CASE FACTS
G.R. No. 164641 The Bank of the Philippine Islands (BPI), through its predecessor-in- interest,
Far East Bank and Trust Company (FEBTC), extended credit accommodations
December 20, 2007 to the ASB Group with an outstanding aggregate principal amount
of P86,800,000.00, secured by a real estate mortgage over two (2) properties
located in Greenhills, San Juan. On 2 May 2000, the ASB Group filed a petition
BANK OF THE PHILIPPINE for rehabilitation and suspension of payments before the SEC.
ISLANDS, as successor of
Far East Bank and Trust
Company, petitioner,
Thereafter, on 18 August 2000, the interim receiver submitted its Proposed
vs.
Rehabilitation Plan for the ASB Group. The Rehabilitation Plan provides,
SECURITIES AND
among others, a dacion en pago by the ASB Group to BPI of one of the
EXCHANGE COMMISSION,
properties mortgaged to the latter at the ASB Group as selling value
REHABILITATION
of P84,000,000.00 against the total amount of the ASB Group’s exposure to the
HOLDINGS, INC.,
bank. In turn, ASB Group would require the release of the other property
mortgaged to BPI, to be thereafter placed in the asset pool.
BPI opposed the Rehabilitation Plan and moved for the dismissal of the ASB
Group’s petition for rehabilitation
. exercise of legislative power and not of judicial or quasi-
ISSUE
Does the requirement for SEC
approval of the Rehabilitation Plan
impair the obligations of contract?
HELD
PURPOSE OF REHABILITATION :
Rehabilitation proceedings in our jurisdiction, much like the
bankruptcy laws of the United States, have equitable and
rehabilitative purposes. On the one hand, they attempt to
provide for the efficient and equitable distribution of an
insolvent debtor’s remaining assets to its creditors; and on
the other, to provide debtors with a "fresh start" by
relieving them of the weight of their outstanding debts and
permitting them to reorganize their affairs.33 The rationale
of P.D. No. 902-A, as amended, is to "effect a feasible and
viable rehabilitation,"34 by preserving a foundering
business as going concern, because the assets of a business
are often more valuable when so maintained than they
would be when liquidated.35
The Court reiterates that the SEC’s approval of the
Rehabilitation Plan did not impair BPI’s right to
contract.1âwphi1 As correctly contended by private
respondents, the non-impairment clause is a limit on the
judicial power.36 The SEC, through the hearing panel that
heard the petition for approval of the Rehabilitation Plan, was
acting as a quasi-judicial body and thus, its order
approving the plan cannot constitute an impairment of the
right and the freedom to contract.
Besides, the mere fact that the Rehabilitation Plan proposes
a dacion en pago approach does not render it defective on
the ground of impairment of the right to contract. Dacion en
pago is a special mode of payment where the debtor offers
another thing to the creditor who accepts it as equivalent of
payment of an outstanding debt.37 The undertaking really
partakes in a sense of the nature of sale, that is, the creditor is
really buying the thing or property of the debtor, the payment
for which is to be charged against the debtor’s debt. As such, the
essential elements of a contract of sale, namely; consent, object
certain, and cause or consideration must be present.38 Being a
form of contract, the dacion en pagoagreement cannot be
perfected without the consent of the parties involved.
We find no element of compulsion in the dacion en
pago provision of the Rehabilitation Plan. It was not the only
solution presented by the ASB to pay its creditors. In fact, it was
stated in the Rehabilitation Plan that:
x x x. If the dacion en pago herein contemplated does
not materialize for failure of the secured creditors to

G.R. No. 126773 Petitioner . . . is a domestic corporation which used to be in the business of
manufacturing footwear, bags and garments. It filed with the Securities and
April 14, 1999 Exchange Commission on November 24, 1994 a petition for suspension of
payments praying that it be declared in a state of suspension of payments and
that the SEC accordingly issue an order restraining its creditors from enforcing
RUBBERWORLD (PHILS.), their claims against petitioner corporation. It further prayed for the creation of
INC., or JULIE YAP ONG, a management committee as well as for the approval of the proposed
petitioner, rehabilitation plan and memorandum of agreement between petitioner
vs. corporation and its creditors.
NATIONAL LABOR
RELATIONS COMMISSION
SEC favorably ruled on the petition for suspension of payments
Private respondents, who claim to be employees of petitioner corporation,
filed against petitioners [from] April to July 1995 their respective complaints
for illegal dismissal, unfair labor practice, damages and payment of separation
pay, retirement benefits, 13th month pay and service incentive pay.
Petitioners moved to suspend the proceedings in the above labor cases on the
strength of the SEC Order dated December 28, 1994. Likewise, petitioners
cited the rulings of BF Homes vs. Court of Appeals (190 SCRA 262), Alemar's
Sibal & Sons. Inc., vs. Elbinias (186 SCRA 94) and Bank of Philippine Islands
vs.Court of Appeals (229 SCRA 223) to support their motion to suspend the
proceedings in the labor cases.
In an Order dated September 25, 1995, the Labor Arbiter denied the aforesaid
motion holding that the injunction contained in the SEC Order applied only to
the enforcement of established rights and did not include the suspension of
proceedings involving claims against petitioner which have yet to be
ascertained. The Labor Arbiter further held that the order of the SEC
suspending all actions for claims against petitioners does not cover the claims
of private respondents in the labor cases because said claims and the
concomitant liability of petitioners still had to be determined, thus carrying no
Whether or not the Respondent NLRC
acted without or in excess of
jurisdiction or with grave abuse of
discretion amounting to lack of
jurisdiction in affirming the order of
Labor Arbiter Voltaire A. Balitaan
denying petitioners' motion to
suspend proceedings despite the
Order of the Securities and Exchange
Commission under Sec. 6 (c) of P.D.
902-A directing the suspension of all
actions against a company under the
first stages of insolvency
proceedings. 7
agree thereto, the rehabilitation plan contemplates to
settle the obligations (without interest, penalties and
other related charges accruing after the date of the
initial suspension order) to secured creditors with
mortgaged properties at ASB selling prices for the
general interest of the employees, creditors, unit
buyers, government, general public and the
economy.39
Thus, if BPI does not find the dacion en pago modality
acceptable, the ASB Group can propose to settle its debts at
such amount as is equivalent to the selling price of the
mortgaged properties. If BPI still refuses this option, it can
assert its rights in the liquidation and distribution of the ASB
Group’s assets. It will not lose its status as a secured creditor,
retaining its preference over unsecured creditors when the
assets of the corporation are finally liquidated.40
The petition is meritorious
where the petition filed is one for declaration of a state of
suspension of payments due to a recognition of the inability to
pay one's debts and liabilities, and where the petitioning
corporation either: (a) has sufficient property to cover all its
debts but foresees the impossibility of meeting them when they
fall due (solvent but illiquid) or (b) has no sufficient property
(insolvent) but is under the management of a rehabilitation
receiver or a management committee, the applicable law is P.D.
902-A pursuant to Sec. 5 par. (d) thereof. However, if the
petitioning corporation has no sufficient assists to cover its
liabilities and is not under a rehabilitation receiver or a
management committee created under P.D. 902-A and does not
seek merely to have the payments of its debts suspended, but
seeks a declaration of insolvency . . . the applicable law is Act
1956 [The Insolvency Law] on voluntary Insolvency,
In the case at bar, Petitioner Rubberworld filed before the SEC a
Petition for Declaration of Suspension of Payments, as well as a
proposed rehabilitation plan. On December 28, 1994, the SEC
ordered the creation of a management committee and the
suspension of all actions for claims against Rubberworld.
Clearly, the applicable law is PD 902-A, as amended
It is plain from the foregoing provisions of law that "upon the
appointment [by the SEC] of a management committee or a
rehabilitation receiver," all actions for claims against the
corporation pending before any court, tribunal or board
shall ipso jure be suspended. 9
The justification for the automatic stay of all pending
actions for claims "is to enable the management committee
dissipation of the assets of petitioners.1âwphi1.nêt or the 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 actions 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.

Parenthetically, the rehabilitation of a financially distressed

corporation benefits its employees, creditors, stockholders
and, in a larger sense, the general public, And in considering
whether to rehabilitate or not, the SEC gives preference to the
interest of creditors, including employees. The reason its
that shareholders can recover their investments only upon
liquidation of the corporation, and only if there are assets
remaining after all

Labor Claims Included in Suspension Order

The law is clear: upon the creation of a management committee

or the appointment of a rehabilitation receiver, all claims for
actions "shall be suspended accordingly." No exception in
favor of labor claims is mentioned in the law. Since the law
makes no distinction or exemptions, neither should this
Court. Ubi lex non distinguit nec nos distinguere
debemos. 13 Allowing labor cases to proceed clearly defeats
the purpose of the automatic stays and severally
encumbers the management committee's and resources.
The said committee would need to defend against these suits, to
the detriment of its primary and urgent duty to work towards
rehabilitating the corporation and making it viable again. The
rule otherwise would open the floodgates to other similarly
situated claimants and forestall if not defeat the rescue efforts.
Besides, even if the NLRC awards the claims of private
respondents, as it did, its ruling could not be enforced as long as
the petitioner is under the management committee. 14

Preference in Favor of Workers in Case of Bankruptcy or

Liquidation

The preferential right of workers and employees under Article

110 of the Labor code may be invoked only upon the
institution of insolvency or judicial liquidation
proceeding. 22 Indeed, it is well-settled that "a declaration of
bankruptcy or a judicial liquidation must be present before
preferences over various money claims may be
enforced." 23 But debtors resort to preference of credit —

G.R. No. L-14938 Rosario Cruzado sold all her right, title, and interest and that of her children in
the house and lot herein involved to Villanueva for P19K. The purchaser paid
January 28, 1961 P1,500 in advance, and executed a promissory note for the balance. However,
the buyer could only pay P5,500 On account of the note, for which reason the
vendor obtained judgment for the unpaid balance. In the meantime, the buyer
MAGDALENA C. DE Villanueva was able to secure a clean certificate of title and mortgaged the
BARRETO, ET AL., plaintiffs- property to appellant Barretto to secure a loan of P30K, said mortgage having
appellants, been duly recorded.
vs.
JOSE G. VILLANUEVA, ET Villanueva defaulted on the mortgage loan in favor of Barretto. The latter
AL., defendants-appellees foreclosed the mortgage in her favor, obtained judgment, and upon its
becoming final asked for execution. Cruzado filed a motion for recognition for
her "vendor's lien" invoking Articles 2242, 2243, and 2249 of the new Civil
Code. After hearing, the court below ordered the "lien" annotated on the back
of the title, with the proviso that in case of sale under the foreclosure decree
the vendor's lien and the mortgage credit of appellant Barretto should be
paid pro rata from the proceeds.
Appellants insist that:
1. The vendor's lien, under Articles 2242 and 2243 of the new, Civil Code of the
Philippines, can only become effective in the event of insolvency of the vendee,
which has not been proved to exist in the instant case; and .
2. That the Cruzado is not a true vendor of the foreclosed property.
Article 2242 of the new Civil Code enumerates the claims, mortgage and liens
that constitute an encumbrance on specific immovable property, and among
giving preferred creditors the rights to have their claims
paid ahead of those of other claimants — only when their
assets are insufficient to pay their debts fully. 24
The purpose of rehabilitation proceedings is precisely to
enable the company to gain a new lease on life and thereby
allow creditors to be paid their claims from its earnings. In
insolvency proceedings, on the other hand, the company stops
operating, and the claims of creditors are satisfied from the
assets of the insolvent corporation.
The present case involves the rehabilitation, not the liquidation,
of petitioner-corporation. Hence, the preference of credit
granted to workers or employees under Article 110 of the
Labor Code is not applicable.
Duration of Automatic Stay Under PD 902
This Court notes that PD 902-A itself does not provide for the
duration of the automatic stay. Neither does the Order 28 of
the SEC. Hence, the suspensive effect has no time limit and
remains in force as long as reasonably necessary to
accomplish the purpose of the Order
Resolution on Motion to Consider (1962)
Appellants, spouses Barretto, have filed a motion vigorously
urging that our decision be reconsidered and set aside, and a
new one entered declaring that their right as mortgagees
remain superior to the unrecorded claim of herein appellee for
the balance of the purchase price of her rights, title, and
interests in the mortgaged property.
We have reached the conclusion that our original decision must
be reconsidered and set aside:
Under the system of the Civil Code of the Philippines, only taxes
enjoy a similar absolute preference. All the remaining thirteen
classes of preferred creditors under Article 2242 enjoy no
priority among themselves, but must be paid pro-rata i.e., in
proportion to the amount of the respective credits. Thus,Article
2249 provides:
If there are two or more credits with respect to the same
specific real property or real rights, they, shall be satisfied pro-
rata after the payment of the taxes and assessments upon the
immovable property or real rights."
The full application of Articles 2249 and 2242 demands that
there must be first some proceedings where the claims of all the
preferred creditors may be bindingly adjudicated, such as:
1. insolvency,
 them are: .
(2) For the unpaid price of real property sold, upon the immovable sold; and
(5) Mortgage credits recorded in the Registry of Property."
Article 2249 of the same Code provides that "if there are two or more credits
with respect to the same specific real property or real rights, they shall be
satisfied pro-rata after the payment of the taxes and assessment upon the
immovable property or real rights.
G.R. No. 178768 Puerto Azul Land, Inc. (PALI) is the owner and developer of the Puerto Azul
Complex situated inTernate, Cavite. Its business involves the
November 25, 2009 development of Puerto Azul into a satellite city with residential
areas, resort, tourism and retail commercial centers with recreational
areas. In order to finance its operations, it obtained loans from various
PACIFIC WIDE REALTY AND banks, the principal amount of which amounted to Six Hundred Forty Million
DEVELOPMENT
Two Hundred Twenty-Five Thousand Three Hundred Twenty-Four
CORPORATION, Petitioner, Pesos(P640,225,324.00). PALI and its accommodation mortgagors, i.e.,
vs.
Ternate Development Corporation(TDC), Ternate Utilities, Inc. (TUI), and Mrs.
PUERTO AZUL LAND, Trinidad Diaz-Enriquez, secured the loans.
INC., Respondent
In the beginning, PALI’s business did very well. However, it started
encountering problems when the Philippine Stock Exchange rejected the
listing of its shares in its initial public offering which sent a bad signal to the
real estate market. This resulted in potential investors and real estate buyers
shying away from the business venture. The situation was aggravated
by the 1997 Asian financial crisis and the decline of the real estate
2.
3.
(1) whether the terms of the
rehabilitation plan are
unreasonable and in violation of
the non-impairment clause; and (2)
whether the rehabilitation court
erred when it allowed the
foreclosure of the accommodation
mortgagee’s property and excluded
the same from the coverage of the
stay order.
the settlement of decedents estate under Rule 87 of the Rules
of Court, or
other liquidation proceedings of similar import.
This explains the rule of Article 2243 of the new Civil Code that
—
The claims or credits enumerated in the two preceding articles"
shall be considered as mortgages or pledges of real or personal
property, or liens within the purview of legal provisions
governing insolvency.
And the rule is further clarified in the Report of the Code
Commission, as follows:
The question as to whether the Civil Code and the insolvency
Law can be harmonized is settled by Article 2243. The
preferences named in Articles 2261 and 2262 (now 2241 and
2242) are to be enforced in accordance with the Insolvency Law."
Rule
Thus, it becomes evident that one preferred creditor's third-
party claim to the proceeds of a foreclosure sale (as in the case
now before us) is not the proceeding contemplated by law for
the enforcement of preferences under Article 2242, unless the
claimant were enforcing a credit for taxes that enjoy absolute
priority. If none of the claims is for taxes, a dispute between two
creditors will not enable the Court to ascertain the pro-
rata dividend corresponding to each, because the rights of the
other creditors likewise" enjoying preference under Article
2242 can not be ascertained.
Held: There being no insolvency or liquidation, the claim of the
appellee, as unpaid vendor, did not require the character and
rank of a statutory lien co-equal to the mortgagee's recorded
encumbrance, and must remain subordinate to the latter.
Purpose of Rehabilitation
Rehabilitation35 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 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.
The rehabilitation of a financially distressed corporation
benefits its employees, creditors, stockholders and, in a larger
sense, the general public.36
Under the Rules of Procedure on Corporate
Rehabilitation,37 "rehabilitation" is defined as the
restoration of the debtor to a position of successful
operation and solvency, if it is shown that its continuance
market.
Consequently, PALI was unable to keep up with the payment of its
obligations, both current and those that were about to fall due. One of
its creditors,t h e E xp or t an d Ind us tr y Ba nk ( E IB) , la ter
s u b s ti t u ted by Pa cif ic Wide Re al t y and De ve lop men t Corporation
(PWRDC), filed foreclosure proceedings on PALI’s mortgaged
properties.
Thrust to a co rne r , PA LI fi led a pe ti tio n fo r susp en sio n of
pa y men t s and re hab i li ta tio n , ac co mpa nied by a proposed
rehabilitation plan and three (3) nominees for the appointment of a
rehabilitation receiver.
On December 13, 2005, the RTC rendered a Decision approving PALI’s
petition for suspension of payments and rehabilitation.
Finding the terms of the rehabilitation plan and the qualifications of the
appointed rehabilitation receiver unacceptable, EIB filed with the CA a petition
for review under Rule 42 of the Rules of Court. The case was entitled, "Export
and Industry Bank v. Puerto Azul Land, Inc."
On May 17, 2007, the CA rendered a Decision,18 the fallo of which reads:
WHEREFORE, in view of the forgoing, the petition for review is hereby
DISMISSED. The assailed December 13, 2005 decision of the court a quo is
hereby AFFIRMED in toto.19
EIB filed a motion for reconsideration. However, the same was denied in a
Resolution20 dated October 30, 2007.
In G.R. No. 178768
On March 3, 2005, EIB filed an urgent motion to order PALI and/or the
mortgagor TUI/rehabilitation receiver to pay all the taxes due on Transfer
Certificate of Title (TCT) No. 133164. EIB claimed that the property covered by
TCT No. 133164, registered in the name of TUI, was one of the properties used
to secure PALI’s loan from EIB. The said property was subject to a public
auction by the Treasurer’s Office of Pasay City for non-payment of realty taxes.
Hence, EIB prayed that PALI or TUI be ordered to pay the realty taxes due on
TCT No. 133164.23
PALI opposed the motion, arguing that the rehabilitation court’s stay order
stopped the enforcement of all claims, whether for money or otherwise,
against a debtor, its guarantors, and its sureties not solidarily liable to the
debtor; thus, TCT No. 133164 was covered by the stay order.24
of operation is economically 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.
An indispensable requirement in the rehabilitation of a
distressed corporation is the rehabilitation plan.
In G.R. No. 180893, the rehabilitation plan is contested on the
ground that the same is unreasonable and results in the
impairment of the obligations of contract. PWRDC contests the
following stipulations in PALI’s rehabilitation plan: fifty percent
(50%) reduction of the principal obligation; condonation of the
accrued and substantial interests and penalty charges;
repayment over a period of ten years, with minimal interest of
two percent (2%) for the first five years and five percent (5%)
for the next five years until fully paid, and only upon availability
of cash flow for debt service.
We find nothing onerous in the terms of PALI’s rehabilitation
plan. The Interim Rules on Corporate Rehabilitation provides
for means of execution of the rehabilitation plan, which may
include, among others, the conversion of the debts or any
portion thereof to equity, restructuring of the debts, dacion en
pago, or sale of assets or of the controlling interest.1 a vv p h i 1
The restructuring of the debts of PALI is part and parcel of its
rehabilitation. Moreover, per findings of fact of the RTC and as
affirmed by the CA, the restructuring of the debts of PALI would
not be prejudicial to the interest of PWRDC as a secured
creditor. Enlightening is the observation of the CA in this
regard, viz.:
There is nothing unreasonable or onerous about the 50%
reduction of the principal amount when, as found by the court a
quo, a Special Purpose Vehicle (SPV) acquired the credits of
PALI from its creditors at deep discounts of as much as 85%.
Meaning, PALI’s creditors accepted only 15% of their credit’s
value. Stated otherwise, if PALI’s creditors are in a position to
accept 15% of their credit’s value, with more reason that they
should be able to accept 50% thereof as full settlement by their
debtor. x x x
On non- impairment clause
We also find no merit in PWRDC’s contention that there is a
violation of the impairment clause. Section 10, Article III of the
On March 31, 2005, the RTC issued an Order,25 the dispositive portion of which
reads:
Accordingly, and as being invoked by the creditor movant, this Court hereby
modifies the Stay Order of September 17, 2004, in such a manner that TCT No.
133614 which is mortgaged with creditor movant Export and Industry Bank,
Inc. is now excluded from the Stay Order. As such, Export and Industry Bank,
Inc. may settle the above-stated realty taxes of third party mortgagor with the
local government of Pasay City. In return, and to adequately protect the
creditor movant Export and Industry Bank, Inc., the latter may foreclose on
TCT No. 133614.
On April 12, 2005, PALI filed an urgent motion for a status quo order, praying
that the stay order be maintained and that the enforcement of the claim of
Pasay City be held in abeyance pending the hearing of its motion.27 On April
13, 2005, the RTC, so as not to render moot PALI’s motion, issued an
Order,28 directing EIB to refrain from taking any steps to implement the March
31, 2005 Order. The City Treasurer of Pasay City was, likewise, directed to
respect the stay order dated September 17, 2004 insofar as TCT No. 133164
was concerned, until further orders from the court.29
On August 16, 2005, the RTC issued an Order30 addressing the April 12, 2005
urgent motion of PALI. In the said order, the rehabilitation court maintained
its March 31, 2005 Order. The court reiterated that TCT No. 133164, under the
name of TUI, was excluded from the stay order. In order to protect the interest
of EIB as creditor of PALI, it may foreclose TCT No. 133164 and settle the
delinquency taxes of third-party mortgagor TUI with the local government of
Pasay City.
PALI filed an urgent motion to modify the Order dated August 16, 2005. The
same was denied by the RTC in an Order31dated October 19, 2005. Aggrieved,
PALI filed with the CA a petition for certiorari under Rule 65 of the Rules of
Court, ascribing grave abuse of discretion on the part of the rehabilitation
court in allowing the foreclosure of a mortgage constituted over the property
of an accommodation mortgagor, to secure the loan obligations of a
corporation seeking relief in a rehabilitation proceeding. The case was
entitled, "Puerto Azul Land, Inc. v. The Regional Trial Court of Manila, Br. 24;
Sheriff IV of Pasay City Virgilio F. Villar; and Export and Industry Bank, Inc."
On March 16, 2007, the CA rendered a Decision,32 the fallo of which reads:
WHEREFORE, above premises considered, the instant Petition is GRANTED.
The October 19, 2005 Order of the Regional Trial Court of Manila, Br. 24, in
Civil Case No. 04-110914 is hereby declared NULL and VOID and the
properties covered by TCT No. 133164 are hereby DECLARED subject to and
covered by the September 17, 2004 stay order. Accordingly, Public
Respondent Sheriff Virgilio F. Villar, or his substitute or equivalent, is
ORDERED to immediately cease and desist from enforcing the Amended
Notice of Sheriff’s Sale, dated February 8, 2007, and from conducting the sale
Constitution mandates that no law impairing the obligations of
contract shall be passed. This case does not involve a law or
an executive issuance declaring the modification of the
contract among debtor PALI, its creditors and its
accommodation mortgagors. Thus, the non-impairment
clause may not be invoked. Furthermore, as held in Oposa v.
Factoran, Jr.39 even assuming that the same may be invoked, the
non-impairment clause must yield to the police power of the
State. Property rights and contractual rights are not absolute.
The constitutional guaranty of non-impairment of obligations is
limited by the exercise of the police power of the State for the
common good of the general public.
On the issue of foreclosure
Governing law: PD 902-A as amended
The justification for the suspension of actions or claims pending
rehabilitation proceedings 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. 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.
Applicable law:
It is crystal clear that Ternate Utilities, Inc. being the owner
of TCT No. 133614 is the one liable to pay the realty taxes
to the local government of Pasay City. The petitioner [PALI],
not being the owner of the subject land does not owe the
local government of Pasay City in the same way [as] the
local government of Pasay City is not a creditor of
petitioner [PALI]. The local government of Pasay City is
pursuing directly the tax obligation of Ternate Utilities, Inc.
which company is not the petitioner [PALI] in this case. Hence,
for all intents and purposes, the Stay Order does not cover the
tax obligations of Ternate Utilities, Inc. to the local government
of Pasay City.1avvphi1
Section 12, Rule 4 of the Interim Rules on Corporate
Rehabilitation. The said section provides:
SEC. 12. Relief from, Modification, or Termination of Stay Order.
at public auction of the parcels of land covered by TCT No. 133164 on March
20, 2007 or at anytime thereafter. No costs.
EIB filed a motion for reconsideration. The CA denied the same in a
Resolution34 dated June 29, 2007.
— The court may, on motion or motu proprio, terminate,
modify, or set conditions for the continuance of the stay order,
or relieve a claim from the coverage thereof upon showing that
(a) any of the allegations in the petition, or any of the
contents of any attachment, or the verification thereof has
ceased to be true; (b) a creditor does not have adequate
protection over property securing its claim; or (c) the
debtor’s secured obligation is more than the fair market
value of the property subject of the stay and such property
is not necessary for the rehabilitation of the debtor.
In [petitioner PALI’s] Comment, it can be gleaned that neither
Ternate Utilities, Inc. nor the petitioner [PALI] has the intention
of paying the real property taxes on TCT No. 133614, which
inaction will naturally result in the auctioning of [the] subject
land to the prejudice and damage of creditor movant being the
mortgagee thereof. Likewise, it is uncontested that the failure of
the petitioner or Ternate Utilities, Inc. to pay the realty
property taxes violate[d] the pre-existing agreement of the
petitioner [PALI] and Ternate Utilities, Inc. to the creditor
movant.45
In the August 16, 2005 Order, the rehabilitation court
reaffirmed its decision to remove TCT No. 133164 from the
coverage of the stay order in order to protect the secured claim
of PWRDC, viz.:
Considering that the auction sale of TCT No. 133614 by the local
government of Pasay City without the Ternate Utilities, Inc., or
the petitioner [PALI] redeeming or paying the corresponding
due taxes and penalties totaling to ₱7,523,257.50 as indicated
in the aforesaid Certificate of Sale of Delinquent Real Property,
the interest of creditor EIB is greatly prejudiced.
Lastly, even assuming that the value of the PALI property
covered by the MTI [Mortgage Trust Indenture] is indeed
₱1.877 Billion, however, the total claim of EIB against the
petitioner [PALI] is more than ₱1.4 Billion Pesos (By statement
of Asset attached by EIB in its Comment/Opposition to the
petition for rehabilitation dated November 10, 2004) as of
October 31, 2004 which total obligation is still counting as to
date. Hence, not redeeming the auctioned TCT No. 133614 from
the Pasay City Government definitely renders creditor EIB not
possessing adequate protection over [the] property securing its
claim against petitioner [PALI].46
Accordingly, the rehabilitation court committed no reversible
error when it removed TCT No. 133164 from the coverage of
the stay order. The Interim Rules of Procedure on Corporate

G.R. No. 126200 Marinduque Mining-Industrial Corporation (Marinduque Mining) obtained
from the Philippine National Bank (PNB) various loan accommodations. To
August 16, 2001 secure the loans, Marinduque Mining executed on October 9, 1978 a Deed of
Real Estate Mortgage and Chattel Mortgage in favor of PNB. The mortgage
covered all of Marinduque Mining's real properties, located at Surigao del
DEVELOPMENT BANK OF Norte, Sipalay, Negros Occidental, and at Antipolo, Rizal, including the
THE improvements thereon. As of November 20, 1980, the loans extended by PNB
PHILIPPINES, petitioner, amounted to P4 Billion, exclusive of interest and charges.
vs.
HONORABLE COURT OF
APPEALS and REMINGTON
INDUSTRIAL SALES On July 13, 1981, Marinduque Mining executed in favor of PNB and the
CORPORATION, respondents. Development Bank of the Philippines (DBP) a second Mortgage Trust
Agreement. In said agreement, Marinduque Mining mortgaged to PNB and DBP
all its real properties located at Surigao del Norte, Sipalay, Negros Occidental,
KAPUNAN, J.: and Antipolo, Rizal, including the improvements thereon. The mortgage also
covered all of Marinduque Mining's chattels, as well as assets of whatever
kind, nature and description which Marinduque Mining may subsequently
acquire in substitution or replenishment or in addition to the properties
Whether or not there was bad faith
on the part of Marinduque Mining and
its transferees in the mortgage and
foreclosure of the subject properties
to justify the piercing of the corporate
veil.
Rehabilitation is silent on the enforcement of claims
specifically against the properties of accommodation
mortgagors. It only covers the suspension, during the
pendency of the rehabilitation, of the enforcement of all
claims against the debtor, its guarantors and sureties not
solidarily liable with the mortgagor.
Furthermore, the newly adopted Rules of Procedure on
Corporate Rehabilitation has a specific provision for this special
arrangement among a debtor, its creditor and its
accommodation mortgagor. Section 7(b), Rule 3 of the said
Rules explicitly allows the foreclosure by a creditor of a
property not belonging to a debtor under corporate
rehabilitation, as it provides:
SEC. 7. Stay Order.— x x x (b) staying enforcement of all claims,
whether for money or otherwise and whether such
enforcement is by court action or otherwise, against the debtor,
its guarantors and 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[.]47
Thus, there is no question that the action of the rehabilitation
court in G.R. No. 178768 was justified.
The Court of Appeals made reference to two principles in
corporation law. The first pertains to transactions between
corporations with interlocking directors resulting in the
prejudice to one of the corporations. This rule does not apply in
this case, however, since the corporation allegedly prejudiced
(Remington) is a third party, not one of the corporations with
interlocking directors (Marinduque Mining and DBP).
The second principle invoked by respondent court involves
"directors x x x who are creditors" which is also inapplicable
herein. Here, the creditor of Marinduque Mining is DBP, not the
directors of Marinduque Mining.
Neither do we discern any bad faith on the part of DBP by its
creation of Nonoc Mining, Maricalum and Island Cement. As
Remington itself concedes, DBP is not authorized by its charter
to engage in the mining business.13 The creation of the three
corporations was necessary to manage and operate the assets
covered by the previous Deed of Real and Chattel Mortgage dated October 7,
1978. Apparently, Marinduque Mining had also obtained loans totaling P2
Billion from DBP, exclusive of interest and charges.2
On April 27, 1984, Marinduque Mining executed in favor of PNB and DBP an
Amendment to Mortgage Trust Agreement by virtue of which Marinduque
Mining mortgaged in favor of PNB and DBP all other real and personal
properties and other real rights subsequently acquired by Marinduque
Mining.3
For failure of Marinduque Mining to settle its loan obligations, PNB and DBP
instituted sometime on July and August 1984 extrajudicial foreclosure
proceedings over the mortgaged properties.
the ensuing public auction sale conducted on, PNB and DBP emerged and were
declared the highest bidders over the foreclosed real properties, buildings,
mining claims, leasehold rights together with the improvements thereon as
well as machineries.
PNB and DBP thereafter thru a Deed of Transfer dated August 31, 1984,
purposely, in order to ensure the continued operation of the Nickel refinery
plant and to prevent the deterioration of the assets foreclosed, assigned and
transferred to Nonoc Mining and Industrial Corporation all their rights,
interest and participation over the foreclosed properties of MMIC located at
Nonoc Island, Surigao del Norte
Likewise, thru [sic] a Deed of Transfer dated June 6, 1984, PNB and DBP
assigned and transferred in favor of Maricalum Mining Corp. all its rights,
interest and participation over the foreclosed properties of MMIC at Sipalay,
Negros Occidental
In the meantime, between July 16, 1982 to October 4, 1983, Marinduque
Mining purchased and caused to be delivered construction materials and other
merchandise from Remington Industrial Sales Corporation (Remington). The
purchases remained unpaid as of August 1, 1984 when Remington filed a
complaint for a sum of money and damages against Marinduque Mining for the
value of the unpaid construction materials and other merchandise purchased
by Marinduque Mining, as well as interest, attorney's fees and the costs of suit.
On September 7, 1984, Remington's original complaint was amended to
include PNB and DBP as co-defendants in view of the foreclosure by the
latter of the real and chattel mortgages on the real and personal property.
Remington filed a second amended complaint to include as additional
defendant, the Nonoc Mining and Industrial Corporation (Nonoc Mining).
Nonoc Mining is the assignee of all real and personal properties, chattels,
machinery, equipment and all other assets of Marinduque Mining at its Nonoc
acquired in the foreclosure sale lest they deteriorate from non-
use and lose their value. In the absence of any entity willing to
purchase these assets from the bank, what else would it do with
these properties in the meantime? Sound business practice
required that they be utilized for the purposes for which they
were intended.
Remington also asserted in its third amended complaint that
the use of Nonoc Mining, Maricalum and Island Cement of the
premises of Marinduque Mining and the hiring of the latter's
officers and personnel also constitute badges of bad faith.
Assuming that the premises of Marinduque Mining were not
among those acquired by DBP in the foreclosure sale,
convenience and practicality dictated that the corporations so
created occupy the premises where these assets were found
instead of relocating them. No doubt, many of these assets are
heavy equipment and it may have been impossible to move
them. The same reasons of convenience and practicality, not to
mention efficiency, justified the hiring by Nonoc Mining,
Maricalum and Island Cement of Marinduque Mining's
personnel to manage and operate the properties and to
maintain the continuity of the mining operations.
To reiterate, the doctrine of piercing the veil of corporate fiction
applies only when such corporate fiction is used to defeat
public convenience, justify wrong, protect fraud or defend
crime.14 To disregard the separate juridical personality of a
corporation, the wrongdoing must be clearly and convincingly
established. It cannot be presumed.15 In this case, the Court
finds that Remington failed to discharge its burden of proving
bad faith on the part of Marinduque Mining and its transferees
in the mortgage and foreclosure of the subject properties to
justify the piercing of the corporate veil.
The Court of Appeals also held that there exists in
Remington's favor a "lien" on the unpaid purchases of
Marinduque Mining, and as transferee of these purchases,
DBP should be held liable for the value thereof.
In the absence of liquidation proceedings, however, the
claim of Remington cannot be enforced against DBP. Article
2241 of the Civil Code provides:
ARTICLE 2241. With reference to specific movable
property of the debtor, the following claims or liens
shall be preferred:
 Nickel Factory in Surigao del Norte.6
Remington filed a third amended complaint including the Maricalum
Mining Corporation (Maricalum Mining) and Island Cement Corporation
(Island Cement) as co-defendants.
On April 3, 1989, Remington filed a motion for leave to file a fourth amended
complaint impleading the Asset Privatization Trust (APT) as co-defendant.
Upon appeal by PNB, DBP, Nonoc Mining, Maricalum Mining, Island Cement
and APT, the Court of Appeals, in its Decision dated October 6, 1995, affirmed
the decision of the RTC. Petitioner filed a Motion for Reconsideration, which
was denied in the Resolution dated August 29, 1996.
Hence, this petition, DBP maintaining that Remington has no cause of action
against it or PNB, nor against their transferees, Nonoc Mining, Island Cement,
Maricalum Mining, and the APT.
On the other hand, private respondent Remington submits that the transfer of
the properties was made in fraud of creditors. The presence of fraud,
according to Remington, warrants the piercing of the corporate veil such that
Marinduque Mining and its transferees could be considered as one and the
same corporation. The transferees, therefore, are also liable for the value of
Marinduque Mining's purchases
G.R. No. 98334 May 8, 1992 Private respondents, Spouses Dolino, alarmed of losing their right of
redemption over thesubject parcel of land from Juan Gandiocho, purchaser of
MANUEL D. MEDIDA, the aforesaid lot at a foreclosure sale ofthe previous mortgage in favor of Cebu
Deputy Sheriff of the City Development Bank, went to Teotimo Abellana,President of the City
Province of Cebu, CITY Savings Bank (formerly known as Cebu City Savings and LoanAssociation,
SAVINGS BANK (formerly Inc.), to obtain a loan of P30, 000. Prior thereto, their son Teofredo filed a
Whether or not a mortgage, whose
property has been extrajudicially
foreclosed and sold ata corresponding
foreclosure sale, may validly execute
a mortgage contract over the
same property in favor of a third
xxx xxx xxx
(3) Claims for the unpaid price of movables sold, on
said movables, so long as they are in the possession of
the debtor, up to the value of the same; and if the
movable has been resold by the debtor and the price is
still unpaid, the lien may be enforced on the price; this
right is not lost by the immobilization of the thing by
destination, provided it has not lost its form,
substance and identity, neither is the right lost by the
sale of the thing together with other property for a
lump sum, when the price thereof can be determined
proportionally;
(4) Credits guaranteed with a pledge so long as the
things pledged are in the hands of the creditor, or
those guaranteed by a chattel mortgage, upon the
things pledged or mortgaged, up to the value thereof;
Ruling in the DE barreto case applied:
that one preferred creditor's third-party claim to the
proceeds of a foreclosure sale (as in the case now before
us) is not the proceeding contemplated by law for the
enforcement of preferences under Article 2242, unless
the claimant were enforcing a credit for taxes that
enjoy absolute priority. If none of the claims is for taxes,
a dispute between two creditors will not enable the
Court to ascertain the pro rata dividend corresponding
to each, because the rights of the other creditors
likewise enjoying preference under Article 2242 can not
be ascertained. Wherefore, the order of the Court of
First Instance of Manila now appealed from, decreeing
that the proceeds of the foreclosure sale be
apportioned only between appellant and appellee, is
incorrect, and must be reversed. [Emphasis supplied]
Although Barretto involved specific immovable property, the
ruling therein should apply equally in this case where specific
movable property is involved. As the extrajudicial foreclosure
instituted by PNB and DBP is not the liquidation proceeding
contemplated by the Civil Code, Remington cannot claim its pro
rata share from DBP.
It is undisputed that the real estate mortgage in favor of
petitioner bank was executed byrespondent spouses during the
period of redemption. During the said period it cannot be said
thatthe mortgagor is no longer the owner of the foreclosed
property since the rule up to now is the right of a purchaser of a
foreclosure sale is merely inchoate until after the period of
Cebu City Savings and Loan
Association, Inc.) and
TEOTIMO
ABELLANA, petitioners,
vs.
COURT OF APPEALS and
SPS. ANDRES DOLINO and
PASCUALA
DOLINO, respondents.
Gines N. Abellana for
petitioners.
Dionisio U. Flores for private
respondents.
REGALADO, J.:
G.R. No. 176019
January 12, 2011
BPI FAMILY SAVINGS BANK,
INC., Petitioner,
vs.
GOLDEN POWER DIESEL
SALES CENTER, INC. and
RENATO C.
TAN, Respondents.
CARPIO, J.:
similar loan application and the subject lot was offered as security.
Subsequently they executed a promissory note in favor of CSB.
The loan became due and demandable without the spouses Dolino paying the
same, petitioner association caused the extrajudicial foreclosure of the
mortgage. The land was sold at a public auction to CSB being the highest
bidder. A certificate of sale was subsequently issued which was also
registered. No redemption was being effected by Sps. Dolino, their title to the
property was cancelled and a new title was issued in favor of CSB.Sps. Dolino
then filed a case to annul the sale at public auction and for the cancellation
ofcertificate of sale issued pursuant thereto, alleging that the extrajudicial
foreclosure sale was in violation of Act 3135, as amended. The trial court
sustained the validity of the loan and the real estate mortgage, but annulled
the extrajudicial foreclosure on the ground that it failed to comply with the
notice requirement of Act 3135.
Not satisfied with the ruling of the trial court, Sps. Dolino interposed a partial
appeal to the CA,assailing the validity of the mortgage executed between them
and City Savings Bank, among others. The CA ruled in favor of private
respondents declaring the said mortgage as void.
On 26 October 1994, CEDEC Transport, Inc. (CEDEC) mortgaged two parcels of
land situated in Malibay, Pasay City, including all the improvements thereon
(properties), in favor of BPI Family to secure a loan of ₱6,570,000. On the same
day, the mortgage was duly annotated on the titles. On 5 April and 27
November 1995, CEDEC obtained from BPI Family additional loans of
₱2,160,000 and ₱1,140,000, respectively, and again mortgaged the same
properties. These latter mortgages were duly annotated on the titles under
Entry Nos. 95-6861 and 95-11041, respectively, on the same day the loans
were obtained.
Despite demand, CEDEC defaulted in its mortgage obligations. On 12 October
1998, BPI Family filed with the ex-officio sheriff of the Regional Trial Court of
Pasay City (RTC) a verified petition for extrajudicial foreclosure of real estate
mortgage over the properties under Act No. 3135, as amended.4
BPI Family, as the highest bidder, acquired the properties for ₱13,793,705.31.
On 15 May 1999, the one-year redemption period expired without CEDEC
redeeming the properties. Thus, the titles to the properties were consolidated
in the name of BPI Family.
However, despite several demand letters, CEDEC refused to vacate the
properties and to surrender possession to BPI Family. On 31 January 2002,
BPI Family filed an Ex-Parte Petition for Writ of Possession over the properties
with Branch 114 of the Regional Trial Court of Pasay City (trial court). In its 27
June 2002 Decision, the trial court granted BPI Familyʼs petition.5 On 12 July
2002, the trial court issued the Writ of Possession.
party during the period of
redemption.
A.
The Honorable Court of Appeals
seriously erred in upholding the
finding of the Honorable Regional
Trial Court that despite the fact that
private respondents merely stepped
into the shoes of mortgagor CEDEC,
being the vendee of the properties in
question, they are categorized as
third persons in possession thereof
who are claiming a right adverse to
that of the debtor/mortgagor CEDEC.
B.
The Honorable Court of Appeals
gravely erred in sustaining the
aforementioned twin orders
suspending the implementation of the
writ of possession on the ground that
the annulment case filed by private
respondents is still pending despite
the established ruling that pendency
of a case questioning the legality of a
mortgage or auction sale cannot be a
ground for the non-issuance and/or
non-implementation of a writ of
redemption has expired without the right being exercised. The
title to the land sold under mortgage foreclosure remains in the
mortgagor or his grantee until the expiration of the redemption
period and the conveyance of the master deed. The mortgagor
remains as the absolute owner of the property during the
redemption period and has the free disposal of his property,
there would be compliance with Article. 2085 of the CivilCode
for the constitution of another mortgage on the property. To
hold otherwise would createan inequitable situation wherein
the mortgagor would be deprived of the opportunity, which
may be his last recourse, to raise funds to timely redeem his
property through another mortgage.
In extrajudicial foreclosures of real estate mortgages, the
issuance of a writ of possession is governed by Section 7 of Act
No. 3135, as amended,
In China Banking Corporation v. Lozada,17 we ruled:
It is thus settled that the buyer in a foreclosure sale becomes
the absolute owner of the property purchased if it is not
redeemed during the period of one year after the registration of
the sale. As such, he is entitled to the possession of the said
property and can demand it at any time following the
consolidation of ownership in his name and the issuance to him
of a new transfer certificate of title. The buyer can in fact
demand possession of the land even during the redemption
period except that he has to post a bond in accordance with
Section 7 of Act No. 3135, as amended. No such bond is
required after the redemption period if the property is not
redeemed. Possession of the land then becomes an absolute
right of the purchaser as confirmed owner. Upon proper
application and proof of title, the issuance of the writ of
possession becomes a ministerial duty of the
court.18 (Emphasis supplied)
Thus, the general rule is that a purchaser in a public auction
sale of a foreclosed property is entitled to a writ of possession
and, upon an ex parte petition of the purchaser, it is ministerial
upon the trial court to issue the writ of possession in favor of
On 29 July 2002, respondents Golden Power Diesel Sales Center, Inc. and
Renato C. Tan6 (respondents) filed a Motion to Hold Implementation of the
Writ of Possession.7 Respondents alleged that they are in possession of the
properties which they acquired from CEDEC on 10 September 1998 pursuant
to the Deed of Absolute Sale with Assumption of Mortgage (Deed of
Sale).8 Respondents argued that they are third persons claiming rights adverse
to CEDEC, the judgment obligor and they cannot be deprived of possession
over the properties. Respondents also disclosed that they filed a complaint
before Branch 111 of the Regional Trial Court of Pasay City, docketed as Civil
Case No. 99-0360, for the cancellation of the Sheriffʼs Certificate of Sale and an
order to direct BPI Family to honor and accept the Deed of Absolute Sale
between CEDEC and respondents.9
On 12 September 2002, the trial court denied respondents’
motion.10 Thereafter, the trial court issued an alias writ of possession which
was served upon CEDEC and all other persons claiming rights under them.
On 11 February 2003, BPI Family filed an Urgent Motion to Compel Honorable
Sheriff and/or his Deputy to Enforce Writ of Possession and to Break Open the
properties. In its 7 March 2003 Resolution, the trial court denied BPI Familyʼs
motion and ordered the sheriff to suspend the implementation of the alias writ
of possession.12 According to the trial court, "the order granting the alias writ
of possession should not affect third persons holding adverse rights to the
judgment obligor." The trial court admitted that in issuing the first writ of
possession it failed to take into consideration respondents’ complaint before
Branch 111 claiming ownership of the property. The trial court also noted that
respondents were in actual possession of the properties and had been
updating the payment of CEDECʼs loan balances with BPI Family. Thus, the
trial court found it necessary to amend its 12 September 2002 Order and
suspend the implementation of the writ of possession until Civil Case No. 99-
0360 is resolved.
BPI Family then filed a petition for mandamus and certiorari with application
for a temporary restraining order or preliminary injunction before the Court
of Appeals. BPI Family argued that the trial court acted with grave abuse of
discretion amounting to lack or excess of jurisdiction when it ordered the
suspension of the implementation of the alias writ of possession. According to
BPI Family, it was the ministerial duty of the trial court to grant the writ of
possession in its favor considering that it was now the owner of the properties
and that once issued, the writ should be implemented without delay.
The Court of Appeals dismissed BPI Familyʼs petition.
The Court of Appeals ruled that the trial court did not commit grave abuse of
discretion in suspending the implementation of the alias writ of possession
because respondents were in actual possession of the properties and are
claiming rights adverse to CEDEC, the judgment obligor. According to the
Court of Appeals, the principle that the implementation of the writ of
possession is a mere ministerial function of the trial court is not without
possession.15 the purchaser.
There is, however, an exception. Section 33, Rule 39 of the Rules
of Court provides:
Section 33. Deed and possession to be given at expiration of
redemption period; by whom executed or given. - x x x
Upon the expiration of the right of redemption, the purchaser
or redemptioner shall be substituted to and acquire all the
rights, title, interest and claim of the judgment obligor to the
property as of the time of the levy. The possession of the
property shall be given to the purchaser or last redemptioner
by the same officer unless a third party is actually holding
the property adversely to the judgment obligor. (Emphasis
supplied)
Therefore, in an extrajudicial foreclosure of real property, when
the foreclosed property is in the possession of a third party
holding the same adversely to the judgment obligor, the
issuance by the trial court of a writ of possession in favor of the
purchaser of said real property ceases to be ministerial and
may no longer be done ex parte.19 The procedure is for the trial
court to order a hearing to determine the nature of the adverse
possession.20 For the exception to apply, however, the property
need not only be possessed by a third party, but also held by the
third party adversely to the judgment obligor
Respondentsʼ argument fails to persuade the Court. It is clear
that respondents acquired possession over the properties
pursuant to the Deed of Sale which provides that for
₱15,000,000 CEDEC will "sell, transfer and convey" to
respondents the properties "free from all liens and
encumbrances excepting the mortgage as may be subsisting in
favor of the BPI FAMILY SAVINGS BANK."21 Moreover, the Deed
of Sale provides that respondents bind themselves to assume
"the payment of the unpaid balance of the mortgage
indebtedness of the VENDOR (CEDEC) amounting to
₱7,889,472.48, as of July 31, 1998, in favor of the
aforementioned mortgagee (BPI Family) by the mortgage
instruments and does hereby further agree to be bound by the
precise terms and conditions therein contained."
Therefore, respondents hold title to and possess the properties
as CEDECʼs transferees and any right they have over the
properties is derived from CEDEC. As transferees of CEDEC,
respondents merely stepped into CEDEC’s shoes and are
necessarily bound to acknowledge and respect the mortgage
CEDEC had earlier executed in favor of BPI
 exception. The Court of Appeals held that the obligation of the court to issue Family.25 Respondents are the successors-in-interest of CEDEC
an ex parte writ of possession in favor of the purchaser in an extrajudicial and thus, respondentsʼ occupancy over the properties cannot be
foreclosure sale ceases to be ministerial once it appears that there is a third considered adverse to CEDEC.
party in possession of the property who is claiming a right adverse to that of
the debtor or mortgagor
Moreover, in China Bank v. Lozada,26 we discussed the meaning
of "a third party who is actually holding the property
adversely to the judgment obligor." We stated:

The exception provided under Section 33 of Rule 39 of the

Revised Rules of Court contemplates a situation in which a
third party holds the property by adverse title or right,
such as that of a co-owner, tenant or usufructuary. The co-
owner, agricultural tenant, and usufructuary possess the
property in their own right, and they are not merely the
successor or transferee of the right of possession of
another co-owner or the owner of the property.

In this case, respondents cannot claim that their right to

possession over the properties is analogous to any of
these.1avvphi1Respondents cannot assert that their right of
possession is adverse to that of CEDEC when they have no
independent right of possession other than what they acquired
from CEDEC. Since respondents are not holding the properties
adversely to CEDEC, being the latterʼs successors-in-interest,
there was no reason for the trial court to order the suspension
of the implementation of the writ of possession.

Furthermore, it is settled that a pending action for annulment of

mortgage or foreclosure sale does not stay the issuance of the
writ of possession.28 The trial court, where the application for a
writ of possession is filed, does not need to look into the validity
of the mortgage or the manner of its foreclosure.29 The
purchaser is entitled to a writ of possession without prejudice
to the outcome of the pending annulment case.
G.R. No. L- The defendant Segundo Fernando executed a deed of mortgage in favor of Whether the contract between the MORTGAGE.
15128 August 25, plaintiffCecilio Diego over 2 parcels of land registered in his name, to secure a parties is one of mortgage or of Ø Appellant, while admitting that the contract Exhibit "A" shows a
1960 loan P2,000,without interest, payable within 4 years. After the execution, antichresis. deed of mortgage, contends that the admitted fact that the loan
possession of the mortgaged properties was turned over to the mortgagee. was without interest, coupled with the transfer of the
CECILIO DIEGO, plaintiff- Fernando failed to pay after four years, with Diego having made several possession of the properties mortgaged to the mortgagee,
appellee, demands. Hence this action for foreclosure of mortgage. reveals that the true transaction between him and appellee was
vs. Fernando claims that the transaction was one of antichresis and not of one of antichresis.
SEGUNDO mortgage. Also Diego had allegedly received a total of 120 cavans of palay
FERNANDO, defendant- from the properties given assecurity, which, at the rate of P10 a cavan, It is not an essential requisite of a mortgage that possession of
appellant. represented a value of P5,200. Hence hisdebt had already been paid, with the mortgaged premises be retained by the mortagagor. To be
Diego still owing him a refund of some P2,720. antichresis, it must be expressly agreed between creditor
and debtor that the former, having been given possession
Espinosa Law Offices for The CFI found that it was really a mortgage and that the fact that possession of of the properties given as security, is to apply their fruits to
appellant. the mortgaged properties were turned over to the mortgagee did not alter the the payment of the interest, if owing, and thereafter to the
N.L. Dasig and C.L. Francisco
for appellee. transaction. The parties must have intended that the mortgagee would collect
the fruits of the mortgaged properties as interest on his loan, which agreement
REYES, J.B.L., J.: is not uncommon. Also Diego has already received 55 cavans of
palay during his possession. Hence the CFI ordered Fernando to pay Diego 2K
with interest and upon default, for the foreclosure. Hence this appeal
G.R. No. 224764 On December 23, 2011, respondent Lepanto Ceramics, Inc. (LCI) - a
corporation duly organized and existing under Philippine Laws with principal
BUREAU OF INTERNAL office address in Calamba City, Laguna - filed a petition 4 for corporate
REVENUE, ASSISTANT rehabilitation pursuant to Republic Act No. (RA) 10142, 5 otherwise known as
COMMISSIONER ALFREDO the "Financial Rehabilitation and Insolvency Act (FRIA) of 2010," docketed
V. MISAJON, GROUP before the RTC ofCalamba City, Branch 34, the designated Special Commercial
SUPERVISOR ROLANDO M. Court in Laguna (Rehabilitation Court). Essentially, LCI alleged that due to the
BALBIDO, and EXAMINER financial difficulties it has been experiencing dating back to the Asian financial
REYNANTE DP. crisis, it had entered into a state of insolvency considering its inability to pay
MARTIREZ, Petitioners, its obligations as they become due and that its total liabilities amounting to
vs. ₱4,213 ,682, 715. 00 far exceed its total assets worth ₱1,112,723,941.00.
LEPANTO CERAMICS, Notably, LCI admitted in the annexes attached to the aforesaid Petition its tax
INC., Respondent. liabilities to the national government in the amount of at least ₱6,355,368.00.6
PERLAS-BERNABE,, J.: On January 13, 2012, the Rehabilitation Court issued a Commencement
Order,7 which, inter alia: (a) declared LCI to be under corporate rehabilitation;
(b) suspended all actions or proceedings, in court or otherwise, for the
enforcement of claims against LCI; (c) prohibited LCI from making any
payment of its liabilities outstanding as of even date, except as may be
provided under RA 10142; and (d) directed the BIR to file and serve on LCI its
comment or opposition to the petition, or its claims against LCI. 8 Accordingly,
the Commencement Order was published in a newspaper of general
circulation and the same, together with the petition for corporate
rehabilitation, were personally served upon LCI's creditors, including the BIR.9
Despite the foregoing, Misajon, et al., acting as Assistant Commissioner, Group
Supervisor, and Examiner, respectively, of the BIR's Large Taxpayers Service,
sent LCI a notice of informal conference10 dated May 27, 2013, informing the
latter of its deficiency internal tax liabilities for the Fiscal Year ending June 30,
2010.
G.R. No. 112991 March 20, On July 5, 1985, the Pacific Banking Corporation (PaBC) was placed under
1995 receivership by the Central Bank of the Philippines pursuant to Resolution No.
699 of its Monetary Board. A few months later, it was placed under
THE PRESIDENT OF THE liquidation1 and a Liquidator was appointed.2
PHILIPPINE DEPOSIT
INSURANCE On April 7, 1986, the Central Bank filed with the Regional Trial Court of Manila
CORPORATION, Branch 31, a petition entitled "Petition for Assistance in the Liquidation of
vs. Pacific Banking Corporation." 3 The petition was approved, after which
The issue for the Court's resolution is
whether or not the RTC Br. 35
correctly found Misajon, et al. to have
defied the Commencement Order and,
accordingly, cited them for indirect
contempt.
whether a petition for liquidation
under §29 of Rep. Act No. 265,
otherwise known as the Central Bank
Act, is a special proceeding or an
ordinary civil action
principal of his credit (Art. 2132, Civil Code); so that if a
contract of loan with security does not stipulate the payment of
interest but provides for the delivery to the creditor by the
debtor of the property given as security, in order that the latter
may gather its fruits, without stating that said fruits are to be
applied to the payment of interest, if any, and afterwards
that of the principal, the contract is a mortgage and not
antichresis.
Formal Letter of Demand32 dated May 9, 2014, requiring LCI to
pay deficiency taxes in the amount of P567,5 l 9,348.39,
notwithstanding the written reminder coming from LCI's court-
appointed receiver of the pendency of rehabilitation
proceedings concerning LCI and the issuance of a
commencement order. Notably, the acts of sending a notice of
informal conference and a Formal Letter of Demand are part
and parcel of the entire process for the assessment and
collection of deficiency taxes from a delinquent taxpayer,33 - an
action or proceeding for the enforcement of a claim which
should have been suspended pursuant to the Commencement
Order. Unmistakably, Misajon, et al. 's foregoing acts are in clear
defiance of the Commencement Order.
Petitioners' insistence that: (a) Misajon, et al. only performed
such acts to toll the prescriptive period for the collection of
deficiency taxes; and (b) to cite them in indirect contempt
would unduly interfere with their function of collecting taxes
due to the government, cannot be given any credence. As aptly
put by the RTC Br. 35, they could have easily tolled the running
of such prescriptive period, and at the same time, perform their
functions as officers of the BIR, without defying the
Commencement Order and without violating the laudable
purpose of RA 10142 by simply ventilating their claim before
the Rehabilitation Court.34 After all, they were adequately
notified of the LCI's corporate rehabilitation and the issuance of
the corresponding Commencement Order. In sum, it was
improper for Misajon, et al. to collect, or even attempt to collect,
deficiency taxes from LCI outside of the rehabilitation
proceedings concerning the latter, and in the process, willfully
disregard the Commencement Order lawfully issued by the
Rehabilitation Court. Hence, the RTC Br. 35 correctly cited them
for indirect contempt.35
A petition for liquidation of an insolvent corporation should be
classified a special proceeding and not an ordinary action.
Such petition does not seek the enforcement or protection of a
right nor the prevention or redress of a wrong against a party. It
does not pray for affirmative relief for injury arising from a
party's wrongful act or omission nor state a cause of action that
can be enforced against any person.
COURT OF APPEALS, creditors filed their claims with the court.
MENDOZA, J.: On May 17, 1991, a new Liquidator, Vitaliano N. Nañagas,4 President of the
Philippine Deposit Insurance Corporation (PDIC), was appointed by the
Central Bank.
On March 13, 1989 the Pacific Banking Corporation Employees Organization
(Union for short), petitioner in G.R. No. 109373, filed a complaint-in-
intervention seeking payment of holiday pay, 13th month pay differential,
salary increase differential, Christmas bonus, and cash equivalent of Sick Leave
Benefit due its members as employees of PaBC. In its order dated September
13, 1991, the trial court ordered payment of the principal claims of the Union.5
The Liquidator received a copy of the order on September 16, 1991. On
October 16, 1991, he filed a Motion for Reconsideration and Clarification of the
order. In his order of December 6, 1991, the judge modified his September 13,
19916 but in effect denied the Liquidator's motion for reconsideration. This
order was received by the Liquidator on December 9, 1991. The following day,
December 10, 1991, he filed a Notice of Appeal and a Motion for Additional
Time to Submit Record on Appeal. On December 23, 1991, another Notice of
Appeal was filed by the Office of the Solicitor General in behalf of Nañagas.
Ang Keong Lan and E.J. Ang Int'l., private respondents in G.R. No. 112991,
likewise filed claims for the payment of investment in the PaBC allegedly in the
form of shares of stocks amounting to US$2,531,632.18. The shares of stocks,
consisting of 154,462 common shares, constituted 11% of the total subscribed
capital stock of the PaBC. They alleged that their claim constituted foreign
exchange capital investment entitled to preference in payment under the
Foreign Investments Law.
In his order dated September 11, 1992, respondent judge of the RTC directed
the Liquidator to pay private respondents the total amount of their claim as
preferred creditors.
What it seeks is merely a declaration by the trial court of
the corporation's insolvency so that its creditors may be
able to file their claims in the settlement of the
corporation's debts and obligations. Put in another way, the
petition only seeks a declaration of the corporation's debts and
obligations. Put in another way, the petition only seeks a
declaration of the corporation's state of insolvency and the
concomitant right of creditors and the order of payment of
their claims in the disposition of the corporation's assets
Contrary to the rulings of the Fourteenth Division, liquidation
proceedings do not resemble petitions for interpleader. For
one, an action for interpleader involves claims on a subject
matter against a person who has no interest therein. 12 This is
not the case in a liquidation proceeding where the Liquidator,
as representative of the corporation, takes charge of its assets
and liabilities for the benefit of the creditors.13 He is thus
charged with insuring that the assets of the corporation are
paid only to rightful claimants and in the order of payment
provided by law.
Rather, a liquidation proceeding resembles the proceeding
for the settlement of state of deceased persons under Rules
73 to 91 of the Rules of Court. The two have a common
purpose: the determination of all the assets and the
payment of all the debts and liabilities of the insolvent
corporation or the estate. The Liquidator and the
administrator or executor are both charged with the assets for
the benefit of the claimants. In both instances, the liability of the
corporation and the estate is not disputed. The court's concern
is with the declaration of creditors and their rights and the
determination of their order of payment
A liquidation proceeding is a single
proceeding which consists of a number of
cases properly classified as "claims." It is
basically a two-phased proceeding. The first
phase is concerned with the approval and
disapproval of claims. Upon the approval of
the petition seeking the assistance of the
proper court in the liquidation of a close
entity, all money claims against the bank
are required to be filed with the
liquidation court. This phase may end with
the declaration by the liquidation court that
the claim is not proper or without basis. On
the other hand, it may also end with the
liquidation court allowing the claim. In the
latter case, the claim shall be classified
whether it is ordinary or preferred, and
thereafter included Liquidator. In either
case, the order allowing or disallowing a
particular claim is final order, and may be
appealed by the party aggrieved thereby.

The second phase involves the approval by

the Court of the distribution plan
prepared by the duly appointed
liquidator. The distribution plan specifies in
detail the total amount available for
distribution to creditors whose claim were
earlier allowed. The Order finally disposes of
the issue of how much property is available
for disposal. Moreover, it ushers in the final
phase of the liquidation proceeding —
payment of all allowed claims in accordance
with the order of legal priority and the
approved distribution plan.

Verily, the import of the final character of an

Order of allowance or disallowance of a
particular claim cannot be overemphasized.
It is the operative fact that constitutes a
liquidation proceeding a "case where
multiple appeals are allowed by law." The
issuance of an Order which, by its nature,
affects only the particular claims involved,
and which may assume finality if no appeal is
made therefrom, ipso facto creates a
situation where multiple appeals are
allowed.

A liquidation proceeding is commenced by

the filing of a single petition by the Solicitor
General with a court of competent
jurisdiction entitled, "Petition for Assistance
in the Liquidation of e.g., Pacific Banking
Corporation. All claims against the insolvent
are required to be filed with the liquidation
court. Although the claims are litigated in the
same proceeding, the treatment is individual.
Each claim is heard separately. And the
Order issued relative to a particular claim
applies only to said claim, leaving the other
claims unaffected, as each claim is
considered separate and distinct from the
others. Obviously, in the event that an appeal
from an Order allowing or disallowing a

G.R. No. 175844 July In 1997, Sarabia obtained a ₱150,000,000.00 special loan package from Far
29, 2013 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
BANK OF THE PHILIPPINE hotel business. An additional ₱20,000,000.00 stand-by credit line was
ISLANDS, Petitioner, approved by FEBTC in the same year.7
vs.
SARABIA MANOR HOTEL The foregoing debts were secured by real estate mortgages over several
CORPORATION, Respondent. 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 FEBTC’s rights against
DECISION
Sarabia.10
PERLAS-BERNABE, J.:
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.
Finding Sarabia’s rehabilitation petition sufficient in form and substance, the
RTC issued a Stay Order18 on August 2, 2002. It also appointed Liberty B.
Valderrama as Sarabia’s rehabilitation receiver (Receiver). Thereafter, BPI
filed its Opposition.19
whether or not the CA correctly
affirmed Sarabia’s rehabilitation plan
as approved by the RTC, with the
modification on the reinstatement of
the surety obligations of Sarabia’s
stockholders.
particular claim is made, only said claim is
affected, leaving the others to proceed with
their ordinary course. In such case, the
original records of the proceeding are not
elevated to the appellate court. They remain
with the liquidation court. In lieu of the
original record, a record of appeal is instead
required to be prepared and transmitted to
the appellate court.
Inevitably, multiple appeals are allowed in liquidation
proceedings. Consequently, a record on appeal is necessary in
each and every appeal made. Hence, the period to appeal
therefrom should be thirty (30) days, a record on appeal being
required
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.
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 corporation’s total
liabilities if there is a showing that rehabilitation is feasible
and the 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.
Sarabia has the financial capability to undergo
rehabilitation.

Second, Sarabia has the ability to have sustainable profits

over a long period of time.

Third, the interests of Sarabia’s creditors are well-

protected.

Therefore, based on the above-stated reasons, the Court finds

Sarabia’s rehabilitation to be feasible.

, 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 creditor’s opposition is manifestly
unreasonable.

In this case, the Court finds BPI’s 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 Sarabia’s projected
rehabilitation; and (b) on the contrary, BPI’s 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 well-preserved.