COMMERCIAL LAW REVIEW: COMPILATION OF DIGESTS (RECTO LAW PREFERENCE OF CREDITS)
DISCLAIMER: This document is merely a compilation. I do not
claim authorship over the case digests unless otherwise.
PCI LEASING AND FINANCE INC v GIRAFFE-XCREATIVE
IMAGING INC, GR NO 142618, July 12, 2007
FACTS:
PCI Leasing and Giraffe entered into a Lease Agreement
whereby PCI Leasing leased several machineries for a rent of
P116, 878. 21/month for 36 months and P181, 362/month for
36 months for a total of P10, 736, 647.56. Giraffe paid the
amount of P3, 120,000 as guaranty deposit. However, after 1
year, Giraffe defaulted in its monthly-rental payment
obligations. After a 3-month default, PCI demanded a formal
pay-or-surrender-equipment type but the demand went
unheeded thus PCI instituted the instant case and prayed for
the issuance for the writ of replevin. The trial court issued a
writ of replevin. Giraffe filed a motion to dismiss arguing that
PCI was barred from pursuing any other claim since the
seizure of the 2leased equipments because the contract was
in reality a lease with option to buy. The RTC granted the
motion to dismiss ruling that it was akin to a contract covered
by art. 1485 hence can no longer pursue its claim. Hence, the
case at bar.
KASC
ISSUE: W/N the contract was covered by Art. 1485 and1484
hence barred PCI from recovering
RULING:
YES, A financial lease is one where a financing company
would, in effect, initially purchase a mobile equipment and turn
around to lease it to a client who gets, in addition, an option to
purchase the property at the expiry of the lease period. In the
case at bar, PCI acquired the office equipments for their
subsequent lease to Giraffe, with the latter undertaking to pay
a monthly fixed rental for the whole36 months. Giraffe made a
guaranty deposit. Their agreement was that in case Giraffe
fails to pay any rental due, PCI will have cumulative remedies,
such as to recover all rentals for the remaining term of the
lease and recover all amounts advanced for Giraffes account.
When PCI demanded for payment of the balance, it made a
demand for either of the choices. Either to pay the balance
hence Giraffe can keep the equipment or surrender them if he
cannot. The so-called monthly rentals were in fact monthly
amortizations of the price of the leased office equipment. The
imperatives of equity, the contractual stipulations and the
actuations of the parties, the SC has treated a purported
1
 COMMERCIAL LAW REVIEW: COMPILATION OF DIGESTS (RECTO LAW PREFERENCE OF CREDITS)

financial lease as actually a sale of movable property on PHILIPPINE AIRLINES, vs. SPOUSES SADIC AND AISHA
installments and prevented recovery. The Lease Agreement is KURANGKING, G.R. No. 146698, September 24, 2002
in reality a lease with an option to purchase the equipment.
This has been made manifest by the actions of PCI itself. In FACTS:
choosing replevin, PCI waived its right to bring an action to
recover unpaid rentals In April 1997, respondents, all Muslim Filipinos, returned to
Manila from their pilgrimage to the Holy City of Mecca, Saudi
Arabia, on board a Philippines Airlines (PAL) flight.
Respondents claimed that they were unable to retrieve their
checked-in luggages.

On 05 January 1998, respondents filed a complaint with the

Regional Trial Court (RTC) of Marawi City against PAL for
breach of contract resulting in damages due to negligence in
the custody of the missing luggages.

On 02 March 1998, PAL filed its answer invoking, among its

defenses, the limitations under the Warsaw Convention. On 19
June 1998, before the case could be heard on pre-trial, PAL,
claiming to have suffered serious business losses due to the
Asian economic crisis, followed by a massive strike by its
employees, filed a petition for the approval of a rehabilitation
plan and the appointment of a rehabilitation receiver before the
Securities and Exchange Commission (SEC).

KASC 2
 COMMERCIAL LAW REVIEW: COMPILATION OF DIGESTS (RECTO LAW PREFERENCE OF CREDITS)
On 23 June 1998, the SEC issued an order granting the prayer
for an appointment of a rehabilitation receiver, and it
constituted a three-man panel to oversee PALs rehabilitation.
On 25 September 1998, the SEC created a management
committee conformably with Section 6(d) of Presidential
Decree (P.D.) 902, as amended, declaring the suspension of
all actions for money claims against PAL pending before any
court, tribunal, board or body. Thereupon, PAL moved for the
suspension of the proceedings before the Marawi City RTC.
On 11 January 1999, the trial court issued an order denying
the motion for suspension of the proceedings on the ground
that the claim of respondents was only yet to be established.
PALs motion for reconsideration was denied by the trial court.
PAL went to the Court of Appeals via a petition for certiorari.
On 16 April 1999, the appellate court dismissed the petition for
the failure of PAL to serve a copy of the petition on
respondents.
On 15 December 2000, the Supreme Court, in A.M. No. 00-8-
10-SC, adopted the Interim Rules of Procedure on Corporate
Rehabilitation and directed to be transferred from the SEC to
KASC
Regional Trial Courts, all petitions for rehabilitation filed by
corporations, partnerships, and associations under P.D. 902-A
in accordance with the amendatory provisions of Republic Act
No. 8799. The rules require trial courts to issue, among other
things, a stay order in the enforcement of all claims, whether
for money or otherwise, and whether such enforcement is by
court action or otherwise, against the corporation under
rehabilitation, its guarantors and sureties not solidarily liable
with it.
ISSUE: WON proceedings before the trial court should have
been suspended after the court was informed that a
rehabilitation receiver was appointed over the petitioner by the
Securities and Exchange Commission under Section 6(c) of
Presidential Decree No. 902-A
RULING:
A claim is said to be a right to payment, whether or not It is
reduced to judgment, liquidated or unliquidated, fixed or
contingent, matured or unmatured, disputed or undisputed,
legal or equitable, and secured or unsecured. In Finasia
Investments and Finance Corporation this Court has defined
the word claim, contemplated in Section 6(c) of P.D. 902-A, as
3
 COMMERCIAL LAW REVIEW: COMPILATION OF DIGESTS (RECTO LAW PREFERENCE OF CREDITS)
referring to debts or demands of a pecuniary nature and the
assertion of a right to have money paid as well.
Verily, the claim of private respondents against petitioner PAL
is a money claim for the missing luggages, a financial demand,
that the law requires to be suspended pending the
rehabilitation proceedings.In B.F. Homes, Inc. vs. Court of
Appeals, the Court has ratiocinated:
x x x (T)he reason for suspending actions for claims against
the corporation should not be difficult to discover. it is not
really to enable the management committee or
rehabilitation receiver to substitute the defendant in any
pending action against it before any court, tribunal, board or
body. Obviously, the real justification is to enable the
management committee or rehabilitation receiver to effectively
exercise its/his powers free from any judicial or extra-judicial
interference that might unduly hinder or prevent the rescue of
the debtor company. To allow such other action to continue
would only add to the burden of the management committee or
rehabilitation receiver, whose time, effort and resources would
be wasted in defending claims against the corporation instead
of being directed toward its restructuring and rehabilitation.
KASC
RUBBER WORLD PHILS V NLRC,
GR NO 128003, JULY 26,2002
FACTS:
Petitioner Rubberworld, Inc filed with the DOLE a notice of
temporary shutdown of operation; but even before the
effectivity of such, was forced to prematurely shutdown
its operation. Private Respondents filed with the NLRC a
the petition for illegal dismissal and non- payment of separation
pay. Rubberworld then filed the SEC a petition for declaration
of suspension of payments with a proposed rehabilitation plan.
SEC then ordered an order, stating that all action for claims
against Rubberworld Philippines, Inc. pending before any
court, tribunal, office, board, body, Commission or sheriff are
hereby deemed SUSPENDED. Petitioner submitted to the
labor arbiter a motion to suspend the proceedings invoking the
SEC order. The Labor arbiter ignored the motion and
thereafter rendered a decision finding Rubberworld quality of
illegal shutdown ordering it to pay separation pay; and moral
and exemplary damages. On appeal, the NLRC affirmed the
decision with modification deleting the award for moral and
exemplary damages.
4
 COMMERCIAL LAW REVIEW: COMPILATION OF DIGESTS (RECTO LAW PREFERENCE OF CREDITS)
ISSUE:
W/N the DOLE, Labor arbiter, or NLRC may legally act on
claims despite an order of the SEC suspending all actions
against a company under rehabilitation by a management
committee.
HELD:
Yes. PD 902-A is clear that all action for claims against
corporation, partnerships or association under management or
receivership pending before any court, tribunal, board or body
shall be suspended accordingly. The law did not make any
exception in favor of labor claims. The justification for such to
enable the management committee to exercise its powers free
from interference that might hinder or prevent the rescue of
the debtor company. To allow the labor case
to proceed would open the defeat the rescue effort of the
management committee. Even if an award is given, the ruling
could not enforce as long as petitioner is under management
committee.
KASC
SPOUSES SOBREJUANITE V. ASB DEVELOPMENT
CORP., G.R. NO. 165675, SEPTEMBER 30, 2005
FACTS
1. On March 7, 2001, spouses Eduardo and Fidela
Sobrejuanite (Sobrejuanite) filed a Complaint for rescission of
contract, refund of payments and damages, against ASB
Development Corporation (ASBDC) before the Housing and
Land Use Regulatory Board (HLURB).
2. Sobrejuanite alleged that they entered into a Contract to
Sell with ASBDC over a condominium unit and a parking
space in the BSA Twin Tower-B Condominum located at Bank
Drive, Ortigas Center, Mandaluyong City. They averred that
despite full payment and demands, ASBDC failed to deliver
the property on or before December 1999 as agreed. They
prayed for the rescission of the contract; refund of payments
amounting to P2,674,637.10; payment of moral and exemplary
damages, attorneys fees, litigation expenses, appearance fee
and costs of the suit.
3. ASBDC filed a motion to dismiss or suspend proceedings in
view of the approval by the Securities and Exchange
5
 COMMERCIAL LAW REVIEW: COMPILATION OF DIGESTS (RECTO LAW PREFERENCE OF CREDITS)
Commission (SEC) on April 26, 2001 of the rehabilitation plan
of ASB Group of Companies, which includes ASBDC, and the
appointment of a rehabilitation receiver. The HLURB arbiter
however denied the motion and ordered the continuation of the
proceedings.
ISSUE:
Whether the SECs approval of the corporate rehabilitation
plan has the effect of suspending the proceeding before
HLURB.
RULING:
Yes. Section 6(c) of PD No. 902-A empowers the SEC:
c) To appoint one or more receivers of the property, real
and personal, which is the subject of the action pending before
the Commission whenever necessary in order to preserve
the rights of the parties-litigants and/or protect the interest of
the investing public and creditors: Provided, finally, That
upon appointment of a management committee, rehabilitation
receiver, board or body, pursuant to this Decree, all actions for
claims against corporations, partnerships or associations
KASC
under management or receivership pending before any court,
tribunal, board or body shall be suspended accordingly.
The purpose for the suspension of the proceedings is to
prevent a creditor from obtaining an advantage or preference
over another and to protect and preserve the rights of party
litigants as well as the interest of the investing public or
creditors. Such suspension is intended to give enough
breathing space for the management committee or
rehabilitation receiver to make the business viable again,
without having to divert attention and resources to litigations in
various fora.
The suspension would enable the management committee or
rehabilitation receiver to effectively exercise its/his powers free
from any judicial or extra-judicial interference that might unduly
hinder or prevent the rescue of the debtor company.
To allow such other action to continue would only add to the
burden of the management committee or rehabilitation
receiver, whose time, effort and resources would be wasted in
defending claims against the corporation instead of being
directed toward its restructuring and rehabilitation.
6
 COMMERCIAL LAW REVIEW: COMPILATION OF DIGESTS (RECTO LAW PREFERENCE OF CREDITS)
METROPOLITAN BANK & TRUST COMPANY, VS ASB
HOLDINGS, INC., RESPONDENTS, G.R. NO. 166197,
FEBRUARY 27, 2007
FACTS:
Metropolitan Bank and Trust company is a creditor bank of
respondents corporation collectively known as the ASB Group
of Companies. ASB group of companies is owner and
developer of condominium and real estate projects which
contracted loans to the petitioner which were secured by real
estate mortgages.
Later, ASB group of companies filed with the Securities and
Exchange Commission a petition for rehabilitation with prayer
for suspension of actions and proceedings against petitioners.
However, despite the objection of Metropolitan bank and trust
company for the rehabilitation plan, SEC granted the same.
Meanwhile, the contention of the petitioner in their objection
was that, the approval on the rehabilitation plan will impair the
contract entered into by the ASB group of companies with the
petitioner.
KASC
ISSUE:
Whether or not the approval of rehabilitation plan impairs
contract entered into and prejudiced creditors.
HELD:
The Supreme Court were not convinced that the approval of
the rehabilitation plan impair petitioner bank's lien over the
mortgaged properties. Section 6 (c) of P.D. no. 902-A provides
that "upon appointment of a management committee,
rehabilitation receiver, board or body, pursuant to this Decree,
all actions for claims against corporations, partnership or
associations under management or receivership pending
before any curt, tribunal, board or body shall be suspended."
By that statutory provision, it is clear that the approval of the
rehabilitation plan and the appointment of a rehabilitation
reciever merely suspend the action for claims against
respondent corporations. Petitioners banks preferred status
over the unsecured creditors relative to the mortgage liens is
retained, but the enforcement of such preference is
suspended. the loan agreement between the parties have not
been set aside and petitioner bank may still enforce its
preference when the assets of ASB Group of companies will
7
 COMMERCIAL LAW REVIEW: COMPILATION OF DIGESTS (RECTO LAW PREFERENCE OF CREDITS)
be liquidated. considering that the provisions of the loan
agreements and merely suspends, there is no impairment of
contracts, specifically its lien on the mortgaged properties.
The court also emphasized that the purpose of rehabilitating
proceedings is to enable the company to gain new lease on
life thereby allows creditors to be paid their claims from its
earnings. rehabilitation contemplates a continuance of
corporate life and activities in an effort to restore ad reinstate
the financially distressed corporation to its former position of
successful operation and solvency. this is in consonance with
the state's equitable distribution of wealth to protect
investments and the public. The approval of the rehabilitation
plan by the SEC hearing panel, affirmed by both the SEC en
banc and the court of appeals, is precisely in furtherance if the
rationale behind P.D. No. 902-A, as amended which is "to
effect a feasible and viable rehabilitation" of ailing corporations
which affect the public welfare.
KASC
RIZAL COMMERCIAL BANKING CORP V IAC,
GR NO 74851,
FACTS:
On September 28, 1984, BF Homes filed a Petition for
Rehabilitation and for Declaration of Suspension of Payments
with the SEC.
RCBC, one of the creditors listed in BF Homes inventory of
creditors and liabilities, on October 26, 1984, requested the
Provincial Sheriff of Rizal to extra-judicially foreclose its real
estate mortgage on some properties of BF Homes. BF Homes
opposed the auction sale and the SEC ordered the issuance of
a writ of preliminary injunction upon petitioners filing of a bond.
Presumably unaware of the filing of the bond on the very day
of the auction sale, the sheriff proceeded with the public
auction sale in which RCBC was the highest bidder for the
properties auctioned. But because of the proceedings in the
SEC, the sheriff withheld the delivery to RCBC of the
certificate of sale covering the auctioned properties.
On March 13, 1985, despite the SEC case, RCBC filed with
RTC an action for mandamus against the provincial sheriff of
8
 COMMERCIAL LAW REVIEW: COMPILATION OF DIGESTS (RECTO LAW PREFERENCE OF CREDITS)
Rizal to compel him to execute in its favor a certificate of sale
of the auctioned properties.
On March 18, 1985, the SEC appointed a Management
Committee for BF Homes.
Consequently, the trial court granted RCBCs motion for
judgment on the pleading ordering respondents to execute
and deliver to petitioner the Certificate of Auction Sale.
On appeal, the SC affirmed CAs decision (setting aside RTCs
decision dismissing the mandamus case and suspending
issuance to RCBC of new land titles until the resolution of the
SEC case) ruling that whenever a distressed corporation asks
the SEC for rehabilitation and suspension of payments,
preferred creditors may no longer assert such preference but
stand on equal footing with other creditors. Hence, this Motion
for Reconsideration.
ISSUE: When should the suspension of actions for claims
against BF Homes take effect?
HELD: The issue of whether or not preferred creditors of
distressed corporations stand on equal footing with all other
creditors gains relevance and materiality only upon the
KASC
appointment of a management committee, rehabilitation
receiver, board or body.
Upon cursory reading of Section 6, par (c) of PD 902-A, it is
adequately clear that suspension of claims against a
corporation under rehabilitation is counted or figured up only
upon the appointment of a management committee or a
rehabilitation takes effect as soon as the application or a
petition for rehabilitation is filed with the SEC may to some, be
more logical and wise but unfortunately, such is incongruent
with the clear language of the law. To insist on such ruling, no
matter how practical and noble would be to encroach upon
legislative prerogative to define the wisdom of the law ---
plainly judicial legislation.
Once a management committee, rehabilitation receiver, board
or body is appointed pursuant to PD 902-A, all actions for
claims against a distressed corporation pending before any
court, tribunal, board or body shall be suspended accordingly;
Suspension shall not prejudice or render ineffective the status
of a secured creditor as compared to a totally unsecured
creditor. What it merely provides is that all actions for claims
against the corporation, partnership or association shall be
suspended. This should give the receiver a chance to
rehabilitate the corporation if there should still be a possibility
9
 COMMERCIAL LAW REVIEW: COMPILATION OF DIGESTS (RECTO LAW PREFERENCE OF CREDITS)

for doing so. In the event that rehabilitation is no longer JOSE CORDOVA V REYES, DAWAY ET AL., GR NO
feasible and claims against the distressed corporation would 146555, JULY 3, 2007
eventually have to be settled, the secured creditors shall enjoy
preference over the unsecured creditors subject only to the FACTS:
provisions of the Civil Code on Concurrence and Preferences
of Credit. Sometime in 1977 and 1978, petitioner Jose C.
Cordova bought from Philippine Underwriters Finance
Corporation (Philfinance) certificates of stock of Celebrity
Sports Plaza Incorporated (CSPI) and shares of stock of
various other corporations. He was issued a confirmation of
sale.

On June 18, 1981, Philfinance was placed under receivership

by public respondent Securities and Exchange Commission
(SEC). Thereafter, private respondents Reyes Daway Lim
Bernardo Lindo Rosales Law Offices and Atty. Wendell
Coronel (private respondents) were appointed as liquidators.

Sometime in 1991, without the knowledge and consent of

petitioner and without authority from the SEC, private
respondents withdrew the CSPI shares from the custodian
banks. On May 27, 1996, they sold the shares to Northeast
Corporation and included the proceeds thereof in the funds of
Philfinance. Petitioner learned about the unauthorized sale of

KASC 10
 COMMERCIAL LAW REVIEW: COMPILATION OF DIGESTS (RECTO LAW PREFERENCE OF CREDITS)
his shares only on September 10, 1996. He lodged a complaint
with private respondents but the latter ignored it prompting him
to file, on May 6, 1997, a formal complaint against private
respondents in the receivership proceedings with the SEC, for
the return of the shares.
Meanwhile, on April 18, 1997, the SEC approved a 15% rate
of recovery for Philfinances creditors and investors. On May
13, 1997, the liquidators began the process of settling the
claims against Philfinance, from its assets.
On April 14, 1998, the SEC rendered judgment dismissing the
petition. However, it reconsidered this decision in a resolution
dated September 24, 1999 and granted the claims of
petitioner. It held that petitioner was the owner of the CSPI
shares by virtue of a confirmation of sale (which was
considered as a deed of assignment) issued to him by
Philfinance. But since the shares had already been sold and
the proceeds commingled with the other assets of Philfinance,
petitioners status was converted into that of an ordinary
creditor for the value of such shares. Thus, it ordered private
respondents to pay petitioner the amount of P5,062,500
representing 15% of the monetary value of his CSPI shares
plus interest at the legal rate from the time of their
unauthorized sale.
KASC
On October 27, 1999, the SEC issued an order clarifying its
September 24, 1999 resolution. While it reiterated its earlier
order to pay petitioner the amount of P5,062,500, it deleted the
award of legal interest. It clarified that it never meant to award
interest since this would be unfair to the other claimants.
On appeal, the CA affirmed the SEC. It agreed that petitioner
was indeed the owner of the CSPI shares but the recovery of
such shares had become impossible. It also declared that the
clarificatory order merely harmonized the dispositive portion
with the body of the resolution. Petitioners motion for
reconsideration was denied.
ISSUE: W/O/N petitioner a preferred or ordinary creditor under
these provisions
RULING:
Petitioners argument is incorrect. Article 2241 refers only
to specific movable property. His claim was for the payment of
money, which is generic property and not specific or
determinate. Petitioners CSPI shares were specific or
determinate movable properties. But after they were sold, the
11
 COMMERCIAL LAW REVIEW: COMPILATION OF DIGESTS (RECTO LAW PREFERENCE OF CREDITS)

money raised from the sale became generic and were

commingled with the cash and other assets of Philfinance.
Unlike shares of stock, money is a generic thing. It is
designated merely by its class or genus without any particular
designation or physical segregation from all others of the same
class. This means that once a certain amount is added to the
cash balance, one can no longer pinpoint the specific amount
included which then becomes part of a whole mass of money.

Considering that petitioner did not fall under any of the

provisions applicable to preferred creditors, he was deemed
an ordinary creditor under Article 2245:
Credits of any other kind or class, or by any other right or title
not comprised in the four preceding articles, shall enjoy no
preference.

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

Common credits referred to in Article 2245 shall be paid pro
rata regardless of dates.

Like all the other ordinary creditors or claimants against

Philfinance, he was entitled to a rate of recovery of only 15%
of his money claim.

KASC 12