Insolvency and Rehabilitation Cases

7/17/2019 Insolvency and Rehabilitation Cases

http://slidepdf.com/reader/full/insolvency-and-rehabilitation-cases 1/37

Republic of the Philippines

SUPREME COURT

Manila

EN BANC

G.R. No. 74851 December 9, 1999

RIZAL COMMERCIAL AN!ING CORPORATION, petitioner,

vs.

INTERMEDIATE APPELLATE COURT AND " #OMES, INC., respondents.

R E S O L ! " O N

MELO, J.:

On Septe#ber $%, $&&', the Court passed upon the case at bar and rendered its decision, dis#issin( the petition of Ri)al

Co##ercial Ban*in( Corporation +RCBC, thereb- affir#in( the decision of the Court of Appeals hich canceled the

transfer certificate of title issued in favor of RCBC, and reinstatin( that of respondent B/ 0o#es.

!his ill no resolve petitioner1s #otion for reconsideration hich, althou(h filed in $&&' as not dee#ed sub#itted for

resolution until in late $&&2. !he dela- as occasioned b- e3chan(e of pleadin(s, the sub#ission of supple#ental papers

ithdraal and chan(e of la-ers, not to spea* of the case havin( been passed fro# one departin( to another retirin(

4ustice. "t as not until Ma- 5, $&&&, hen the case as re6raffled to herein ponente, but the record as (iven to hi# onl-

so#eti#e in the late October $&&&.

B- a- of revie, the pertinent facts as stated in our decision are reproduced herein, to it7

On Septe#ber '2, $&2%, B/ 0o#es filed a 8Petition for Rehabilitation and for 9eclaration of Suspension

of Pa-#ents8 +SEC Case No. ::';&5 ith the Securities and E3chan(e Co##ission +SEC.

One of the creditors listed in its inventor- of creditors and liabilities as RCBC.

On October ';, $&2%, RCBC re<uested the Provincial Sheriff of Ri)al to e3tra64udiciall- foreclose its real

estate #ort(a(e on so#e properties of B/ 0o#es. A notice of e3tra64udicial foreclosure sale as issued

b- the Sheriff on October '&, $&2%, scheduled on Nove#ber '&, $&2%, copies furnished both B/ 0o#es

+#ort(a(or and RCBC +#ort(a(ee.

On #otion of B/ 0o#es, the SEC issued on Nove#ber '2, $&2% in SEC Case No. ::';&5 a te#porar-restrainin( order +!RO, effective for ': da-s, en4oinin( RCBC and the sheriff fro# proceedin( ith the

public auction sale. !he sale as rescheduled to =anuar- '&, $&2>.

On =anuar- '>, $&2>, the SEC ordered the issuance of a rit of preli#inar- in4unction upon petitioner1s

filin( of a bond. 0oever, petitioner did not file a bond until =anuar- '&, $&2>, the ver- da- of the auction

sale, so no rit of preli#inar- in4unction as issued b- the SEC. Presu#abl-, unaare of the filin( of the

bond, the sheriffs proceeded ith the public auction sale on =anuar- '&, $&2>, in hich RCBC as the

hi(hest bidder for the properties auctioned.

1



On /ebruar- >, $&2>, B/ 0o#es filed in the SEC a consolidated #otion to annul the auction sale and to

cite RCBC and the sheriff for conte#pt. RCBC opposed the #otion

Because of the proceedin(s in the SEC, the sheriff ithheld the deliver- to RCBC of a certificate of sale

coverin( the auctioned properties.

On /ebruar- $5, $&2>, the SEC in Case No. ::';&5 belatedl- issued a rit of preli#inar- in4unction

stoppin( the auction sale hich had been conducted b- the sheriff to ee*s earlier.

On March $5, $&2>, despite SEC Case No. ::';&5, RCBC filed ith the Re(ional !rial Court, Br. $%:,

Ri)al +CC $::%' an action for mandamus a(ainst the provincial sheriff of Ri)al and his deput- to co#pel

the# to e3ecute in its favor a certificate of sale of the auctioned properties.

"n anser, the sheriffs alle(ed that the- proceeded ith the auction sale on =anuar- '&, $&2> because no

rit of preli#inar- in4unction had been issued b- SEC as of that date, but the- infor#ed the SEC that the-

ould suspend the issuance of a certificate of sale to RCBC.

On March $2, $&2>, the SEC appointed a Mana(e#ent Co##ittee for B/ 0o#es.

On RCBC1s #otion in the mandamus case, the trial court issued on Ma- 2, $&2> a 4ud(#ent on the

pleadin(s, the dispositive portion of hich states7

?0ERE/ORE, petitioner1s Motion for =ud(#ent on the pleadin(s is (ranted and

4ud(#ent is hereb- rendered orderin( respondents to e3ecute and deliver to petitioner

the Certificate of the Auction Sale of =anuar- '&, $&2>, involvin( the properties sold

therein, #ore particularl- those described in Anne3 8C8 of their Anser.8 +p. 2@, Rollo.

On =une %, $&2>, B./. 0o#es filed an ori(inal co#plaint ith the "AC pursuant to Section & of B.P. $'&

pra-in( for the annul#ent of the 4ud(#ent, pre#ised on the folloin(7

. . .7 +$ even before RCBC as*ed the sheriff to e3tra64udiciall- foreclose its #ort(a(e on

petitioner1s properties, the SEC had alread- assu#ed e3clusive 4urisdiction over thoseassets, and +' that there as e3trinsic fraud in procurin( the 4ud(#ent because the

petitioner as not i#pleaded as a part- in the mandamus case, respondent court did not

ac<uire 4urisdiction over it, and it as deprived of its ri(ht to be heard. +CA 9ecision, p.

22, Rollo.

On April 2, $&2;, the "AC rendered a decision, settin( aside the decision of the trial court, dis#issin(

the mandamus case and suspendin( issuance to RCBC of ne land titles, 8until the resolution of case b-

SEC in Case No. ::';&5,8 disposin( as follos7

?0ERE/ORE, the 4ud(#ent dated Ma- 2, $&2> in Civil Case No. $::%' is hereb-

annulled and set aside and the case is hereb- dis#issed. "n vie of the ad#ission of

respondent Ri)al Co##ercial Ban*in( Corporation that the sheriff1s certificate of sale has

been re(istered on B/ 0o#es1 !C!1s . . . +here the !C!s ere enu#erated the Re(ister

of 9eeds for Pasa- Cit- is hereb- ordered to suspend the issuance to the #ort(a(ee6

purchaser, Ri)al Co##ercial Ban*in( Corporation, of the oner1s copies of the ne land

titles replacin( the# until the #atter shall have been resolved b- the Securities and

E3chan(e Co##ission in SEC Case No. ::';&5.

+p. '>@6';:, Rollo also

pp. 25'625%, '$5 SCRA2



25: $&&' E#phasis in

the ori(inal.

On =une $2, $&2;, RCBC appealed the decision of the then "nter#ediate Appellate Court +no, bac* to its old revered

na#e, the Court of Appeals to this Court, ar(uin( that7

$. Petitioner did not co##it e3trinsic fraud in e3cludin( private respondent as part-

defendant in Special Civil Case No. $::%' as private respondent as not indispensable

part- thereto, its participation not bein( necessar- for the full resolution of the issuesraised in said case.

'. SEC Case No. ';&5 cannot be invo*ed to suspend Special Civil Case No. $::%', and

for that #atter, the e3tra64udicial foreclosure of the real estate #ort(a(e in petitioner1s

favor, as these do not constitute actions a(ainst private respondent conte#plated under

Section ;+c of Presidential 9ecree No. &:'6A.

5. Even assu#in( arguendo that the e3tra64udicial sale constitute an action that #a- be

suspended under Section ;+c of Presidential 9ecree No. &:'6A, the basis for the

suspension thereof did not e3ist so as to adversel- affect the validit- and re(ularit-

thereof.

%. !he Re(ional !rial court had 4urisdiction to ta*e co(ni)able of Special Civil Case No.

$::%'.

>. !he Re(ional !rial court had 4urisdiction over Special Civil Case No. $::%'.

+p. >, Rollo.

On Nove#ber $', $&2;, the Court (ave due course to the petition. 9urin( the pendenc- of the case, RCBC brou(ht to the

attention of the Court an order issued b- the SEC on October $;, $&2; in Case No. ::';&5, den-in( the consolidated

Motion to Annul the Auction Sale and to cite RCBC and the Sheriff for Conte#pt, and rulin( as follos7

?0ERE/ORE, the petitioner1s 8Consolidated Motion to Cite Sheriff and Ri)al

Co##ercial Ban*in( Corporation for Conte#pt and to Annul Proceedin(s and Sale,8

dated /ebruar- >, $&2>, should be as is, hereb- 9EN"E9.

?hile e cannot direct the Re(ister of 9eeds to allo the consolidation of the titles

sub4ect of the O#nibus Motion dated Septe#ber $2, $&2; filed b- the Ri)al Co##ercial

Ban*in( Corporation, and therefore, denies said Motion, neither can this Co##ission

restrain the said ban* and the Re(ister of 9eeds fro# effectin( the said consolidation.

SO OR9ERE9.

+p.

$%5, Ro

llo.

B- virtue of the aforesaid order, the Re(ister of 9eeds of Pasa- Cit- effected the transfer of title over sub4ect pieces of

propert- to petitioner RCBC, and the issuance of ne titles in its na#e. !hereafter, RCBC presented a #otion for the

dis#issal of the petition, theori)in( that the issuance of said ne transfer certificates of title in its na#e rendered the

petition #oot and acade#ic.

3



"n the decision sou(ht to be reconsidered, a (reatl- divided Court +=ustices Dutierre), Nocon, and Melo concurred ith

the ponente, =ustice Medialdea Chief =ustice Narvasa, =ustices Bidin, Re(alado, and Bellosillo concurred onl- in the

result hile =ustice /eliciano dissented and as 4oined b- =ustice Padilla, then =ustice, no Chief =ustice 9avide, and

=ustice Ro#ero =ustices Drio6A<uino and Ca#pos too* no part denied petitioner1s #otion to dis#iss, findin( basis for

nullif-in( and settin( aside the !C!s in the na#e of RCBC. Rulin( on the #erits, the Court upheld the decision of the

"nter#ediate Appellate Court hich dis#issed the mandamus case filed b- RCBC and suspended the issuance of ne

titles to RCBC. Settin( aside RCBC1s ac<uisition of title and nullif-in( the !C!s issued to it, the Court held that7

. . . henever a distressed corporation as*s the SEC for rehabilitation and suspension ofpa-#ents, preferred creditors #a- no lon(er assert such preference, but . . . stand on

e<ual footin( ith other creditors. /oreclosure shall be disalloed so as not to pre4udice

other creditors, or cause discri#ination a#on( the#. "f foreclosure is underta*en despite

the fact that a petition, for rehabilitation has been filed, the certificate of sale shall not be

delivered pendin( rehabilitation. Li*eise, if this has also been done, no transfer of title

shall be effected also, ithin the period of rehabilitation. !he rationale behind P9 &:'6A,

as a#ended to effect a feasible and viable rehabilitation. !his cannot be achieved if one

creditor is preferred over the others.

"n this connection, the prohibition a(ainst foreclosure attaches as soon as a petition for

rehabilitation is filed. ?ere it otherise, hat is to prevent the petitioner fro# dela-in( the

creation of a Mana(e#ent Co##ittee and in the #eanti#e dissipate all its assets. !hesooner the SEC ta*es over and i#poses a free)e on all the assets, the better for all

concerned.

+pp. ';>6';;, Rollo

also p. 252, '$5 SCRA

25: $&&'.

!hen =ustice /eliciano +4oined b- three other =ustices, dissented and voted to (rant the petition. 0e opined that the SEC

acted pre#aturel- and ithout 4urisdiction or le(al authorit- in en4oinin( RCBC and the sheriff fro# proceedin( ith the

public auction sale. !he dissent #aintain that Section ; +c of Presidential 9ecree &:'6A is clear and une<uivocal that,

clai#s a(ainst the corporations, partnerships, or associations shall be suspended onl- upon the appoint#ent of a#ana(e#ent co##ittee, rehabilitation receiver, board or bod-. !hus, in the case under consideration, onl- upon the

appoint#ent of the Mana(e#ent Co##ittee for B/ 0o#es on March $2, $&2>, should the suspension of actions for

clai#s a(ainst B/ 0o#es have ta*en effect and not earlier.

"n support of its #otion for reconsideration, RCBC contends7

!he restrainin( order and the rit of preli#inar- in4unction issued b- the Securities and E3chan(e

Co##ission en4oinin( the foreclosure sale of the properties of respondent B/ 0o#es ere issued ithout

or in e3cess of its 4urisdiction because it as violative of the clear provision of Presidential 9ecree No.

&:'6A, and are therefore null and void and

Petitioner, bein( a #ort(a(e creditor, is entitled to rel- solel- on its securit- and to refrain fro# 4oinin( the

unsecured creditors in SEC Case No. ::';&5, the petition for rehabilitation filed b- private respondent.

?e find the #otion for reconsideration #eritorious.

!he issue of hether or not preferred creditors of distressed corporations stand on e<ual footin( ith all other creditors

(ains relevance and #aterialit- onl- upon the appoint#ent of a #ana(e#ent co##ittee, rehabilitation receiver, board, or

bod-. "nsofar as petitioner RCBC is concerned, the provisions of Presidential 9ecree No. &:'6A are not -et applicable and

4



it #a- still be alloed to assert its preferred status because it foreclosed on the #ort(a(e prior to the appoint#ent of the

#ana(e#ent co##ittee on March $2, $&2>. !he Court, therefore, (rants the #otion for reconsideration on this score.

!he la on the #atter, Para(raph +c, Section ; of Presidential 9ecree &:'6A, provides7

Sec. ;. "n order to effectivel- e3ercise such 4urisdiction, the Co##ission shall posses the folloin(

poers7

c !o appoint one or #ore receivers of the propert-, real and personal, hich is the sub4ect of the actionpendin( before the Co##ission in accordance ith the pertinent provisions of the Rules of Court in such

other cases henever necessar- to preserve the ri(hts of the parties liti(ants to andFor protect the interest

of the investin( public and creditors Provided, however , that the Co##ission #a-, in appropriate cases,

appoint a rehabilitation receiver of corporations, partnerships or other associations not supervised or

re(ulated b- other (overn#ent a(encies ho shall have, in addition to the poers of a re(ular receiver

under the provisions of the Rules of Court, such functions and poers as are provided for in the

succeedin( para(raph +d hereof7 Provided, finally , That upon appointment of a management committee

rehabilitation receiver, board or body, pursuant to this Decree, all actions for clai#s a(ainst corporations,

partnerships or associations under #ana(e#ent or receivership, pendin( before an- court, tribunal, board

or bod- shall be suspended accordin(l-. +As a#ended b- P9s No. $;@5, $@>2 and b- P9 No. $@&&.

E#phasis supplied.

"t is thus ade<uatel- clear that suspension of clai#s a(ainst a corporation under rehabilitation is counted or fi(ured up

onl- upon the appoint#ent of a #ana(e#ent co##ittee or a rehabilitation receiver. !he holdin( that suspension of

actions for clai#s a(ainst a corporation under rehabilitation ta*es effect as soon as the application or a petition for

rehabilitation is filed ith the SEC G #a-, to so#e, be #ore lo(ical and ise but unfortunatel-, such is incon(ruent ith

the clear lan(ua(e of the la. !o insist on such rulin(, no #atter ho practical and noble, ould be to encroach upon

le(islative prero(ative to define the isdo# of the la G plainl- 4udicial le(islation.

"t bears stressin( that the first and funda#ental dut- of the Court is to appl- the la. ?hen the la is clear and free fro#

an- doubt or a#bi(uit-, there is no roo# for construction or interpretation. As has been our consistent rulin(, here the

la spea*s in clear and cate(orical lan(ua(e, there is no occasion for interpretation there is onl- roo# for application

+Cebu Portland Ce#ent Co. vs. Municipalit- of Na(a, '% SCRA6@:2 $&;2.

?here the la is clear and una#bi(uous, it #ust be ta*en to #ean e3actl- hat it sa-s and the court has

no choice but to see to it that its #andate is obe-ed +Chartered Ban* E#plo-ees Association vs. Ople,

$52 SCRA '@5 $&2> Lu)on Suret- Co., "nc. vs. 9e Darcia, 5: SCRA $$$ $&;& Hui4ano vs.

9evelop#ent Ban* of the Philippines, 5> SCRA '@: $&@:.

Onl- hen the la is a#bi(uous or of doubtful #eanin( #a- the court interpret or construe its true intent. A#bi(uit- is a

condition of ad#ittin( to or #ore #eanin(s, of bein( understood in #ore than one a-, or of referrin( to to or #ore

thin(s at the sa#e ti#e. A statute is a#bi(uous if it is ad#issible of to or #ore possible #eanin(s, in hich case, the

Court is called upon to e3ercise one of its 4udicial functions, hich is to interpret the la accordin( to its true intent.

/urther#ore, as relevantl- pointed out in the dissentin( opinion, a petition for rehabilitation does nor ala-s result in the

appoint#ent of a receiver or the creation of a #ana(e#ent co##ittee. !he SEC has to initiall- deter#ine hether such

appoint#ent is appropriate and necessar- under the circu#stances. nder Para(raph +d, Section ; of Presidential

9ecree No. &:'6A, certain situations #ust be shon to e3ist before a #ana(e#ent co##ittee #a- be created or

appointed, such as

$. hen there is i##inent dan(er of dissipation, loss, asta(e or destruction of assets or

other properties or

5



'. hen there is parali)ation of business operations of such corporations or entities hich

#a- be pre4udicial to the interest of #inorit- stoc*holders, parties6liti(ants or to the

(eneral public.

On the other hand, receivers #a- be appointed henever7

$. necessar- in order to preserve the ri(hts of the parties6liti(ants andFor

'. protect the interest of the investin( public and creditors. +Section ; +c, P.9. &:'6A.

!hese situations are rather serious in nature, re<uirin( the appoint#ent of a #ana(e#ent co##ittee or a receiver to

preserve the e3istin( assets and propert- of the corporation in order to protect the interests of its investors and creditors.

!hus, in such situations, suspension of actions for clai#s a(ainst a corporation as provided in Para(raph +c of Section ;,

of Presidential 9ecree No. &:'6A is necessar-, and here e borro the ords of the late =ustice Medialdea, 8so as not to

render the SEC #ana(e#ent Co##ittee irrelevant and inutile and to (ive it unha#pered 8rescue efforts8 over the

distressed fir#8 +Rollo, p. ';>.

Otherise, hen such circu#stances are not obtainin( or hen the SEC finds no such i##inent dan(er of losin( the

corporate assets, a #ana(e#ent co##ittee or rehabilitation receiver need not be appointed and suspension of actions for

clai#s #a- not be ordered b- the SEC. ?hen the SEC does not dee# it necessar- to appoint a receiver or to create a

#ana(e#ent co##ittee, it #a- be assu#ed, that there are sufficient assets to sustain the rehabilitation plan and, that the

creditors and investors are a#pl- protected.

Petitioner additionall- ar(ues in its #otion for reconsideration that, bein( a #ort(a(e creditor, it is entitled to rel- on its

securit- and that it need not 4oin the unsecured creditors in filin( their clai#s before the SEC appointed receiver. !o

support its position, petitioner cites the Court1s rulin( in the case of Philippine Commercial International Bank vs Court of

!ppeals, +$@' SCRA %5; $&2& that an order of suspension of pa-#ents as ell as actions for clai#s applies onl- to

clai#s of unsecured creditors and cannot e3tend to creditors holdin( a #ort(a(e, pled(e, or an- lien on the propert-.

Ordinaril-, the Court ould refrain fro# discussin( additional #atters such as that presented in RCBC1s second (round,

and ould rather li#it itself onl- to the relevant issues b- hich the controvers- #a- be settled ith finalit-.

"n vie, hoever, of the si(nificance of such issue, and the conflictin( decisions of this Court on the #atter, coupled ith

the fact that our decision of Septe#ber $%, $&&', if not clarified, #i(ht #islead the Bench and the Bar, the Court resolved

to discuss further.

"t #a- be recalled that in the herein en banc #a4orit- opinion +pp. '>;6'@>, Rollo, also published as RCBC vs I!C , '$5

SCRA 25: $&&', e held that7

. . . henever a distressed corporation as*s the SEC for rehabilitation and suspension of pa-#ents,

preferred creditors #a- no lon(er assert such preference, but . . . stand on e"ual footing with other

creditors. /oreclosure shall be disalloed so as not to pre4udice other creditors, or cause discri#ination

a#on( the#. "f foreclosure is underta*en despite the fact that a petition for rehabilitation has been filed,

the certificate of sale shall not be delivered pendin( rehabilitation. Li*eise, if this has also, been done,

no transfer of title shall be effected also, ithin the period of rehabilitation. The rationale behind PD #$%&

!, as amended, is to effect a feasible and viable rehabilitation This cannot be achieved if one creditor is

preferred over the others.

"n this connection, the prohibition a(ainst foreclosure attaches as soon as a petition for rehabilitation is

filed. ?ere it otherise, hat is to prevent the petitioner fro# dela-in( the creation of a Mana(e#ent

Co##ittee and in the #eanti#e dissipate all its assets. !he sooner the SEC ta*es over and i#poses a

free)e on all the assets, the better for all concerned.

6



+pp. ';>6

';;, Rollo also

p. 252, '$5

SCRA 25:

$&&'

E#phasis

supplied

!he fore(oin( #a4orit- opinion relied upon B' (omes, Inc vs Court of !ppeals +$&: SCRA ';' $&&: G per Cru), =.7/irst 9ivision here it held that 8hen a corporation threatened b- ban*ruptc- is ta*en over b- a receiver, all the creditors

should stand on an e<ual footin(. Not an-one of the# should be (iven preference b- pa-in( one or so#e of the# ahead

of the others. !his is precisel- the reason for the suspension of all pendin( clai#s a(ainst the corporation under

receivership. Instead of creditors ve)ing the courts with suits against the distressed firm, they are directed to file their

claims with the receiver who is a duly appointed officer of the *+C +pp. ';&6'@: e#phasis in the ori(inal. !his rulin( is a

reiteration of !lemars *ibal - *ons, Inc vs (on .esus / +lbinias +pp. &&6$:: $2; SCRA &% $&&$ G per /ernan, C.=.

!hird 9ivision.

!a*in( the lead fro# Ale#ar1s Sibal I Sons, the Court also applied this sa#e rulin( in !raneta vs Court of !ppeals +'$$

SCRA 5&: $&&' G per Nocon, =.7 Second 9ivision.

All the fore(oin( cases departed fro# the rulin( of the Court in the #uch earlier case of PCIB vs Court of !ppeals+$@'SCRA %5; $&2& G per Medialdea, =.7 /irst 9ivision here the Court cate(oricall- ruled that7

SEC1s order for suspension of pa-#ents of Philfinance as ell as for all actions of clai#s a(ainst

Philfinance could only be applied to claims of unsecured creditors. Such order can not e)tend to creditors

holding a mortgage, pledge or any lien on the property unless the- (ive up the propert-, securit- or lien in

favor of all the creditors of Philfinance . . .

+p. %%:. E#phasis supplied

!hus, in BPI vs Court of !ppeals +''& SCRA ''5 $&&% G per Bellosilio, =.7 /irst 9ivision the Court e3plicitl- stared that

8. . . the doctrine in the PC"B Case has since been abro(ated. "n !lemars *ibal - *ons v +lbinias, B' (omes, Inc vCourt of !ppeals, !raneta v Court of !ppeals and RCBC v Court of !ppeals, e alread- ruled that henever a distressed

corporation as*s SEC for rehabilitation and suspension of pa-#ents, preferred creditors may no longer assert such

preference, but shall stand on e"ual footing with other creditors . . .8 +pp. ''@6''2.

"t #a- be stressed, hoever, that of all the cases cited b- =ustice Bellosillo in BP", hich abandoned the Court1s rulin( in

PC"B, onl- the present case satisfies the constitutional re<uire#ent that 8no doctrine or principle of la laid don b- the

court in a decision rendered en banc or in division #a- be #odified or reversed e3cept b- the court sittin( en banc 8 +Sec

%, Article J""", $&2@ Constitution. !he rest ere division decisions.

"t behooves the Court, therefore, to settle the issue in this present resolution once and for all, and for the (uidance of the

Bench and the Bar, the folloin( rules of thu#b shall are laid don7

$. All clai#s a(ainst corporations, partnerships, or associations that are pendin( before an- court, tribunal, or board,

ithout distinction as to hether or not a creditor is secured or unsecured, shall be suspended effective upon the

appoint#ent of a #ana(e#ent co##ittee, rehabilitation receiver, board, or bod- in accordance hich the provisions of

Presidential 9ecree No. &:'6A.

'. Secured creditors retain their preference over unsecured creditors, but enforce#ent of such preference is e<uall-

suspended upon the appoint#ent of a #ana(e#ent co##ittee, rehabilitation receiver, board, or bod-. "n the event that

7



the assets of the corporation, partnership, or association are finall- li<uidated, hoever, secured and preferred credits

under the applicable provisions of the Civil Code ill definitel- have preference over unsecured ones.

"n other ords, once a #ana(e#ent co##ittee, rehabilitation receiver, board or bod- is appointed pursuant to P.9. &:'6A,

all actions for clai#s a(ainst a distressed corporation pendin( before an- court, tribunal, board or bod- shall be

suspended accordin(l-.

!his suspension shall not pre4udice or render ineffective the status of a secured creditor as co#pared totall- unsecured

creditor P.9. &:'6A does not state an-thin( to this effect. ?hat it #erel- provides is that all actions for clai#s a(ainst thecorporation, partnership or association shall be suspended. !his should (ive the receiver a chance to rehabilitate the

corporation if there should still be a possibilit- of doin( so. +!his ill be in consonance ith Ale#ar1s B/ 0o#es, Araneta,

and RCBC insofar as enforcin( liens b- preferred creditors are concerned.

0oever, in the event that rehabilitation is no lon(er feasible and clai#s a(ainst the distressed corporation ould

eventuall- have to be settled, the secured creditors shall en4o- preference over the unsecured creditors +still #aintainin(

PC"B rulin(, sub4ect onl- to the provisions of the Civil Code on Concurrence and Preferences of Credit +our rulin( in State

"nvest#ent 0ouse, "nc. vs. Court of Appeals, '@@ SCRA ':& $&&@.

!he Ma4orit- rulin( in our $&&' decision that preferred creditors of distressed corporations shall, in a a-, stand an e<ual

footin( ith all other creditors, #ust be read and understood in the li(ht of the fore(oin( rulin(s. All clai#s of both a

secured or unsecured creditors, ithout distinction on this score, are suspended once a #ana(e#ent co##ittee isappointed. Secured creditors, in the #eanti#e, shall not be alloed to assert such preference before the Securities and

E3chan(e Co##ission. "t #a- be stressed, hoever, that this shall onl- ta*e effect upon the appoint#ent of a

#ana(e#ent co##ittee, rehabilitation receiver, board, or bod-, as opined in the dissent.

"n fine, the Court (rants the #otion for reconsideration for the co(ent reason that suspension of actions for clai#s

co##ences onl- fro# the ti#e a #ana(e#ent co##ittee or receiver is appointed b- the SEC. Petitioner RCBC,

therefore, could have ri(htfull-, as it did, #ove for the e3tra4udicial foreclosure of its #ort(a(e on October ';, $&2%

because a #ana(e#ent co##ittee as not appointed b- the SEC until March $2, $&2>.

?0ERE/ORE, petitioner1s #otion for reconsideration is hereb- DRAN!E9. !he decision, dated Septe#ber $%, $&&' is

vacated, the decision of "nter#ediate Appellate Court in AC6D.R. No. SP6:;5$5 REJERSE9 and SE! AS"9E, and the 4ud(#ent of the Re(ional !rial Court National Capital =udicial Re(ion, Branch $%:, in Civil Case No. $::%' RE"NS!A!E9.

SO OR9ERE9.

8




SUPREME COURT

/"RS! 9"J"S"ON

G.R. No. 1$5$75 Se%&ember '(, )((5

SPOUSES EDUARDO SORE*UANITE +- "IDELA SORE*UANITE, Petitioners,

vs.AS DEELOPMENT CORPORATION, Respondent.

9 E C " S " O N

/NARES0SANTIAGO, J .7

!his petition for revie on certiorari assails the =une '&, '::% 9ecision of the Court of Appeals in CA6D.R. SP No. @&%':

hich reversed and set aside the 9ecision of the Office of the President and its October $2, '::% Resolution den-in(

reconsideration thereof.

!he antecedent facts sho that on March @, '::$, spouses Eduardo and /idela Sobre4uanite +Sobre4uanite filed a

Co#plaint$ for rescission of contract, refund of pa-#ents and da#a(es, a(ainst ASB 9evelop#ent Corporation +ASB9C

before the 0ousin( and Land se Re(ulator- Board +0LRB.

Sobre4uanite alle(ed that the- entered into a Contract to Sell ith ASB9C over a condo#iniu# unit and a par*in( space in

the BSA !in !oer6B Condo#inu# located at Ban* 9rive, Orti(as Center, Mandalu-on( Cit-. !he- averred that despite

full pa-#ent and de#ands, ASB9C failed to deliver the propert- on or before 9ece#ber $&&& as a(reed. !he- pra-ed for

the rescission of the contract refund of pa-#ents a#ountin( to P',;@%,;5@.$: pa-#ent of #oral and e3e#plar-

da#a(es, attorne-Ks fees, liti(ation e3penses, appearance fee and costs of the suit.

ASB9C filed a #otion to dis#iss or suspend proceedin(s in vie of the approval b- the Securities and E3chan(e

Co##ission +SEC on April ';, '::$ of the rehabilitation plan of ASB Droup of Co#panies, hich includes ASB9C, and

the appoint#ent of a rehabilitation receiver. !he 0LRB arbiter hoever denied the #otion and ordered the continuationof the proceedin(s.

!he arbiter found that under the Contract to Sell, ASB9C should have delivered the propert- to Sobre4uanite in 9ece#ber

$&&& that the latter had full- paid their obli(ations e3cept the P>:,:::.:: hich should be paid upon co#pletion of the

construction and that rescission of the contract ith da#a(es is proper.

!he dispositive portion of the 9ecision reads7

?0ERE/ORE, in vie of the fore(oin( 4ud(#ent is rendered orderin( the rescission of the contracts to sell beteen the

parties, and further orderin( the respondent ASB9C to pa- the co#plainants Sobre4uanite the folloin(7

a all a#orti)ation pa-#ents b- the co#plainants a#ountin( to P',;@%,;5@.$: plus $' interest fro# the date of actual

pa-#ent of each a#orti)ation

b #oral da#a(es a#ountin( to P'::,:::.::

c e3e#plar- da#a(es a#ountin( to P$::,:::.::

d attorne-Ks fees a#ountin( to P$::,:::.::

9

http://www.lawphil.net/judjuris/juri2005/sep2005/gr_165675_2005.html#fnt1





e liti(ation e3penses a#ountin( to P>:,:::.::.

All other clai#s and all counter6clai#s are hereb- dis#issed.

"! "S SO OR9ERE9.'

!he 0LRB Board of Co##issioners5 affir#ed the rulin( of the arbiter that the approval of the rehabilitation plan and the

appoint#ent of a rehabilitation receiver b- the SEC did not have the effect of suspendin( the proceedin(s before the

0LRB. !he board held that the 0LRB could properl- ta*e co(ni)ance of the case since hatever #onetar- aard that#a- be (ranted b- it ill be ulti#atel- filed as a clai# before the rehabilitation receiver. !he board also found that ASB9C

failed to deliver the propert- to Sobre4uanite ithin the prescribed period. !he dispositive portion of the 9ecision reads7

?herefore the petition for revie is denied and the decision of the office belo is affir#ed. "t shall be understood that all

#onetar- aards shall still be filed as clai#s before the rehabilitation receiver .%

ASB9C filed an appeal> before the Office of the President hich as dis#issed; for lac* of #erit. 0ence, ASB9C filed a

petition@ under Section $, Rule %5 of the Rules of Court before the Court of Appeals, doc*eted as CA6D.R. SP No. @&%':.

On =une '&, '::%, the Court of Appeals rendered its assailed 9ecision,2 the dispositive portion of hich reads7

?0ERE/ORE, pre#ises considered, the instant petition is DRAN!E9. !he i#pu(ned decision dated =une '@, '::5 of

the Office of the President is hereb- REJERSE9 AN9 SE! AS"9E. No pronounce#ent as to costs.

SO OR9ERE9.&

!he Court of Appeals held that the approval b- the SEC of the rehabilitation plan and the appoint#ent of the receiver

caused the suspension of the 0LRB proceedin(s. !he appellate court noted that Sobre4uaniteKs co#plaint for rescission

and da#a(es is a claim under the conte#plation of Presidential 9ecree +P9 No. &:'6A or the *+C Reorgani0ation

!ct and A.M. No. ::626$:6SC or the Interim Rules of Procedure on Corporate Rehabilitation, because it sou(ht to enforce

a pecuniar- de#and. !herefore, 4urisdiction lies ith the SEC and not 0LRB. "t also ruled that ASB9C as obli(ed to

deliver the propert- in 9ece#ber $&&& but its financial reverses arranted the e3tension of the period.

Sobre4uaniteKs #otion for reconsideration as denied$: hence the instant petition hich raises the folloin( issues7

$. !0E COR! O/ APPEALS COMM"!!E9 REJERS"BLE ERROR AN9 DRAJEL ABSE9 "!S 9"SCRE!"ON "N

RL"ND !0A! !0E SEC, NO! !0E 0LRB, 0AS =R"S9"C!"ON OJER PE!"!"ONERKS COMPLA"N!, "N

CON!RAJEN!"ON !O LA? AN9 !0E RL"ND O/ !0"S 0ONORABLE COR! "N !0E !RR!12! CASE.

'. !0E COR! O/ APPEALS COMM"!!E9 REJERS"BLE ERROR AN9 DRAJEL ABSE9 "!S 9"SCRE!"ON ?0EN

"! RLE9 !0A! !0E APPROJAL O/ !0E CORPORA!E RE0AB"L"!A!"ON PLAN AN9 !0E APPO"N!MEN! O/ A

RECE"JER 0A9 !0E E//EC! O/ SSPEN9"ND !0E PROCEE9"ND "N !0E 0LRB, AN9 !0A! !0E MONE!AR

A?AR9 D"JEN B !0E 0LRB COL9 NO! BE /"LE9 "N !0E SEC /OR PROPER 9"SPOS"!"ON, NO! BE"ND "N

ACCOR9ANCE ?"!0 LA? AN9 =R"SPR9ENCE.

5. !0E COR! O/ APPEALS COMM"!!E9 REJERS"BLE ERROR AN9 DRAJEL ABSE9 "!S 9"SCRE!"ON "N

RL"ND !0A! RESPON9EN! 8"S =S!"/"E9 "N E!EN9"ND !0E ADREE9 9A!E O/ 9EL"JER B "NJO"ND AS

DRON9 !0E /"NANC"AL CONS!RA"N!S "! EPER"ENCE9,8 BE"ND CON!RAR !O LA? AN9 "N EE/EC! AN

NLA?/L NOJA!"ON O/ !0E ADREEMEN! O/ !0E 9A!E O/ 9EL"JER EN!ERE9 "N!O B PE!"!"ONERS AN9

RESPON9EN!.$$

!he petition lac*s #erit.

10






























Section ;+c of P9 No. &:'6A e#poers the SEC7

c !o appoint one or #ore receivers of the propert-, real and personal, hich is the sub4ect of the action pendin( before

the Co##ission henever necessar- in order to preserve the ri(hts of the parties6liti(ants andFor protect the interest of

the investin( public and creditors7 Provided, finall-, !hat upon appoint#ent of a #ana(e#ent co##ittee, rehabilitation

receiver, board or bod-, pursuant to this 9ecree, + +c&2o3 or c+2m3 ++23& cor%or+&2o3, %+r&er362%3 or

+33oc2+&2o3 -er m++eme& or rece2er362% %e-2 beore + cor&, &r2b+, bo+r- or bo- 36+ be

33%e-e- +ccor-2. E#phasis added

!he purpose for the suspension of the proceedin(s is to prevent a creditor fro# obtainin( an advanta(e or preference

over another and to protect and preserve the ri(hts of part- liti(ants as ell as the interest of the investin( public or

creditors.$' Such suspension is intended to (ive enou(h breathin( space for the #ana(e#ent co##ittee or rehabilitation

receiver to #a*e the business viable a(ain, ithout havin( to divert attention and resources to liti(ations in various

fora.$5 !he suspension ould enable the #ana(e#ent co##ittee or rehabilitation receiver to effectivel- e3ercise itsFhis

poers free fro# an- 4udicial or e3tra64udicial interference that #i(ht undul- hinder or prevent the 8rescue8 of the debtor

co#pan-. !o allo such other action to continue ould onl- add to the burden of the #ana(e#ent co##ittee or

rehabilitation receiver, hose ti#e, effort and resources ould be asted in defendin( clai#s a(ainst the corporation

instead of bein( directed toard its restructurin( and rehabilitation.$%

!hus, in order to resolve hether the proceedin(s before the 0LRB should be suspended, it is necessar- to deter#ine

hether the co#plaint for rescission of contract ith da#a(es is a claim ithin the conte#plation of P9 No. &:'6A.

"n 'inasia Investments and 'inance Corp v Court of !ppeals,$> e construed claim to refer onl- to debts or de#ands

pecuniar- in nature. !hus7

!he ord QclaimK as used in Sec. ;+c of P.9. &:'6A refers to debts or de#ands of a pecuniar- nature. "t #eans 8the

assertion of a ri(ht to have #one- paid. "t is used in special proceedin(s li*e those before ad#inistrative court, on

insolvenc-.8

!he ord 8claim8 is also defined as7

Ri(ht to pa-#ent, hether or not such ri(ht is reduced to 4ud(#ent, li<uidated, unli<uidated, fi3ed, contin(ent, #atured,un#atured, disputed, undisputed, le(al, e<uitable, secured, or unsecured or ri(ht to an e<uitable re#ed- for breach of

perfor#ance if such breach (ives rise to a ri(ht to pa-#ent, hether or not such ri(ht to an e<uitable re#ed- is reduced

to 4ud(#ent, fi3ed, contin(ent, #atured, un#atured, disputed, undisputed, secured, unsecured.

"n conflicts of la, a receiver #a- be appointed in an- state hich has 4urisdiction over the defendant ho oes a clai#.

As used in statutes re<uirin( the presentation of clai#s a(ainst a decedentKs estate, 8clai#8 is (enerall- construed to

#ean debts or de#ands of a pecuniar- nature hich could have been enforced a(ainst the deceased in his lifeti#e and

could have been reduced to si#ple #one- 4ud(#ents and a#on( these are those founded upon contract.

"n !rran0a v B' (omes, Inc,$; claim is defined as referrin( to actions involvin( #onetar- considerations.

'inasia Investments and 'inance Corp v Court of !ppeals and !rran0a v B' (omes, Inc ere pro#ul(ated prior to the

effectivit- of the Interim Rules of Procedure on Corporate Rehabilitation on 9ece#ber $>, ':::. !he interi# rules define

a claim as referrin( to all clai#s or de#ands, of whatever nature or character a(ainst a debtor or its propert-, hether for

money or otherwise. !he definition is all6enco#passin( as it refers to all actions hether for #one- or otherise. !here

are no distinctions or e3e#ptions.

11















"ncidentall-, althou(h the petition for rehabilitation ith pra-er for suspension of actions and proceedin(s as filed before

the SEC on Ma- ', ':::,$@ or prior to the effectivit- of the interi# rules, the sa#e ould still appl- pursuant to Section $,

Rule $ thereof hich provides7

Section $. *cope !hese Rules shall appl- to petitions for rehabilitation filed b- corporations, partnerships, and

associations pursuant to Presidential 9ecree No. &:'6A, as a#ended.

Clearl- then, the co#plaint filed b- Sobre4uanite is a claim as defined under the Interim Rules of Procedure on Corporate

Rehabilitation Even under our rulin(s in 'inasia Investments and 'inance Corp v Court of !ppealsand !rran0a v B'(omes, Inc, the co#plaint for rescission ith da#a(es ould fall under the cate(or- of claimconsiderin( that it is for

pecuniar- considerations.

"n their co#plaint, Sobre4uanite pra- for the rescission of the contract and the refund of P',;@%,;5@.$: representin( their

total pa-#ents to ASB9C P'::,:::.:: as #oral da#a(es P$::,:::.:: as e3e#plar- da#a(es P$::,:::.:: as

attorne-Ks fees P>:,:::.:: as liti(ation e3penses P$,>::.:: per hearin( as appearance fees and costs of the suit.

"n the decision of the 0LRB arbiter, ASB9C as ordered to pa- P',;@%,;5@.$: plus $' interest fro# the date of actual

pa-#ent of each a#orti)ation, representin( the refund of all the a#orti)ation pa-#ents #ade b- Sobre4uanite

P'::,:::.:: as #oral da#a(es P$::,:::.:: as e3e#plar- da#a(es P$::,:::.:: as attorne-Ks fees and P>:,:::.::

as liti(ation e3penses.

As such, the 0LRB arbiter should have suspended the proceedin(s upon the approval b- the SEC of the ASB Droup of

Co#paniesK rehabilitation plan and the appoint#ent of its rehabilitation receiver. B- the suspension of the proceedin(s,

the receiver is alloed to full- devote his ti#e and efforts to the rehabilitation and restructurin( of the distressed

corporation.

"t is ell to note that even the e3ecution of final 4ud(#ents #a- be held in abe-ance hen a corporation is under

rehabilitation.$2 0ence, there is #ore reason in the instant case for the 0LRB arbiter to order the suspension of the

proceedin(s as the #otion to suspend as filed soon after the institution of the co#plaint. B- alloin( the proceedin(s to

proceed, the 0LRB arbiter unittin(l- (ave undue preference to Sobre4uanite over the other creditors and clai#ants of

ASB9C, hich is precisel- the vice sou(ht to be prevented b- Section ;+c of P9 &:'6A. !hus7

As beteen creditors, the *e- phrase is 8e<ualit- is e<uit-.8 ?hen a corporation threatened b- ban*ruptc- is ta*en over b-

a receiver, all the creditors should stand on e<ual footin(. Not an-one of the# should be (iven an- preference b- pa-in(

one or so#e of the# ahead of the others. !his is precisel- the reason for the suspension of all pendin( clai#s a(ainst the

corporation under receivership. "nstead of creditors ve3in( the courts ith suits a(ainst the distressed fir#, the- are

directed to file their clai#s ith the receiver ho is a dul- appointed officer of the SEC.$&

PetitionersK reliance on !rran0a v B' (omes, Inc': is #isplaced. "n that case, e held that the 0LRB retained its

4urisdiction despite the rehabilitation proceedin(s since the clai# filed b- the ho#eoners did not involve pecuniar-

considerations. !he clai# therein as for specific perfor#ance to enforce the ho#eonersK ri(hts as re(ards ri(ht of a-,

open spaces, road and peri#eter all repairs, and securit-. 0oever, it can also be deduced therefro# that if the clai#

as for #onetar- aards, the proceedin(s before the 0LRB should be suspended durin( the rehabilitation. !hus7

No violation of the SEC order suspendin( pa-#ents to creditors ould result as far as petitionersK co#plaint before the

0LRB is concerned. !o reiterate, hat petitioners see* to enforce are respondentKs obli(ations as a subdivision

developer. Such clai#s are basically not pecuniar- in nature althou(h it could incidentally involve #onetar-

considerations. All that petitionersK clai#s entail is the e3ercise of proper subdivision #ana(e#ent on the part of the SEC6

appointed Board of Receivers toards the end that ho#eoners shall en4o- the ideal co##unit- livin( that respondent

portra-ed the- ould have hen the- bou(ht real estate fro# it.

12












Neither #a- petitioners be considered as havin( 8clai#s8 a(ainst respondent ithin the conte3t of the folloin( proviso of

Section ; +c of P.9. No. &:'6A, to arrant suspension of the 0LRB proceedin(s.

.

"n this case, under the co#plaint for specific perfor#ance before the 0LRB, petitioners do not ai# to enforce a

pecuniar- de#and. !heir clai# for rei#burse#ent should be vieed in the li(ht of respondentKs alle(ed failure to observe

its statutor- and contractual obli(ations to provide petitioners a 8decent hu#an settle#ent8 and 8a#ple opportunities for

i#provin( their <ualit- of life.8 !he 0LRB, not the SEC, is e<uipped ith the e3pertise to deal ith that #atter.'$

/inall-, e a(ree ith the Court of Appeals that under the Contract to Sell, ASB9C as obli(ed to deliver the propert- to

Sobre4uanite on or before 9ece#ber $&&&. Nonetheless, the sa#e as dee#ed e3tended due to the financial reverses

e3perienced b- the co#pan-. Section @ of the Contract to Sell allos the developer to e3tend the period of deliver- on

account of causes be-ond its control, such as financial reverses.

:#ERE"ORE, the petition is DENIED. !he assailed 9ecision of the Court of Appeals dated =une '&, '::% in CA6D.R. SP

No. @&%': and its Resolution dated October $2, '::%, are A""IRMED.

SO ORDERED.


SUPREME COURTManila

/"RS! 9"J"S"ON

G.R. No. 1$(7') *e )1, )((4

METROPOLITAN :ATER:OR!S AND SE:ERAGE S/STEM, petitioner,

vs.

#ON. RE/NALDO . DA:A/, 2 623 c+%+c2& +3 Pre32-2 *-e o &6e Re2o+ Tr2+ Cor& o ;e<o C2&,

r+c6 9( +- M+2+- :+&er Ser2ce3, Ic., respondents

9 E C " S " O N

AZCUNA, J .=

On Nove#ber $@, '::5, the Re(ional !rial Court +R!C of Hue)on Cit-, Branch &:, #ade a deter#ination that the Petition

for Rehabilitation ith Pra-er for Suspension of Actions and Proceedin(s filed b- Ma-nilad ?ater Services, "nc. +Ma-nilad

confor#ed substantiall- to the provisions of Sec. ', Rule % of the "nteri# Rules of Procedure on Corporate Rehabilitation

+"nteri# Rules. "t forthith issued a Sta- Order $ hich states, in part, that the court as thereb-7

13





3 3 3 3 3 3 3 3 3

'. Sta-in( enforce#ent of all clai#s, hether for #one- or otherise and hether such enforce#ent is b- court

action or otherise, a(ainst the petitioner, its (uarantors and sureties not solidaril- liable ith the petitioner

5. Prohibitin( the petitioner fro# sellin(, encu#berin(, transferrin(, or disposin( in an- #anner an- of its

properties e3cept in the ordinar- course of business

%. Prohibitin( the petitioner fro# #a*in( an- pa-#ent of its liabilities, outstandin( as at the date of the filin( of thepetition

3 3 3 3 3 3 3 3 3

Subse<uentl-, on Nove#ber '@, '::5, public respondent, actin( on to r(ent +) Parte #otions' filed b- respondent

Ma-nilad, issued the herein <uestioned Order 5 hich stated that it thereb-7

8$. 9ECLARES that the act of M?SS in co##encin( on Nove#ber '%, '::5 the process for the pa-#ent b- the

ban*s of S&2 #illion out of the S$': #illion standb- letter of credit so the ban*s have to #a*e (ood such

callFdrain( of pa-#ent of S&2 #illion b- M?SS not later than Nove#ber '@, '::5 at $:7:: P. M. or an-

si#ilar act for that #atter, is violative of the above6<uoted sub6para(raph '. of the dispositive portion of this

CourtKs Sta- Order dated Nove#ber $@, '::5.

'. OR9ERS M?SS throu(h its officersFofficials to ithdra under pain of conte#pt the ritten certificationFnotice

of dra to Citicorp "nternational Li#ited dated Nove#ber '%, '::5 and 9ECLARES void an- pa-#ent b- the

ban*s to M?SS in the event such ritten certificationFnotice of dra is not ithdran b- M?SS andFor M?SS

receives pa-#ent b- virtue of the aforesaid standb- letter of credit.8

A((rieved b- this Order, petitioner Manila ?ateror*s I Seera(e S-ste# +M?SS filed this petition for revie b- a-

of certiorari under Rule ;> of the Rules of Court <uestionin( the le(alit- of said order as havin( been issued ithout or in

e3cess of the loer courtKs 4urisdiction or that the court a "uo acted ith (rave abuse of discretion a#ountin( to lac* or

e3cess of 4urisdiction.%

ANTECEDENTS O" T#E CASE

On /ebruar- '$, $&&@, M?SS (ranted Ma-nilad under a Concession A(ree#ent a tent-6-ear period to #ana(e,

operate, repair, deco##ission and refurbish the e3istin( M?SS ater deliver- and seera(e services in the ?est Tone

Service Area, for hich Ma-nilad undertoo* to pa- the correspondin( concession fees on the dates a(reed upon in said

a(ree#ent> hich, a#on( other thin(s, consisted of pa-#ents of petitionerKs #ostl- forei(n loans.

!o secure the concessionaireKs perfor#ance of its obli(ations under the Concession A(ree#ent, Ma-nilad as re<uired

under Section ;.& of said contract to put up a bond, ban* (uarantee or other securit- acceptable to M?SS.

"n co#pliance ith this re<uire#ent, Ma-nilad arran(ed on =ul- $%, '::: for a three6-ear facilit- ith a nu#ber of forei(nban*s, led b- Citicorp "nternational Li#ited, for the issuance of an "rrevocable Standb- Letter of Credit; in the a#ount of

S$':,:::,::: in favor of M?SS for the full and pro#pt perfor#ance of Ma-niladKs obli(ations to M?SS as aforestated

So#eti#e in Septe#ber ':::, respondent Ma-nilad re<uested M?SS for a #echanis# b- hich it hoped to recover the

losses it had alle(edl- incurred and ould be incurrin( as a result of the depreciation of the Philippine Peso a(ainst the

S 9ollar. /ailin( to (et hat it desired, Ma-nilad issued a /orce Ma4eure Notice on March 2, '::$ and unilaterall-

suspended the pa-#ent of the concession fees. "n an effort to salva(e the Concession A(ree#ent, the parties entered

into a Me#orandu# of A(ree#ent +MOA@ on =une 2, '::$ herein Ma-nilad as alloed to recover forei(n e3chan(e

14



losses under a for#ula a(reed upon beteen the#. So#eti#e in Au(ust '::$ Ma-nilad a(ain filed another /orce

Ma4eure Notice and, since M?SS could not a(ree ith the ter#s of said Notice, the #atter as referred on Au(ust 5:,

'::$ to the Appeals Panel for arbitration. !his resulted in the parties a(reein( to resolve the issues throu(h an

a#end#ent of the Concession A(ree#ent on October >, '::$, *non as A#end#ent No. $,2 hich as based on the

ter#s set don in M?SS Board of !rustees Resolution No. %>@6'::$, as a#ended b- M?SS Board of !rustees

Resolution No. %2@6'::$,& hich providedinter alia for a for#ula that ould allo Ma-nilad to recover forei(n e3chan(e

losses it had incurred or ould incur under the ter#s of the Concession A(ree#ent.

As part of this a(ree#ent, Ma-nilad co##itted, a#on( other thin(s, to7

a infuse the a#ount of 92:.: #illion as additional fundin( support fro# its stoc*holders

b resu#e pa-#ent of the concession fees and

c #utuall- see* the dis#issal of the cases pendin( before the Court of Appeals and ith Minor 9ispute Appeals

Panel.

0oever, on Nove#ber >, '::', Ma-nilad served upon M?SS a Notice of Event of !er#ination, clai#in( that M?SS

failed to co#pl- ith its obli(ations under the Concession A(ree#ent and A#end#ent No. $ re(ardin( the ad4ust#ent

#echanis# that ould cover Ma-niladKs forei(n e3chan(e losses. On 9ece#ber &, '::', Ma-nilad filed a Notice of Earl-

!er#ination of the concession, hich as challen(ed b- M?SS. !his #atter as eventuall- brou(ht before the Appeals

Panel on =anuar- @, '::5 b- M?SS.$: On Nove#ber @, '::5, the Appeals Panel ruled that there as no Event of

!er#ination as defined under Art. $:.' +ii or $:.5 +iii of the Concession A(ree#ent and that, therefore, Ma-nilad should

pa- the concession fees that had fallen due.

!he aard of the Appeals Panel beca#e final on Nove#ber '', '::5. M?SS, thereafter, sub#itted a ritten notice$$ on

Nove#ber '%, '::5, to Citicorp "nternational Li#ited, as a(ent for the participatin( ban*s, that b- virtue of Ma-niladKs

failure to perfor# its obli(ations under the Concession A(ree#ent, it as drain( on the "rrevocable Standb- Letter of

Credit and thereb- de#anded pa-#ent in the a#ount of S&2,&'5,;%:.$>.

Prior to this, hoever, Ma-nilad had filed on Nove#ber $5, '::5, a petition for rehabilitation before the court a "uo hich

resulted in the issuance of the Sta- Order of Nove#ber $@, '::5 and the disputed Order of Nove#ber '@, '::5.$'

PETITIONER>S CASE

Petitioner hereb- raises the folloin( issues7

$. 9"9 !0E 0ONORABLE PRES"9"ND =9DE DRAJEL ERR AN9FOR AC! PA!EN!L ?"!0O!

=R"S9"C!"ON OR "N ECESS O/ =R"S9"C!"ON OR ?"!0 DRAJE ABSE O/ 9"SCRE!"ON AMON!"ND

!O LAC OR ECESS O/ =R"S9"C!"ON "N CONS"9ER"ND !0E PER/ORMANCE BON9 OR ASSE!S O/

!0E "SS"ND BANS AS PAR! OR PROPER! O/ !0E ES!A!E O/ !0E PR"JA!E RESPON9EN!

MAN"LA9 SB=EC! !O RE0AB"L"!A!"ON.

'. 9"9 !0E 0ONORABLE PRES"9"ND =9DE AC! ?"!0 LAC OR ECESS O/ =R"S9"C!"ON OR COMM"!

A DRAJE ERROR O/ LA? "N 0OL9"ND !0A! !0E PER/ORMANCE BON9 OBL"DA!"ONS O/ !0E BANS

?ERE NO! SOL"9AR "N NA!RE.

5. 9"9 !0E 0ONORABLE PRES"9"ND =9DE DRAJEL ERR "N ALLO?"ND MAN"LA9 !O "N E//EC!

SEE A REJ"E? OR APPEAL O/ !0E /"NAL AN9 B"N9"ND 9EC"S"ON O/ !0E APPEALS PANEL.

15



"n support of the f irst issue, petitioner #aintains that as a #atter of la, the S$': Million Standb- Letter of Credit and

Perfor#ance Bond are not propert- of the estate of the debtor Ma-nilad and, therefore, not sub4ect to the in

rem rehabilitation 4urisdiction of the trial court.

Petitioner ar(ues that a call #ade on the Standb- Letter of Credit does not involve an- asset of Ma-nilad but onl- assets

of the ban*s. /urther#ore, a call on the Standb- Letter of Credit cannot also be considered a 8clai#8 fallin( under the

purvie of the sta- order as alle(ed b- respondent as it is not directed a(ainst the assets of respondent Ma-nilad.

Petitioner concludes that the public respondent erred in declarin( and holdin( that the co##ence#ent of the process forthe pa-#ent of S&2 #illion is a violation of the order issued on Nove#ber $@, '::5.

RESPONDENT MA/NILAD>S CASE

Respondent Ma-nilad see*s to refute this ar(u#ent b- alle(in( that7

a the order ob4ected to as strictl- and precisel- orded and issued after carefull- considerin(Fevaluatin( the

i#port of the ar(u#ents and docu#ents referred to b- Ma-nilad, M?SS andFor creditors Chinatrust Co##ercial

Ban* and Sue) in relation to ad#issions, pleadin(s andFor pertinent records$5 and that public respondent had the

authorit- to issue the sa#e

b public respondent never considered nor held that the Perfor#ance bond or assets of the issuin( ban*s are part

or propert- of the estate of respondent Ma-nilad sub4ect to rehabilitation and hich respondent Ma-nilad has not

and has never clai#ed to be$%

c hat is relevant is not hether the perfor#ance bond or assets of the issuin( ban*s are part of the estate of

respondent Ma-nilad but hether the act of petitioner in co##encin( the process for the pa-#ent b- the ban*s of

S&2 #illion out of the S$': #illion perfor#ance bond is covered andFor prohibited under sub6para(raphs '.

and %. of the sta- order dated Nove#ber $@, '::5

d the 4urisdiction of public respondent e3tends not onl- to the assets of respondent Ma-nilad but also over

persons and assets of 8all those affected b- the proceedin(s 3 3 3 upon publication of the notice of

co##ence#ent$>

8 and

e the obli(ations under the Standb- Letter of Credit are not solidar- and are not e3e#pt fro# the covera(e of the

sta- order.

OUR RULING

?e ill discuss the first to issues raised b- petitioner as these are interrelated and #a*e up the #ain issue of the

petition before us hich is, did the rehabilitation court sittin( as such, act in e3cess of its authorit- or 4urisdiction hen it

en4oined herein petitioner fro# see*in( the pa-#ent of the concession fees fro# the ban*s that issued the "rrevocable

Standb- Letter of Credit in its favor and for the account of respondent Ma-niladU

!he public respondent relied on Sec. $, Rule 5 of the "nteri# Rules on Corporate Rehabilitation to support its 4urisdiction

over the "rrevocable Standb- Letter of Credit and the ban*s that issued it. !he section reads in part 8that 4urisdiction over

those affected b- the proceedin(s is considered ac<uired upon the publication of the notice of co##ence#ent of

proceedin(s in a nespaper of (eneral circulation8 and (oes further to define rehabilitation as an in rem proceedin(. !his

provision is a lo(ical conse<uence of the in rem nature of the proceedin(s, here 4urisdiction is ac<uired b- publication

and here it is necessar- that the assets of the debtor co#e ithin the courtKs 4urisdiction to secure the sa#e for the

benefit of creditors. !he reference to 8all those affected b- the proceedin(s8 covers creditors or such other persons or

entities holdin( assets belon(in( to the debtor under rehabilitation hich should be reflected in its audited financial

16



state#ents. !he ban*s do not hold an- assets of respondent Ma-nilad that ould be #aterial to the rehabilitation

proceedin(s nor is Ma-nilad liable to the ban*s at this point.

Respondent Ma-niladKs /inancial State#ent as of 9ece#ber 5$, '::$ and '::' do not sho the "rrevocable Standb-

Letter of Credit as part of its assets or liabilities, and b- respondent Ma-niladKs on ad#ission it is not. "n issuin( the

clarificator- order of Nove#ber '@, '::5, en4oinin( petitioner fro# clai#in( fro# an asset that did not belon( to the debtor

and over hich it did not ac<uire 4urisdiction, the rehabilitation court acted in e3cess of its 4urisdiction.

Respondent Ma-nilad insists, hoever, that it is Sec. ; +b, Rule % of the "nteri# Rules that supports its clai# that theco##ence#ent of the process to dra on the Standb- Letter of Credit is an enforce#ent of clai# prohibited b- and under

the "nteri# Rules and the order of public respondent.

Respondent Ma-nilad ould persuade us that the above provision 4ustifies a leap to the conclusion that such an

enforce#ent is prohibited b- said section because it is a 8clai# a(ainst the debtor, its (uarantors and sureties not

solidaril- liable ith the debtor8 and that there is nothin( in the Standb- Letter of Credit nor in la nor in the nature of the

obli(ation that ould sho or re<uire the obli(ation of the ban*s to be solidar- ith the respondent Ma-nilad.

?e disa(ree.

/irst, the clai# is not one a(ainst the debtor but a(ainst an entit- that respondent Ma-nilad has procured to anser for its

non6perfor#ance of certain ter#s and conditions of the Concession A(ree#ent, particularl- the pa-#ent of concession

fees.

Secondl-, Sec. ; +b of Rule % of the "nteri# Rules does not en4oin the enforce#ent of all clai#s a(ainst (uarantors and

sureties, b& o &6o3e c+2m3 ++23& +r+&or3 +- 3re&2e3 ?6o +re o& 3o2-+r2 2+be ?2&6 &6e -eb&or .

Respondent Ma-niladKs clai# that the ban*s are not solidaril- liable ith the debtor does not find support in 4urisprudence.

?e held in 'eati Bank - Trust Company v Court of !ppeals$; that the concept of (uarantee vis&3&vis the concept of an

irrevocable letter of credit are inconsistent ith each other. !he (uarantee theor- destro-s the independence of the ban*Ks

responsibilit- fro# the contract upon hich it as opened and the nature of both contracts is #utuall- in conflict ith each

other. "n contracts of (uarantee, the (uarantorKs obli(ation is #erel- collateral and it arises onl- upon the default of the

person pri#aril- liable. On the other hand, in an irrevocable letter of credit, the ban* underta*es a pri#ar- obli(ation. ?ehave also defined a letter of credit as an en(a(e#ent b- a ban* or other person #ade at the re<uest of a custo#er that

the issuer shall honor drafts or other de#ands of pa-#ent upon co#pliance ith the conditions specified in the credit.$@

Letters of credit ere developed for the purpose of insurin( to a seller pa-#ent of a definite a#ount upon the presentation

of docu#ents$2 and is thus a co##it#ent b- the issuer that the part- in hose favor it is issued and ho can collect upon

it ill have his credit a(ainst the applicant of the letter, dul- paid in the a#ount specified in the letter.$& !he- are in

effect +b3o&e underta*in(s to pa- the #one- advanced or the a#ount for hich credit is (iven on the faith of the

instru#ent. !he- are pri#ar- obli(ations and not accessor- contracts and hile the- are securit- arran(e#ents, the- are

not converted thereb- into contracts of (uarant-.': ?hat distin(uishes letters of credit fro# other accessor- contracts, is

the en(a(e#ent of the issuin( ban* to pa- the seller once the draft and other re<uired shippin( docu#ents are presented

to it.'$ !he- are definite underta*in(s to pa- at si(ht once the docu#ents stipulated therein are presented.

Letters of Credits have lon( been and are still (overned b- the provisions of the nifor# Custo#s and Practice for

9ocu#entar- Credits of the "nternational Cha#ber of Co##erce. "n the $&&5 Revision it provides in Art. ' that 8the

e3pressions 9ocu#entar- Credit+s and Standb- Letter+s of Credit #ean an- arran(e#ent, hoever #ade or described,

hereb- a ban* actin( at the re<uest and on instructions of a custo#er or on its on behalf is to #a*e pa-#ent a(ainst

stipulated docu#ent+s8 and Art. & thereof defines the liabilit- of the issuin( ban*s on an irrevocable letter of credit as a

8definite underta*in( of the issuin( ban*, provided that the stipulated docu#ents are presented to the no#inated ban* or

the issuin( ban* and the ter#s and conditions of the Credit are co#plied ith, to pa- at si(ht if the Credit provides for

si(ht pa-#ent.8''

17



?e have accepted, in 'eati Bank and Trust Company v Court of !ppeals '5 and Bank of !merica 1T - *! v Court of

!ppeals,'% to the e3tent that the- are pertinent, the application in our 4urisdiction of the international credit re(ulator- set of

rules *non as the nifor# Custo#s and Practice for 9ocu#entar- Credits +.C.P issued b- the "nternational Cha#ber

of Co##erce, hich e said in Bank of the Philippine Islands v 1ery '> as 4ustified under Art. ' of the Code of

Co##erce, hich states7

8Acts of co##erce, hether those ho e3ecute the# be #erchants or not, and hether specified in this Code or

not should be (overned b- the provisions contained in it in their absence, b- the usa(es of co##erce (enerall-

observed in each place and in the absence of both rules, b- those of the civil la.8

!he prohibition under Sec ; +b of Rule % of the "nteri# Rules does not appl- to herein petitioner as the prohibition is on

the enforce#ent of clai#s a(ainst (uarantors or sureties of the debtors hose obli(ations are not solidar- ith the debtor.

!he participatin( ban*sK obli(ation are solidar- ith respondent Ma-nilad in that it is a pri#ar-, direct, definite and an

absolute underta*in( to pa- and is not conditioned on the prior e3haustion of the debtorKs assets. !hese are the sa#e

characteristics of a suret- or solidar- obli(or.

Bein( solidar-, the clai#s a(ainst the# can be pursued separatel- fro# and independentl- of the rehabilitation case, as

held in Traders Royal Bank v Court of !ppeals'; and reiterated in Philippine Blooming /ills, Inc v Court of

!ppeals,'@ here e said that propert- of the suret- cannot be ta*en into custod- b- the rehabilitation receiver +SEC and

said suret- can be sued separatel- to enforce his liabilit- as suret- for the debts or obli(ations of the debtor. !he debts or

obli(ations for hich a suret- #a- be liable include future debts, an a#ount hich #a- not be *non at the ti#e thesuret- is (iven.

!he ter#s of the "rrevocable Standb- Letter of Credit do not sho that the obli(ations of the ban*s are not solidar- ith

those of respondent Ma-nilad. On the contrar-, it is issued at the re<uest of and for the account of Ma-nilad ?ater

Services, "nc., in favor of the Metropolitan ?ateror*s and Seera(e S-ste#, as a bond for the full and pro#pt

perfor#ance of the obli(ations b- the concessionaire under the Concession A(ree#ent'2 and herein petitioner is

authori)ed b- the ban*s to dra on it b- the si#ple act of deliverin( to the a(ent a ritten certification substantiall- in the

for# Anne3 8B8 of the Letter of Credit. "t provides further in Sec. ;, that for as lon( as the Standb- Letter of Credit is valid

and subsistin(, the Ban*s shall honor an- ritten Certification #ade b- M?SS in accordance ith Sec. ', of the Standb-

Letter of Credit re(ardless of the date on hich the event (ivin( rise to such ?ritten Certification arose.'&

!a*in( into consideration our on rulin(s on the nature of letters of credit and the custo#s and usa(e developed over the

-ears in the ban*in( and co##ercial practice of letters of credit, e hold that e3cept hen a letter of credit specificall-

stipulates otherise, the obli(ation of the ban*s issuin( letters of credit are solidar- ith that of the person or entit-

re<uestin( for its issuance, the sa#e bein( a direct, pri#ar-, absolute and definite underta*in( to pa- the beneficiar- upon

the presentation of the set of docu#ents re<uired therein.

!he public respondent, therefore, e3ceeded his 4urisdiction, in holdin( that he as co#petent to act on the obli(ation of

the ban*s under the Letter of Credit under the ar(u#ent that this as not a solidar- obli(ation ith that of the debtor.

Bein( a solidar- obli(ation, the letter of credit is e3cluded fro# the 4urisdiction of the rehabilitation court and therefore in

en4oinin( petitioner fro# proceedin( a(ainst the Standb- Letters of Credit to hich it had a clear ri(ht under the la and

the ter#s of said Standb- Letter of Credit, public respondent acted in e3cess of his 4urisdiction.

ADDITIONAL ISSUES

?e proceed to consider the other issues raised in the oral ar(u#ents and included in the partiesK #e#oranda7

$. Respondent Ma-nilad ar(ues that petitioner had a plain, speed- and ade<uate re#ed- under the "nteri# Rules

itself hich provides in Sec. $', Rule % that the court #a- on #otion or motu proprio, ter#inate, #odif- or set

conditions for the continuance of the sta- order or relieve a clai# fro# covera(e thereof. ?e find, hoever, that

the public respondent had alread- acco#plished this durin( the hearin( set for the to r(ent +) Parte #otions

18



filed b- respondent Ma-nilad on Nove#ber '$ and '%, '::5,5: here the parties includin( the creditors, Sue) and

Chinatrust Co##ercial 8presented their respective ar(u#ents.85$ !he public respondent then ruled, 8after carefull-

considerin(Fevaluatin( the i#port of the ar(u#ents and docu#ents referred to b- Ma-nilad, M?SS andFor the

creditors Chinatrust Co##ercial Ban* and Sue) in relation to the ad#issions, the pleadin(s, andFor pertinent

portions of the records, this court is of the considered and hu#ble vie that the issue #ust perforce be resolved in

favor of Ma-nilad.85' 0ence to pursue their opposition before the sa#e court ould result in the presentation of

the sa#e ar(u#ents and issues passed upon b- public respondent.

/urther#ore, Sec. >, Rule 5 of the "nteri# Rules ould preclude another effective re#ed- <uestionin( theorders of the rehabilitation court since the- are i##ediatel- e3ecutor- and a petition for revie or an appeal

therefro# shall not sta- the e3ecution of the order unless restrained or en4oined b- the appellate court.8 "n this

situation, it had no other re#ed- but to see* recourse to us throu(h this petition for certiorari .

"n *ilvestre v Torres and 4ben,55 e said that it is not enou(h that a re#ed- is available to prevent a part- fro#

#a*in( use of the e3traordinar- re#ed- of certiorari but that such re#ed- be an ade<uate re#ed- hich is

e<uall- beneficial, speed- and sufficient, not onl- a re#ed- hich at so#e ti#e in the future #a- offer relief but a

re#ed- hich ill pro#ptl- relieve the petitioner fro# the in4urious acts of the loer tribunal. "t is the inade<uac- 66

not the #ere absence 66 of all other le(al re#edies and the dan(er of failure of 4ustice ithout the rit, that #ust

usuall- deter#ine the propriet- of certiorari .5%

'. Respondent Ma-nilad ar(ues that b- co##encin( the process for pa-#ent under the Standb- Letter of Credit,petitioner violated an i##ediatel- e3ecutor- order of the court and, therefore, co#es to Court ith unclean hands

and should therefore be denied an- relief.

"t is true that the sta- order is i##ediatel- e3ecutor-. "t is also true, hoever, that the Standb- Letter of Credit and

the ban*s that issued it ere not ithin the 4urisdiction of the rehabilitation court. !he call on the Standb- Letter of

Credit, therefore, could not be considered a violation of the Sta- Order.

5. RespondentKs clai# that the filin( of the petition pre6e#pts the ori(inal 4urisdiction of the loer court is ithout

#erit. !he purpose of the initial hearin( is to deter#ine hether the petition for rehabilitation has #erit or not. !he

propriet- of the sta- order as ell as the clarificator- order had alread- been passed upon in the hearin(

previousl- had for that purpose. !he deter#ination of hether the public respondent as correct in en4oinin( thepetitioner fro# drain( on the Standb- Letter of Credit ill have no bearin( on the deter#ination to be #ade b-

public respondent hether the petition for rehabilitation has #erit or not. Our decision on the instant petition does

not pre6e#pt the ori(inal 4urisdiction of the rehabilitation court.

:#ERE"ORE, the petition for certiorari is (ranted. !he Order of Nove#ber '@, '::5 of the Re(ional !rial Court of

Hue)on Cit-, Branch &:, is hereb- declared NULL AND OID and SET ASIDE. !he status "uo Order herein previousl-

issued is hereb- LI"TED. "n vie of the ur(enc- attendin( this case, this decision is i##ediatel- e3ecutor-.


SUPREME COURT

Manila

19



SECON9 9"J"S"ON

G.R. No. 17'84$ "ebr+r ), )(11

*OSE MARCEL PANLILIO, ERLINDA PANLILIO, NICOLE MORRIS +- MARIO T. CRISTOAL, Petitioners,

vs.

REGIONAL TRIAL COURT, RANC# 51, CIT/ O" MANILA, re%re3e&e- b #ON. PRESIDING *UDGE ANTONIO M. ROSALES@

PEOPLE O" T#E P#ILIPPINES@ +- &6e SOCIAL SECURIT/ S/STEM, Respondents.

9 E C " S " O N

PERALTA, J.:

Before this Court is a petition for revie on certiorar i$ under Rule %> of the Rules of Court, see*in( to set aside the April '@, '::;

9ecision' and Au(ust ', '::; Resolution5 of the Court of the Appeals +CA in CA6D.R. SP No. &:&%@.

!he facts of the case are as follos7

On October $>, '::%, =ose Marcel Panlilio, Erlinda Panlilio, Nicole Morris and Marlo Cristobal +petitioners, as corporate officers of

Silahis "nternational 0otel, "nc. +S"0", filed ith the Re(ional !rial Court +R!C of Manila, Branch '%, a petition for Suspension of

Pa-#ents and Rehabilitation% in SEC Corp. Case No. :%6$$$$2:.

On October $2, '::%, the R!C of Manila, Branch '%, issued an Order > sta-in( all clai#s a(ainst S"0" upon findin( the petition sufficient

in for# and substance. !he pertinent portions of the Order read7

/indin( the petition, to(ether ith its anne3es, sufficient in for# and substance and pursuant to Section ;, Rule % of the "nteri# Rules

on Corporate Rehabilitation, the Court hereb-7

3 3 3 3

' Sta-s the enforce#ent of all clai#s, hether for #one- or otherise and hether such enforce#ent is b- court action or otherise,

a(ainst the debtor, its (uarantors and sureties not solidaril- liable ith the debtor .;

20

http://www.lawphil.net/judjuris/juri2011/feb2011/gr_173846_2011.html#fnt1





















At the ti#e, hoever, of the filin( of the petition for rehabilitation, there ere a nu#ber of cri#inal char(es@pendin( a(ainst petitioners in

Branch >$ of the R!C of Manila. !hese cri#inal char(es ere initiated b- respondent Social Securit- S-ste# +SSS and involved

char(es of violations of Section '2 +h2 of Republic Act 2'2', or the Social Securit- Act of $&&@ +SSS la, in relation to Article 5$> +$

+b& of the Revised Penal Code, or Estafa. Conse<uentl-, petitioners filed ith the R!C of Manila, Branch >$, a Manifestation and

Motion to Suspend Proceedin(s.$: Petitioners ar(ued that the sta- order issued b- Branch '% should also appl- to the cri#inal char(es

pendin( in Branch >$. Petitioners, thus, pra-ed that Branch >$ suspend its proceedin(s until the petition for rehabilitation as finall-

resolved.

On 9ece#ber $5, '::%, Branch >$ issued an Order $$ den-in( petitionersK #otion to suspend the proceedin(s. "t ruled that the sta-

order issued b- Branch '% did not cover cri#inal proceedin(s, to it7

3 3 3 3

Clearl- then, the issue is, hether the sta- order issued b- the R!C co##ercial court, Branch '% includes the above6captioned cri#ina

cases.

!he Court shares the vie of the private co#plainants and the SSS that the said sta- order does not include the prosecution of cri#inal

offenses. Precisel-, the la 8cri#inali)es8 the non6re#ittance of SSS contributions b- an e#plo-er to protect the e#plo-ees fro#

unscrupulous e#plo-ers. Clearl-, in these cases, public interest re<uires that the said cri#inal acts be i##ediatel- investi(ated and

prosecuted for the protection of societ-.

/ro# the fore(oin(, the inescapable conclusion is that the sta- order issued b- R!C Branch '% does not include the above6captionedcases hich are cri#inal in nature.$'

Branch >$ denied the #otion for reconsideration filed b- petitioners.

On Au(ust $&, '::>, petitioners filed a petition for certiorari$5 ith the CA assailin( the Order of Branch >$.

On April '@, '::;, the CA issued a 9ecision den-in( the petition, the dispositive portion of hich reads7

?0ERE/ORE, pre#ises considered, the Petition is hereb- 9EN"E9 and is accordin(l- 9"SM"SSE9. No costs. $%

!he CA discussed that violation of the provisions of the SSS la as a cri#inal liabilit- and as, thus, personal to the offender. As

such, the CA held that the cri#inal proceedin(s a(ainst the petitioners should not be considered a clai# a(ainst the corporation and,conse<uentl-, not covered b- the sta- order issued b- Branch '%.

Petitioners filed a Motion for Reconsideration,$> hich as, hoever, denied b- the CA in a Resolution dated Au(ust ', '::;.

0ence, herein petition, ith petitioners raisin( a lone issue for this CourtKs resolution, to it7

3 3 3 ?0E!0ER OR NO! !0E S!A OR9ER "SSE9 B BRANC0 '%, RED"ONAL !R"AL COR! O/ MAN"LA, "N SEC CORP.

CASE NO. :%6$$$$2: COJERS ALSO J"OLA!"ON O/ SSS LA? /OR NON6REM"!!ANCE O/ PREM"MS AN9 J"OLA!"ON O/

AR!"CLE 5 >$> O/ !0E REJ"SE9 PENAL CO9E.$;

!he petition is not #eritorious.

!o be(in ith, corporate rehabilitation connotes the restoration of the debtor to a position of successful operation and solvenc-, if it is

shon that its continued operation is econo#icall- feasible and its creditors can recover #ore, b- a- of the present value of pa-#ents

pro4ected in the rehabilitation plan, if the corporation continues as a (oin( concern than if it is i##ediatel- li<uidated.$@ "t conte#plates

a continuance of corporate life and activities in an effort to restore and reinstate the corporation to its for#er position of successful

operation and solvenc-, the purpose bein( to enable the co#pan- to (ain a ne lease on life and allo its creditors to be paid their

clai#s out of its earnin(s.$2

A principal feature of corporate rehabilitation is the suspension of clai#s a(ainst the distressed corporation. Section ; +c of Presidentia

9ecree No. &:'6A, as a#ended, provides for suspension of clai#s a(ainst corporations under(oin( rehabilitation, to it7

21


































Section ; +c. 3 3 3

3 3 3 Provided, finall-, that upon appoint#ent of a #ana(e#ent co##ittee, rehabilitation receiver, board or bod-, pursuant to this

9ecree, all actions for clai#s a(ainst corporations, partnerships or associations under #ana(e#ent or receivership pendin( before an-

court, tribunal, board or bod-, shall be suspended accordin(l-.$&

"n Nove#ber '$, ':::, this Court En Banc pro#ul(ated the "nteri# Rules of Procedure on Corporate Rehabilitation, ': Section ;, Rule %

of hich provides a sta- order on all clai#s a(ainst the corporation, thus7

*tay 4rder . 6 "f the court finds the petition to be sufficient in for# and substance, it shall, not later than five +> da-s fro# the filin( of thepetition, issue an Order 3 3 3 +b sta-in( enforce#ent of all clai#s, hether for #one- or otherise and hether such enforce#ent is

b- court action or otherise, a(ainst the debtor, its (uarantors and sureties not solidaril- liable ith the debtor 3 3 3'$

"n 'inasia Investments and 'inance Corporation v Court of !ppeals,'' the ter# 8clai#8 has been construed to refer to debts or

de#ands of a pecuniar- nature, or the assertion to have #one- paid. !he purpose for suspendin( actions for clai#s a(ainst the

corporation in a rehabilitation proceedin( is to enable the #ana(e#ent co##ittee or rehabilitation receiver to effectivel- e3ercise itsFhis

poers free fro# an- 4udicial or e3tra4udicial interference that #i(ht undul- hinder or prevent the rescue of the debtor co#pan-.'5

!he issue to be resolved then is7 does the suspension of 8all clai#s8 as an incident to a corporate rehabilitation also conte#plate the

suspension of cri#inal char(es filed a(ainst the corporate officers of the distressed corporationU

!his Court rules in the ne(ative.

"n Rosario v. Co'% +Rosario, a case of recent vinta(e, the issue resolved b- this Court as hether or not durin( the pendenc- of

rehabilitation proceedin(s, cri#inal char(es for violation of Batas Pa#bansa Bilan( '' should be suspended, as disposed of as

follos7

3 3 3 the gravamen of the offense punished b- B.P. Bl(. '' is the act of #a*in( and issuin( a orthless chec* that is, a chec* that is

dishonored upon its presentation for pa-#ent. "t is desi(ned to prevent da#a(e to trade, co##erce, and ban*in( caused b- orthless

chec*s. "n 5o0ano v /artine0 , this Court declared that it is not the nonpa-#ent of an obli(ation hich the la punishes. !he la is not

intended or desi(ned to coerce a debtor to pa- his debt. !he thrust of the la is to prohibit, under pain of penal sanctions, the #a*in(

and circulation of orthless chec*s. Because of its deleterious effects on the public interest, the practice is proscribed b- the la. !he

la punishes the act not as an offense a(ainst propert-, but an offense a(ainst public order. !he pri#e purpose of the cri#inal action is

to punish the offender in order to deter hi# and others fro# co##ittin( the sa#e or si#ilar offense, to isolate hi# fro# societ-, to

refor# and rehabilitate hi# or, in (eneral, to #aintain social order. 0ence, the cri#inal prosecution is desi(ned to pro#ote the public

elfare b- punishin( offenders and deterrin( others.

Conse<uentl-, the filin( of the case for violation of B.P. Bl(. '' is not a 8clai#8 that can be en4oined ithin the purvie of P.9. No. &:'6

A. !rue, althou(h conviction of the accused for the alle(ed cri#e could result in the restitution, reparation or inde#nification of the

private offended part- for the da#a(e or in4ur- he sustained b- reason of the felonious act of the accused, nevertheless, prosecution for

violation of B.P. Bl(. '' is a cri#inal action.

A cri#inal action has a dual purpose, na#el-, the punish#ent of the offender and inde#nit- to the offended part-. !he do#inant and

pri#ordial ob4ective of the cri#inal action is the punish#ent of the offender. !he civil action is #erel- incidental to and conse<uent to

the conviction of the accused. !he reason for this is that cri#inal actions are pri#aril- intended to vindicate an outra(e a(ainst the

soverei(nt- of the state and to i#pose the appropriate penalt- for the vindication of the disturbance to the social order caused b- the

offender. On the other hand, the action beteen the private co#plainant and the accused is intended solel- to inde#nif- thefor#er .'>l auuphil

Rosario is at fours ith the case at bar. Petitioners are char(ed ith violations of Section '2 +h of the SSS la, in relation to Article 5$>

+$ +b of the Revised Penal Code, or Estafa. !he SSS la clearl- 8cri#inali)es8 the non6re#ittance of SSS contributions b- an

e#plo-er to protect the e#plo-ees fro# unscrupulous e#plo-ers. !herefore, public interest re<uires that the said cri#inal acts be

i##ediatel- investi(ated and prosecuted for the protection of societ-.

!he rehabilitation of S"0" and the settle#ent of clai#s a(ainst the corporation is not a le(al (round for the e3tinction of petitionersK

cri#inal liabilities. !here is no reason h- cri#inal proceedin(s should be suspended durin( corporate rehabilitation, #ore so, since the

22





















pri#e purpose of the cri#inal action is to punish the offender in order to deter hi# and others fro# co##ittin( the sa#e or si#ilar

offense, to isolate hi# fro# societ-, refor# and rehabilitate hi# or, in (eneral, to #aintain social order .'; As correctl- observed in

Rosario,'@ it ould be absurd for one ho has en(a(ed in cri#inal conduct could escape punish#ent b- the #ere filin( of a petition for

rehabilitation b- the corporation of hich he is an officer.

!he prosecution of the officers of the corporation has no bearin( on the pendin( rehabilitation of the corporation, especiall- since the-

are char(ed in their individual capacities. Such bein( the case, the purpose of the la for the issuance of the sta- order is not

co#pro#ised, since the appointed rehabilitation receiver can still full- dischar(e his functions as #andated b- la. "t bears to stress

that the rehabilitation receiver is not char(ed to defend the officers of the corporation. "f there is an-thin( that the rehabilitation receiver

#i(ht be re#otel- interested in is hether the court also rules that petitioners are civill- liable. Such a scenario, hoever, is not areason to suspend the cri#inal proceedin(s, because as aptl- discussed in Rosario, should the court prosecutin( the officers of the

corporation find that an aard or inde#nification is arranted, such aard ould fall under the cate(or- of clai#s, the e3ecution of

hich ould be sub4ect to the sta- order issued b- the rehabilitation court.'2!he penal sanctions as a conse<uence of violation of the

SSS la, in relation to the revised penal code can therefore be i#ple#ented if petitioners are found (uilt- after trial. 0oever, an- civil

inde#nit- aarded as a result of their conviction ould be sub4ect to the sta- order issued b- the rehabilitation court. Onl- to this e3tent

can the order of suspension be considered obli(ator- upon an- court, tribunal, branch or bod- here there are pendin( actions for

clai#s a(ainst the distressed corporation.'&

On a final note, this Court ould li*e to point out that Con(ress has recentl- enacted Republic Act No. $:$%', or the /inancial

Rehabilitation and "nsolvenc- Act of ':$:.5: Section $2 thereof e3plicitl- provides that cri#inal actions a(ainst the individual officer of a

corporation are not sub4ect to the Sta- or Suspension Order in rehabilitation proceedin(s, to it7

!he Sta- or Suspension Order shall not appl-7

3 3 3 3

+( an- cri#inal action a(ainst individual debtor or oner, partner, director or officer of a debtor shall not be affected b- an- proceedin(

co##enced under this Act.

?ithal, based on the fore(oin( discussion, this Court rules that there is no le(al i#pedi#ent for Branch >$ to proceed ith the cases

filed a(ainst petitioners.

?0ERE/ORE, pre#ises considered, the petition is 9EN"E9. !he April '@, '::; 9ecision and Au(ust ', '::; Resolution of the Court

of Appeals in CA6D.R. SP No. &:&%@ are A//"RME9. !he Re(ional !rial Court of Manila, Branch >$, is OR9ERE9 to proceed ith the

cri#inal cases filed a(ainst petitioners.

SO OR9ERE9.


SUPREME COURTManila

EN ANC

G.R. No. 1$4$41 December )(, )((7

AN! O" T#E P#ILIPPINE ISLANDS, +3 3cce33or o "+r E+3& + +- Tr3& Com%+, petitioner,

vs.

23



















SECURITIES AND EBC#ANGE COMMISSION, RE#AILITATION #OLDINGS, INC., ELASCO, *R., AS

DEELOPMENT CORPORATION, AS LAND, INC., AS "INANCE, INC., MA!ATI #OPE C#RISTIAN SC#OOL,

INC., EL0AIR #OLDINGS CORP., :INC#ESTER TRADING, INC., /L DEELOPMENT CORP., GERRIC!

#OLDINGS CORP., NEIG#OR#OOD #OLDINGS, INC., +- T#E COURT O" APPEALS,respondents.

9 E C " S " O N

TINGA, J.:

/or resolution is a petition see*in( to nullif- the 5: =anuar- '::% 9ecision$ of the Court of Appeals in CA6D.R. SP No.

@@5:&' upholdin( the Securities and E3chan(e Co##issionKs +SEC approval of the rehabilitation of the ASB Droup of

Co#panies +ASB Droup in *+C +n Banc Case No. EB6@';.5

!he antecedent facts are as follos7

!he Ban* of the Philippine "slands +BP", throu(h its predecessor6in6 interest, /ar East Ban* and !rust Co#pan-

+/EB!C, e3tended credit acco##odations to the ASB Droup% ith an outstandin( a((re(ate principal a#ount

ofP2;,2::,:::.::, secured b- a real estate #ort(a(e over to +' properties located in Dreenhills, San =uan. > On ' Ma-

':::, the ASB Droup filed a petition for rehabilitation and suspension of pa-#ents before the SEC, doc*eted as SEC

Case No. :>6::6;;:&.; !hereafter, on $2 Au(ust ':::, the interi# receiver sub#itted its Proposed Rehabilitation Plan

+Rehabilitation Plan@ for the ASB Droup. !he Rehabilitation Plan provides, a#on( others, a dacion en pago b- the ASB

Droup to BP" of one of the properties #ort(a(ed to the latter at the ASB Droup as sellin( value of P2%,:::,:::.:: a(ainst

the total a#ount of the ASB DroupKs e3posure to the ban*. "n turn, ASB Droup ould re<uire the release of the other

propert- #ort(a(ed to BP", to be thereafter placed in the asset pool. Specificall-, the pertinent portion of the plan reads7

83 3 3 ASB plans to invo*e a dacion en pago for its V5> Eisenhoer propert- at ASBKs sellin( value of P2% #illion

a(ainst the total a#ount of the ASBKs e3posure to the ban*. "n return, ASB re<uests the release of the V'@

Annapolis propert- hich ill be placed in the ASB creditorsK asset pool.8 2

!he dacion ould constitute full pa-#ent of the entire obli(ation due to BP" because the balance as then to be

considered aived, as per the Rehabilitation Plan.&

BP" opposed the Rehabilitation Plan and #oved for the dis#issal of the ASB DroupKs petition for rehabilitation.$:0oever,

on '; April '::$, the SEC hearin( panel issued an order $$ approvin( ASB DroupKs proposed rehabilitation plan and

appointed Mr. /ortunato Cru) as rehabilitation receiver.

BP" filed a petition for revie$' of the '; April '::$ order before the SEC en banc, i#putin( (rave abuse of discretion on

the part of the hearin( panel. "t ar(ued that the Order constituted an arbitrar- violation of BP"Ks freedo# and ri(ht to

contract since the Rehabilitation Plan co#pelled BP" to enter into a dacion en pagoa(ree#ent ith the ASB Droup.$5 !he

SEC en banc denied the petition.$%

BP" then filed a petition for revie$> before the Court of Appeals +CA, clai#in( that the SEC en banc erred in affir#in( the

approval of the Rehabilitation Plan despite bein( violative of BP"Ks contractual ri(hts. BP" contended that the ter#s of the

Rehabilitation Plan ould i#pair its freedo# to contract, and alle(ed that the dacion en pagoas a #ode of pa-#ent

beneficial to the ASB Droup onl-.$;

!he CA dis#issed the petition for lac* of #erit. "t held that considerin( that the dacion en pago transaction could proceed

onl- proceed upon the #utual a(ree#ent of the parties, BP"Ks assertion that it is bein( coerced could not be sustained. At

no point ould the Rehabilitation Plan co#pel secured creditors such as BP" to a(ree to a settle#ent a(ree#ent a(ainst

their ill, the CA added. Moreover, BP" could refuse to accept an- arran(e#ent conte#plated b- the receiver and 4ust

assert its preferred ri(ht in the li<uidation and distribution of the assets of the ASB Droup.$@ BP" filed a #otion for

reconsideration, but the sa#e as denied for lac* of #erit.$2

24

http://www.lawphil.net/judjuris/juri2007/dec2007/gr_164641_2007.html#fnt1













































Before this Court, BP" asserts that the CA erred in rulin( that the approval b- the SEC of the ASB DroupKs Rehabilitation

Plan did not violate BP"Ks ri(hts as a creditor .$& "t #aintains its position that the dacion en pago is a for# of coercion or

co#pulsion, and violative of the ri(hts of secured creditors.': "t asserts that in order for the Rehabilitation Plan to be

feasible and le(all- tenable, it #ust reflect the e3press and free consent of the partiesie, that the conditions should not

be i#posed but a(reed upon b- the parties. B- approvin( the Rehabilitation Plan, the SEC hearin( panel totall-

disre(arded the efficac- of the #ort(a(e a(ree#ents beteen the parties, and sanctioned a #ode of pa-#ent hich is

solel- for the unilateral benefit of the ASB Droup.'$ !his is so because in the event that the secured creditors such as itself

ould not a(ree to dacion en pago, the ASB DroupKs obli(ations ould be settled at the sellin( prices of the #ort(a(ed

properties to be dictated b- the ASB Droup,

''

renderin( BP"Ks status as a preferred creditor illusor-.

'5

BP" further clai#s that despite its re4ection of the Rehabilitation Plan, no effort as #ade to resolve the i#passe on the

valuation of the #ort(a(ed properties. ?ith no repa-#ent sche#e for secured creditors not acceptin( the Rehabilitation

Plan, the sa#e has beco#e discri#inator-.'% Moreover, an- interference on the ri(hts of the secured creditors #ust not be

so indefinite and open6ended as to effectivel- deprive secured creditors of their ri(ht to their securit-,'> BP" adds.

"n its Co##ent,'; the SEC, throu(h the Office of the Solicitor Deneral, clai#s that the ter#s and conditions of the

Rehabilitation Plan do not violate BP"Ks ri(ht as a creditor because the dacion en pago transaction conte#plated in the

plan can onl- proceed upon #utual a(ree#ent of the parties. Moreover, bein( a secured creditor, BP" en4o-s preference

over unsecured creditors, thus there is no reason for BP" to fear the non6pa-#ent of the loan, or the inabilit- to assert its

preferred ri(ht over the #ort(a(ed propert-.'@

On the other hand, private respondents #aintain that the non6i#pair#ent clause of the Constitution relied on b- BP" is a

li#it on the e3ercise of le(islative poer and not of 4udicial or <uasi64udicial poer. !he SECKs approval of the

Rehabilitation Plan as an e3ercise of ad4udicator- poer b- an ad#inistrative a(enc- and thus the non6i#pair#ent

clause does not appl-.'2 "n addition, the- stress that there is no coercion or co#pulsion that ould be e#plo-ed under the

Rehabilitation Plan. "f dacion en pago fails to #ateriali)e, the Rehabilitation Plan conte#plates to settle the obli(ations to

secured creditors ith #ort(a(ed properties at sellin( prices.'& /inall-, the- clai# that BP" failed to sub#it an- valuation of

the #ort(a(e properties to substantiate its ob4ection to the Rehabilitation Plan, #a*in( its ob4ection thereto totall-

unreasonable.5:

!he petition #ust be denied.

!he ver- sa#e issues confronted the Court in the case of /etropolitan Bank - Trust Company v !*B (oldings, et al5$ "n

this case, Metropolitan Ban* I !rust Co#pan- +MB!C refused to enter into a dacion en pagoarran(e#ent contained in

ASBKs proposed Rehabilitation Plan.5' MB!C ar(ued, a#on( others, that the forced transfer of properties and the

di#inution of its ri(ht to enforce its lien on the #ort(a(ed properties violate its constitutional ri(ht a(ainst i#pair#ent of

contracts and ri(ht to due process. !he Court ruled that there is no i#pair#ent of contracts because the approval of the

Rehabilitation Plan and the appoint#ent of a rehabilitation receiver #erel- suspends the action for clai#s a(ainst the ASB

Droup, and MB!C #a- still enforce its preference hen the assets of the ASB Droup ill be li<uidated. But if the

rehabilitation is found to be no lon(er feasible, then the clai#s a(ainst the distressed corporation ould have to be settled

eventuall- and the secured creditors shall en4o- preference over the unsecured ones. Moreover, the Court stated that

there is no co#pulsion to enter into adacion en pago a(ree#ent, nor to aive the interests, penalties and related char(es,

since these are #erel- proposals to creditors such as MB!C, such that in the event the secured creditors refuse

the dacion, the Rehabilitation Plan proposes to settle the obli(ations to secured creditors ith #ort(a(ed properties atsellin( prices.

Rehabilitation proceedin(s in our 4urisdiction, #uch li*e the ban*ruptc- las of the nited States, have e<uitable and

rehabilitative purposes. On the one hand, the- atte#pt to provide for the efficient and e<uitable distribution of an insolvent

debtorKs re#ainin( assets to its creditors and on the other, to provide debtors ith a 8fresh start8 b- relievin( the# of the

ei(ht of their outstandin( debts and per#ittin( the# to reor(ani)e their affairs.55 !he rationale of P.9. No. &:'6A, as

a#ended, is to 8effect a feasible and viable rehabilitation,85% b- preservin( a founderin( business as (oin( concern,

because the assets of a business are often #ore valuable hen so #aintained than the- ould be hen li<uidated.5>

25














































!he Court reiterates that the SECKs approval of the Rehabilitation Plan did not i#pair BP"Ks ri(ht to contract.67wphi6 As

correctl- contended b- private respondents, the non6i#pair#ent clause is a li#it on the e3ercise of le(islative poer and

not of 4udicial or <uasi64udicial poer.5; !he SEC, throu(h the hearin( panel that heard the petition for approval of the

Rehabilitation Plan, as actin( as a <uasi64udicial bod- and thus, its order approvin( the plan cannot constitute an

i#pair#ent of the ri(ht and the freedo# to contract.

Besides, the #ere fact that the Rehabilitation Plan proposes a dacion en pago approach does not render it defective on

the (round of i#pair#ent of the ri(ht to contract. Dacion en pago is a special #ode of pa-#ent here the debtor offers

another thin( to the creditor ho accepts it as e<uivalent of pa-#ent of an outstandin( debt.

5@

!he underta*in( reall-parta*es in a sense of the nature of sale, that is, the creditor is reall- bu-in( the thin( or propert- of the debtor, the

pa-#ent for hich is to be char(ed a(ainst the debtorKs debt. As such, the essential ele#ents of a contract of sale,

na#el- consent, ob4ect certain, and cause or consideration #ust be present.52 Bein( a for# of contract, the dacion en

pago a(ree#ent cannot be perfected ithout the consent of the parties involved.

?e find no ele#ent of co#pulsion in the dacion en pago provision of the Rehabilitation Plan. "t as not the onl- solution

presented b- the ASB to pa- its creditors. "n fact, it as stated in the Rehabilitation Plan that7

3 3 3. "f the dacion en pago herein conte#plated does not #ateriali)e for failure of the secured creditors to a(ree

thereto, the rehabilitation plan conte#plates to settle the obli(ations +ithout interest, penalties and other related

char(es accruin( after the date of the initial suspension order to secured creditors ith #ort(a(ed properties at

ASB sellin( prices for the (eneral interest of the e#plo-ees, creditors, unit bu-ers, (overn#ent, (eneral publicand the econo#-.5&

!hus, if BP" does not find the dacion en pago #odalit- acceptable, the ASB Droup can propose to settle its debts at such

a#ount as is e<uivalent to the sellin( price of the #ort(a(ed properties. "f BP" still refuses this option, it can assert its

ri(hts in the li<uidation and distribution of the ASB DroupKs assets. "t ill not lose its status as a secured creditor, retainin(

its preference over unsecured creditors hen the assets of the corporation are finall- li<uidated.%:

?0ERE/ORE, in vie of the fore(oin(, the petition is 9EN"E9 and the 9ecision dated 5: =anuar- '::% of the Court of

Appeals in CA6D.R. SP No. @@5:& is A//"RME9. Costs a(ainst petitioner.

SO OR9ERE9.

26














Republic of the PhilippinesSUPREME COURT

Manila

"IRST DIISION

G.R. No. 15)58( *e )$, )((8

CONSUELO METAL CORPORATION, petitioner,

vs.

PLANTERS DEELOPMENT AN! +- ATT/. *ESUSA PRADO0MANINGAS, 2 6er c+%+c2& +3 E0o2c2o S6er2 o

M+2+, respondents.

D E C I S I O N

CARPIO, J.=

T6e C+3e

!his is a petition for revie$ see*in( to reverse the $% 9ece#ber '::$ 9ecision' and the ; March '::' Resolution5 of the Court

of Appeals in CA6D.R. SP No. ;>:;&. "n its $% 9ece#ber '::$ 9ecision, the Court of Appeals dis#issed petitioner Consuelo

Metal CorporationKs +CMC petition for certiorari and affir#ed the '> April '::$ Order % of the Re(ional !rial Court, Branch %;,

Manila +trial court. "n its ; March '::' Resolution, the Court of Appeals partiall- (ranted CMCKs #otion for reconsideration and

re#anded the case to the Securities and E3chan(e Co##ission +SEC for further proceedin(s.

T6e "+c&3

On $ April $&&;, CMC filed before the SEC a petition to be declared in a state of suspension of pa-#ent, for rehabilitation, and

for the appoint#ent of a rehabilitation receiver or #ana(e#ent co##ittee under Section >+d of Presidential 9ecree No. &:'6

A.> On ' April $&&;, the SEC, findin( the petition sufficient in for# and substance, declared that 8all actions for clai#s a(ainst

CMC pendin( before an- court, tribunal, office, board, bod- andFor co##ission are dee#ed suspended i##ediatel- until further

order8 fro# the SEC.;

"n an Order dated $5 Septe#ber $&&&, the SEC directed the creation of a #ana(e#ent co##ittee to underta*e CMCKs

rehabilitation and reiterated the suspension of all actions for clai#s a(ainst CMC.@

On '& Nove#ber ':::, upon the #ana(e#ent co##itteeKs reco##endation,2 the SEC issued an O#nibus Order directin( the

dissolution and li<uidation of CMC.& !he SEC also directed that 8the proceedin(s on and i#ple#entation of the order of

li<uidation be co##enced at the Re(ional !rial Court to hich this case shall be transferred.8$:

!hereafter, respondent Planters 9evelop#ent Ban* +Planters Ban*, one of CMCKs creditors, co##enced the e3tra64udicial

foreclosure of CMCKs real estate #ort(a(e. Public auctions ere scheduled on 5: =anuar- '::$ and ; /ebruar- '::$.

27

http://www.lawphil.net/judjuris/juri2008/jun2008/gr_152580_2008.html#fnt1

























CMC filed a #otion for the issuance of a te#porar- restrainin( order and a rit of preli#inar- in4unction ith the SEC to en4oin

the foreclosure of the real estate #ort(a(e. On '& =anuar- '::$, the SEC issued a te#porar- restrainin( order to #aintain the

status <uo and ordered the i##ediate transfer of the case records to the trial court.$$

!he case as then transferred to the trial court. "n its '> April '::$ Order, the trial court denied CMCKs #otion for issuance of a

te#porar- restrainin( order. !he trial court ruled that since the SEC had alread- ter#inated and decided on the #erits CMCKs

petition for suspension of pa-#ent, the trial court no lon(er had le(al basis to act on CMCKs #otion.

On '2 Ma- '::$, the trial court denied CMCKs #otion for reconsideration.$' !he trial court ruled that CMCKs petition for

suspension of pa-#ent could not be converted into a petition for dissolution and li<uidation because the- covered different

sub4ect #atters and ere (overned b- different rules. !he trial court stated that CMCKs re#ed- as to file a ne petition for

dissolution and li<uidation either ith the SEC or the trial court.

CMC filed a petition for certiorari ith the Court of Appeals. CMC alle(ed that the trial court acted ith (rave abuse of discretion

a#ountin( to lac* of 4urisdiction hen it re<uired CMC to file a ne petition for dissolution and li<uidation ith either the SEC or

the trial court hen the SEC clearl- retained 4urisdiction over the case.

On $5 =une '::$, Planters Ban* e3tra64udiciall- foreclosed the real estate #ort(a(e.$5

T6e R2 o &6e Cor& o A%%e+3

On $% 9ece#ber '::$, the Court of Appeals dis#issed the petition and upheld the '> April '::$ Order of the trial court. !he

Court of Appeals held that the trial court correctl- denied CMCKs #otion for the issuance of a te#porar- restrainin( order

because it as onl- an ancillar- re#ed- to the petition for suspension of pa-#ent hich as alread- ter#inated. !he Court of

Appeals added that, under Section $'$ of the Corporation Code,$%the SEC has 4urisdiction to hear CMCKs petition for dissolution

and li<uidation.

CMC filed a #otion for reconsideration. CMC ar(ued that it does not have to file a ne petition for dissolution and li<uidation

ith the SEC but that the case should 4ust be re#anded to the SEC as a continuation of its 4urisdiction over the petition for

suspension of pa-#ent. CMC also as*ed that Planters Ban*Ks foreclosure of the real estate #ort(a(e be declared void.

"n its ; March '::' Resolution, the Court of Appeals partiall- (ranted CMCKs #otion for reconsideration and ordered that the

case be re#anded to the SEC under Section $'$ of the Corporation Code. !he Court of Appeals also ruled that since the SECalread- ordered CMCKs dissolution and li<uidation, Planters Ban*Ks foreclosure of the real estate #ort(a(e as in order.

Planters Ban* filed a #otion for reconsideration <uestionin( the re#and of the case to the SEC. "n a resolution dated $& =ul-

'::', the Court of Appeals denied the #otion for reconsideration.

Not satisfied ith the ; March '::' Resolution, CMC filed this petition for revie on certiorari.

T6e I33e3

CMC raises the folloin( issues7

$. ?hether the present case falls under Section $'$ of the Corporation Code, hich refers to the SECKs 4urisdiction overCMCKs dissolution and li<uidation, or is onl- a continuation of the SECKs 4urisdiction over CMCKs petition for suspension

of pa-#ent and

'. ?hether Planters Ban*Ks foreclosure of the real estate #ort(a(e is valid.

T6e Cor&>3 R2

!he petition has no #erit.

28











The SEC has jurisdiction to order CMC’s dissolution

but the trial court has jurisdiction over CMC’s liquidation.

?hile CMC a(rees ith the rulin( of the Court of Appeals that the SEC has 4urisdiction over CMCKs dissolution and li<uidation,

CMC ar(ues that the Court of Appeals re#anded the case to the SEC on the ron( pre#ise that the applicable la is Section

$'$ of the Corporation Code. CMC #aintains that the SEC retained 4urisdiction over its dissolution and li<uidation because it is

onl- a continuation of the SECKs 4urisdiction over CMCKs ori(inal petition for suspension of pa-#ent hich had not been 8finall-

disposed of as of 5: =une ':::.8

On the other hand, Planters Ban* insists that the trial court has 4urisdiction over CMCKs dissolution and li<uidation. Planters Ban*

ar(ues that dissolution and li<uidation are entirel- ne proceedin(s for the ter#ination of the e3istence of the corporation hich

are inco#patible ith a petition for suspension of pa-#ent hich see*s to preserve corporate e3istence.

Republic Act No. 2@&& +RA 2@&&$> transferred to the appropriate re(ional trial courts the SECKs 4urisdiction defined under

Section >+d of Presidential 9ecree No. &:'6A. Section >.' of RA 2@&& provides7

!he Co##issionKs 4urisdiction over all cases enu#erated under Sec. > of Presidential 9ecree No. &:'6A is hereb-

transferred to the Courts of (eneral 4urisdiction or the appropriate Re(ional !rial Court7 Provided , !hat the Supre#e

Court in the e3ercise of its authorit- #a- desi(nate the Re(ional !rial Court branches that shall e3ercise 4urisdiction

over these cases. !he Co##ission shall retain 4urisdiction over pendin( cases involvin( intra6corporate disputes

sub#itted for final resolution hich should be resolved ithin one +$ -ear fro# the enact#ent of this Code. T6e

Comm2332o 36+ re&+2 r23-2c&2o oer %e-2 33%e32o o %+me&3re6+b22&+&2o c+3e3 2e- +3 o '(

*e )((( &2 2+ -23%o3e-.+E#phasis supplied

!he SEC assu#ed 4urisdiction over CMCKs petition for suspension of pa-#ent and issued a suspension order on ' April $&&;

after it found CMCKs petition to be sufficient in for# and substance. ?hile CMCKs petition as still pendin( ith the SEC as of 5:

=une ':::, it as finall- disposed of on '& Nove#ber '::: hen the SEC issued its O#nibus Order directin( the dissolution of

CMC and the transfer of the li<uidation proceedin(s before the appropriate trial court. !he SEC finall- disposed of CMCKs

petition for suspension of pa-#ent hen it deter#ined that CMC could no lon(er be successfull- rehabilitated.

0oever, the SECKs 4urisdiction does not e3tend to the li<uidation of a corporation. ?hile the SEC has 4urisdiction to order the

dissolution of a corporation,$; 4urisdiction over the li<uidation of the corporation no pertains to the appropriate re(ional trial

courts. !his is the reason h- the SEC, in its '& Nove#ber '::: O#nibus Order, directed that 8the proceedin(s on and

i#ple#entation of the order of li<uidation be co##enced at the Re(ional !rial Court to hich this case shall be transferred.8

!his is the correct procedure because the li<uidation of a corporation re<uires the settle#ent of clai#s for and a(ainst the

corporation, hich clearl- falls under the 4urisdiction of the re(ular courts. !he trial court is in the best position to convene all the

creditors of the corporation, ascertain their clai#s, and deter#ine their preferences.

Foreclosure of real estate mortgage is valid.

CMC #aintains that the foreclosure is void because it as underta*en ithout the *noled(e and previous consent of the

li<uidator and other lien holders. CMC adds that the rules on concurrence and preference of credits should appl- in foreclosure

proceedin(s. Assu#in( that Planters Ban* can foreclose the #ort(a(e, CMC ar(ues that the foreclosure is still void because it

as conducted in violation of Section $>, Rule 5& of the Rules of Court hich states that the sale 8should not be earlier than nine

oKcloc* in the #ornin( and not later than to oKcloc* in the afternoon.8

On the other hand, Planters Ban* ar(ues that it has the ri(ht to foreclose the real estate #ort(a(e because of non6pa-#ent of

the loan obli(ation. Planters Ban* adds that the rules on concurrence and preference of credits and the rules on insolvenc- are

not applicable in this case because CMC has been not been declared insolvent and there are no insolvenc- proceedin(s a(ainst

CMC.

"n Ri0al Commercial Banking Corporation v Intermediate !ppellate Court ,$@ e held that if rehabilitation is no lon(er feasible and

the assets of the corporation are finall- li<uidated, secured creditors shall en4o- preference over unsecured creditors, sub4ect

29












onl- to the provisions of the Civil Code on concurrence and preference of credits. Creditors of secured obli(ations #a- pursue

their securit- interest or lien, or the- #a- choose to abandon the preference and prove their credits as ordinar- clai#s.$2

Moreover, Section ''%2 of the Civil Code provides7

!hose credits hich en4o- preference in relation to specific real propert- or real ri(hts, e3clude all others to the e3tent of

the value of the i##ovable or real ri(ht to hich the preference refers.

"n this case, Planters Ban*, as a secured creditor, en4o-s preference over a specific #ort(a(ed propert- and has a ri(ht to

foreclose the #ort(a(e under Section ''%2 of the Civil Code. !he creditor6#ort(a(ee has the ri(ht to foreclose the #ort(a(e

over a specific real propert- hether or not the debtor6#ort(a(or is under insolvenc- or li<uidation proceedin(s. !he ri(ht to

foreclose such #ort(a(e is #erel- suspended upon the appoint#ent of a #ana(e#ent co##ittee or rehabilitation receiver $& or

upon the issuance of a sta- order b- the trial court.':0oever, the creditor6#ort(a(ee #a- e3ercise his ri(ht to foreclose the

#ort(a(e upon the ter#ination of the rehabilitation proceedin(s or upon the liftin( of the sta- order.'$

/oreclosure proceedin(s have in their favor the presu#ption of re(ularit- and the burden of evidence to rebut the sa#e is on the

part- that see*s to challen(e the proceedin(s.'' CMCKs challen(e to the foreclosure proceedin(s has no #erit. !he notice of sale

clearl- specified that the auction sale ill be held 8at $:7:: oKcloc* in the #ornin( or soon thereafter, but not later than '7::

oKcloc* in the afternoon.8'5 !he SheriffKs Minutes of the Sale stated that 8the foreclosure sale as actuall- opened at $:7:: A.M.

and co##enced at '75: P.M.8'% !here as nothin( irre(ular about the foreclosure proceedin(s.

:#ERE"ORE, e DEN/ the petition. ?e REINSTATE the '& Nove#ber '::: O#nibus Order of the Securities and E3chan(e

Co##ission directin( the Re(ional !rial Court, Branch %;, Manila to i##ediatel- underta*e the li<uidation of Consuelo Metal

Corporation. ?e A""IRM the rulin( of the Court of Appeals that Planters 9evelop#ent Ban*Ks e3tra64udicial foreclosure of the

real estate #ort(a(e is valid.

SO ORDERED.


SUPREME COURT

Manila

"IRST DIISION

G.R. No. 1811)$ *e 15, )(11

LEONARDO S. UMALE, F-ece+3e- re%re3e&e- b CLARISSA ICTORIA, *O#N LEO, GEORGE LEONARD,

!RISTINE, MARGUERITA ISAEL, AND MIC#ELLE ANGELI;UE, ALL SURNAMED UMALE, Petitioners,

vs.

AS REALT/ CORPORATION, Respondent.

9 E C " S " O N

DEL CASTILLO, J.:

30


















Bein( placed under corporate rehabilitation and havin( a receiver appointed to carr- out the rehabilitation plan do not ipso

facto deprive a corporation and its corporate officers of the poer to recover its unlafull- detained propert-.

Petitioners filed this Petition for Revie on Certiorar i$ assailin( the October $>, '::@ 9ecision' of the Court of Appeals

+CA in CA6D.R. SP No. &$:&;, as ell as its =anuar- ', '::2 Resolution.5 !he dispositive portion of the assailed

9ecision reads7

?0ERE/ORE, the 9ecision dated March '2, '::> of the trial court is affir#ed in toto.

SO OR9ERE9.%

/actual Antecedents

!his case involves a parcel of land identified as Lot @, Bloc* >, A#eth-st Street, Orti(as Center, Pasi( Cit- hich as

ori(inall- oned b- A#eth-st Pearl Corporation +A#eth-st Pearl, a co#pan- that is, in turn, holl-6oned b- respondent

ASB Realt- Corporation +ASB Realt-.

"n $&&;, A#eth-st Pearl e3ecuted a 9eed of Assi(n#ent in Li<uidation of the sub4ect pre#ises in favor of ASB Realt- in

consideration of the full rede#ption of A#eth-st PearlKs outstandin( capital stoc* fro# ASB Realt-.>!hus, ASB Realt-

beca#e the oner of the sub4ect pre#ises and obtained in its na#e !ransfer Certificate of !itle No. P!6$:>@&@,; hich

as re(istered in $&&@ ith the Re(istr- of 9eeds of Pasi( Cit-.

So#eti#e in '::5, ASB Realt- co##enced an action in the Metropolitan !rial Court +M!C of Pasi( Cit- for unlaful

detainer @ of the sub4ect pre#ises a(ainst petitioner Leonardo S. #ale +#ale. ASB Realt- alle(ed that it entered into a

lease contract2 ith #ale for the period =une $, $&&&6Ma- 5$, ':::. !heir a(ree#ent as for #ale to conduct a pa-6

par*in( business on the propert- and pa- a #onthl- rent of P;:,@':.:: to ASB Realt-.

pon the contractKs e3piration on Ma- 5$, ':::, #ale continued occup-in( the pre#ises and pa-in( rentals albeit at an

increased #onthl- rent of P$::,:::.::. !he last rental pa-#ent #ade b- #ale to ASB Realt- as for the =une '::$ to

Ma- '::' period, as evidenced b- the Official Receipt No. >;>$$& dated Nove#ber $&, '::$.

On =une '5, '::5, ASB Realt- served on #ale a Notice of !er#ination of Lease and 9e#and to Jacate and Pa-. $: ASBRealt- stated that it as ter#inatin( the lease effective #idni(ht of =une 5:, '::5 that #ale should vacate the

pre#ises, and pa- to ASB Realt- the rental arrears a#ountin( to P$.5 #illion b- =ul- $>, '::5. #ale failed to co#pl-

ith ASB Realt-Ks de#ands and continued in possession of the sub4ect pre#ises, even constructin( co##ercial

establish#ents thereon.

#ale ad#itted occup-in( the propert- since $&&& b- virtue of a verbal lease contract but vehe#entl- denied that ASB

Realt- as his lessor. 0e as ada#ant that his lessor as the ori(inal oner, A#eth-st Pearl. Since there as no

contract beteen hi#self and ASB Realt-, the latter had no cause of action to file the unlaful detainer co#plaint a(ainst

hi#.

"n assertin( his ri(ht to re#ain on the propert- based on the oral lease contract ith A#eth-st Pearl, #ale interposed

that the lease period a(reed upon as 8for a lon( period of ti#e.8$$ 0e then alle(edl- paid P$.' #illion in $&&& as one

-ear advance rentals to A#eth-st Pearl.$'

#ale further clai#ed that hen his oral lease contract ith A#eth-st Pearl ended in Ma- ':::, the- both a(reed on an

oral contract to sell. !he- a(reed that #ale did not have to pa- rentals until the sale over the sub4ect propert- had been

perfected beteen the#.$5 9espite such a(ree#ent ith A#eth-st Pearl re(ardin( the aiver of rent pa-#ents, #ale

#aintained that he continued pa-in( the annual rent of P$.' #illion. 0e as thus surprised hen he received the Notice

of !er#ination of Lease fro# ASB Realt-.$%

31




































#ale also challen(ed ASB Realt-Ks personalit- to recover the sub4ect pre#ises considerin( that ASB Realt- had been

placed under receivership b- the Securities and E3chan(e Co##ission +SEC and a rehabilitation receiver had been dul-

appointed. nder Section $%+s, Rule % of the Ad#inistrative Me#orandu# No. ::626$:SC, otherise *non as the

"nteri# Rules of Procedure on Corporate Rehabilitation +"nteri# Rules, it is the rehabilitation receiver that has the poer

to 8ta*e possession, control and custod- of the debtorKs assets.8 Since ASB Realt- clai#s that it ons the sub4ect

pre#ises, it is its dul-6appointed receiver that should sue to recover possession of the sa#e.$>

ASB Realt- replied that it as i#possible for #ale to have entered into a Contract of Lease ith A#eth-st Pearl in $&&&

because A#eth-st Pearl had been li<uidated in $&&;. ASB Realt- insisted that, as evidenced b- the ritten leasecontract, #ale contracted ith ASB Realt-, not ith A#eth-st Pearl. As further proof thereof, ASB Realt- cited the official

receipt evidencin( the rent pa-#ents #ade b- #ale to ASB Realt-.

Rulin( of the Metropolitan !rial Court

"n its Au(ust ':, '::% 9ecision,$; the M!C dis#issed ASB Realt-Ks co#plaint a(ainst #ale ithout pre4udice. "t held that

ASB Realt- had no cause to see* #aleKs ouster fro# the sub4ect propert- because it as not #aleKs lessor. !he trial

court noted an inconsistenc- in the ritten lease contract that as presented b- ASB Realt- as basis for its co#plaint. "ts

hereas clauses cited ASB Realt-, ith Eden C. Lin as its representative, as #aleKs lessor but its si(nator- pa(e

contained Eden C. LinKs na#e under the headin( A#eth-st Pearl. !he M!C then concluded fro# such inconsistenc- that

A#eth-st Pearl as the real lessor, ho can see* #aleKs e4ect#ent fro# the sub4ect propert-.$@

Li*eise, the M!C a(reed ith #ale that onl- the rehabilitation receiver could file suit to recover ASB Realt-Ks

propert-.$2 0avin( been placed under receivership, ASB Realt- had no #ore personalit- to file the co#plaint for unlaful

detainer.

Rulin( of the Re(ional !rial Court

ASB Realt- appealed the adverse M!C 9ecision to the Re(ional !rial Court +R!C,$& hich then reversed': the M!C

rulin(.

!he R!C held that the M!C erred in dis#issin( ASB Realt-Ks co#plaint for lac* of cause of action. "t found sufficient

evidence to support the conclusion that it as indeed ASB Realt- that entered into a lease contract ith #ale, hence,the proper part- ho can assert the correspondin( ri(ht to see* #aleKs ouster fro# the leased pre#ises for violations of

the lease ter#s. "n addition to the ritten lease contract, the official receipt evidencin( #aleKs rental pa-#ents for the

period =une '::$ to Ma- '::' to ASB Realt- ade<uatel- established that #ale as aare that his lessor, the one

entitled to receive his rent pa-#ents, as ASB Realt-, not A#eth-st Pearl.

ASB Realt-Ks positive assertions, supported as the- are b- credible evidence, are #ore co#pellin( than #aleKs bare

ne(ative assertions. !he R!C found #aleKs version of the facts incredible. "t as i#plausible that a business#an such

as #ale ould enter into several transactions ith his alle(ed lessor a lease contract, pa-#ent of lease rentals,

acceptance of an offer to sell fro# his alle(ed lessor, and an a(ree#ent to aive rentals sans a sliver of evidence.

?ith the lease contract beteen #ale and ASB Realt- dul- established and #aleKs failure to pa- the #onthl- rentals

since =une '::' despite due de#ands fro# ASB Realt-, the latter had the ri(ht to ter#inate the lease contract and see*

his eviction fro# the leased pre#ises. !hus, hen the contract e3pired on =une 5:, '::5 +as stated in the Notice of

!er#ination of Lease, #ale lost his ri(ht to re#ain on the pre#ises and his continued refusal to vacate the sa#e

constituted sufficient cause of action for his e4ect#ent.'$

?ith respect to ASB Realt-Ks personalit- to file the unlaful detainer suit, the R!C ruled that ASB Realt- retained all its

corporate poers, includin( the poer to sue, despite the appoint#ent of a rehabilitation receiver. Citin( the "nteri#

Rules, the R!C noted that the rehabilitation receiver as not (ranted therein the poer to file co#plaints on behalf of the

corporation.''

32





















Moreover, the retention of its corporate poers b- the corporation under rehabilitation ill advance the ob4ective of

corporate rehabilitation, hich is to conserve and ad#inister the assets of the corporation in the hope that it #a-

eventuall- be able to (o fro# financial distress to solvenc-. !he suit filed b- ASB Realt- to recover its propert- and bac*

rentals fro# #ale could onl- benefit ASB Realt-.'5

!he dispositive portion of the R!C 9ecision reads as follos7

?0ERE/ORE, pre#ises considered, the appealed decision is hereb- reversed and set aside. Accordin(l-, 4ud(#ent is

hereb- rendered in favor of the plaintiff6appellant orderin( defendant6appellee and all persons clai#in( ri(hts under hi#7

$ !o i##ediatel- vacate the sub4ect leased pre#ises located at Lot @, Bloc* >, A#eth-st St., Pearl 9rive, Orti(as

Center, Pasi( Cit- and deliver possession thereof to the plaintiff6appellant

' !o pa- plaintiff6appellant the su# of P$,5::,:::.:: representin( rentals in arrears fro# =une '::' to =une

'::5

5 !o pa- plaintiff6appellant the a#ount of P$::,:::.:: a #onth startin( fro# =ul- '::5 and ever- #onth

thereafter until the- finall- vacate the sub4ect pre#ises as reasonable co#pensation for the continued use and

occupanc- of the sa#e

% !o pa- plaintiff6appellant the su# of P'::,:::.:: as and b- a- of attorne-Ks fees and the costs of suit.

SO OR9ERE9.'%

#ale filed a Motion for Reconsideration'> hile ASB Realt- #oved for the issuance of a rit of e3ecution pursuant to

Section '$ of the $&&$ Revised Rules on Su##ar- Procedure.';

"n its =ul- ';, '::> Order, the R!C denied reconsideration of its 9ecision and (ranted ASB Realt-Ks Motion for "ssuance

of a ?rit of E3ecution.'@

#ale then filed his appeal'2 ith the CA insistin( that the parties did not enter into a lease contract.'& Assu#in( that there

as a lease, it as at #ost an i#plied lease. 0ence its period depended on the rent pa-#ents. Since #ale paid rentannuall-, ASB Realt- had to respect his lease for the entire -ear. "t cannot ter#inate the lease at the end of the #onth, as

it did in its Notice of !er#ination of Lease.5: Lastl-, #ale insisted that it as the rehabilitation receiver, not ASB Realt-,

that as the real part-6in6interest.5$

Pendin( the resolution thereof, #ale died and as substituted b- his

ido and le(al heirs, per CA Resolution dated Au(ust $%, '::;.5'

Rulin( of the Court of Appeals

!he CA affir#ed the R!C 9ecision in toto.55

Accordin( to the appellate court, ASB Realt- full- dischar(ed its burden to prove the e3istence of a lease contract

beteen ASB Realt- and #ale,5% as ell as the (rounds for eviction.5> !he veracit- of the ter#s of the lease contract

presented b- ASB Realt- as further bolstered, instead of de#olished, b- #aleKs ad#ission that he paid #onthl- rents

in accordance thereith.5;

!he CA found no #erit in #aleKs clai# that in li(ht of Article $;2@ of the Civil Code the lease should be e3tended until the

end of the -ear. !he said provision stated that in cases here the lease period as not fi3ed b- the parties, the lease

period depended on the pa-#ent periods. "n the case at bar, the rent pa-#ents ere #ade on a #onthl- basis, not

33




































annuall- thus, #aleKs failure to pa- the #onthl- rent (ave ASB Realt- the correspondin( ri(ht to ter#inate the lease at

the end of the #onth.5@

!he CA then upheld ASB Realt-Ks, as ell as its corporate officersK, personalit- to recover an unlafull- ithheld corporate

propert-. As e3pressl- stated in Section $% of Rule % of the "nteri# Rules, the rehabilitation receiver does not ta*e over the

functions of the corporate officers.52

Petitioners filed a Motion for Reconsideration,5& hich as denied in the

assailed =anuar- ', '::2 Resolution.%:

"ssues

!he petitioners raise the folloin( issues for resolution7%$

$. Can a corporate officer of ASB Realt- +dul- authori)ed b- the Board of 9irectors file suit to recover an

unlafull- detained corporate propert- despite the fact that the corporation had alread- been placed under

rehabilitationU

'. ?hether a contract of lease e3ists beteen ASB Realt- and #ale and

5. ?hether #ale is entitled to avail of the lease periods provided in Article $;2@ of the Civil Code.

Our Rulin(

Petitioners as* for the dis#issal of the co#plaint for unlaful detainer on the (round that it as not brou(ht b- the real

part-6in6interest.%' Petitioners #aintain that the appoint#ent of a rehabilitation receiver for ASB Realt- deprived its

corporate officers of the poer to recover corporate propert- and transferred such poer to the rehabilitation receiver.

Section ;, Rule >& of the Rules of Court states that a receiver has the poer to brin( actions in his on na#e and to

collect debts due to the corporation. nder Presidential 9ecree +P9 No. &:'6A and the "nteri# Rules, the rehabilitation

receiver has the poer to ta*e custod- and control of the assets of the corporation. Since the receiver for ASB Realt- did

not file the co#plaint for unlaful detainer, the trial court did not ac<uire 4urisdiction over the sub4ect propert-.%5

Petitioners cite Jillanueva v. Court of Appeals,%% a# v. Court of

Appeals,%> and Abacus Real Estate 9evelop#ent Center, "nc. v. !he Manila Ban*in( Corporation,%; as authorities for the

rule that the appoint#ent of a receiver suspends the authorit- of the corporation and its officers over its propert- and

effects.%@

ASB Realt- counters that there is no provision in P9 &:'6A, the "nteri# Rules, or in Rule >& of the Rules of Court that

divests corporate officers of their poer to sue upon the appoint#ent of a rehabilitation receiver.%2 "n fact, Section $% ,

Rule % of the "nteri# Rules e3pressl- li#its the receiverKs poer b- providin( that the rehabilitation receiver does not ta*e

over the #ana(e#ent and control of the corporation but shall closel- oversee and #onitor the operations of thedebtor .%& /urther, the SEC Rules of Procedure on Corporate Recover- +SEC Rules, the rules applicable to the instant

case, do not include a#on( the receiverKs poers the e3clusive ri(ht to file suits for the corporation.>:

!he Court resolves the issue in favor of ASB Realt- and its officers.

!here is no den-in( that ASB Realt-, as the oner of the leased pre#ises, is the real part-6in6interest in the unlaful

detainer suit.>$ Real part-6in6interest is defined as 8the part- ho stands to be benefited or in4ured b- the 4ud(#ent in the

suit, or the part- entitled to the avails of the suit.8>'

34








































?hat petitioners ar(ue is that the corporate officer of ASB Realt- is incapacitated to file this suit to recover a corporate

propert- because ASB Realt- has a dul-6appointed rehabilitation receiver. Alle(edl-, this rehabilitation receiver is the onl-

one that can file the instant suit.

Corporations, such as ASB Realt-, are 4uridical entities that e3ist b- operation of la.>5 As a creature of la, the poers

and attributes of a corporation are those set out, e3pressl- or i#pliedl-, in the la. A#on( the (eneral poers (ranted b-

la to a corporation is the poer to sue in its on na#e.>% !his poer is (ranted to a dul-6or(ani)ed corporation, unless

specificall- revo*ed b- another la. !he <uestion beco#es7 9o the las on corporate rehabilitation particularl- P9 &:'6

A, as a#ended,

>>

and its correspondin( rules of procedure forfeit the poer to sue fro# the corporate officers and Boardof 9irectorsU

Corporate rehabilitation is defined as 8the restoration of the debtor to a position of successful operation and solvenc-, if it

is shon that its continuance of operation is econo#icall- feasible and its creditors can recover b- a- of the present

value of pa-#ents pro4ected in the plan #ore if the corporation continues as a (oin( concern than if it is i##ediatel-

li<uidated.8>; "t as first introduced in the Philippine le(al s-ste# throu(h P9 &:'6A, as a#ended.>@ !he intention of the

la is 8to effect a feasible and viable rehabilitation b- preservin( a flounderin( business as a (oin( concern, because the

assets of a business are often #ore valuable hen so #aintained than the- ould be hen li<uidated.8>2 !his concept of

preservin( the corporationKs business as a (oin( concern hile it is under(oin( rehabilitation is called debtor6in6

possession or debtor6in6place. !his #eans that the debtor corporation +the corporation under(oin( rehabilitation, throu(h

its Board of 9irectors and corporate officers, re#ains in control of its business and properties, sub4ect onl- to the

#onitorin( of the appointed rehabilitation receiver.>& !he concept of debtor6in6possession, is carried out #ore particularl-in the SEC Rules, the rule that is relevant to the instant case. ;: "t states therein that the interi# rehabilitation receiver of

the debtor corporation 8does not ta*e over the control and #ana(e#ent of the debtor corporation.8;$ Li*eise, the

rehabilitation receiver that ill replace the interi# receiver is tas*ed onl- to #onitor the successful i#ple#entation of the

rehabilitation plan.;' !here is nothin( in the concept of corporate rehabilitation that ould ipso facto deprive;5 the Board of

9irectors and corporate officers of a debtor corporation, such as ASB Realt-, of control such that it can no lon(er enforce

its ri(ht to recover its propert- fro# an errant lessee.

!o be sure, corporate rehabilitation i#poses several restrictions on the debtor corporation. !he rules enu#erate the

prohibited corporate actions and transactions;% +#ost of hich involve so#e *ind of disposition or encu#brance of the

corporationKs assets durin( the pendenc- of the rehabilitation proceedin(s but none of hich touch on the debtor

corporationKs ri(ht to sue. !he i#plication therefore is that our concept of rehabilitation does not restrict this particularpoer, save for the caveat that all its actions are #onitored closel- b- the receiver, ho can see* an annul#ent of an-

prohibited or ano#alous transaction or a(ree#ent entered into b- the officers of the debtor corporation.

Petitioners insist that the rehabilitation receiver has the poer to brin( and defend actions in his on na#e as this poer

is provided in Section ; of Rule >& of the Rules of Court.

"ndeed, P9 &:'6A, as a#ended, provides that the receiver shall have the poers enu#erated under Rule >& of the Rules

of Court. But Rule >& is a rule of (eneral application. "t applies to different *inds of receivers rehabilitation receivers,

receivers of entities under #ana(e#ent, ordinar- receivers, receivers in li<uidation and for different *inds of situations.

?hile the SEC has the discretion;> to authori)e the rehabilitation receiver, as the case #a- arrant, to e3ercise the

poers in Rule >&, the SECKs e3ercise of such discretion cannot si#pl- be assu#ed. !here is no alle(ation hatsoever in

this case that the SEC (ave ASB Realt-Ks rehabilitation receiver the e3clusive ri(ht to sue.

Petitioners cite Jillanueva,;; a#,;@ and Abacus Real Estate;2 as authorities for their theor- that the corporate officers of a

corporation under rehabilitation is incapacitated to act. "n Jillanueva,;& the Court nullified the sale contract entered into b-

the Philippine Jeterans Ban* on the (round that the ban*Ks insolvenc- restricted its capacit- to act. a#,@: on the other

hand, nullified the co#pro#ise a(ree#ent that Manphil "nvest#ent Corporation entered into hile it as under

receivership b- the Central Ban*. "n Abacus Real Estate,@$ it as held that Manila Ban*Ks president had no authorit- to

e3ecute an 8option to purchase8 contract hile the ban* as under li<uidation.

35















































!hese 4urisprudence are inapplicable to the case at bar because the- involve

ban*in( and financial institutions that are (overned b- different las.@' "n the cited cases, the applicable ban*in( la as

Section '&@5 of the Central Ban* Act.@% "n star* contrast to rehabilitation here the corporation retains control and

#ana(e#ent of its affairs, Section '& of the Central Ban* Act, as a#ended, e3pressl- forbids the ban* or the <uasi6ban*

fro# doin( business in the Philippines.

Moreover, the nullified transactions in the cited cases involve dispositions of assets and clai#s, hich are prohibited

transactions even for corporate rehabilitation@>

because these #a- be pre4udicial to creditors and contrar- to therehabilitation plan. !he instant case, hoever, involves the recover- of assets and collection of receivables, for hich

there is no prohibition in P9 &:'6A.

?hile the Court rules that ASB Realt- and its corporate officers retain their poer to sue to recover its propert- and the

bac* rentals fro# #ale, the necessit- of *eepin( the receiver apprised of the proceedin(s and its results is not lost upon

this Court. !as*ed to closel- #onitor the assets of ASB Realt-, the rehabilitation receiver has to be notified of the

develop#ents in the case, so that these assets ould be #ana(ed in accordance ith the approved rehabilitation plan.

Co#in( to the second issue, petitioners #aintain that ASB Realt- has no

cause of action a(ainst the# because it is not their lessor. !he- insist that #ale entered into a verbal lease a(ree#ent

ith A#eth-st Pearl onl-. As proof of this verbal a(ree#ent, petitioners cite their possession of the pre#ises, and

construction of buildin(s thereon, sans protest fro# A#eth-st Pearl or ASB Realt-.@;

Petitioners concede that the- #a- have raised <uestions of fact but insist nevertheless on their revie as the appellate

courtKs rulin( is alle(edl- (rounded entirel- on speculations, sur#ises, and con4ectures and its conclusions re(ardin( the

ter#ination of the lease contract are #anifestl- absurd, #ista*en, and i#possible.@@

PetitionersK ar(u#ents have no #erit. "neluctabl-, the errors the- raised involve factual findin(s,@2 the revie of hich is

not ithin the purvie of the CourtKs functions under Rule %>, particularl- hen there is ade<uate evidentiar- support on

record.

?hile petitioners assail the authenticit- of the ritten lease contract b- pointin( out the inconsistenc- in the na#e of thelessor in to separate pa(es, the- fail to account for #aleKs actions hich are consistent ith the ter#s of the contract

the pa-#ent of lease rentals to ASB Realt- +instead of his alle(ed lessor A#eth-st Pearl for a $'6#onth period. !hese

#atters cannot si#pl- be brushed off as sheer happenstance especiall- hen ei(hed a(ainst #aleKs incredible version

of the facts that he entered into a verbal lease contract ith A#eth-st Pearl that the ter# of the lease is for a 8ver- lon(

period of ti#e8 that A#eth-st Pearl offered to sell the leased pre#ises and #ale had accepted the offer, ith both

parties not de#andin( an- ritten docu#entation of the transaction and ithout an- #ention of the purchase price and

that finall-, A#eth-st Pearl a(reed that #ale need not pa- rentals until the perfection of the sale. !he Court is of the

sa#e #ind as the appellate court that it is si#pl- inconceivable that a business#an, such as petitionersK predecessor6in6

interest, ould enter into co##ercial transactions ith and pa- substantial rentals to a corporation nar- a sin(le

docu#entation.

Petitioners then tr- to turn the table on ASB Realt- ith their third ar(u#ent. !he- sa- that under Article $;2@ of the Ne

Civil Code, the period for rent pa-#ents deter#ines the lease period. =ud(in( b- the official receipt presented b- ASB

Realt-, hich covers the $'6#onth period fro# =une '::$ to Ma- '::', the lease period should be annual because of the

annual rent pa-#ents.@& Petitioners then conclude that ASB Realt- violated Article $;2@ of the Ne Civil Code hen it

ter#inated the lease on =une 5:, '::5, at the be(innin( of the ne period. !he- then i#plore the Court to e3tend the

lease to the end of the annual period, #eanin( until Ma- '::%, in accordance ith the annual rent pa-#ents. 2:

"n ar(uin( for an e3tension of lease under Article $;2@, petitioners lost si(ht of the restriction provided in Article $;@> of

the Civil Code. "t states that a lessee that co##its an- of the (rounds for e4ect#ent cited in Article $;@5, includin( non6

36























pa-#ent of lease rentals and devotin( the leased pre#ises to uses other than those stipulated, cannot avail of the periods

established in Article $;[email protected]$67wphi6

Moreover, the e3tension in Article $;2@ is (ranted onl- as a #atter of e<uit-. !he la si#pl- reco(ni)es that there are

instances hen it ould be unfair to abruptl- end the lease contract causin( the eviction of the lessee. "t is onl- for these

clearl- un4ust situations that Article $;2@ (rants the court the discretion to e3tend the lease.2'

!he particular circu#stances of the instant case hoever, do not inspire (rantin( e<uitable relief. Petitioners have not

paid, #uch less offered to pa-, the rent for $% #onths and even had the te#erit- to disre(ard the pa-6and6vacate noticeserved on the#. An e3tension ill onl- benefit the ron(doer and punish the lon(6sufferin( propert- oner.25

?0ERE/ORE, the petition is 9EN"E9. !he October $>, '::@ 9ecision and =anuar- ', '::2 Resolution of the Court of

Appeals in CA6D.R. SP No. &$:&; are hereb- A//"RME9. ASB Realt- Corporation is ordered to /RN"S0 a cop- of the

9ecision on its incu#bent Rehabilitation Receiver and to "N/ORM the Court of its co#pliance thereith ithin $: da-s.

SO OR9ERE9.







Documents

Insolvency and Rehabilitation Cases