requisites must concur:r
(a) there must be a credit or other incorporeal right;
(b) the credit or other incorporeal right must be in
litigation;
(c) the credit or other incorporeal right must be sold to an
assignee pending litigation;
(d) the assignee must have demanded payment from the
debtor;
(e) the debtor must reimburse the assignee for the price
paid by the latter, the judicial costs incurred by the latter
and the interest on the price from the day on which the
same was paid; andcralawlibrary
(f) the reimbursement must be done within 30 days from
the date of the assignee s demand.
virtual law library
In this case, the credit owed by petitioner corporations to
Metrobank had already been extinguished when the bank
foreclosed upon the parcel of land mortgaged to it by the
spouses Chua as security for petitioners debts, in full
satisfaction of the loan the bank had extended. Therefore,
during the pendency of these proceedings, what was
transferred by Metrobank to Cameron was ownership over
the foreclosed property, subject only to the right of
redemption by the proper party within one year reckoned
from the date of registration of the Certificate of Sale.
Moreover, the provisions of the Civil Code on subrogation
and assignment of credits are only applicable to
NPLs,32 defined in the SPV Act of 2002 as follows:rl

"Non-Performing Loans or NPLs" refers to loans and

receivables such as mortgage loans, unsecured loans,
consumption loans, trade receivables, lease receivables,
credit card receivables and all registered and unregistered
security and collateral instruments, including but not
limited to, real estate mortgages, chattel mortgages,
pledges, and antichresis, whose principal and/or interest
have remained unpaid for at least one hundred eighty
(180) days after they have become past due or any of the
events of default under the loan agreement has
occurred.33rll
What is involved in this case is more properly a real
property acquired by a financial institution in settlement of
a loan (ROPOA). Under the law, ROPOAs are defined in this
manner: "ROPOAs" refers to real and other properties
owned or acquired by an financial institution in settlement
of loans and receivables, including real properties, shares
of stocks, and chattels formerly constituting collaterals for
secured loans which have been acquired by way of dation
in payment (dacionenpago) or judicial or extra-judicial
foreclosure or execution of judgment.34rll
May the subject property be considered as one acquired
by Metrobank pursuant to an extrajudicial foreclosure
sale?
The Implementing Rules and Regulations of the SPV Act of
2002 provide that, in case of extrajudicial foreclosure, a

property is deemed acquired by a financial institution on

the date of notarization of the Sheriff s Certificate.35rll
In this case, a Certificate of Sale has not been executed in
favor of Metrobank in deference to the Stay Order issued
by the rehabilitation court. However, we reiterate that the
rehabilitation court has no jurisdiction to suspend
foreclosure proceedings over a third-party mortgage.
Much less can it restrain the issuance of a Certificate of
Sale after the subject properties have been sold at public
auction more than a year before the Petition for
Rehabilitation was filed. The property foreclosed by
Metrobank was clearly beyond the ambit of the Stay
Order. Consequently, there was no valid ground for the
Sheriff to withhold the issuance and execution of the
Certificate of Sale.
The parcel of land mortgaged to Metrobank and
subsequently transferred to Cameron should be treated as
a ROPOA as provided for by law. Hence, the application of
Art. 1634 finds no basis in law.
WHEREFORE, in view of the foregoing, the instant Rule 45
Petition for Review is DENIED. The assailed Decision and
Resolution of the Court of Appeals in CA-G.R. CV No.
80223 are AFFIRMED. The Status Quo Order issued by this
Court on 10 December 2007 is LIFTED.
G.R. No. 180036 : January 16, 2013
SITUS
DEV.
CORPORATION,
DAILY
SUPERMARKETv.ASIATRUST BANK, ALLIED BANKING
CORPORATION,
For resolution is the Motion for Reconsideration 1 of our 25
July 2012 Decision2 in the case involving petitioners
herein,
Situs
Development
Corporation,
Daily
Supermarket, Inc. and Color Lithographic Press, Inc.
Most of the arguments raised by petitioners are too
insubstantial to merit our consideration or are merely
rehashed from their previous pleadings and have already
been passed upon by this Court. However, certain issues
merit a brief discussion, to wit:
1. That the properties belonging to petitioner corporations
majority stockholders may be included in the
rehabilitation plan pursuant to Metropolitan Bank and
Trust Company v. ASB Holdings, Inc.3 (the Metrobank
Case);
2. That the subject properties should be included in the
ambit of the Stay Order by virtue of the provisions of the
Financial Rehabilitation and Insolvency Act of 2010 (FRIA),
which should be given a retroactive effect; and
3. That Allied Bank and Metro Bank were not the owners of
the mortgaged properties when the Stay Order was issued
by the rehabilitation court.rbl rl l lbrr
On the first issue, petitioners incorrectly argue that the
properties belonging to their majority stockholders may be

included in the rehabilitation plan, because these

properties were mortgaged to secure petitioners loans. In
support of their argument, they cite a footnote appearing
in the Metrobank Case, which states:4rl1
In their petition for rehabilitation, the corporations
comprising the ASB Group of Companies alleged that their
allied companies have joined in the said petition because
they executed mortgages and/or pledges over their real
and personal properties to secure the obligations of
petitioner ASB Group of Companies. Further, (they) agreed
to contribute, to the extent allowed by law, some of their
specified properties and assets to help rehabilitate
petitioner ASB Group of Companies. (Rollo, pp. 119-120)
A reading of the footnote shows that it is not a ruling on
the propriety of the joinder of parties; rather, it is a
statement of the fact that the afore-quoted allegation was
made in the petition for rehabilitation in that case.
On the second issue, petitioners argue that the trial court
was correct in including the subject properties in the ambit
of the Stay Order. Under the FRIA, the Stay Order may now
cover third-party or accommodation mortgages, in which
the "mortgage is necessary for the rehabilitation of the
debtor as determined by the court upon recommendation
by the rehabilitation receiver."5 The FRIA likewise provides
that its provisions may be applicable to further
proceedings in pending cases, except to the extent that, in
the opinion of the court, their application would not be
feasible or would work injustice.6rl1
Sec. 146 of the FRIA, which makes it applicable to "all
further proceedings in insolvency, suspension of payments
and rehabilitation cases x xx except to the extent that in
the opinion of the court their application would not be
feasible or would work injustice," still presupposes a
prospective application. The wording of the law clearly
shows that it is applicable to all further proceedings. In no
way could it be made retrospectively applicable to the
Stay Order issued by the rehabilitation court back in 2002.
At the time of the issuance of the Stay Order, the rules in
force were the 2000 Interim Rules of Procedure on
Corporate Rehabilitation (the "Interim Rules"). Under those
rules, one of the effects of a Stay Order is the stay of the
"enforcement of all claims, whether for money or
otherwise and whether such enforcement is by court
action or otherwise, against the debtor, its guarantors and
sureties not solidarily liable with the debtor." 7 Nowhere in
the Interim Rules is the rehabilitation court authorized to
suspend foreclosure proceedings against properties of
third-party mortgagors. In fact, we have expressly ruled in
Pacific Wide Realty and Development Corp. v. Puerto Azul
Land, Inc.8 that the issuance of a Stay Order cannot
suspend the foreclosure of accommodation mortgages.
Whether or not the properties subject of the third-party
mortgage are used by the debtor corporation or are
necessary for its operation is of no moment, as the Interim

Rules do not make a distinction. To repeat, when the Stay

Order was issued, the rehabilitation court was only
empowered to suspend claims against the debtor, its
guarantors, and sureties not solidarily liable with the
debtor. Thus, it was beyond the jurisdiction of the
rehabilitation court to suspend foreclosure proceedings
against properties of third-party mortgagors.
The third issue, therefore, is immaterial. Whether or not
respondent banks had acquired ownership of the subject
properties at the time of the issuance of the Stay Order,
the same conclusion will still be reached. The subject
properties will still fall outside the ambit of the Stay Order
issued by the rehabilitation court.
Since the subject properties are beyond the reach of the
Stay Order, and since foreclosure and consolidation of title
may no longer be stalled, petitioners rehabilitation plan is
no longer feasible. We therefore affirm our earlier finding
that the dismissal of the Petition for the Declaration of
State of Suspension of Payments with Approval of
Proposed Rehabilitation Plan is in order.
WHEREFORE, the Court resolves to DENY WITH FINALITY
the instant Motion for Reconsideration for lack of merit. No
further pleadings shall be entertained. Let entry of
judgment be made in due course.
Interim rules on corporate rehabilitation; effect of stay
order on foreclosure. A Stay Order cannot suspend the
foreclosure of accommodation mortgages, because the
Stay Order may only cover the suspension of the
enforcement of all claims against the debtor, its
guarantors, and sureties not solidarily liable with the
debtor the enforcement of the mortgage lien cannot be
considered as a claim against a guarantor or a surety not
solidarily liable with the debtor corporations. While
spouses Chua executed Continuing Guaranty and
Comprehensive Surety undertakings in favor of Allied
Bank, the bank did not proceed against them as individual
guarantors or sureties. Rather, by initiating extrajudicial
foreclosure proceedings, the bank was directly proceeding
against the property mortgaged to them by the spouses
as security. The Civil Code provides that the property upon
which a mortgage is imposed directly and immediately
subjected to the fulfillment of the obligation for whose
security the mortgage was constituted. As such, a real
estate mortgage is a lien on the property itself,
inseparable from the property upon which it was
constituted. In this case, we find that the undertaking of
spouses Chua with respect to the loans of petitioner
corporations is the sale at public auction of certain real
properties belonging to them to satisfy the indebtedness
of petitioner corporations in case of a default by the latter.
This undertaking is properly that of a third-party
mortgagor or an accommodation mortgagor, whereby one
mortgages ones property to stand as security for the
indebtedness of another. Situs Development Corporation,
et al. vs. Asiatrust Bank, et al.; G.R. No. 180036, July 25,
2012.
SPV Act; extinguishment of credit . Petitioners cannot take
refuge in the provisions of the SPV Act of 2004 in

conjunction with Art. 1634 of the Civil Code.For the debtor

to be entitled to extinguish his credit by reimbursing the
assignee under Art. 1634, the following requisites must
concur:
(a) there must be a credit or other incorporeal right;
(b) the credit or other incorporeal right must be in
litigation;
(c) the credit or other incorporeal right must be sold to an
assignee pending litigation;
(d) the assignee must have demanded payment from the
debtor;
(e) the debtor must reimburse the assignee for the price
paid by the latter, the judicial costs incurred by the latter
and the interest on the price from the day on which the
same was paid; and
(f) the reimbursement must be done within 30 days from
the date of the assignees demand.
In this case, the credit owed by petitioner corporations to
Metrobank had already been extinguished when the bank
foreclosed upon the parcel of land mortgaged to it by the
spouses Chua as security for petitioners debts, in full
satisfaction of the loan the bank had extended. Therefore,
during the pendency of these proceedings, what was
transferred by Metrobank to Cameron was ownership over
the foreclosed property, subject only to the right of
redemption by the proper party within one year reckoned
from the date of registration of the Certificate of Sale.
Moreover, the provisions of the Civil Code on subrogation
and assignment of credits are only applicable to NPLs,
defined in the SPV Act of 2002 as follows:
Non-Performing Loans or NPLs refers to loans and
receivables such as mortgage loans, unsecured loans,
consumption loans, trade receivables, lease receivables,
credit card receivables and all registered and unregistered
security and collateral instruments, including but not
limited to, real estate mortgages, chattel mortgages,
pledges, and antichresis, whose principal and/or interest
have remained unpaid for at least one hundred eighty
(180) days after they have become past due or any of
the events of default under the loan agreement has
occurred.
What is involved in this case is more properly a real
property acquired by a financial institution in settlement of
a loan (ROPOA). Under the law, ROPOAs are defined in this
manner:
ROPOAs refers to real and other properties owned or
acquired by an [financial institution] in settlement of loans

and receivables, including real properties, shares of

stocks, and chattels formerly constituting collaterals for
secured loans which have been acquired by way of dation
in payment (dacionenpago) or judicial or extra-judicial
foreclosure or execution of judgment.
May the subject property be considered as one acquired
by Metrobank pursuant to an extrajudicial foreclosure
sale?
The Implementing Rules and Regulations of the SPV Act of
2002 provide that, in case of extrajudicial foreclosure, a
property is deemed acquired by a financial institution on
the date of notarization of the Sheriffs Certificate. In this
case, a Certificate of Sale has not been executed in favor
of Metrobank in deference to the Stay Order issued by the
rehabilitation court. However, we reiterate that the
rehabilitation court has no jurisdiction to suspend
foreclosure proceedings over a third-party mortgage.
Much less can it restrain the issuance of a Certificate of
Sale after the subject properties have been sold at public
auction more than a year before the Petition for
Rehabilitation was filed. The property foreclosed by
Metrobank was clearly beyond the ambit of the Stay
Order. Consequently, there was no valid ground for the
Sheriff to withhold the issuance and execution of the
Certificate of Sale.
The parcel of land mortgaged to Metrobank and
subsequently transferred to Cameron should be treated as
a ROPOA as provided for by law. Hence, the application of
Art. 1634 finds no basis in law.Situs Development
Corporation, et al. vs. Asiatrust Bank, et al.; G.R. No.
180036, July 25, 2012.
G.R. No. 175844, July 29, 2013
BANK OF THE PHILIPPINE ISLANDS, v. SARABIA
MANOR HOTEL CORPORATION,
Before
the
Court
is
a
petition
for
review
on certiorari1 assailing the Decision2 dated April 24, 2006
and Resolution3 dated December 6, 2006 of the Court of
Appeals, Cebu City (CA) in CA-G.R. CV. No. 81596 which
affirmed with modification the rehabilitation plan of
respondent Sarabia Manor Hotel Corporation (Sarabia) as
approved by the Regional Trial Court of Iloilo City, Branch
39 (RTC) through its Order4 dated August 7, 2003.

The Facts
Sarabia is a corporation duly organized and existing under
Philippine laws, with principal place of business at 101
General Luna Street, Iloilo City. 5 It was incorporated on
February 22, 1982, with an authorized capital stock of
P10,000,000.00, fully subscribed and paid-up, for the
primary purpose of owning, leasing, managing and/or
operating hotels, restaurants, barber shops, beauty
parlors, sauna and steam baths, massage parlors and
such other businesses incident to or necessary in the

management

or

operation

of

hotels.6

In 1997, Sarabia obtained a P150,000,000.00 special loan

package from Far East Bank and Trust Company (FEBTC) in
order to finance the construction of a five-storey hotel
building (New Building) for the purpose of expanding its
hotel business. An additional P20,000,000.00 stand-by
credit line was approved by FEBTC in the same year. 7
The foregoing debts were secured by real estate
mortgages over several parcels of land8 owned by Sarabia
and a comprehensive surety agreement dated September
1, 1997 signed by its stockholders. 9 By virtue of a merger,
Bank of the Philippine Islands (BPI) assumed all of FEBTCs
rights
against
Sarabia.10
Sarabia started to pay interests on its loans as soon as the
funds were released in October 1997. However, largely
because of the delayed completion of the New Building,
Sarabia incurred various cash flow problems. Thus, despite
the fact that it had more assets than liabilities at that
time,11 it, nevertheless, filed, on July 26, 2002, a
Petition12 for
corporate
rehabilitation
(rehabilitation
petition) with prayer for the issuance of a stay order
before the RTC as it foresaw the impossibility to meet its
maturing obligations to its creditors when they fall due.
In the said petition, Sarabia claimed that its cash position
suffered when it was forced to take-over the construction
of the New Building due to the recurring default of its
contractor, Santa Ana AJ Construction Corporation
(contractor),13 and its subsequent abandonment of the
said project.14 Accordingly, the New Building was
completed only in the latter part of 2000, or two years
past the original target date of August 1998, thereby
skewing Sarabias projected revenues. In addition, it was
compelled to divert some of its funds in order to cover
cost overruns. The situation became even more difficult
when the grace period for the payment of the principal
loan amounts ended in 2000 which resulted in higher
amortizations. Moreover, external events adversely
affecting the hotel industry, i.e., the September 11, 2001
terrorist attacks and the Abu Sayyaf issue, also
contributed to Sarabias financial difficulties. 15 Owing to
these circumstances, Sarabia failed to generate enough
cash flow to service its maturing obligations to its
creditors, namely: (a) BPI (in the amount of
P191,476,421.42); (b) Rural Bank of Pavia (in the amount
of P2,500,000.00); (c) Vic Imperial Appliance Corp.
(Imperial Appliance) (in the amount of P5,000,000.00); (d)
its various suppliers (in the amount of P7,690,668.04); (e)
the government (for minimum corporate income tax in the
amount of P547,161.18); and (f) its stockholders (in the
amount
of
P18,748,306.35).16
In its proposed rehabilitation plan,17 Sarabia sought for the
restructuring of all its outstanding loans, submitting that
the interest payments on the same be pegged at a
uniform escalating rate of: (a) 7% per annum (p.a.) for the
years 2002 to 2005; (b) 8% p.a. for the years 2006 to
2010; (c) 10% p.a. for the years 2011 to 2013; (d) 12%
p.a. for the years 2014 to 2015; and (e) 14% p.a. for the
year 2018. Likewise, Sarabia sought to make annual
payments on the principal loans starting in 2004, also in
escalating amounts depending on cash flow. Further, it
proposed that it should pay off its outstanding obligations
to the government and its suppliers on their respective
due dates, for the sake of its day to day operations.

Finding Sarabias rehabilitation petition sufficient in form

and substance, the RTC issued a Stay Order 18 on August 2,
2002. It also appointed Liberty B. Valderrama as Sarabias
rehabilitation receiver (Receiver). Thereafter, BPI filed its
Opposition.19
After several hearings, the RTC gave due course to the
rehabilitation petition and referred Sarabias proposed
rehabilitation plan to the Receiver for evaluation.20
In a Recommendation21 dated July 10, 2003 (Receivers
Report), the Receiver found that Sarabia may be
rehabilitated
and
thus,
made
the
following
recommendations:
(1) Restructure the loans with Sarabias creditors, namely,
BPI, Imperial Appliance, Rural Bank of Pavia, and
BarceloGestionHotelera, S.L. (Barcelo), under the following
terms and conditions: (a) the total outstanding balance as
of December 31, 2002 shall be recomputed, with the
interest for the years 2001 and 2002 capitalized and
treated as part of the principal; (b) waive all penalties; (c)
extend the payment period to seventeen (17) years, i.e.,
from 2003 to 2019, with a two-year grace period in
principal payment; (d) fix the interest rate at 6.75% p.a.
plus 10% value added tax on interest for the entire term
of the restructured loans;22 (e) the interest and principal
based on the amortization schedule shall be payable
annually at the last banking day of each year; and (f) any
deficiency shall be paid personally by Sarabias
stockholders in the event it fails to generate enough cash
flow; on the other hand, any excess funds generated at
the end of the year shall be paid to the creditors to
accelerate
the
debt
servicing;23
(2) Pay Sarabias outstanding payables with its suppliers
and the government so as not to disrupt hotel
operations;24
(3) Convert the Advances from stockholders amounting to
P18,748,306.00 to stockholders equity and other
advances amounting to P42,688,734.00 as of the
December 31, 2002 tentative financial statements to
Deferred Credits; the said conversion should increase
stockholders equity to P268,545,731.00 and bring the
debt
to
equity
ratio
to
0.85:1; 25
(4) Require Sarabias stockholders to pay its payables to
the hotel recorded as Accounts Receivable Trade,
amounting to P285,612.17 as of December 31, 2001, and
its
remaining
receivables
after
such
date; 26
(5) No compensation or cash dividends shall be paid to the
stockholders during the rehabilitation period, except those
who are directly employed by the hotel as a full time
officer, employee or consultant covered by a valid
contract
and
for
a
reasonable
fee; 27
(6) All capital expenditures which are over and above what
is provided in the case flow of the rehabilitation plan which
will materially affect Sarabias cash position but which are
deemed necessary in order to maintain the hotels
competitiveness in the industry shall be subject to the
RTCs
approval
prior
to
its
implementation; 28
(7) Terminate the management contract with Barcelo,
thereby saving an estimated P25,830,997.00 in
management fees, over and above the salaries and
benefits
of
certain
managerial
employees;29

(8) Appoint
required to
support the
in

a new management team which would be

submit a comprehensive business plan to
generation of the target revenue as reported
the
rehabilitation
plan;30

(9) Open a debt servicing account and transfer all excess

funds thereto, which in no case should be less than
P500,000.00 at the end of the month; the funds will be
drawn payable to the creditors only based on the
amortization
schedule;31 and
(10) Release the surety obligations of Sarabias
stockholders, considering the adequate collaterals and
securities covered by the rehabilitation plan and the
continuing mortgages over Sarabias properties.32
The RTC Ruling
In an Order33 dated August 7, 2003, the RTC approved
Sarabias rehabilitation plan as recommended by the
Receiver, finding the same to be feasible. In this accord, it
observed that the rehabilitation plan was realistic since,
based on Sarabias financial history, it was shown that it
has the inherent capacity to generate funds to pay its loan
obligations
given
the
proper
perspective.34 The
recommended rehabilitation plan was also practical in
terms of the interest rate pegged at 6.75% p.a. since it is
based on Sarabias ability to pay and the creditors
perceived cost of money.35 It was likewise found to be
viable since, based on the extrapolations made by the
Receiver, Sarabias revenue projections, albeit projected
to slow down, remained to have a positive business/profit
outlook
altogether.36
The RTC further noted that while it may be true that
Sarabia has been unable to comply with its existing terms
with BPI, it has nonetheless complied with its obligations
to its employees and suppliers and pay its taxes to both
local and national government without disrupting the dayto-day operations of its business as an on-going concern. 37
More significantly, the RTC did not give credence to BPIs
opposition to the Receivers recommended rehabilitation
plan as neither BPI nor the Receiver was able to
substantiate the claim that BPIs cost of funds was at the
10% p.a. threshold. In this regard, the RTC gave more
credence to the Receivers determination of fixing the
interest rate at 6.75% p.a., taking into consideration not
only Sarabias ability to pay based on its proposed interest
rates, i.e., 7% to 14% p.a., but also BPIs perceived cost of
money based on its own published interest rates for
deposits, i.e., 1% to 4.75% p.a., as well as the rates for
treasury bills, i.e., 5.498% p.a. and CB overnight
borrowings, i.e., 7.094%. p.a.38
The CA Ruling
In a Decision39 dated April 24, 2006, the CA affirmed the
RTCs ruling with the modification of reinstating the surety
obligations of Sarabias stockholders to BPI as an
additional safeguard for the effective implementation of
the approved rehabilitation plan. 40 It held that the RTCs
conclusions as to the feasibility of Sarabias rehabilitation
was well- supported by the companys financial
statements, both internal and independent, which were
properly analyzed and examined by the Receiver. 41
It also upheld the 6.75%. p.a. interest rate on Sarabias

loans, finding the said rate to be reasonable given that

BPIs interests as a creditor were properly accounted for.
As published, BPIs time deposit rate for an amount of
P5,000,000.00 (with a term of 360-364 days) is at 5.5%
p.a.; while the benchmark ninety one-day commercial
paper, which banks used to price their loan averages to
6.4% p.a. in 2005, has a three-year average rate of 6.57%
p.a.42 As such, the 6.75% p.a. interest rate would be
higher than the current market interest rates for time
deposits and benchmark commercial papers. Moreover,
the CA pointed out that should the prevailing market
interest rates change as feared by BPI, the latter may still
move for the modification of the approved rehabilitation
plan.43

which they are based; (i) when the facts set forth in the
petition as well as in the petitioners main and reply briefs
are not disputed by the respondent; and (j) when the
findings of fact are premised on the supposed absence of
evidence and contradicted by the evidence on record. 50

Aggrieved, BPI moved for reconsideration which was,

however, denied in a Resolution44 dated December 6,
2006.

In view of the foregoing, the Court finds BPIs petition to

be improper and hence, dismissible 52 as the issues
raised therein involve questions of fact which are beyond
the ambit of a Rule 45 petition for review.

The distinction between questions of law and questions of

fact is well- defined. A question of law exists when the
doubt or difference centers on what the law is on a certain
state of facts. A question of fact, on the other hand, exists
if the doubt centers on the truth or falsity of the alleged
facts. This being so, the findings of fact of the CA are final
and conclusive and the Court will not review them on
appeal.51

Hence, this petition.

The Issue Before the Court
The primordial issue raised for the Courts resolution is
whether or not the CA correctly affirmed Sarabias
rehabilitation plan as approved by the RTC, with the
modification on the reinstatement of the surety
obligations
of
Sarabias
stockholders.
BPI mainly argues that the approved rehabilitation plan
did not give due regard to its interests as a secured
creditor in view of the imposition of a fixed interest rate of
6.75% p.a. and the extended loan repayment period. 45 It
likewise avers that Sarabias misrepresentations in its
rehabilitation
petition
remain
unresolved.46
On the contrary, Sarabia essentially maintains that: (a)
the present petition improperly raises questions of
fact;47 (b) the approved rehabilitation plan takes into
consideration all the interests of the parties and the terms
and conditions stated therein are more reasonable than
what BPI proposes;48 and (c) BPIs allegations of
misrepresentation are mere desperation moves to
convince the Court to overturn the rulings of the courts a
quo.49
The Courts Ruling
The

petition

A.
Propriety
considerations.

has
of

BPIs

no

merit.

petition;procedural

It
is
fundamental
that
a
petition
for
review
on certiorari filed under Rule 45 of the Rules of Court
covers only questions of law. In this relation, questions of
fact are not reviewable and cannot be passed upon by the
Court unless, the following exceptions are found to exist:
(a) when the findings are grounded entirely on
speculations, surmises, or conjectures; (b) when the
inference made is manifestly mistaken, absurd, or
impossible; (c) when there is a grave abuse of discretion;
(d) when the judgment is based on misappreciation of
facts; (e) when the findings of fact are conflicting; (f) when
in making its findings, the same are contrary to the
admissions of both parties; (g) when the findings are
contrary to those of the trial court; (h) when the findings
are conclusions without citation of specific evidence on

To elucidate, the determination of whether or not due

regard was given to the interests of BPI as a secured
creditor in the approved rehabilitation plan partakes of a
question of fact since it will require a review of the
sufficiency and weight of evidence presented by the
parties among others, the various financial documents
and data showing Sarabias capacity to pay and BPIs
perceived cost of money and not merely an application
of law. Therefore, given the complexion of the issues
which BPI presents, and finding none of the abovementioned exceptions to exist, the Court is constrained to
dismiss its petition, and prudently uphold the factual
findings of the courts a quo which are entitled to great
weight and respect, and even accorded with finality. This
especially obtains in corporate rehabilitation proceedings
wherein certain commercial courts have been designated
on account of their expertise and specialized knowledge
on
the
subject
matter,
as
in
this
case.
In any event, even discounting the above-discussed
procedural considerations, the Courts still finds BPIs
petition
lacking
in
merit.
B.
Approval
plan;substantive

of

Sarabias

rehabilitation
considerations.

Records show that Sarabia has been in the hotel business

for over thirty years, tracing its operations back to 1972.
Its hotel building has been even considered a landmark in
Iloilo, being one of its kind in the province and having
helped bring progress to the community.53 Since then, its
expansion was continuous which led to its decision to
commence with the construction of a new hotel building.
Unfortunately, its contractor defaulted which impelled
Sarabia to take-over the same. This significantly skewed
its projected revenues and led to various cash flow
difficulties, resulting in its incapacity to meet its maturing
obligations.
Recognizing the volatile nature of every business, the
rules on corporate rehabilitation have been crafted in
order to give companies sufficient leeway to deal with
debilitating financial predicaments in the hope of restoring
or reaching a sustainable operating form if only to best
accommodate the various interests of all its stakeholders,
may it be the corporations stockholders, its creditors and
even the general public. In this light, case law has defined
corporate rehabilitation as an attempt to conserve and
administer the assets of an insolvent corporation in the

hope of its eventual return from financial stress to

solvency. It contemplates the continuance of corporate life
and activities in an effort to restore and reinstate the
corporation to its former position of successful operation
and liquidity. Verily, the purpose of rehabilitation
proceedings is to enable the company to gain a new lease
on life and thereby allow creditors to be paid their claims
from its earnings.54 Thus,
rehabilitation shall be
undertaken when it is shown that the continued operation
of the corporation is economically more feasible and its
creditors can recover, by way of the present value of
payments projected in the plan, more, if the corporation
continues as a going concern than if it is immediately
liquidated.55

proper and full implementation, and anchored on

realistic assumptions and goals. This remedy
should be denied to corporations whose insolvency
appears to be irreversible and whose sole purpose
is to delay the enforcement of any of the rights of
the creditors, which is rendered obvious by the
following: (a) the absence of a sound and workable
business plan; (b) baseless and unexplained
assumptions, targets and goals; (c) speculative
capital infusion or complete lack thereof for the
execution of the business plan; (d) cash flow cannot
sustain daily operations; and (e) negative net worth
and the assets are near full depreciation or fully
depreciated.60(Emphasis and underscoring supplied)

Among other rules that foster the foregoing policies,

Section 23, Rule 4 of the Interim Rules of Procedure on
Corporate Rehabilitation56 (Interim Rules) states that a
rehabilitation plan may be approved even over the
opposition of the creditors holding a majority of the
corporations total liabilities if there is a showing
that rehabilitation is feasible andthe opposition of
the creditors is manifestly unreasonable. Also known
as the cram-down clause, this provision, which is
currently incorporated in the FRIA, 57 is necessary to curb
the majority creditors natural tendency to dictate their
own terms and conditions to the rehabilitation, absent due
regard to the greater long-term benefit of all stakeholders.
Otherwise stated, it forces the creditors to accept the
terms and conditions of the rehabilitation plan, preferring
long-term viability over immediate but incomplete
recovery.

Keeping with these principles, the Court thus observes

that:cralavvonlinelawlibrary

It is within the parameters of the aforesaid provision that

the Court examines the approval of Sarabias
rehabilitation.

Second, Sarabia has the ability to have sustainable

profits
over
a
long
period
of
time.

i.

Feasibility

of

Sarabias

rehabilitation.

In order to determine the feasibility of a proposed

rehabilitation plan, it is imperative that a thorough
examination and analysis of the distressed corporations
financial data must be conducted. If the results of such
examination and analysis show that there is a real
opportunity to rehabilitate the corporation in view of the
assumptions made and financial goals stated in the
proposed rehabilitation plan, then it may be said that a
rehabilitation is feasible. In this accord, the rehabilitation
court should not hesitate to allow the corporation to
operate as an on-going concern, albeit under the terms
and conditions stated in the approved rehabilitation plan.
On the other hand, if the results of the financial
examination and analysis clearly indicate that there lies
no reasonable probability that the distressed corporation
could be revived and that liquidation would, in fact, better
subserve the interests of its stakeholders, then it may be
said that a rehabilitation would not be feasible. In such
case, the rehabilitation court may convert the proceedings
into one for liquidation.58 As further guidance on the
matter, the Courts pronouncement in Wonder Book
Corporation v. Philippine Bank of Communications 59 proves
instructive:cralavvonlinelawlibrary
Rehabilitation is x xx available to a corporation [which],
while illiquid, has assets that can generate more cash if
used in its daily operations than sold. Its liquidity issues
can be addressed by a practicable business plan
that will generate enough cash to sustain daily
operations, has a definite source of financing for its

First, Sarabia has the financial capability to undergo

rehabilitation.
Based on the Receivers Report, Sarabias financial history
shows that it has the inherent capacity to generate funds
to repay its loan obligations if applied through the proper
financial framework. The Receivers examination and
analysis of Sarabias financial data reveals that the latters
business is not only an on-going but also a growing
concern. Despite its financial constraints, Sarabia likewise
continues to be profitable with its hotelier business as its
operations have not been disrupted. 61 Hence, given its
current fiscal position, the prospect of substantial and
continuous revenue generation is a realistic goal.

As concluded by the Receiver, Sarabias projected

revenues shall have a steady year-on-year growth from
the time that it applied for rehabilitation until the end of
its rehabilitation plan in 2018, albeit with decreasing
growth rates (growth rate is at 26% in 2003, 5% in 20042007, 3% in 2008-2018).62 Should such projections come
through, Sarabia would have the ability not just to pay off
its existing debts but also to carry on with its intended
expansion. The projected sustainability of its business, as
mapped out in the approved rehabilitation plan, makes
Sarabias rehabilitation a more viable option to satisfy the
interests of its stakeholders in the long run as compared
to
its
immediate
liquidation.
Third, the interests of Sarabias creditors are wellprotected.
As correctly perceived by the CA, adequate safeguards are
found under the approved rehabilitation plan, namely: (a)
any deficiency in the required minimum payments to
creditors based on the presented amortization schedule
shall be paid personally by Sarabias stockholders; 63 (b)
the conversion of the advances from stockholders
amounting to P18,748,306.00 and deferred credits
amounting to P42,688,734 as of the December 31, 2002
tentative audited financial statements to stockholders
equity was granted;64 (c) all capital expenditures which are
over and above what is provided in the cash flow of the
approved rehabilitation plan which will materially affect
the cash position of the hotel but which are deemed
necessary in order to maintain the hotels competitiveness
in the industry shall be subject to the approval by the
Court prior to implementation;65 (d) the formation of

Sarabias new management team and the requirement

that the latter shall be required to submit a
comprehensive business plan to support the generation of
revenues as reported in the Rehabilitation Plan, both short
term and long term;66 (e) the maintenance of all
Sarabiasexisting real estate mortgages over hotel
properties as collaterals and securities in favor of BPI until
the formers full and final liquidation of its outstanding
loan obligations with the latter;67 and (f) the reinstatement
of the comprehensive surety agreement of Sarabias
stockholders regarding the formers debt to BPI.68 With
these terms and conditions69 in place, the subsisting
obligations of Sarabia to its creditors would, more likely
than
not,
be
satisfied.
Therefore, based on the above-stated reasons, the Court
finds
Sarabias
rehabilitation
to
be
feasible.
ii. Manifest unreasonableness of BPI s opposition.
Although undefined in the Interim Rules, it may be said
that the opposition of a distressed corporations majority
creditor is manifestly unreasonable if it counter-proposes
unrealistic payment terms and conditions which would,
more likely than not, impede rather than aid its
rehabilitation. The unreasonableness becomes further
manifest if the rehabilitation plan, in fact, provides for
adequate safeguards to fulfill the majority creditors
claims, and yet the latter persists on speculative or
unfounded assumptions that his credit would remain
unfulfilled.
While Section 23, Rule 4 of the Interim Rules states that
the rehabilitation court shall consider certain incidents in
determining whether the opposition is manifestly
unreasonable,70 BPI neither proposes Sarabias liquidation
over its rehabilitation nor questions the controlling interest
of Sarabias shareholders or owners. It only takes
exception to: (a) the imposition of the fixed interest rate of
6.75% p.a. as recommended by the Receiver and as
approved by the courts a quo, proposing that the original
escalating interest rates of 7%, 8%, 10%, 12%, and 14%,
over seventeen years be applied instead;71 and (b) the
fact that Sarabias misrepresentations in the rehabilitation
petition, i.e., that it physically acquired additional property
whereas in fact the increase was mainly due to the
recognition of Revaluation Increment and because of
capital expenditures, were not taken into consideration by
the
courts a
quo.72
Anent the first matter, it must be pointed out that
oppositions which push for high interests rates are
generally frowned upon in rehabilitation proceedings given
that the inherent purpose of a rehabilitation is to find ways
and means to minimize the expenses of the distressed
corporation during the rehabilitation period. It is the
objective of a rehabilitation proceeding to provide the best
possible framework for the corporation to gradually regain
or achieve a sustainable operating form. Hence, if a
creditor, whose interests remain well-preserved under the
existing rehabilitation plan, still declines to accept
interests pegged at reasonable rates during the period of
rehabilitation, and, in turn, proposes rates which are
largely counter-productive to the rehabilitation, then it
may be said that the creditors opposition is manifestly
unreasonable.
In this case, the Court finds BPIs opposition on the
approved interest rate to be manifestly unreasonable

considering that: (a) the 6.75% p.a. interest rate already

constitutes a reasonable rate of interest which is
concordant with Sarabias projected rehabilitation; and (b)
on the contrary, BPIs proposed escalating interest rates
remain hinged on the theoretical assumption of future
fluctuations in the market, this notwithstanding the fact
that its interests as a secured creditor remain wellpreserved.
The
following
observations
impel
the
foregoing
conclusion: first, the 6.75% p.a. interest rate is actually
higher than BPIs perceived cost of money as evidenced
by its published time deposit rate (for an amount of
P5,000,000.00, with a term of 360-364 days) which is only
set at 5.5% p.a.; second, the 6.75% p.a. is also higher
than the benchmark ninety one-day commercial paper,
which is used by banks to price their loa averages to 6.4%
p.a. in 2005, and has a three-year average rate of 6.57%
p.a.; and third, BPIs interests as a secured creditor are
adequately protected by the maintenance of all Sarabias
existing real estate mortgages over its hotel properties as
collateral as well as by the reinstatement of the
comprehensive
surety
agreement
of
Sarabias
stockholders, among other terms in the approved
rehabilitation
plan.
As to the matter of Sarabias alleged misrepresentations,
records disclose that Sarabia already clarified its initial
statements in its rehabilitation petition by submitting, on
its own accord, a supplemental affidavit dated October 24,
200273 that explains that the increase in its properties and
assets was indeed by recognition of revaluation
increment.74
Proceeding from this fact, the CA observed that BPI
actually failed to establish its claimed defects in light of
Sarabias assertive and forceful explanation that the
alleged inaccuracies do not warrant the dismissal of its
petition.75 Thus, absent any compelling reason to disturb
theCA's finding on this score, the Court deems it proper to
dismiss BPI's allegations of misrepresentation against
Sarabia.
As a final point, BPI claims that Sarabia's projections were
"too optimistic," its management was "extremely
incompetenf"76 and that it was even forced to pay a pretermination penalty due to its previous loan with the Land
bank of the Philippines. 77 Suffice it to state that bare
allegations of fact should not be entertained as they are
bereft of any probative value.78 In any event, even if it is
assumed that the said allegations are substantiated by
clear and convincing evidence, the Court, absent any
cogent basis to proceed otherwise, remains steadfast in its
preclusion to thresh out matters of fact on a Rule 45
petition,
as
in
this
case.
All told, Sarabia's rehabilitation plan, as approved and
modified by the CA, is hereby sustained. In view of the
foregoing pronouncements, the Court finds it unnecessary
to delve on the other ancillary issues as herein raised.
WHEREFORE, the petition is DENIED. Accordingly, the
Decision dated April 24, 2006 and Resolution dated
December 6, 2006 of the Court of Appeals, Cebu City in
CA-GR. CV. No. 81596 are hereby AFFIRMED.
G.R. No. 173610 : October 1, 2012

TOWN
AND
COUNTRY
INC., Petitioner, v. HONORABLE
QUISUMBING,

ENTERPRISES,
NORBERTO
J.

G.R. No. 174132

TOWN
AND
COUNTRY
ENTERPRISES,
INC., Petitioner, v. METROPOLITAN BANK AND TRUST
CO., Respondent.
These consolidated Rule 45 Petitions for Review
on Certiorari primarily assail the 30 November 2005
Decision rendered by the Fourth Division of the Court of
Appeals (CA) in CA-G.R. CV No. 84464 1rll and the 24
May 2006 Decision rendered by said Courts Sixteenth
Division in CAG. R. SP No. 90311.2rll
There is no dispute regarding the fact that petitioner Town
& Country Enterprises, Inc. (TCEI) obtained loans in the
aggregate sum of P 12,000,000.00 from respondent
Metropolitan Bank & Trust Co. (Metrobank).To secure the
prompt payment of the loan, TCEI executed in favor of
Metrobank a thrice amended Deed of Real Estate
Mortgage4rll over twenty parcels of land registered in
its name and/or its corporate officers, petitioners Spouses
Reynaldo and Lydia Campos (Spouses Campos), under
Transfer Certificates of Title (TCT) Nos. T-361540, T361541, T-361542, T-361543, T-361544, T-261545, T361546, T-361547, T-361548, T-361565, T-361566, T361567, T-361568, T-361569, T-361570, T0361571, T361572, T-361573, T-361574 and T-743815, all of the
Cavite Provincial Registry of Deeds. 5rll For failure of
TCEI to heed its demands for the payment of the loan,
Metrobank caused the real estate mortgage to be
extrajudicially foreclosed and the subject realties to be
sold at public auction on 7 November 2001 in accordance
with Act No. 3135. As highest bidder, Metrobank was
issued the corresponding Certificate of Sale which was
registered with the Cavite Provincial Registry of Deeds on
10 April 2002.7rll
In view of TCEIs further refusal to heed its demands to
turn over actual possession of the properties, Metrobank
filed on 23 September 2002 the petition for issuance of a
writ of possession docketed as LRC Case No. 2128-02
before the Regional Trial Court (RTC), Branch 21, in Imus,
Cavite, presided over by public respondent judge, the Hon.
Norberto J. Quisumbing, Jr.8rll Metrobank invoked its
right to said writ of possession under Section 7 of Act No.
3135. Claiming difficulty in servicing its obligations as a
consequence of the Asian financial crisis, on the other
hand, TCEI filed on 1 October 2002 the petition for
declaration of a state of suspension of payments, with
approval of a proposed rehabilitation plan, which was
docketed as SEC Case No. 023-02 before the same court,
sitting as a Special Commercial Court (Rehabilitation
Court).9rll With the issuance of a Stay Order on 8
October
2002
in
the
corporate
rehabilitation
case,10rll TCEI filed on 21 October 2002 a motion to

suspend the proceedings in LRC Case No. 2128-02 which

was granted by respondent judge in the Order dated 2
December 2002.11Aggrieved by the denial of its motion for
reconsideration of the same order, Metrobank filed the
Rule 65 petition for certiorari which was docketed before
the CA as CA-G.R. SP No. 76147.12rll
On 30 January 2004, the CAs then Fifth Division rendered
the Decision13 in CA-G.R. SP No. 76147, directing
respondent judge "to continue with the proceedings in
[LRC Case No. 2128-02rll and eventually to issue the
required writ of possession in favor of [Metrobank] over
the foreclosed properties." The foregoing directive was
anchored on the second paragraph of Section 47 of
Republic
Act
(RA)
No.
8741.14rll Finding
the
Rehabilitation Plan submitted by TCEI feasible, on the
other hand, the rehabilitation court issued the Order dated
29 March 2004 in SEC Case No. 023-02, the decretal
portion of which states:
CONSIDERING THE FOREGOING, the Court hereby
approves the Rehabilitation Plan of [TCEI] thereby granting
[TCEI] a moratorium of five (5) years from today in the
payment of all its obligations, together with the
corresponding interests, to its creditor banks, subject to
the modification that the interest charges shall be reduced
from 36% to 24% per annum. After the five-year grace
period, [TCEI] shall commence to pay its existing
obligations with its creditor banks monthly within a period
of three (3) years.
TCEI is enjoined to comply strictly with the provisions of
the Rehabilitation Plan, perform its obligations thereunder
and take all actions necessary to carry out the Plan, failing
which, the Court shall either, upon motion, motuproprio or
upon the recommendation of the Rehabilitation Receiver,
terminate the proceeding pursuant to SECTION 27, Rule 4
of the Interim Rules of Procedure on Corporate
Rehabilitation.
The Rehabilitation Receiver is directed to strictly monitor
the implementation of the Plan and submit a quarterly
report on the progress thereof. SO ORDERED.16rll
On 11 January 2005, the RTC issued in LRC Case No. 212802 an order granting Metrobanks petition for issuance of a
writ of possession and directing the Clerk of Court to issue
the writ therein sought.17rll Aggrieved, TCEI and the
Spouses Campos perfected the appeal which was
docketed before the CA as CA-G.R. CV No. 84464, on the
ground that it had been denied due process a quo and
that the writ of possession issued is contrary to the rules
on corporate rehabilitation.18rll On 30 November 2005,
the CAs then Fourth Division rendered the first assailed
Decision, affirming the RTCs appealed 11 January 2005
Order. In denying the appeal, the CA ruled that, as
purchaser of the foreclosed properties, Metrobank was
entitled to the writ of possession without delay since,
under Section 8 of Act No. 3135, the remedy of the

mortgagor is to set aside the sale and the writ of

possession within 30 days after the purchaser was placed
in possession and, if aggrieved from the resolution
thereof, to appeal in accordance with Section 14 of Act No.
496, otherwise known as the Land Registration Act.
Likewise finding that the proceedings before the RTC
were ex parte by nature, the CA decreed that TCEI and the
Spouses Campos were not denied due process and that
the appealed order is not reviewable since only one party
sought relief a quo.19rll Dissatisfied with the denial of
the motion for reconsideration of the foregoing decision in
the CAs Resolution dated 26 July 2006, 20rllTCEI and the
Spouses Campos filed the Rule 45 petition for review now
docketed before us as G.R. No. 173610.21rll
In the meantime, TCEI discovered that its certificates of
titles were already cancelled as of 26 June 2003, with the
issuance of TCT Nos. T-1046369, T-1046370, T-1046371, T1046372, T1046373, T-1046374, T-1046375, T-1046376, T1046377, T-1046378, T-1046379, T-1046380, T-1046381,
T-1046382, T-1046383, T-1046384, T-1046385, T-1046386,
T-1046387 and T-104638822rll in the name of
Metrobank which had consolidated its ownership over the
subject properties on 25 April 2003. 23rll Maintaining
that the transfers of title were invalid and ineffective, TCEI
filed its 4 November 2004 motion which was styled as one
to direct the Register of Deeds to "bring back the titles in
[its] name." TCEI argued that Metrobanks act of
transferring said titles to the latters name amounted to
contempt absent modification of the 8 October 2002 Stay
Order and approval by the Rehabilitation Court. 24rll The
motion was, however, denied in the Rehabilitation Courts
2 June 2005 Order, on the ground that Metrobanks right to
exercise any act of dominion over the foreclosed
properties had already been recognized in the CAs 30
January 2004 Decision in CA-G.R. SP No. 76147.25rll
Insisting that the transfers of title in Metrobanks name
was violative of the Stay Order issued in SEC Case No.
023-02, TCEI filed the 17 June 2005 Rule 43 petition for
review which was docketed before the CA as CAG. R. SP
No. 90311.26rll On 24 May 2006, said courts Sixteenth
Division rendered the second assailed decision, dismissing
TCEIs petition for lack of merit on the ground that
Metrobank was already the owner of the foreclosed
properties by the time the Stay Order was issued on 8
October 2002. For this purpose, the CA took appropriate
note of the fact that, in the 30 January 2004 Decision in
CA-G.R. SP No. 76147, Metrobanks ownership of the
foreclosed properties was considered consolidated for
failure of TCEI to exercise its right of redemption within
three months from the foreclosure sale or the registration
of the certificate of sale in accordance with Sec. 47 of
Republic Act (RA) No. 8791. 27rll Considering that said
30 January 2004 Decision had already attained finality, the
CA also ruled that the determinations therein made
already amounted to res judicata and that, as a
consequence, TCEIs petition for review was equivalent to
forum shopping.28rll TCEIs motion for reconsideration
was likewise denied for lack of merit in the CAs Resolution

dated 14 August 2006,29rll hence its Rule 45 petition

for review now docketed before us as G.R. No.
174132.30rll
In G.R. No. 173610, petitioners TCEI and the Spouses
Campos seek the reversal of the CAs 30 November 2005
Decision in CA-G.R. CV No. 84464 on the following
grounds:
1. The Order granting the Writ of Possession in
favor of Metrobank is invalid and unenforceable
considering that the properties of TCEI are now in
the possession of the rehabilitation receiver in view
of the earlier judgment of approval of the Petition
for Corporate Rehabilitation in SEC Case No. 02302.
2. The Rehabilitation Receiver is considered a Third-Party
in possession of the properties adversely against
Metrobank for the benefit of the creditors and the debtor.
3. Possession of the Rehabilitation Receiver by virtue of a
final judgment in a Rehabilitation Proceeding must be
respected as among the exemptions why the Petition for
Writ of Possession must be denied or must not be
implemented.
4. TCEI, Spouses Campos and Metrobank agreed that Act
3135 will be applicable in case of foreclosure sale. Section
47 of the General Banking Act, Republic Act 8791, is not
applicable. While the Certificate of Sale was issued in 10
April 2002 there was no transfer until 26 June 2003 when
the Stay Order was already effective.
In G.R. No. 174132, on the other hand, the setting aside of
the CAs 24 May 2006 Decision in CA-G.R. SP No. 90311 is
urged by TCEI on the following grounds:
1. The Register of Deeds cannot legally transfer the
titles
subject
matter
of
the
Petition
for
Rehabilitation in favor of Metrobank on 26 June
2003 in view of the existence of the Stay Order on 8
October 2002 prohibiting the enforcement of claims
and the subsequent judgment approving the
Rehabilitation Plan in favor of Petitioner.
2. The Register of Deeds should cancel the titles issued to
Metrobank on 26 June 2003 and re-issue titles in favor of
TCEI as the same was made in violation of the Stay Order
and the Rehabilitation Proceedings as the Decision therein
binds the whole world being a proceeding in rem.
3. The Decision of the CA failed to take into consideration
the far reaching effects of a Petition for Rehabilitation as
against a Motion for Issuance of a Writ of Possession which
is ex-parte and not a judicial proceeding.
We find both petitions bereft of merit.

Corporate rehabilitation 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. 31A
principal feature of corporate rehabilitation is the Stay
Order which defers all actions or claims against the
corporation seeking corporate rehabilitation from the date
of its issuance until the dismissal of the petition or
termination
of
the
rehabilitation
proceedings.32rll Under Section 24, Rule 4 of
the Interim
Rules
of
Procedure
on
Corporate
Rehabilitation which was in force at the time TCEI filed its
petition for rehabilitation a quo, the approval of the
rehabilitation plan also produces the following results:
a. The plan and its provisions shall be binding upon the
debtor and all persons who may be affected by it,
including the creditors, whether or not such persons have
participated in the proceedings or opposed the plan or
whether or not their claims have been scheduled;
b. The debtor shall comply with the provisions of the plan
and shall take all actions necessary to carry out the plan;
c. Payments shall be made to the creditors in accordance
with the provisions of the plan;
d. Contracts and other arrangements between the debtor
and its creditors shall be interpreted as continuing to
apply to the extent that they do not conflict with the
provisions of the plan; and
e. Any compromises on amounts or rescheduling of timing
of payments by the debtor shall be binding on creditors
regardless of whether or not the plan is successfully
implemented.
In addition to the issuance of the Stay Order in SEC Case
No. 023-02 on 8 October 2002, petitioners call attention to
the fact that the Rehabilitation Court approved TCEIs
rehabilitation plan in the Order dated 29 March 2004.
Considering that orders issued by the Rehabilitation Court
are immediately executory under Section 5, Rule 3 of
the Interim Rules,33rll petitioners argue that the
subject properties were placed in custodialegis upon
approval of TCEIs rehabilitation plan and that the grant of
the writ of possession in favor of Metrobank was
tantamount to taking said properties away from the
rehabilitation receiver. Petitioners maintain that the
rehabilitation receiver, as an officer of the court
empowered to take possession, control and custody of the
debtors assets,34rll should have been considered a
third person whose possession of the foreclosed properties
was an exception to the rule that the grant of a writ of
possession is ministerial. For these reasons, petitioners
claim that the writ of possession issued in favor of
Metrobank is invalid and unenforceable.35rll

The dearth of merit in petitioners position is, however,

evident from the fact that, Metrobank had already
acquired ownership over the subject realties when TCEI
commenced its petition for corporate rehabilitation on 1
October 2002. Although Metrobank concededly invoked
Act No. 3135 in seeking the extrajudicial foreclosure of the
mortgages executed by TCEI, the second paragraph of
Section 47 of RA 8791 the law in force at said time
specifically provides as follows:
Section 47. Foreclosure of Real Estate Mortgage. x xxx
Notwithstanding Act 3135, juridical persons whose
property is being sold pursuant to an extrajudicial
foreclosure, shall have the right to redeem the property in
accordance with this provision until, but not after, the
registration of the certificate of foreclosure sale with the
applicable Register of Deeds which in no case shall be
more than three (3) months after foreclosure, whichever is
earlier. Owners of property that has been sold in a
foreclosure sale prior to the effectivity of this Act shall
retain their redemption rights until their expiration.
Having purchased the subject realties at public auction on
7 November 2001, Metrobank undoubtedly acquired
ownership over the same when TCEI failed to exercise its
right of redemption within the three-month period
prescribed under the foregoing provision. With ownership
already vested in its favor as of 6 February 2002, it
matters little that Metrobank caused the certificate of sale
to be registered with the Cavite Provincial Registry only on
10 April 2002 and/or executed an affidavit consolidating
its ownership over the same properties only on 25 April
2003. The rule is settled that the mortgagor loses all
interest over the foreclosed property after the expiration
of the redemption period and the purchaser becomes the
absolute owner thereof when no redemption is
made.36rll By the time that the Rehabilitation Court
issued the 8 October 2002 Stay Order in SEC Case No.
023-02, it cannot, therefore, be gainsaid that Metrobank
had long acquired ownership over the subject realties.
Viewed in the foregoing light, the CA cannot be faulted for
upholding the RTCs grant of a writ of possession in favor of
Metrobank on 11 January 2005. If the purchaser at the
foreclosure sale, upon posting of the requisite bond, is
entitled to a writ of possession even during the
redemption period under Section 7 of Act 3135, 37rll as
amended, it has been consistently ruled that there is no
reason to withhold said writ after the expiration of the
redemption period when no redemption is effected by the
mortgagor. Indeed, the rule is settled that the right of the
purchaser to the possession of the foreclosed property
becomes absolute after the redemption period, without a
redemption being effected by the property owner. Since
the basis of this right to possession is the purchaser's
ownership of the property, the mere filing of an ex
parte motion for the issuance of the writ of possession
would suffice, and no bond is required.38rll

Considering that Metrobank acquired ownership over the

mortgaged properties upon the expiration of the
redemption period on 6 February 2002, TCEI is also out on
a limb in invoking the Stay Order issued by the
Rehabilitation Court on 8 October 2002 and the approval
of its rehabilitation plan on 29 March 2004. An essential
function of corporate rehabilitation is, admittedly, the Stay
Order which is a mechanism of suspension of all actions
and claims against the distressed corporation upon the
due appointment of a management committee or
rehabilitation receiver.39rll The Stay Order issued by
the Rehabilitation Court in SEC Case No. 023-02 cannot,
however, apply to the mortgage obligations owing to
Metrobank which had already been enforced even before
TCEIs filing of its petition for corporate rehabilitation on 1
October 2002.
In Equitable PCI Bank, Inc v. DNG Realty and Development
Corporation,40rll the Court upheld the validity of the
writ of possession procured by the creditor despite the
subsequent issuance of a stay order in the rehabilitation
proceedings instituted by the debtor. In said case,
Equitable PCI Bank (Equitable) foreclosed on 30 June 2003
the mortgage executed in its favor by DNG Realty and
Development Corporation (DNG) and was declared the
highest bidder at the 4 September 2003 public auction of
the property. On 21 October 2003, DNG also instituted a
petition for corporate rehabilitation which resulted in the
issuance of a Stay Order on 27 October 2003. Having
caused the recording of the Certificate of Sale on 3
December 2003, on the other hand, Equitable executed an
affidavit of consolidation of its ownership which served as
basis for the issuance of a new title in its favor on 10
December 2003. Equitable subsequently filed an action for
the issuance of a writ of possession on 17 March 2004
which was eventually granted on 6 September 2004. In
affirming the validity of the certificate of sale, certificate
of title and writ of possession issued in favor of Equitable,
the Court ruled as follows:
In RCBC, we upheld the extrajudicial foreclosure sale of
the mortgage properties of BF Homes wherein RCBC
emerged as the highest bidder as it was done before the
appointment of the management committee. Noteworthy
to mention was the fact that the issuance of the certificate
of sale in RCBCs favor, the consolidation of title, and the
issuance of the new titles in RCBCs name had also been
upheld notwithstanding that the same were all done after
the management committee had already been appointed
and there was already a suspension of claims. Thus,
applying RCBC v. IAC in this case, since the foreclosure of
respondent DNG's mortgage and the issuance of the
certificate of sale in petitioner EPCIB's favor were done
prior to the appointment of a Rehabilitation Receiver and
the Stay Order, all the actions taken with respect to the
foreclosed mortgage property which were subsequent to
the issuance of the Stay Order were not affected by the
Stay Order. Thus, after the redemption period expired
without respondent redeeming the foreclosed property,
petitioner becomes the absolute owner of the property

and it was within its right to ask for the consolidation of

title and the issuance of new title in its name as a
consequence of ownership; thus, it is entitled to the
possession and enjoyment of the property. (Italics
supplied)
A similar dearth of merit may be said of TCEIs claim that
the subject properties were in custodialegis upon the
issuance of the Stay Order and the approval of the
rehabilitation plan fails to persuade. As early as 7
February 2002 or three months after the foreclosure sale
on 7 November 2001, Metrobank acted well-within its
rights in applying for a writ of possession, the issuance of
which has consistently been held to be a ministerial
function which cannot be hindered by an injunction or an
action for the annulment of the mortgage or the
foreclosure itself.41rll While it is true that the function
ceases to be ministerial where the property is in the
possession of a third party claiming a right adverse to that
of the judgment debtor,42rll the rehabilitation receivers
power to take possession, control and custody of TCEIs
assets is far from adverse to the latter. A rehabilitation
receiver is an officer of the court who is appointed for the
protection of the interests of the corporate investors and
creditors.43rll It has been ruled that there is nothing in
the concept of corporate rehabilitation that would ipso
facto deprive the officers of a debtor corporation of control
over its business or properties.44rll
Neither are we inclined to hospitably entertain TCEIs
harping on the supposed primacy of the one-year
redemption period provided under Act 3135 over the
three-month redemption period provided under the
second paragraph of Section 47 of RA 8791 where the
property being sold pursuant to an extrajudicial
foreclosure is owned by a juridical person. As may be
gleaned from the record, Metrobanks acquisition of the
subject properties would still pass muster even if tested
alongside the longer redemption period provided under
Act 3135. Having purchased the same properties at public
auction on 7 November 2001, Metrobank was issued a 13
December 2001 certificate of sale which it caused to be
registered on 10 April 2002. Despite the shorter
redemption period provided under RA 8791, Metrobank
also executed an affidavit of consolidation of ownership
over the subject realties on 25 April 2003 or after the
lapse of the one-year redemption period provided under
Act 3135.
Not having exercised its right of redemption in the
intervening period, TCEI cannot be heard to complain
about the cancellation of its titles and the issuance of new
ones in favor of Metrobank on 26 June 2003. In Union
Bank of the Philippines v. Court of Appeals,45rll the
Court ruled that, after the purchasers consolidation of title
over foreclosed property, the issuance of a certificate of
title in his favor is ministerial upon the Register of Deeds,
thus:

In real estate mortgage, when the principal obligation is

not paid when due, the mortgage has the right to
foreclose the mortgage and to have the property seized
and sold with a view to applying the proceeds to the
payment of the principal obligation. Foreclosure may be
effected either judicially or extrajudicially. In a public
bidding during extra-judicial foreclosure, the creditormortgagee, trustee, or other person authorized to act for
the creditor may participate and purchase the mortgaged
property as any other bidder. Thereafter the mortgagor
has one year within which to redeem the property from
and after registration of sale with the Register of Deeds. In
case of non-redemption, the purchaser at foreclosure sale
shall file with the Register of Deeds, either a final deed of
sale executed by the person authorized by virtue of the
power of attorney embodied in the deed or mortgage, or
his sworn statement attesting to the fact of
nonredemption; whereupon, the Register of Deeds shall
issue a new certificate of title in favor of the purchaser
after the owner's duplicate of the certificate has been
previously delivered and cancelled. Thus, upon failure to
redeem foreclosed realty, consolidation of title becomes a
matter of right on the part of the auction buyer, and the
issuance of a certificate of title in favor of the purchaser
becomes ministerial upon the Register of Deeds.
In upholding the RTCs denial of its motion for the
cancellation of the certificates of title issued in favor of
Metrobank, TCEI, finally, argues that the CA erroneously
gave more premium to the ex-parte proceedings for the
issuance of a writ of possession over those in the
corporate rehabilitation case which, being in rem, binds
the whole world. Aside from the fact that this matter had
already been addressed in the 30 January 2004 Decision
earlier rendered in CA-G.R. SP No. 76147, TCEI loses sight
of the fact, that the proceedings in corporate rehabilitation
cases are also summary and nonadversarial 46rll and do
not impair the debtors contracts47rll or diminish the
status of preferred creditors.48rll Concededly, the
issuance of the Stay Order suspends the enforcement of
all claims against the debtor, whether for money or
otherwise, and whether such enforcement is by court
action or otherwise, effective from the date of its issuance
until the dismissal of the petition or the termination of the
rehabilitation proceedings.49rll This does not, however,
apply to Metrobank which already acquired ownership
over the subject realties even before TCEI filed its petition
for rehabilitation a quo.
WHEREFORE, premises considered, both petitions for
review on certiorari are DENIED for lack of merit.r
[G.R. No. 173846 : February 02, 2011]
JOSE MARCEL PANLILIO, ERLINDA PANLILIOVS.
REGIONAL
TRIAL
COURT,
BRANCH
51
Before
this
Court
is
a
petition
for
review
on certiorari1 under Rule 45 of the Rules of Court, seeking
to set aside the April 27, 2006 Decision 2 and August 2,

2006 Resolution3 of the Court of the Appeals (CA) in CAG.R.

SP
No.
90947.
The

facts

of

the

case

are

as

follows:

On October 15, 2004, Jose Marcel Panlilio, ErlindaPanlilio,

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
Rehabilitation4 in SEC Corp. Case No. 04-111180.
On October 18, 2004, the RTC of Manila, Branch 24, issued
an Order5 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:
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
charges7 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
Order11 denying petitioners' motion to suspend the
proceedings. It ruled that the stay order issued by Branch
24 did not cover criminal proceedings, to wit:
Clearly then, the issue is, whether the stay order issued by
the RTC commercial court, Branch 24 includes the abovecaptioned
criminal
cases.
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 certiorari13 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 xx 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

(c).

xx

xxx 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 xx;
(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 x21
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. Co24 (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 PambansaBilang 22 should be
suspended, was disposed of as follows:
x xx 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 nonremittance 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:

(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.

[G.R. NO. 171132 - August 15, 2012]

MANUEL D. YNGSON, JR. v. PHILIPPINE NATIONAL
BANK,

On appeal are the Resolutions dated April 14, 2005 1 and

January 24, 20062 of the Court of Appeals (CA) in CA-G.R.
SP No. 88735. The CA dismissed petitioner's Petition for
Review of the January 4, 2005 Resolution 3 and February 9,
2000 Order4 of the Securities and Exchange Commission
(SEC) for failure of petitioner to attach to the petition
copies of material portions of the records and other
relevant or pertinent documents.lbrr
The facts follow:law library
ARCAM & Company, Inc. (ARCAM) is engaged in the
operation of a sugar mill in Pampanga. 5 Between 1991 and
1993, ARCAM applied for and was granted a loan by
respondent Philippine National Bank (PNB).6 To secure the
loan, ARCAM executed a Real Estate Mortgage over a
350,004-square meter parcel of land covered by TCT No.
340592-R and a Chattel Mortgage over various personal
properties consisting of machinery, generators, field
transportation and heavy equipment.
ARCAM, however, defaulted on its obligations to PNB.
Thus, on November 25, 1993, pursuant to the provisions
of the Real Estate Mortgage and Chattel Mortgage, PNB
initiated extrajudicial foreclosure proceedings in the Office
of the Clerk of Court/Ex Officio Sheriff of the Regional Trial
Court (RTC) of Guagua, Pampanga. 7 The public auction
was scheduled on December 29, 1993 for the mortgaged
real properties and December 8, 1993 for the mortgaged
personal properties.
On December 7, 1993, ARCAM filed before the SEC a
Petition for Suspension of Payments, Appointment of a
Management or Rehabilitation Committee, and Approval of
Rehabilitation Plan, with application for issuance of a
temporary restraining order (TRO) and writ of preliminary
injunction. The SEC issued a TRO and subsequently a writ
of preliminary injunction, enjoining PNB and the Sheriff of
the RTC of Guagua, Pampanga from proceeding with the

foreclosure sale of the mortgaged properties. 8 An interim

management committee was also created.
On February 9, 2000, the SEC ruled that ARCAM can no
longer be rehabilitated. The SEC noted that the petition for
suspension of payment was filed in December 1993 and
six years had passed but the potential white knight"
investor had not infused the much needed capital to bail
out ARCAM from its financial difficulties.9 Thus, the SEC
decreed that ARCAM be dissolved and placed under
liquidation.10 The SEC Hearing Panel also granted PNB s
motion to dissolve the preliminary injunction and
appointed Atty. Manuel D. Yngson, Jr. & Associates as
Liquidator for
ARCAM.11 With this development, PNB revived the
foreclosure case and requested the RTC Clerk of Court to
re-schedule the sale at public auction of the mortgaged
properties.
Contending that foreclosure during liquidation was
improper, petitioner filed with the SEC a Motion for the
Issuance of a Temporary Restraining Order and/or Writ of
Preliminary Injunction to enjoin the foreclosure sale of
ARCAM s assets. The SEC en banc issued a TRO effective
for seventy-two (72) hours, but said TRO lapsed without
any writ of preliminary injunction being issued by the SEC.
Consequently, on July 28, 2000, PNB resumed the
proceedings for the extrajudicial foreclosure sale of the
mortgaged properties.12 PNB emerged as the highest
winning bidder in the auction sale, and certificates of sale
were issued in its favor.
On November 16, 2000, petitioner filed with the SEC a
motion to nullify the auction sale.13 Petitioner posited that
all actions against companies which are under liquidation,
like ARCAM, are suspended because liquidation is a
continuation of the petition for suspension proceedings.
Petitioner argued that the prohibition against foreclosure
subsisted during liquidation because payment of all of
ARCAM s obligations was proscribed except those
authorized by the Commission. Moreover, petitioner
asserted that the mortgaged assets should be included in
the liquidation and the proceeds shared with the
unsecured creditors.
In its Opposition, PNB asserted that neither Presidential
Decree (P.D.) No. 902-A nor the SEC rules prohibits
secured creditors from foreclosing on their mortgages to
satisfy the mortgagor s debt after the termination of the
rehabilitation
proceedings
and
during
liquidation
proceedings.14rll
On January 4, 2005, the SEC issued a Resolution 15 denying
petitioner s motion to nullify the auction sale. It held that
PNB was not legally barred from foreclosing on the
mortgages. Aggrieved, petitioner filed on February 28,
2005, a Petition for Review in the CA questioning the
January 4, 2005 Resolution of the SEC.16rll
By Resolution dated April 14, 2005, the CA dismissed the
petition on the ground that petitioner failed to attach
material portions of the record and other documents
relevant to the petition as required in Rule 46, Section 3 of
the 1997 Rules of Civil Procedure, as amended. The CA
likewise denied ARCAM s motion for reconsideration in its
Resolution dated January 24, 2006.lbrr

Hence this petition under Rule 45 arguing that:rl

4.1. THE SEC ERRED IN FAILING TO APPLY THE RULES OF
CONCURRENCE AND PREFERENCE OF CREDITS UNDER
THE CIVIL CODE AND JURISPRUDENCE WHEN PD 902-A
PROVIDES THAT THE SAME BE APPLIED IN INSTANCES
WHEREBY AN ENTITY IS ORDERED DISSOLVED AND
PLACED UNDER LIQUIDATION ON ACCOUNT OF FAILURE TO
REHABILITATE DUE TO INSOLVENCY.17rll
4.2. IT WAS GROSSLY ERRONEOUS FOR THE SEC TO HAVE
ALLOWED PNB TO FORECLOSE THE MORTGAGE WITHOUT
FIRST ALLOWING THE ARCAM LIQUIDATOR TO
MAKE A DETERMINATION OF THE LIENS OVER THE ARCAM
REAL PROPERTIES, SINCE THE LIQUIDATOR HAD INITIALLY
DETERMINED THAT ASIDE FROM PNB, SOME ARCAM
WORKERS MAY ALSO HAVE A LEGAL LIEN OVER THE SAID
PROPERTY AS REGARDS THEIR CLAIMS FOR UNPAID
WAGES. THESE LIENS OVER THE SAME MOVABLE OR REAL
PROPERTY ARE TO BE SATISFIED PRO-RATA WITH THE
CONTRACTUAL LIENS PURSUANT TO 2247 AND 2249 OF
THE CIVIL CODE, IN RELATION TO 2241 TO 2242
RESPECTIVELY. ALSO, THERE MAY BE SOME TAX
ASSESSMENTS THAT THE LIQUIDATOR DOES NOT KNOW
ABOUT, AND IF THERE WERE, THESE COULD COMPRISE
TAX LIENS, WHICH UNDER ARTICLE 2243 OF THE CIVIL
CODE ARE CLEARLY GIVEN PRIORITY OVER OTHER
PREFERRED CLAIMS SINCE SUCH ARE TO BE SATISFIED
FIRST, OVER OTHER LIENS PROVIDED UNDER ARTICLES
2241 AND 2242 OF THE CIVIL CODE, SUCH AS MORTGAGE
LIENS.18rll
4.3. THE SEC LABORED UNDER THE MISTAKEN
IMPRESSION THAT AFTER AN ENTITY IS DISSOLVED AND
PLACED UNDER LIQUIDATION DUE TO INSOLVENCY,
SECURED CREDITORS ARE AUTOMATICALLY ALLOWED TO
FORECLOSE OR EXECUTE OR OTHERWISE MAKE GOOD ON
THEIR CREDITS AGAINST THE DEBTOR.19rll
4.4. JURISPRUDENCE ON THE MATTER ALSO NEGATES THE
SEC S HOLDING THAT THE FORECLOSURE BY PNB WAS
LEGAL. EVEN ASSUMING FOR THE SAKE OF ARGUMENT
THAT PNB IS THE SOLE AND ONLY LIEN HOLDER, IT STILL
CANNOT FORECLOSE UNLESS THE LIQUIDATOR AGREES
TO SUCH OR THAT THE SEC GAVE PNB PRIOR PERMISSION
TO
INSTITUTE
THE
SEPARATE
FORECLOSURE
PROCEEDINGS.20rll
4.5. RESPONDENT PNB SHOULD BE MADE TO PAY
DAMAGES FOR THE REASON THAT THE FORECLOSURE
PROCEEDINGS
WERE
ATTENDED
WITH
BAD
FAITH.21rllaw library
The issues to be resolved are: (1) whether the CA correctly
dismissed the petition for failure to attach material
documents referred to in the petition; and (2) whether
PNB, as a secured creditor, can foreclose on the
mortgaged properties of a corporation under liquidation
without the knowledge and prior approval of the liquidator
or the SEC.
On the procedural issue, the Court finds that the CA erred
in dismissing the Petition for Review before it on the
ground of failure to attach material portions of the record
and other documents relevant to the petition. A perusal of
the Petition for Review filed with the CA, and as admitted
by PNB,22 reveals that certified true copies of the assailed

January 4, 2005 SEC Resolution and the February 9, 2000

SEC Order appointing petitioner Atty. Manuel D. Yngson, Jr.
as liquidator were annexed therein.

foreclosure because it was done without the knowledge

and approval of the liquidator. The Court ruled in favor of
the respondent bank, as follows:lbrr

We find the foregoing attached documents sufficient for

the appellate court to decide the case at bar considering
that the SEC resolution contains statements of the factual
antecedents material to the case. The Resolution also
contains the SEC s findings on the legality of PNB s
foreclosure of the mortgages. The SEC held that when the
rehabilitation proceeding was terminated and the
suspensive effect of the order staying the enforcement of
claims was lifted, PNB could already assert its preference
over unsecured creditors, and the secured asset and the
proceeds need not be included in the liquidation and
shared with the unsecured creditors. 23 Before the CA,
petitioner raised only the same legal questions as there
was no controversy involving factual matters. Petitioner
claimed that the SEC erred in not applying the rules on
concurrence and preference of credits, and in denying its
motion to nullify the auction sale of the secured
properties.24 Therefore, the assailed SEC Resolution is the
only material portion of the record that should be annexed
with the petition for the CA to decide on the correctness of
the SEC s interpretation of the law and jurisprudence on
the matter before it.

In Rizal Commercial Banking Corporation v. Intermediate

Appellate Court, 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.
lbrr
Moreover, Section 2248 of the Civil Code provides:rl

Having so ruled, this Court would normally order the

remand of the case to the CA for resolution of the
substantive issues. However, we find it more appropriate
to decide the merits of the case in the interest of speedy
justice considering that the parties have adequately
argued all points and issues raised. It is the policy of the
Court to strive to settle an entire controversy in a single
proceeding, and to leave no root or branch to bear the
seeds of future litigation.25 The ends of speedy justice
would not be served by a remand of this case to the CA
especially since any ruling of the CA on the matter could
end up being appealed to this Court.
Did the SEC then err in ruling that PNB was not barred
from foreclosing on the mortgages? We answer in the
negative.
In the case of Consuelo Metal Corporation v. Planters
Development Bank,26 which involved factual antecedents
similar to the present case, the court has already settled
the above question and upheld the right of the secured
creditor to foreclose the mortgages in its favor during the
liquidation of a debtor corporation. In that case, Consuelo
Metal Corporation (CMC) filed with 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
P.D. No. 902-A. On April 2, 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 orders" from
the SEC. Then on November 29, 2000, upon the
management committee s recommendation, the SEC
issued an Omnibus Order directing the dissolution and
liquidation of CMC. Thereafter, respondent Planters
Development Bank (Planters Bank), one of CMC s
creditors, commenced the extrajudicial foreclosure of CMC
s real estate mortgage. Planters Bank extrajudicially
foreclosed on the real estate mortgage as CMC failed to
secure a TRO. CMC questioned the validity of the

"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."law library
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
management committee or rehabilitation receiver or upon
the issuance of a stay order by the trial court. 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.27(Emphasis suppliedlibrary
It is worth mentioning that under Republic Act No. 10142,
otherwise known as the Financial Rehabilitation and
Insolvency Act (FRIA) of 2010, the right of a secured
creditor to enforce his lien during liquidation proceedings
is
retained.
Section
114
of
said
law
thus
provides:rbl r l l lbrr
SEC. 114. Rights of Secured Creditors. The Liquidation
Order shall not affect the right of a secured creditor to
enforce his lien in accordance with the applicable contract
or law. A secured creditor may:rl
(a) waive his rights under the security or lien, prove his
claim in the liquidation proceedings and share in the
distribution of the assets of the debtor; or
(b) maintain his rights under his security or lien;
If the secured creditor maintains his rights under the
security or lien:rl
(1) the value of the property may be fixed in a manner
agreed upon by the creditor and the liquidator. When the
value of the property is less than the claim it secures, the
liquidator may convey the property to the secured creditor
and the latter will be admitted in the liquidation
proceedings as a creditor for the balance; if its value
exceeds the claim secured, the liquidator may convey the
property to the creditor and waive the debtor s right of
redemption upon receiving the excess from the creditor;

(2) the liquidator may sell the property and satisfy the
secured creditor s entire claim from the proceeds of the
sale; or
(3) the secured creditor may enforce the lien or foreclose
on the property pursuant to applicable laws.
In this case, PNB elected to maintain its rights under the
security or lien; hence, its right to foreclose the
mortgaged properties should be respected, in line with our
pronouncement in Consuelo Metal Corporation.
As to petitioner's argument on the right of first preference
as regards unpaid wages, the Court has elucidated in the
case of Development Bank of the Philippines v.
NLRC28 that a distinction should be made between a
preference of credit and a lien. A preference applies only
to claims which do not attach to specific properties. A lien
creates a charge on a particular property. The right of first

preference as regards unpaid wages recognized by Article

110 of the Labor Code, does not constitute a lien on the
property of the insolvent debtor in favor of workers. It is
but a preference of credit in their favor, a preference in
application. It is a method adopted to determine and
specify the order in which credits should be paid in the
final distribution of the proceeds of the insolvent's assets.
It is a right to a first preference in the discharge of the
funds of the judgment debtor. Consequently, the right of
first preference for unpaid wages may not be invoked in
this case to nullify the foreclosure sales conducted
pursuant to PNB 's right as a secured creditor to enforce
its
lien
on
specific
properties
of
its
debtor,
ARCAM.brr
WHEREFORE, the Petition for Review on Certiorari is
DENIED.