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Concept of Insolvency

Section 2. Declaration of Policy. - It is the policy of the State to encourage debtors, both juridical and natural persons,
and their creditors to collectively and realistically resolve and adjust competing claims and property rights. In
furtherance thereof, the State shall ensure a timely, fair, transparent, effective and efficient rehabilitation or liquidation
of debtors. The rehabilitation or liquidation shall be made with a view to ensure or maintain certainly and
predictability in commercial affairs, preserve and maximize the value of the assets of these debtors, recognize creditor
rights and respect priority of claims, and ensure equitable treatment of creditors who are similarly situated. When
rehabilitation is not feasible, it is in the interest of the State to facilities a speedy and orderly liquidation of these
debtor's assets and the settlement of their obligations.
Section 4.(p) Insolvent shall refer to the financial condition of a debtor that is generally unable to pay its or his
liabilities as they fall due in the ordinary course of business or has liabilities that are greater than its or his assets.
(q) Insolvent debtor's estate shall refer to the estate of the insolvent debtor, which includes all the property and assets
of the debtor as of commencement date, plus the property and assets acquired by the rehabilitation receiver or
liquidator after that date, as well as all other property and assets in which the debtor has an ownership interest,
whether or not these property and assets are in the debtor's possession as of commencement date: Provided, That trust
assets and bailment, and other property and assets of a third party that are in the possession of the debtor as of
commencement date, are excluded therefrom.
(r) Involuntary proceedings shall refer to proceedings initiated by creditors.
Section 146. Application to Pending Insolvency, Suspension of Payments and Rehabilitation Cases. - This Act shall
govern all petitions filed after it has taken effect. All further proceedings in insolvency, suspension of payments and
rehabilitation cases then pending, except to the extent that in opinion of the court their application would not be
feasible or would work injustice, in which event the procedures set forth in prior laws and regulations shall apply.
Section 147. Application to Pending Contracts. - This Act shall apply to all contracts of the debtor regardless of the
date of perfection.
Section 148. Repeating Clause. - The Insolvency Law (Act No. 1956). As amended is hereby repealed. All other laws,
orders, rules and regulations or parts thereof inconsistent with any provision of this Act are hereby repealed or
modified accordingly.
Concrrence and Preference of Credit
Section 133. Concurrence and Preference of Credits. - The Liquidation Plan and its Implementation shall ensure that
the concurrence and preference of credits as enumerated in the Civil Code of the Philippines and other relevant laws
shall be observed, unless a preferred creditor voluntarily waives his preferred right. For purposes of this chapter,
credits for services rendered by employees or laborers to the debtor shall enjoy first preference under Article 2244 of
the Civil Code, unless the claims constitute legal liens under Article 2241 and 2242 thereof.
Section 136. Liquidation of a Securities Market Participant. - The foregoing provisions of this chapter shall be
without prejudice to the power of a regulatory agency or self- regulatory organization to liquidate trade-related claims
of clients or customers of a securities market participant which, for purposes of investor protection, are hereby

deemed to have absolute priority over other claims of whatever nature or kind insofar as trade-related assets are
concerned.
For purposes of this section, trade -related assets include cash, securities, trading right and other owned and used by
the securities market participant in the ordinary course of this business.
[G.R. NO. 180036 - July 25, 2012]
SITUS DEVELOPMENT CORPORATION v. ASIATRUST BANK,
The instant Rule 45 Petition assails the Decision 1 and Resolution2 of the Court of Appeals (CA) in CA-G.R. CV No.
80223. The CA reversed and set aside the Adjudication3 of the Regional Trial Court (RTC), Branch 93, Quezon City
(the Rehabilitation Court) in Civil Case No. Q-02-010, which had approved the Second Amended Rehabilitation Plan
of petitioners Situs Development Corporation, Daily Supermarket, Inc. and Color Lithographic Press, Inc.
(collectively, petitioners or petitioner corporations) over the objections of respondents Asiatrust Bank (Asiatrust),
Allied Banking Corporation (Allied Bank) and Metropolitan Bank and Trust Company (Metrobank). Respondent
Cameron Granville II Asset Management, Inc. (Cameron), a Special Purpose Vehicle, was the transferee of Metrobank
s rights, title and interest in the instant case.
The facts are not in issue, and we quote with favor the narration of the appellate court:
In 1972, the Chua Family, headed by its patriarch, Cua Yong Hu, a.k.a. Tony Chua, started a printing business and put
up Color Lithographic Press, Inc. (COLOR). On June 6, 1995, the Chua Family ventured into real estate
development/leasing by organizing Situs Development Corporation (SITUS) in order to build a shopping mall
complex, known as Metrolane Complex (COMPLEX) at 20th Avenue corner P. Tuazon, Cubao, Quezon City. To
finance the construction of the COMPLEX, SITUS, COLOR and Tony Chua and his wife, Siok Lu Chua, obtained
several loans from (1) ALLIED secured by real estate mortgages over two lots covered by TCT Nos. RT-13620 and
RT-13621; (2) ASIATRUST secured by a real estate mortgage over a lot covered by TCT No. 79915; and (3) Global
Banking Corporation, now METROBANK, secured by a real estate mortgage over a lot covered by TCT No. 79916.
The COMPLEX was built on said four (4) lots, all of which are registered in the names of Tony Chua and his wife,
Siok Lu Chua. On March 21, 1996, the Chua Family expanded into retail merchandising and organized Daily
Supermarket, Inc. (DAILY). All three (3) corporations have interlocking directors and are all housed in the
COMPLEX. The Chua Family also resides in the COMPLEX, while the other units are being leased to tenants.
SITUS, COLOR and DAILY obtained additional loans from ALLIED, ASIATRUST and METROBANK and their
real estate mortgages were updated and/or amended. Spouses Chua likewise executed five (5) Continuing
Guarantee/Comprehensive Surety in favor of ALLIED to guarantee the payment of the loans of SITUS and DAILY.
SITUS, COLOR, DAILY and the spouses Chua failed to pay their obligations as they fell due, despite demands.
On November 22, 2000, ALLIED filed with the Office of the Clerk of Court and Ex-Officio Sheriff of Quezon City an
application for extrajudicial foreclosure of the mortgage on the properties of spouses Chua covered by TCT Nos. RT13620 and RT-13621. The auction sale was scheduled on February 6, 2001. However, on February 5, 2001, SITUS,
COLOR and spouses Chua filed a complaint for nullification of foreclosure proceedings, with prayer for temporary
restraining order/injunction, with the Regional Trial Court, Branch 87, Quezon City, docketed as Civil Case No. Q-0143280. As no temporary restraining order was issued, the scheduled auction sale proceeded wherein ALLIED emerged
as the highest bidder in the amount of P88,958,700.00. The Certificate of Sale dated March 9, 2001 in favor of
ALLIED was approved by the Executive Judge of the Regional Trial Court of Quezon City on September 9, 2002 and
the same was annotated on TCT Nos. RT-13620 and RT-13621 on September 23, 2002.

On July 26, 2001, METROBANK likewise filed an application for extrajudicial foreclosure of the mortgage on the
property of spouses Chua covered by TCT No. 79916. The auction sale was conducted on September 18, 2001, with
METROBANK as the highest bidder in the amount of P95,282,563.86.
On May 16, 2002, ASIATRUST sent a demand letter to DAILY and COLOR for the payment of their outstanding
obligations.
On June 11, 2002, SITUS, DAILY and COLOR, herein petitioners, filed a petition for the declaration of state of
suspension of payments with approval of proposed rehabilitation plan, docketed as Civil Case No. Q-02-010, with the
Regional Trial Court, Branch 93, Quezon City.
Petitioners alleged that due to the 1997 Asian financial crisis, peso devaluation and high interest rate, their loan
obligations ballooned and they foresee their inability to meet their obligations as they fall due; that their loan
obligations are secured by the real properties of their major stockholder, Tony Chua; that ALLIED has already
initiated foreclosure proceedings; that Global Banking Corporation, now METROBANK, and ASIATRUST made
final demands for payment of their obligations; that they foresee a very good future ahead of them if they would be
given a "breathing spell" from their obligations as they fall due; and that their assets are more than sufficient to pay
off their debts. Petitioners submitted a program of rehabilitation for the approval of creditors and the court a quo.
A Stay Order dated June 17, 2002, was issued by the court a quo directing as follows: lbrr
A. ) a stay in the enforcement of all claims, whether for money or otherwise and whether such enforcement is by court
action or otherwise, against the petitioners Situs Development Corporation, Daily Supermarket, Inc., & Color
Lithographic Press, Inc., their guarantors and sureties not solidarily liable with them;
b.) prohibiting Situs Development Corporation, Daily Supermarket, Inc., & Color Lithographic Press, Inc., from
selling, encumbering, transferring or disposing in any manner any of their properties except in the ordinary course of
business;
c.) prohibiting Situs Development Corporation, Daily Supermarket, Inc. & Color Lithographic Press, Inc., from
making any payment of their liabilities outstanding as of the filing of the instant petition;
d.) prohibiting Situs Development Corporation, Daily Supermarket, Inc. and Color Lithographic Press, Inc. s suppliers
of goods and services from withholding supply of goods and services in the ordinary course of business for as long as
Situs Development Corporation, Daily Supermarket, Inc. & Color Lithographic Press, Inc., make payments for the
goods and services supplied after the issuance of this stay order; and
e.) directing the payment in full of all administrative expenses incurred after the issuance of this stay order.virtual law
l
The court a quo appointed Mr. Antonio B. Garcia as the Rehabilitation Receiver, set the initial hearing on the petition
on August 2, 2002 and directed all creditors and interested parties, including the Securities and Exchange Commission
(SEC), to file their comment on or opposition to the petition.
ALLIED filed its opposition and comment praying for the dismissal of the petition and the lifting of the Stay Order on
the grounds that it is defective in form and substance; that it contains substantial inaccuracies and inconsistencies; and
that it does not contain a viable rehabilitation plan.

ASIATRUST filed its comment with partial opposition praying likewise for the dismissal of the petition on the
grounds that it is not in due form and lacks substantial allegations on its debt obligations with its various creditors;
that petitioners do not have a viable rehabilitation plan; and that petitioners do not have a clear source of repayment of
their obligations.
No comment or opposition was filed by SEC.
In an Order dated August 2, 2002, the court a quo found prima facie merit in the petition and gave due course thereto.
The Rehabilitation Receiver was given forty-five (45) days within which to submit his report on the proposed
rehabilitation plan.
On October 15, 2002, METROBANK filed a Manifestation stating that it was participating in the proceedings as a
mere observer inasmuch as the mortgage executed in its favor by spouses Chua on the property covered by TCT No.
79916 was foreclosed by it on September 18, 2001, so that it ceased to be a creditor of COLOR as its claim was
already fully satisfied.
On October 9, 2002, petitioners filed a motion for the cancellation of the certificate of sale approved on September 9,
2002 by the Executive Judge of the RTC of Quezon City and the annotation thereof on TCT Nos. RT-13620 and RT13621, as the same were done in violation of the Stay Order dated June 17, 2002. A vehement opposition was filed by
ALLIED arguing that the foreclosure proceedings cannot be considered as a "claim", as understood under Section 1,
Rule 2 of the Interim Rules of Procedure on Corporate Rehabilitation, since the issuance of the Certificate of Sale and
annotation thereof on the certificates of titles do not constitute demands for payment of debt or enforcement of
pecuniary liabilities; that the auction sale was conducted more than one year before the filing of the petition for
rehabilitation; and that TCT Nos. RT-13620 and RT-13621 are registered in the names of "Cua Yong Hu/Tony Chua
and Siok Lu Chua", hence, should not have been included in the Inventory of Assets of petitioners.
On October 21, 2002, ASIATRUST filed an urgent manifestation praying for the outright dismissal of the petition
inasmuch as METROBANK and ALLIED had already foreclosed the mortgages on the properties that stood as
securities for petitioners obligations, as well as the lifting of the Stay Order.
On October 19, 2002, the Rehabilitation Receiver submitted his Report on petitioners proposed Rehabilitation Plan, to
which oppositions were filed by ALLIED and METROBANK.
On November 21, 2002, petitioners proposed to amend their Rehabilitation Plan. On December 2, 2002, petitioners
filed and submitted an Amended Rehabilitation Plan, which was opposed by ALLIED and ASIATRUST.
On January 8, 2003, petitioners filed a motion to admit Second Amended Rehabilitation Program of Situs
Development Corporation, the pertinent provisions of which read: brr
1. Situs will assume the outstanding obligations of its non-profiting affiliate companies: Daily Supermarket, Inc. and
Color Lithographic Press, Inc.;
2. Situs will convert all its debts to equity;
3. Situs will lease the properties from the new owners at P50.00 per square meter for a period of 25 years or at
P555,200.00 a month, with a yearly escalation of 5%;
4. The annual lease income will be distributed among the new owners according to their percentage ownership and, in
the event that the property is sold, any profit will be shared accordingly;

5. The new owners are Asiatrust with 21% ownership, Metrobank with 17% ownership, Allied with 30% ownership,
and Tony Chua with 32% ownership;
6. The two properties in Cavite which were mortgaged to ASIATRUST will be returned to its registered owner since
the properties where the Complex sits is enough to cover the loan obligations; and
7. All unpaid interests, penalties and other charges are waived.law library
Comments on and oppositions to the Second Amended Rehabilitation Plan were filed by ALLIED, ASIATRUST and
METROBANK.
On August 15, 2003, ALLIED filed a motion praying for the dismissal of the petition as no Rehabilitation Plan was
approved upon the lapse of 180 days from the date of the initial hearing on August 2, 2002, as mandated in Section 11
of the Interim Rules of Procedure on Corporate Rehabilitation.
On August 14, 2003, the court a quo rendered an ADJUDICATION approving the Second Amended Rehabilitation
Program as SITUS deserves a sporting chance at rehabilitation, subject to the following conditions: lbrr
1. The first phase of implementation shall cover immediately the payment of the appurtenant shares to the
creditors/new owners out of the monthly rental income of P555,200.00 as outlined in paragraph D.1 of the plan;
2. An automatic review of the progress of implementation shall be undertaken six (6) months from and after the initial
payment described in condition no. 1 above;
3. The rehabilitation receiver, petitioner and creditors/new owners to file written reports on the sixth month of
implementation and to seasonably prompt the court to set up the matter for a monitoring hearing thereon;
4. At the end of one year from and after the initial implementation of the plan, the court shall undertake a review of
the entire rehabilitation program for the purpose of determining the desirability of terminating or continuing with the
rehabilitation;
5. The rehabilitation receiver, petitioner and creditors/new owners to file written reports conformably with condition
no. 4 above and to seasonably prompt the court accordingly.law library
In approving the Second Amended Rehabilitation Program, the court a quo held:rl
From the original rehabilitation proposal which simply involved a condoning and restructuring of the loan obligations,
the petitioners came out with an amended rehabilitation plan that calls for, among others, a concentration into the
business of commercial leasing coupled with the consolidation of the debts of Daily and Color with that of Situs; a
conversion of debt to equity in proportionate terms; a reduction of the principal stockholder s control of Situs
Development; a proportionate share in the monthly rental income of Situs by creditors/new owners.
The creditor banks have consistently opposed the rehabilitation plans submitted by the petitioners. To the creditor
banks, they would be [better-off] if the businesses of the petitioners would be simply liquidated. A most simple view
indeed, except that such a view totally ignores the susceptibility of petitioner Situs to rehabilitation. The creditor
banks are fully aware that the real property on which the building structure of Situs Development sits is more than
sufficient to answer for all the outstanding obligations of petitioners. This fact alone should be enough to afford the

petitioners a sporting chance at business resuscitation. That the realties are titled in the name of Mr. Tony Chua is of
no moment insofar as the rehabilitation is concerned, after all, the creditor banks were fully aware of the real facts
when they willingly extended loans to the petitioners.
To the court the 2nd Amended Rehabilitation Program of Situs Development Corporation Inc., a copy of which is
enclosed and made an integral part of this adjudication, deserves due consideration. Although said plan is opposed by
the creditor banks, the court notes that it bears the approval of the rehabilitation receiver who had the opportunity to
peruse it. Moreover, under the plan, the shareholders of Situs Development will lose controlling interest in the
corporation. There is also no clear showing that the properties of the debtor will be readily sold by a liquidator within
a three-month period from termination of the herein proceedings and that the creditors would get more from said sale
than what they would get under the plan. The court thus considers the creditors opposition to be unreasonable.
In an Order dated August 25, 2003, the court a quo declared that the motion to dismiss filed by ALLIED was mooted
with the issuance of the Adjudication.
Aggrieved, ALLIED, ASIATRUST and METROBANK filed their separate notices of appeal.
On November 10, 2003, petitioners filed with the court a quo a motion for declaration of nullity of the certificate of
sale in favor of ALLIED alleging that the issuance thereof was in violation of the Stay Order, as well as a motion to
direct the Register of Deeds to annotate the Adjudication on TCT Nos. RT-13620, RT-13621, TCT Nos. 79915 and
79916. Said motions were opposed by ALLIED on the grounds that the properties foreclosed by it belonged to
spouses Chua and not to petitioners; that the auction sale was conducted on February 6, 2001, or more than a year
prior to the filing of the petition for rehabilitation; and that the issuance of the Certificate of Sale and its annotation on
the certificates of title are merely incidental to the foreclosure proceedings; and that the Stay Order does not cover the
issuance of the Certificate of Sale and the registration thereof on the certificates of title as they do not in any way refer
to its enforcement of a monetary claim against petitioners.
In Separate Orders dated January 9, 2004, the court a quo granted both motions of petitioners. The court a quo held
that while the foreclosure was conducted prior to the issuance of the Stay Order, however, the foreclosure does not
fully and effectively terminate until after the issuance of the title in the name of the creditor, such that until a new title
is issued, any action in the interregnum, judicial or not, is deemed an enforcement of the claim arising from such
foreclosure, which in this case will be in patent violation of the Stay Order.4rll
On 25 April 2007, the appellate court rendered the assailed Decision, the dispositive portion of which reads:rl

WHEREFORE, the appeals are GRANTED. The ADJUDICATION dated August 14, 2003 is REVERSED and SET
ASIDE, the petition for the declaration of state of suspension of payments with approval of proposed rehabilitation
plan is DISMISSED and the Stay Order dated June 17, 2002 is LIFTED.
The twin Orders dated January 9, 2004 declaring the Certificate of Sale issued in favor of Allied Banking Corporation
null and void, with respect to the properties covered by TCT No. RT-13620 and RT-13621, and directing the Register
of Deeds of Quezon City to cancel the annotation of the Certificate of Sale on said titles, as well as to annotate said
ADJUDICATION thereon, are likewise REVERSED and SET ASIDE. SO ORDERED.5rll
In so concluding, the CA reasoned that the Stay Order did not affect the claims of Allied Bank and Metrobank,
because these claims were not directed against the properties of petitioners, but against those of spouses Chua.
The CA also reasoned that when the Stay Order was issued, Allied Bank and Metrobank were already the owners of
the foreclosed properties, subject only to the right of redemption of Spouses Tony and Siok Lu Chua (spouses Chua),

because the extrajudicial foreclosure proceedings had taken place prior to the filing of the Petition for Rehabilitation
and the issuance of the Stay Order.
Furthermore, the CA agreed with the contention of respondents that the Petition was insufficient in form and in
substance. Among the reasons cited by the appellate court was the fact that the inventory of assets of petitioner
corporations included properties that were not owned by them, but registered in the names of spouses Chua and
already acquired by Allied Bank and Metrobank; and that the financial statements submitted by petitioner
corporations showed that their total liabilities exceeded their total assets.
Finally, the CA ruled that the Petition for Rehabilitation should be dismissed, because the rehabilitation plan was
approved by the court more than 180 days from the date of the initial hearing, contrary to the directive of Section 11,
Rule 4 of the Interim Rules on Corporate Rehabilitation.6rll
Aggrieved by the ruling of the appellate court, petitioners then filed the instant Rule 45 Petition before this court and
prayed for the issuance of a status quo order.
On 10 December 2007, we resolved to direct the parties to maintain the status quo as of the date of the issuance of the
Stay Order of the trial court.
On 17 March 2008, petitioners filed a "Manifestation and Motion to Substitute Metro Bank with Cameron Granville II
Asset Management, Inc.,"7 alleging that since Metrobank had sold, transferred and conveyed all its rights, title and
interest over the loans of petitioners to Cameron, Metrobank was no longer a real party-in-interest in this case.
Furthermore, petitioners prayed that Metrobank and Cameron be directed to disclose the transfer price or discounted
value of the sale allegedly because, under Art. 1634 of the Civil Code, they had the right of redemption of the sold
credits by paying only the transfer price to the transferee.
THE ISSUES
The resolution of this case hinges on the following issues: r
1. Whether the dismissal of the Petition for Rehabilitation is in order;
2. Whether the Stay Order affects foreclosure proceedings involving properties mortgaged by stockholders to secure
corporate debts; and
3. Whether petitioners can redeem the credit transferred by Metrobank to Cameron by paying only the price paid by
the transferee.law library
THE COURT S RULING
We lift the status quo order and affirm the Decision of the appellate court.
I
The dismissal of the Petition for Rehabilitation is in order
We find no reversible error on the part of the appellate court when it dismissed the Petition for Rehabilitation.
The Rules provide that "the petition shall be dismissed if no rehabilitation plan is approved by the court upon the
lapse of one hundred eighty (180) days from the date of the initial hearing."8 While the Rules expressly provide that

the 180-day period may be extended, such extension may be granted only "if it appears by convincing and compelling
evidence that the debtor may successfully be rehabilitated."9rll
In this case, the Second Amended Rehabilitation Program was approved by the trial court beyond the 180-day period
counted from the date of the initial hearing. However, the evidence on record does not support the lower court s
finding that the debtor corporations may still be successfully rehabilitated.
The trial court s only justification for approving the Second Amended Rehabilitation Program is that "the creditor
banks are fully aware that the real property on which the building structure of Situs Development sits is more than
sufficient to answer for all the outstanding obligations of the petitioners."10 It then went on to conclude that "[t]his fact
alone should be enough to afford the petitioners a sporting chance at business resuscitation."11rll
We do not agree.
It is a fundamental principle in corporate law that a corporation is a juridical entity with a legal personality separate
and distinct from the people comprising it.12 Hence, the rule is that assets of stockholders may not be considered as
assets of the corporation, and vice-versa. The mere fact that one is a majority stockholder of a corporation does not
make one s property that of the corporation, since the stockholder and the corporation are separate entities.13rll
In this case, the parcels of land mortgaged to respondent banks are owned not by petitioners, but by spouses
Chua.14 Applying the doctrine of separate juridical personality, these properties cannot be considered as part of the
corporate assets. Even if spouses Chua are the majority stockholders in petitioner corporations, they own these
properties in their individual capacities. Thus, the parcels of land in question cannot be included in the inventory of
assets of petitioner corporations.
The fact that these properties were mortgaged to secure corporate debts is of no moment. A mortgage is an accessory
undertaking to secure the fulfillment of a principal obligation.15 In a third-party mortgage, the mortgaged property
stands as security for the loan obtained by the principal debtor; but until the mortgaged property is foreclosed,
ownership thereof remains with the third-party mortgagor.
Here, the properties owned by spouses Chua were mortgaged as security for the debts contracted by petitioner
corporations. However, ownership of these properties remained with the spouses notwithstanding the fact that these
were mortgaged to secure corporate debts. We have ruled that "when a debtor mortgages his property, he merely
subjects it to a lien but ownership thereof is not parted with."16 This leads to no other conclusion than that,
notwithstanding the mortgage, the real properties in question belong to spouses Chua; hence, these properties should
not be considered as assets of petitioner corporations.
Since the real properties in question cannot be considered as corporate assets, the trial court s pronouncement that
petitioners were susceptible of rehabilitation was bereft of any basis. Based on the rehabilitation court s narration of
facts, Situs Development Corporation has total assets of P54,176,149.22 with total liabilities of P74,304,188.01; Daily
Supermarket, Inc. has total assets of P43,986,412.33 with total liabilities of P114,219,462.00; and Color Lithographic
Press, Inc. has total assets of P7,618,006.69 and total liabilities of P6,588,534.99.17Clearly, the aggregate total
liabilities of petitioner corporations far exceed their aggregate total assets.
We take this opportunity to point out that rehabilitation contemplates a continuance of corporate life and activities in
an effort to restore and reinstate the corporation to its former position of successful operation and
solvency.18 However, if the continued existence of the corporation is no longer viable, rehabilitation can no longer be
an option. The purpose of rehabilitation proceedings is to enable the company to gain a new lease on life,19 and not to
prolong its inevitable demise.

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

SEC. 7. Stay Order.


(b) staying enforcement of all claims, whether for money or otherwise and whether such enforcement is by court
action or otherwise, against the debtor, its guarantors and persons not solidarily liable with the debtor; provided, that
the stay order shall not cover claims against letters of credit and similar security arrangements issued by a third party
to secure the payment of the debtor's obligations; provided, further, that the stay order shall not cover foreclosure by a
creditor of property not belonging to a debtor under corporate rehabilitation; provided, however, that where the owner
of such property sought to be foreclosed is also a guarantor or one who is not solidarily liable, said owner shall be
entitled to the benefit of excussion as such guarantor.25 (Emphasis supplied)
From the foregoing, we therefore hold that foreclosure proceedings over the properties in question are not suspended
by the trial courts issuance of the Stay Order.
Furthermore, even assuming that the properties in question fall under the ambit of the Stay Order, the issuance thereof
should not affect the execution of the Certificate of Sale.
In Rizal Commercial Banking Corporation v. Intermediate Appellate Court and BF Homes, Inc.,26 the debtor
corporation filed a Petition for Rehabilitation and Declaration of Suspension of Payments before the Securities and
Exchange Commission (SEC). Prior to the SEC s appointment of a management committee and during the pendency
of the case, the mortgagee-bank foreclosed on the real estate mortgage over some of the corporations mortgaged
properties. An auction sale was conducted, and the mortgagee-bank emerged as the highest bidder. However, because
of the pendency of the rehabilitation case before the SEC, the Sheriff withheld the delivery of the Certificate of Sale.
Ruling on the validity of the foreclosure proceedings, we held that the conduct of the foreclosure sale was valid,
because it was carried out prior to the issuance of the SEC s order appointing a management committee. We held that
the appointment of a management committee, rehabilitation receiver, board or body pursuant to Presidential Decree
No. 902-A is the operative act that suspends all actions or claims against a distressed corporation.
In the case at bar, the auction sale for the parcels of land covered by TCT Nos. RT-13620 and RT-13621 and
mortgaged to respondent Allied Bank was conducted on 6 February 2001, while the foreclosure sale for the parcel of
land covered by TCT No. 79916 and mortgaged to Metrobank was conducted on 18 September 2001. Clearly, the
foreclosure proceedings commenced and the auction sale was conducted before the issuance of the Stay Order and the
appointment of the Rehabilitation Receiver on 17 June 2002. In fact, the public auctions took place almost a year
before petitioner corporations filed the Petition for Rehabilitation with the court a quo on 11 June 2002. Therefore, the
execution of the Certificate of Sale may no longer be suspended by the trial court s issuance of the Stay Order, even if
the questioned properties are assumed to fall under the ambit of the Stay Order, since the foreclosure proceedings and
the auction sale were conducted prior to the appointment of the Rehabilitation Receiver.
III
Petitioners cannot redeem the credit transferred by Metrobank to Cameron by reimbursing the transferee
Petitioners claim that, based on Republic Act (R.A.) No. 9182 or the Special Purpose Vehicle (SPV) Act of 2002, they
have the right of legal redemption by paying Cameron the transfer price plus the cost of money up to the time of
redemption and the judicial costs in case of sale or transfer of Non-Performing Loans (NPLs) under litigation.27rll
Petitioners claim is anchored on Section 13 of the SPV Act, which provides:rl

Sec. 13. Nature of Transfer. All sales or transfers of Non-Performing Assets to an SPV shall be in the nature of a true
sale after proper notice in accordance with the procedures as provided for in section 12: Provided, That GFIs and
GOCCs shall be subject to existing law on the disposition of assets: Provided, further, That in the transfer of the
NPLs, the provisions on subrogation and assignment of credits under the New Civil Code shall apply.
In turn, Art. 1634 of the Civil Code on Assignment of Credits and Other Incorporeal Rights provides:rl
Art. 1634. When a credit or other incorporeal right in litigation is sold, the debtor shall have a right to extinguish it by
reimbursing the assignee for the price the latter paid therefor, the judicial costs incurred by him, and the interest on the
price from the day on which the same was paid.
A credit or other incorporeal right shall be considered in litigation from the time the complaint concerning the same is
answered.
The debtor may exercise his right within thirty days from the date the assignee demands payment from him.
At the outset, we find that the issue is only belatedly raised in the instant Petition28 and was never threshed out in the
proceedings below. Fundamental considerations of fair play, justice and due process dictate that this Court should not
pass upon this question.29 "Questions raised on appeal must be within the issues framed by the parties; consequently,
issues not raised before the trial court cannot be raised for the first time on appeal."30rll
As early as 21 December 2005, Metrobank notified petitioners that the credit had been transferred to Cameron.
However, petitioners only raised the issue of their alleged equitable right of redemption in their "Manifestation and
Motion to Substitute Metro Bank with Cameron Granville II Asset Management, Inc." dated 17 March 2008.31 They
have not even raised this issue in the instant Petition for Review filed on 26 November 2007. This being so, the
argument should not be considered, having been belatedly raised on appeal.
Moreover, even if we were to consider the foregoing issue, petitioners cannot take refuge in the provisions of the SPV
Act of 2004 in conjunction with Art. 1634 of the Civil Code.
For the debtor to be entitled to extinguish his credit by reimbursing the assignee under Art. 1634, the following
requisites must concur: r
(a) there must be a credit or other incorporeal right;
(b) the credit or other incorporeal right must be in litigation;
(c) the credit or other incorporeal right must be sold to an assignee pending litigation;
(d) the assignee must have demanded payment from the debtor;
(e) the debtor must reimburse the assignee for the price paid by the latter, the judicial costs incurred by the latter and
the interest on the price from the day on which the same was paid; andcralawlibrary
(f) the reimbursement must be done within 30 days from the date of the assignee s demand.
virtual law library
In this case, the credit owed by petitioner corporations to Metrobank had already been extinguished when the bank
foreclosed upon the parcel of land mortgaged to it by the spouses Chua as security for petitioners debts, in full
satisfaction of the loan the bank had extended. Therefore, during the pendency of these proceedings, what was
transferred by Metrobank to Cameron was ownership over the foreclosed property, subject only to the right of
redemption by the proper party within one year reckoned from the date of registration of the Certificate of Sale.
Moreover, the provisions of the Civil Code on subrogation and assignment of credits are only applicable to
NPLs,32 defined in the SPV Act of 2002 as follows:rl

"Non-Performing Loans or NPLs" refers to loans and receivables such as mortgage loans, unsecured loans,
consumption loans, trade receivables, lease receivables, credit card receivables and all registered and unregistered
security and collateral instruments, including but not limited to, real estate mortgages, chattel mortgages, pledges, and
antichresis, whose principal and/or interest have remained unpaid for at least one hundred eighty (180) days after they
have become past due or any of the events of default under the loan agreement has occurred.33rll
What is involved in this case is more properly a real property acquired by a financial institution in settlement of a loan
(ROPOA). Under the law, ROPOAs are defined in this manner: "ROPOAs" refers to real and other properties owned
or acquired by an financial institution in settlement of loans and receivables, including real properties, shares of
stocks, and chattels formerly constituting collaterals for secured loans which have been acquired by way of dation in
payment (dacion en pago) or judicial or extra-judicial foreclosure or execution of judgment.34rll
May the subject property be considered as one acquired by Metrobank pursuant to an extrajudicial foreclosure sale?
The Implementing Rules and Regulations of the SPV Act of 2002 provide that, in case of extrajudicial foreclosure, a
property is deemed acquired by a financial institution on the date of notarization of the Sheriff s Certificate.35rll
In this case, a Certificate of Sale has not been executed in favor of Metrobank in deference to the Stay Order issued by
the rehabilitation court. However, we reiterate that the rehabilitation court has no jurisdiction to suspend foreclosure
proceedings over a third-party mortgage. Much less can it restrain the issuance of a Certificate of Sale after the
subject properties have been sold at public auction more than a year before the Petition for Rehabilitation was filed.
The property foreclosed by Metrobank was clearly beyond the ambit of the Stay Order. Consequently, there was no
valid ground for the Sheriff to withhold the issuance and execution of the Certificate of Sale.
The parcel of land mortgaged to Metrobank and subsequently transferred to Cameron should be treated as a ROPOA
as provided for by law. Hence, the application of Art. 1634 finds no basis in law.
WHEREFORE, in view of the foregoing, the instant Rule 45 Petition for Review is DENIED. The assailed Decision
and Resolution of the Court of Appeals in CA-G.R. CV No. 80223 are AFFIRMED. The Status Quo Order issued by
this Court on 10 December 2007 is LIFTED.

G.R. No. 180036 : January 16, 2013


SITUS DEV. CORPORATION, DAILY SUPERMARKET v.ASIATRUST BANK, ALLIED BANKING
CORPORATION,
For resolution is the Motion for Reconsideration1 of our 25 July 2012 Decision2 in the case involving petitioners
herein, Situs Development Corporation, Daily Supermarket, Inc. and Color Lithographic Press, Inc.
Most of the arguments raised by petitioners are too insubstantial to merit our consideration or are merely rehashed
from their previous pleadings and have already been passed upon by this Court. However, certain issues merit a brief
discussion, to wit:
1. That the properties belonging to petitioner corporations majority stockholders may be included in the rehabilitation
plan pursuant to Metropolitan Bank and Trust Company v. ASB Holdings, Inc.3 (the Metrobank Case);

2. That the subject properties should be included in the ambit of the Stay Order by virtue of the provisions of the
Financial Rehabilitation and Insolvency Act of 2010 (FRIA), which should be given a retroactive effect; and
3. That Allied Bank and Metro Bank were not the owners of the mortgaged properties when the Stay Order was issued
by the rehabilitation court.rbl rl l lbrr
On the first issue, petitioners incorrectly argue that the properties belonging to their majority stockholders may be
included in the rehabilitation plan, because these properties were mortgaged to secure petitioners loans. In support of
their argument, they cite a footnote appearing in the Metrobank Case, which states:4rl1
In their petition for rehabilitation, the corporations comprising the ASB Group of Companies alleged that their allied
companies have joined in the said petition because they executed mortgages and/or pledges over their real and
personal properties to secure the obligations of petitioner ASB Group of Companies. Further, (they) agreed to
contribute, to the extent allowed by law, some of their specified properties and assets to help rehabilitate petitioner
ASB Group of Companies. (Rollo, pp. 119-120)
A reading of the footnote shows that it is not a ruling on the propriety of the joinder of parties; rather, it is a statement
of the fact that the afore-quoted allegation was made in the petition for rehabilitation in that case.
On the second issue, petitioners argue that the trial court was correct in including the subject properties in the ambit of
the Stay Order. Under the FRIA, the Stay Order may now cover third-party or accommodation mortgages, in which
the "mortgage is necessary for the rehabilitation of the debtor as determined by the court upon recommendation by the
rehabilitation receiver."5 The FRIA likewise provides that its provisions may be applicable to further proceedings in
pending cases, except to the extent that, in the opinion of the court, their application would not be feasible or would
work injustice.6rl1
Sec. 146 of the FRIA, which makes it applicable to "all further proceedings in insolvency, suspension of payments
and rehabilitation cases x x x except to the extent that in the opinion of the court their application would not be
feasible or would work injustice," still presupposes a prospective application. The wording of the law clearly shows
that it is applicable to all further proceedings. In no way could it be made retrospectively applicable to the Stay Order
issued by the rehabilitation court back in 2002.
At the time of the issuance of the Stay Order, the rules in force were the 2000 Interim Rules of Procedure on
Corporate Rehabilitation (the "Interim Rules"). Under those rules, one of the effects of a Stay Order is the stay of the
"enforcement of all claims, whether for money or otherwise and whether such enforcement is by court action or
otherwise, against the debtor, its guarantors and sureties not solidarily liable with the debtor."7 Nowhere in the Interim
Rules is the rehabilitation court authorized to suspend foreclosure proceedings against properties of third-party
mortgagors. In fact, we have expressly ruled in Pacific Wide Realty and Development Corp. v. Puerto Azul Land,
Inc.8 that the issuance of a Stay Order cannot suspend the foreclosure of accommodation mortgages. Whether or not
the properties subject of the third-party mortgage are used by the debtor corporation or are necessary for its operation
is of no moment, as the Interim Rules do not make a distinction. To repeat, when the Stay Order was issued, the
rehabilitation court was only empowered to suspend claims against the debtor, its guarantors, and sureties not
solidarily liable with the debtor. Thus, it was beyond the jurisdiction of the rehabilitation court to suspend foreclosure
proceedings against properties of third-party mortgagors.
The third issue, therefore, is immaterial. Whether or not respondent banks had acquired ownership of the subject
properties at the time of the issuance of the Stay Order, the same conclusion will still be reached. The subject
properties will still fall outside the ambit of the Stay Order issued by the rehabilitation court.

Since the subject properties are beyond the reach of the Stay Order, and since foreclosure and consolidation of title
may no longer be stalled, petitioners rehabilitation plan is no longer feasible. We therefore affirm our earlier finding
that the dismissal of the Petition for the Declaration of State of Suspension of Payments with Approval of Proposed
Rehabilitation Plan is in order.
WHEREFORE, the Court resolves to DENY WITH FINALITY the instant Motion for Reconsideration for lack of
merit. No further pleadings shall be entertained. Let entry of judgment be made in due course.
Interim rules on corporate rehabilitation; effect of stay order on foreclosure. A Stay Order cannot suspend the
foreclosure of accommodation mortgages, because the Stay Order may only cover the suspension of the enforcement
of all claims against the debtor, its guarantors, and sureties not solidarily liable with the debtor the enforcement of the
mortgage lien cannot be considered as a claim against a guarantor or a surety not solidarily liable with the debtor
corporations. While spouses Chua executed Continuing Guaranty and Comprehensive Surety undertakings in favor of
Allied Bank, the bank did not proceed against them as individual guarantors or sureties. Rather, by initiating
extrajudicial foreclosure proceedings, the bank was directly proceeding against the property mortgaged to them by the
spouses as security. The Civil Code provides that the property upon which a mortgage is imposed directly and
immediately subjected to the fulfillment of the obligation for whose security the mortgage was constituted. As such, a
real estate mortgage is a lien on the property itself, inseparable from the property upon which it was constituted. In
this case, we find that the undertaking of spouses Chua with respect to the loans of petitioner corporations is the sale
at public auction of certain real properties belonging to them to satisfy the indebtedness of petitioner corporations in
case of a default by the latter. This undertaking is properly that of a third-party mortgagor or an accommodation
mortgagor, whereby one mortgages ones property to stand as security for the indebtedness of another. Situs
Development Corporation, et al. vs. Asiatrust Bank, et al.; G.R. No. 180036, July 25, 2012.
SPV Act; extinguishment of credit . Petitioners cannot take refuge in the provisions of the SPV Act of 2004 in
conjunction with Art. 1634 of the Civil Code. For the debtor to be entitled to extinguish his credit by reimbursing the
assignee under Art. 1634, the following requisites must concur:
(a) there must be a credit or other incorporeal right;
(b) the credit or other incorporeal right must be in litigation;
(c) the credit or other incorporeal right must be sold to an assignee pending litigation;
(d) the assignee must have demanded payment from the debtor;
(e) the debtor must reimburse the assignee for the price paid by the latter, the judicial costs incurred by the latter and
the interest on the price from the day on which the same was paid; and
(f) the reimbursement must be done within 30 days from the date of the assignees demand.
In this case, the credit owed by petitioner corporations to Metrobank had already been extinguished when the bank
foreclosed upon the parcel of land mortgaged to it by the spouses Chua as security for petitioners debts, in full
satisfaction of the loan the bank had extended. Therefore, during the pendency of these proceedings, what was
transferred by Metrobank to Cameron was ownership over the foreclosed property, subject only to the right of
redemption by the proper party within one year reckoned from the date of registration of the Certificate of Sale.

Moreover, the provisions of the Civil Code on subrogation and assignment of credits are only applicable to NPLs,
defined in the SPV Act of 2002 as follows:
Non-Performing Loans or NPLs refers to loans and receivables such as mortgage loans, unsecured loans,
consumption loans, trade receivables, lease receivables, credit card receivables and all registered and unregistered
security and collateral instruments, including but not limited to, real estate mortgages, chattel mortgages, pledges, and
antichresis, whose principal and/or interest have remained unpaid for at least one hundred eighty (180) days after they
have become past due or any of the events of default under the loan agreement has occurred.
What is involved in this case is more properly a real property acquired by a financial institution in settlement of a loan
(ROPOA). Under the law, ROPOAs are defined in this manner:
ROPOAs refers to real and other properties owned or acquired by an [financial institution] in settlement of loans
and receivables, including real properties, shares of stocks, and chattels formerly constituting collaterals for secured
loans which have been acquired by way of dation in payment (dacion en pago) or judicial or extra-judicial foreclosure
or execution of judgment.
May the subject property be considered as one acquired by Metrobank pursuant to an extrajudicial foreclosure sale?
The Implementing Rules and Regulations of the SPV Act of 2002 provide that, in case of extrajudicial foreclosure, a
property is deemed acquired by a financial institution on the date of notarization of the Sheriffs Certificate. In this
case, a Certificate of Sale has not been executed in favor of Metrobank in deference to the Stay Order issued by the
rehabilitation court. However, we reiterate that the rehabilitation court has no jurisdiction to suspend foreclosure
proceedings over a third-party mortgage. Much less can it restrain the issuance of a Certificate of Sale after the
subject properties have been sold at public auction more than a year before the Petition for Rehabilitation was filed.
The property foreclosed by Metrobank was clearly beyond the ambit of the Stay Order. Consequently, there was no
valid ground for the Sheriff to withhold the issuance and execution of the Certificate of Sale.
The parcel of land mortgaged to Metrobank and subsequently transferred to Cameron should be treated as a ROPOA
as provided for by law. Hence, the application of Art. 1634 finds no basis in law.Situs Development Corporation, et
al. vs. Asiatrust Bank, et al.; G.R. No. 180036, July 25, 2012.

G.R. No. 175844, July 29, 2013


BANK OF THE PHILIPPINE ISLANDS, v. SARABIA MANOR HOTEL CORPORATION,
Before the Court is a petition for review on certiorari1 assailing the Decision2 dated April 24, 2006 and
Resolution3 dated December 6, 2006 of the Court of Appeals, Cebu City (CA) in CA-G.R. CV. No. 81596 which
affirmed with modification the rehabilitation plan of respondent Sarabia Manor Hotel Corporation (Sarabia) as
approved by the Regional Trial Court of Iloilo City, Branch 39 (RTC) through its Order4 dated August 7, 2003.
The Facts
Sarabia is a corporation duly organized and existing under Philippine laws, with principal place of business at 101
General Luna Street, Iloilo City.5 It was incorporated on February 22, 1982, with an authorized capital stock of
P10,000,000.00, fully subscribed and paid-up, for the primary purpose of owning, leasing, managing and/or operating
hotels, restaurants, barber shops, beauty parlors, sauna and steam baths, massage parlors and such other businesses
incident to or necessary in the management or operation of hotels.6
In 1997, Sarabia obtained a P150,000,000.00 special loan package from Far East Bank and Trust Company (FEBTC)
in order to finance the construction of a five-storey hotel building (New Building) for the purpose of expanding its
hotel business. An additional P20,000,000.00 stand-by credit line was approved by FEBTC in the same year.7
The foregoing debts were secured by real estate mortgages over several parcels of land8 owned by Sarabia and a
comprehensive surety agreement dated September 1, 1997 signed by its stockholders.9 By virtue of a merger, Bank of
the Philippine Islands (BPI) assumed all of FEBTCs rights against Sarabia.10
Sarabia started to pay interests on its loans as soon as the funds were released in October 1997. However, largely
because of the delayed completion of the New Building, Sarabia incurred various cash flow problems. Thus, despite
the fact that it had more assets than liabilities at that time,11 it, nevertheless, filed, on July 26, 2002, a Petition12 for
corporate rehabilitation (rehabilitation petition) with prayer for the issuance of a stay order before the RTC as it
foresaw the impossibility to meet its maturing obligations to its creditors when they fall due.
In the said petition, Sarabia claimed that its cash position suffered when it was forced to take-over the construction of
the New Building due to the recurring default of its contractor, Santa Ana AJ Construction Corporation
(contractor),13 and its subsequent abandonment of the said project.14 Accordingly, the New Building was completed
only in the latter part of 2000, or two years past the original target date of August 1998, thereby skewing Sarabias
projected revenues. In addition, it was compelled to divert some of its funds in order to cover cost overruns. The
situation became even more difficult when the grace period for the payment of the principal loan amounts ended in
2000 which resulted in higher amortizations. Moreover, external events adversely affecting the hotel industry, i.e., the
September 11, 2001 terrorist attacks and the Abu Sayyaf issue, also contributed to Sarabias financial
difficulties.15 Owing to these circumstances, Sarabia failed to generate enough cash flow to service its maturing
obligations to its creditors, namely: (a) BPI (in the amount of P191,476,421.42); (b) Rural Bank of Pavia (in the
amount of P2,500,000.00); (c) Vic Imperial Appliance Corp. (Imperial Appliance) (in the amount of P5,000,000.00);
(d) its various suppliers (in the amount of P7,690,668.04); (e) the government (for minimum corporate income tax in

the amount of P547,161.18); and (f) its stockholders (in the amount of P18,748,306.35).16
In its proposed rehabilitation plan,17 Sarabia sought for the restructuring of all its outstanding loans, submitting that
the interest payments on the same be pegged at a uniform escalating rate of: (a) 7% per annum (p.a.) for the years
2002 to 2005; (b) 8% p.a. for the years 2006 to 2010; (c) 10% p.a. for the years 2011 to 2013; (d) 12% p.a. for the
years 2014 to 2015; and (e) 14% p.a. for the year 2018. Likewise, Sarabia sought to make annual payments on the
principal loans starting in 2004, also in escalating amounts depending on cash flow. Further, it proposed that it should
pay off its outstanding obligations to the government and its suppliers on their respective due dates, for the sake of its
day to day operations.
Finding Sarabias rehabilitation petition sufficient in form and substance, the RTC issued a Stay Order18 on August 2,
2002. It also appointed Liberty B. Valderrama as Sarabias rehabilitation receiver (Receiver). Thereafter, BPI filed its
Opposition.19
After several hearings, the RTC gave due course to the rehabilitation petition and referred Sarabias proposed
rehabilitation plan to the Receiver for evaluation.20
In a Recommendation21 dated July 10, 2003 (Receivers Report), the Receiver found that Sarabia may be rehabilitated
and thus, made the following recommendations:
(1) Restructure the loans with Sarabias creditors, namely, BPI, Imperial Appliance, Rural Bank of Pavia, and Barcelo
Gestion Hotelera, S.L. (Barcelo), under the following terms and conditions: (a) the total outstanding balance as of
December 31, 2002 shall be recomputed, with the interest for the years 2001 and 2002 capitalized and treated as part
of the principal; (b) waive all penalties; (c) extend the payment period to seventeen (17) years, i.e., from 2003 to
2019, with a two-year grace period in principal payment; (d) fix the interest rate at 6.75% p.a. plus 10% value added
tax on interest for the entire term of the restructured loans;22 (e) the interest and principal based on the amortization
schedule shall be payable annually at the last banking day of each year; and (f) any deficiency shall be paid personally
by Sarabias stockholders in the event it fails to generate enough cash flow; on the other hand, any excess funds
generated at the end of the year shall be paid to the creditors to accelerate the debt servicing;23
(2) Pay Sarabias outstanding payables with its suppliers and the government so as not to disrupt hotel operations;24
(3) Convert the Advances from stockholders amounting to P18,748,306.00 to stockholders equity and other advances
amounting to P42,688,734.00 as of the December 31, 2002 tentative financial statements to Deferred Credits; the said
conversion should increase stockholders equity to P268,545,731.00 and bring the debt to equity ratio to 0.85:1;25
(4) Require Sarabias stockholders to pay its payables to the hotel recorded as Accounts Receivable Trade,
amounting to P285,612.17 as of December 31, 2001, and its remaining receivables after such date;26
(5) No compensation or cash dividends shall be paid to the stockholders during the rehabilitation period, except those
who are directly employed by the hotel as a full time officer, employee or consultant covered by a valid contract and
for a reasonable fee;27
(6) All capital expenditures which are over and above what is provided in the case flow of the rehabilitation plan
which will materially affect Sarabias cash position but which are deemed necessary in order to maintain the hotels
competitiveness in the industry shall be subject to the RTCs approval prior to its implementation;28
(7) Terminate the management contract with Barcelo, thereby saving an estimated P25,830,997.00 in management

fees, over and above the salaries and benefits of certain managerial employees;29
(8) Appoint a new management team which would be required to submit a comprehensive business plan to support the
generation of the target revenue as reported in the rehabilitation plan;30
(9) Open a debt servicing account and transfer all excess funds thereto, which in no case should be less than
P500,000.00 at the end of the month; the funds will be drawn payable to the creditors only based on the amortization
schedule;31 and
(10) Release the surety obligations of Sarabias stockholders, considering the adequate collaterals and securities
covered by the rehabilitation plan and the continuing mortgages over Sarabias properties.32
The RTC Ruling
In an Order33 dated August 7, 2003, the RTC approved Sarabias rehabilitation plan as recommended by the Receiver,
finding the same to be feasible. In this accord, it observed that the rehabilitation plan was realistic since, based on
Sarabias financial history, it was shown that it has the inherent capacity to generate funds to pay its loan obligations
given the proper perspective.34 The recommended rehabilitation plan was also practical in terms of the interest rate
pegged at 6.75% p.a. since it is based on Sarabias ability to pay and the creditors perceived cost of money.35 It was
likewise found to be viable since, based on the extrapolations made by the Receiver, Sarabias revenue projections,
albeit projected to slow down, remained to have a positive business/profit outlook altogether.36
The RTC further noted that while it may be true that Sarabia has been unable to comply with its existing terms with
BPI, it has nonetheless complied with its obligations to its employees and suppliers and pay its taxes to both local and
national government without disrupting the day-to-day operations of its business as an on-going concern.37
More significantly, the RTC did not give credence to BPIs opposition to the Receivers recommended rehabilitation
plan as neither BPI nor the Receiver was able to substantiate the claim that BPIs cost of funds was at the 10% p.a.
threshold. In this regard, the RTC gave more credence to the Receivers determination of fixing the interest rate at
6.75% p.a., taking into consideration not only Sarabias ability to pay based on its proposed interest rates, i.e., 7% to
14% p.a., but also BPIs perceived cost of money based on its own published interest rates for deposits, i.e., 1% to
4.75% p.a., as well as the rates for treasury bills, i.e., 5.498% p.a. and CB overnight borrowings, i.e., 7.094%. p.a.38
The CA Ruling
In a Decision39 dated April 24, 2006, the CA affirmed the RTCs ruling with the modification of reinstating the surety
obligations of Sarabias stockholders to BPI as an additional safeguard for the effective implementation of the
approved rehabilitation plan.40 It held that the RTCs conclusions as to the feasibility of Sarabias rehabilitation was
well- supported by the companys financial statements, both internal and independent, which were properly analyzed
and examined by the Receiver.41
It also upheld the 6.75%. p.a. interest rate on Sarabias loans, finding the said rate to be reasonable given that BPIs
interests as a creditor were properly accounted for. As published, BPIs time deposit rate for an amount of
P5,000,000.00 (with a term of 360-364 days) is at 5.5% p.a.; while the benchmark ninety one-day commercial paper,
which banks used to price their loan averages to 6.4% p.a. in 2005, has a three-year average rate of 6.57% p.a.42 As
such, the 6.75% p.a. interest rate would be higher than the current market interest rates for time deposits and
benchmark commercial papers. Moreover, the CA pointed out that should the prevailing market interest rates change
as feared by BPI, the latter may still move for the modification of the approved rehabilitation plan.43

Aggrieved, BPI moved for reconsideration which was, however, denied in a Resolution44 dated December 6, 2006.
Hence, this petition.

The Issue Before the Court


The primordial issue raised for the Courts resolution is whether or not the CA correctly affirmed Sarabias
rehabilitation plan as approved by the RTC, with the modification on the reinstatement of the surety obligations of
Sarabias stockholders.
BPI mainly argues that the approved rehabilitation plan did not give due regard to its interests as a secured creditor in
view of the imposition of a fixed interest rate of 6.75% p.a. and the extended loan repayment period.45 It likewise
avers that Sarabias misrepresentations in its rehabilitation petition remain unresolved.46
On the contrary, Sarabia essentially maintains that: (a) the present petition improperly raises questions of fact;47 (b)
the approved rehabilitation plan takes into consideration all the interests of the parties and the terms and conditions
stated therein are more reasonable than what BPI proposes;48 and (c) BPIs allegations of misrepresentation are mere
desperation moves to convince the Court to overturn the rulings of the courts a quo.49
The Courts Ruling
The petition has no merit.
A. Propriety of BPIs petition; procedural considerations.
It is fundamental that a petition for review on certiorari filed under Rule 45 of the Rules of Court covers only
questions of law. In this relation, questions of fact are not reviewable and cannot be passed upon by the Court unless,
the following exceptions are found to exist: (a) when the findings are grounded entirely on speculations, surmises, or
conjectures; (b) when the inference made is manifestly mistaken, absurd, or impossible; (c) when there is a grave
abuse of discretion; (d) when the judgment is based on misappreciation of facts; (e) when the findings of fact are
conflicting; (f) when in making its findings, the same are contrary to the admissions of both parties; (g) when the
findings are contrary to those of the trial court; (h) when the findings are conclusions without citation of specific
evidence on which they are based; (i) when the facts set forth in the petition as well as in the petitioners main and
reply briefs are not disputed by the respondent; and (j) when the findings of fact are premised on the supposed
absence of evidence and contradicted by the evidence on record.50
The distinction between questions of law and questions of fact is well- defined. A question of law exists when the
doubt or difference centers on what the law is on a certain state of facts. A question of fact, on the other hand, exists if
the doubt centers on the truth or falsity of the alleged facts. This being so, the findings of fact of the CA are final and
conclusive and the Court will not review them on appeal.51
In view of the foregoing, the Court finds BPIs petition to be improper and hence, dismissible52 as the issues raised
therein involve questions of fact which are beyond the ambit of a Rule 45 petition for review.
To elucidate, the determination of whether or not due regard was given to the interests of BPI as a secured creditor in
the approved rehabilitation plan partakes of a question of fact since it will require a review of the sufficiency and

weight of evidence presented by the parties among others, the various financial documents and data showing
Sarabias capacity to pay and BPIs perceived cost of money and not merely an application of law. Therefore, given
the complexion of the issues which BPI presents, and finding none of the above-mentioned exceptions to exist, the
Court is constrained to dismiss its petition, and prudently uphold the factual findings of the courts a quo which are
entitled to great weight and respect, and even accorded with finality. This especially obtains in corporate rehabilitation
proceedings wherein certain commercial courts have been designated on account of their expertise and specialized
knowledge on the subject matter, as in this case.
In any event, even discounting the above-discussed procedural considerations, the Courts still finds BPIs petition
lacking in merit.
B. Approval of Sarabias rehabilitation plan; substantive considerations.
Records show that Sarabia has been in the hotel business for over thirty years, tracing its operations back to 1972. Its
hotel building has been even considered a landmark in Iloilo, being one of its kind in the province and having helped
bring progress to the community.53 Since then, its expansion was continuous which led to its decision to commence
with the construction of a new hotel building. Unfortunately, its contractor defaulted which impelled Sarabia to takeover the same. This significantly skewed its projected revenues and led to various cash flow difficulties, resulting in
its incapacity to meet its maturing obligations.
Recognizing the volatile nature of every business, the rules on corporate rehabilitation have been crafted in order to
give companies sufficient leeway to deal with debilitating financial predicaments in the hope of restoring or reaching
a sustainable operating form if only to best accommodate the various interests of all its stakeholders, may it be the
corporations stockholders, its creditors and even the general public. In this light, case law has defined corporate
rehabilitation as an attempt to conserve and administer the assets of an insolvent corporation in the hope of its
eventual return from financial stress to solvency. It contemplates the continuance of corporate life and activities in an
effort to restore and reinstate the corporation to its former position of successful operation and liquidity. Verily, the
purpose of rehabilitation proceedings is to enable the company to gain a new lease on life and thereby allow creditors
to be paid their claims from its earnings.54 Thus, rehabilitation shall be undertaken when it is shown that the continued
operation of the corporation is economically more feasible and its creditors can recover, by way of the present value
of payments projected in the plan, more, if the corporation continues as a going concern than if it is immediately
liquidated.55
Among other rules that foster the foregoing policies, Section 23, Rule 4 of the Interim Rules of Procedure on
Corporate Rehabilitation56 (Interim Rules) states that a rehabilitation plan may be approved even over the opposition
of the creditors holding a majority of the corporations total liabilities if there is a showing that rehabilitation
is feasible andthe opposition of the creditors is manifestly unreasonable. Also known as the cram-down clause,
this provision, which is currently incorporated in the FRIA,57 is necessary to curb the majority creditors natural
tendency to dictate their own terms and conditions to the rehabilitation, absent due regard to the greater long-term
benefit of all stakeholders. Otherwise stated, it forces the creditors to accept the terms and conditions of the
rehabilitation plan, preferring long-term viability over immediate but incomplete recovery.
It is within the parameters of the aforesaid provision that the Court examines the approval of Sarabias rehabilitation.
i. Feasibility of Sarabias rehabilitation.
In order to determine the feasibility of a proposed rehabilitation plan, it is imperative that a thorough examination and
analysis of the distressed corporations financial data must be conducted. If the results of such examination and

analysis show that there is a real opportunity to rehabilitate the corporation in view of the assumptions made and
financial goals stated in the proposed rehabilitation plan, then it may be said that a rehabilitation is feasible. In this
accord, the rehabilitation court should not hesitate to allow the corporation to operate as an on-going concern, albeit
under the terms and conditions stated in the approved rehabilitation plan. On the other hand, if the results of the
financial examination and analysis clearly indicate that there lies no reasonable probability that the distressed
corporation could be revived and that liquidation would, in fact, better subserve the interests of its stakeholders, then
it may be said that a rehabilitation would not be feasible. In such case, the rehabilitation court may convert the
proceedings into one for liquidation.58 As further guidance on the matter, the Courts pronouncement in Wonder Book
Corporation v. Philippine Bank of Communications59 proves instructive:cralavvonlinelawlibrary
Rehabilitation is x x x available to a corporation [which], while illiquid, has assets that can generate more cash if used
in its daily operations than sold. Its liquidity issues can be addressed by a practicable business plan that will
generate enough cash to sustain daily operations, has a definite source of financing for its proper and full
implementation, and anchored on realistic assumptions and goals. This remedy should be denied to
corporations whose insolvency appears to be irreversible and whose sole purpose is to delay the enforcement of
any of the rights of the creditors, which is rendered obvious by the following: (a) the absence of a sound and
workable business plan; (b) baseless and unexplained assumptions, targets and goals; (c) speculative capital
infusion or complete lack thereof for the execution of the business plan; (d) cash flow cannot sustain daily
operations; and (e) negative net worth and the assets are near full depreciation or fully depreciated.60(Emphasis
and underscoring supplied)
Keeping with these principles, the Court thus observes that:cralavvonlinelawlibrary
First, Sarabia has the financial capability to undergo rehabilitation.
Based on the Receivers Report, Sarabias financial history shows that it has the inherent capacity to generate funds to
repay its loan obligations if applied through the proper financial framework. The Receivers examination and analysis
of Sarabias financial data reveals that the latters business is not only an on-going but also a growing concern.
Despite its financial constraints, Sarabia likewise continues to be profitable with its hotelier business as its operations
have not been disrupted.61 Hence, given its current fiscal position, the prospect of substantial and continuous revenue
generation is a realistic goal.
Second, Sarabia has the ability to have sustainable profits over a long period of time.
As concluded by the Receiver, Sarabias projected revenues shall have a steady year-on-year growth from the time
that it applied for rehabilitation until the end of its rehabilitation plan in 2018, albeit with decreasing growth rates
(growth rate is at 26% in 2003, 5% in 2004-2007, 3% in 2008-2018).62 Should such projections come through,
Sarabia would have the ability not just to pay off its existing debts but also to carry on with its intended expansion.
The projected sustainability of its business, as mapped out in the approved rehabilitation plan, makes Sarabias
rehabilitation a more viable option to satisfy the interests of its stakeholders in the long run as compared to its
immediate liquidation.
Third, the interests of Sarabias creditors are well-protected.
As correctly perceived by the CA, adequate safeguards are found under the approved rehabilitation plan, namely: (a)
any deficiency in the required minimum payments to creditors based on the presented amortization schedule shall be
paid personally by Sarabias stockholders;63 (b) the conversion of the advances from stockholders amounting to
P18,748,306.00 and deferred credits amounting to P42,688,734 as of the December 31, 2002 tentative audited

financial statements to stockholders equity was granted;64 (c) all capital expenditures which are over and above what
is provided in the cash flow of the approved rehabilitation plan which will materially affect the cash position of the
hotel but which are deemed necessary in order to maintain the hotels competitiveness in the industry shall be subject
to the approval by the Court prior to implementation;65 (d) the formation of Sarabias new management team and the
requirement that the latter shall be required to submit a comprehensive business plan to support the generation of
revenues as reported in the Rehabilitation Plan, both short term and long term;66 (e) the maintenance of all Sarabias
existing real estate mortgages over hotel properties as collaterals and securities in favor of BPI until the formers full
and final liquidation of its outstanding loan obligations with the latter;67 and (f) the reinstatement of the
comprehensive surety agreement of Sarabias stockholders regarding the formers debt to BPI.68 With these terms and
conditions69 in place, the subsisting obligations of Sarabia to its creditors would, more likely than not, be satisfied.
Therefore, based on the above-stated reasons, the Court finds Sarabias rehabilitation to be feasible.
ii. Manifest unreasonableness of BPI s opposition.
Although undefined in the Interim Rules, it may be said that the opposition of a distressed corporations majority
creditor is manifestly unreasonable if it counter-proposes unrealistic payment terms and conditions which would,
more likely than not, impede rather than aid its rehabilitation. The unreasonableness becomes further manifest if the
rehabilitation plan, in fact, provides for adequate safeguards to fulfill the majority creditors claims, and yet the latter
persists on speculative or unfounded assumptions that his credit would remain unfulfilled.
While Section 23, Rule 4 of the Interim Rules states that the rehabilitation court shall consider certain incidents in
determining whether the opposition is manifestly unreasonable,70 BPI neither proposes Sarabias liquidation over its
rehabilitation nor questions the controlling interest of Sarabias shareholders or owners. It only takes exception to: (a)
the imposition of the fixed interest rate of 6.75% p.a. as recommended by the Receiver and as approved by the
courts a quo, proposing that the original escalating interest rates of 7%, 8%, 10%, 12%, and 14%, over seventeen
years be applied instead;71 and (b) the fact that Sarabias misrepresentations in the rehabilitation petition, i.e., that it
physically acquired additional property whereas in fact the increase was mainly due to the recognition of Revaluation
Increment and because of capital expenditures, were not taken into consideration by the courts a quo.72
Anent the first matter, it must be pointed out that oppositions which push for high interests rates are generally frowned
upon in rehabilitation proceedings given that the inherent purpose of a rehabilitation is to find ways and means to
minimize the expenses of the distressed corporation during the rehabilitation period. It is the objective of a
rehabilitation proceeding to provide the best possible framework for the corporation to gradually regain or achieve a
sustainable operating form. Hence, if a creditor, whose interests remain well-preserved under the existing
rehabilitation plan, still declines to accept interests pegged at reasonable rates during the period of rehabilitation, and,
in turn, proposes rates which are largely counter-productive to the rehabilitation, then it may be said that the creditors
opposition is manifestly unreasonable.
In this case, the Court finds BPIs opposition on the approved interest rate to be manifestly unreasonable considering
that: (a) the 6.75% p.a. interest rate already constitutes a reasonable rate of interest which is concordant with Sarabias
projected rehabilitation; and (b) on the contrary, BPIs proposed escalating interest rates remain hinged on the
theoretical assumption of future fluctuations in the market, this notwithstanding the fact that its interests as a secured
creditor remain well-preserved.
The following observations impel the foregoing conclusion: first, the 6.75% p.a. interest rate is actually higher than
BPIs perceived cost of money as evidenced by its published time deposit rate (for an amount of P5,000,000.00, with
a term of 360-364 days) which is only set at 5.5% p.a.; second, the 6.75% p.a. is also higher than the benchmark

ninety one-day commercial paper, which is used by banks to price their loa averages to 6.4% p.a. in 2005, and has a
three-year average rate of 6.57% p.a.; and third, BPIs interests as a secured creditor are adequately protected by the
maintenance of all Sarabias existing real estate mortgages over its hotel properties as collateral as well as by the
reinstatement of the comprehensive surety agreement of Sarabias stockholders, among other terms in the approved
rehabilitation plan.
As to the matter of Sarabias alleged misrepresentations, records disclose that Sarabia already clarified its initial
statements in its rehabilitation petition by submitting, on its own accord, a supplemental affidavit dated October 24,
200273 that explains that the increase in its properties and assets was indeed by recognition of revaluation increment.74
Proceeding from this fact, the CA observed that BPI actually failed to establish its claimed defects in light of Sarabias
assertive and forceful explanation that the alleged inaccuracies do not warrant the dismissal of its petition.75 Thus,
absent any compelling reason to disturb theCA's finding on this score, the Court deems it proper to dismiss BPI's
allegations of misrepresentation against Sarabia.
As a final point, BPI claims that Sarabia's projections were "too optimistic," its management was "extremely
incompetenf"76 and that it was even forced to pay a pre-termination penalty due to its previous loan with the Land
bank of the Philippines.77 Suffice it to state that bare allegations of fact should not be entertained as they are bereft of
any probative value.78 In any event, even if it is assumed that the said allegations are substantiated by clear and
convincing evidence, the Court, absent any cogent basis to proceed otherwise, remains steadfast in its preclusion to
thresh out matters of fact on a Rule 45 petition, as in this case.
All told, Sarabia's rehabilitation plan, as approved and modified by the CA, is hereby sustained. In view of the
foregoing pronouncements, the Court finds it unnecessary to delve on the other ancillary issues as herein raised.
WHEREFORE, the petition is DENIED. Accordingly, the Decision dated April 24, 2006 and Resolution dated
December 6, 2006 of the Court of Appeals, Cebu City in CA-GR. CV. No. 81596 are hereby AFFIRMED.

G.R. No. 173610 : October 1, 2012


TOWN AND COUNTRY ENTERPRISES, INC., Petitioner, v. HONORABLE NORBERTO J. QUISUMBING,
G.R. No. 174132
TOWN AND COUNTRY ENTERPRISES, INC., Petitioner, v. METROPOLITAN BANK AND TRUST
CO., Respondent.
These consolidated Rule 45 Petitions for Review on Certiorari primarily assail the 30 November 2005 Decision
rendered by the Fourth Division of the Court of Appeals (CA) in CA-G.R. CV No. 844641rll and the 24 May
2006 Decision rendered by said Courts Sixteenth Division in CAG. R. SP No. 90311.2rll
There is no dispute regarding the fact that petitioner Town & Country Enterprises, Inc. (TCEI) obtained loans in the
aggregate sum of P 12,000,000.00 from respondent Metropolitan Bank & Trust Co. (Metrobank). To secure the
prompt payment of the loan, TCEI executed in favor of Metrobank a thrice amended Deed of Real Estate
Mortgage4rll over twenty parcels of land registered in its name and/or its corporate officers, petitioners Spouses
Reynaldo and Lydia Campos (Spouses Campos), under Transfer Certificates of Title (TCT) Nos. T-361540, T-361541,
T-361542, T-361543, T-361544, T-261545, T-361546, T-361547, T-361548, T-361565, T-361566, T-361567, T361568, T-361569, T-361570, T0361571, T-361572, T-361573, T-361574 and T-743815, all of the Cavite Provincial
Registry of Deeds.5rll For failure of TCEI to heed its demands for the payment of the loan, Metrobank caused the
real estate mortgage to be extrajudicially foreclosed and the subject realties to be sold at public auction on 7
November 2001 in accordance with Act No. 3135. As highest bidder, Metrobank was issued the corresponding
Certificate of Sale which was registered with the Cavite Provincial Registry of Deeds on 10 April 2002.7rll
In view of TCEIs further refusal to heed its demands to turn over actual possession of the properties, Metrobank filed
on 23 September 2002 the petition for issuance of a writ of possession docketed as LRC Case No. 2128-02 before the
Regional Trial Court (RTC), Branch 21, in Imus, Cavite, presided over by public respondent judge, the Hon. Norberto
J. Quisumbing, Jr.8rll Metrobank invoked its right to said writ of possession under Section 7 of Act No. 3135.
Claiming difficulty in servicing its obligations as a consequence of the Asian financial crisis, on the other hand, TCEI
filed on 1 October 2002 the petition for declaration of a state of suspension of payments, with approval of a proposed
rehabilitation plan, which was docketed as SEC Case No. 023-02 before the same court, sitting as a Special
Commercial Court (Rehabilitation Court).9rll With the issuance of a Stay Order on 8 October 2002 in the
corporate rehabilitation case,10rll TCEI filed on 21 October 2002 a motion to suspend the proceedings in LRC
Case No. 2128-02 which was granted by respondent judge in the Order dated 2 December 2002.11Aggrieved by the
denial of its motion for reconsideration of the same order, Metrobank filed the Rule 65 petition for certiorari which
was docketed before the CA as CA-G.R. SP No. 76147.12rll
On 30 January 2004, the CAs then Fifth Division rendered the Decision13 in CA-G.R. SP No. 76147, directing
respondent judge "to continue with the proceedings in [LRC Case No. 2128-02rll and eventually to issue the
required writ of possession in favor of [Metrobank] over the foreclosed properties." The foregoing directive was

anchored on the second paragraph of Section 47 of Republic Act (RA) No. 8741.14rll Finding the Rehabilitation
Plan submitted by TCEI feasible, on the other hand, the rehabilitation court issued the Order dated 29 March 2004 in
SEC Case No. 023-02, the decretal portion of which states:
CONSIDERING THE FOREGOING, the Court hereby approves the Rehabilitation Plan of [TCEI] thereby granting
[TCEI] a moratorium of five (5) years from today in the payment of all its obligations, together with the
corresponding interests, to its creditor banks, subject to the modification that the interest charges shall be reduced
from 36% to 24% per annum. After the five-year grace period, [TCEI] shall commence to pay its existing obligations
with its creditor banks monthly within a period of three (3) years.
TCEI is enjoined to comply strictly with the provisions of the Rehabilitation Plan, perform its obligations thereunder
and take all actions necessary to carry out the Plan, failing which, the Court shall either, upon motion, motu proprio or
upon the recommendation of the Rehabilitation Receiver, terminate the proceeding pursuant to SECTION 27, Rule 4
of the Interim Rules of Procedure on Corporate Rehabilitation.
The Rehabilitation Receiver is directed to strictly monitor the implementation of the Plan and submit a quarterly
report on the progress thereof. SO ORDERED.16rll
On 11 January 2005, the RTC issued in LRC Case No. 2128-02 an order granting Metrobanks petition for issuance of
a writ of possession and directing the Clerk of Court to issue the writ therein sought.17rll Aggrieved, TCEI and the
Spouses Campos perfected the appeal which was docketed before the CA as CA-G.R. CV No. 84464, on the ground
that it had been denied due process a quo and that the writ of possession issued is contrary to the rules on corporate
rehabilitation.18rll On 30 November 2005, the CAs then Fourth Division rendered the first assailed Decision,
affirming the RTCs appealed 11 January 2005 Order. In denying the appeal, the CA ruled that, as purchaser of the
foreclosed properties, Metrobank was entitled to the writ of possession without delay since, under Section 8 of Act
No. 3135, the remedy of the mortgagor is to set aside the sale and the writ of possession within 30 days after the
purchaser was placed in possession and, if aggrieved from the resolution thereof, to appeal in accordance with Section
14 of Act No. 496, otherwise known as the Land Registration Act. Likewise finding that the proceedings before the
RTC were ex parte by nature, the CA decreed that TCEI and the Spouses Campos were not denied due process and
that the appealed order is not reviewable since only one party sought relief a quo.19rll Dissatisfied with the denial
of the motion for reconsideration of the foregoing decision in the CAs Resolution dated 26 July 2006,20rllTCEI
and the Spouses Campos filed the Rule 45 petition for review now docketed before us as G.R. No. 173610.21rll
In the meantime, TCEI discovered that its certificates of titles were already cancelled as of 26 June 2003, with the
issuance of TCT Nos. T-1046369, T-1046370, T-1046371, T-1046372, T1046373, T-1046374, T-1046375, T-1046376,
T-1046377, T-1046378, T-1046379, T-1046380, T-1046381, T-1046382, T-1046383, T-1046384, T-1046385, T1046386, T-1046387 and T-104638822rll in the name of Metrobank which had consolidated its ownership over the
subject properties on 25 April 2003.23rll Maintaining that the transfers of title were invalid and ineffective, TCEI
filed its 4 November 2004 motion which was styled as one to direct the Register of Deeds to "bring back the titles in
[its] name." TCEI argued that Metrobanks act of transferring said titles to the latters name amounted to contempt
absent modification of the 8 October 2002 Stay Order and approval by the Rehabilitation Court.24rll The motion
was, however, denied in the Rehabilitation Courts 2 June 2005 Order, on the ground that Metrobanks right to exercise
any act of dominion over the foreclosed properties had already been recognized in the CAs 30 January 2004 Decision
in CA-G.R. SP No. 76147.25rll

Insisting that the transfers of title in Metrobanks name was violative of the Stay Order issued in SEC Case No. 02302, TCEI filed the 17 June 2005 Rule 43 petition for review which was docketed before the CA as CAG. R. SP No.
90311.26rll On 24 May 2006, said courts Sixteenth Division rendered the second assailed decision, dismissing
TCEIs petition for lack of merit on the ground that Metrobank was already the owner of the foreclosed properties by
the time the Stay Order was issued on 8 October 2002. For this purpose, the CA took appropriate note of the fact that,
in the 30 January 2004 Decision in CA-G.R. SP No. 76147, Metrobanks ownership of the foreclosed properties was
considered consolidated for failure of TCEI to exercise its right of redemption within three months from the
foreclosure sale or the registration of the certificate of sale in accordance with Sec. 47 of Republic Act (RA) No.
8791.27rll Considering that said 30 January 2004 Decision had already attained finality, the CA also ruled that the
determinations therein made already amounted to res judicata and that, as a consequence, TCEIs petition for review
was equivalent to forum shopping.28rll TCEIs motion for reconsideration was likewise denied for lack of merit in
the CAs Resolution dated 14 August 2006,29rll hence its Rule 45 petition for review now docketed before us as
G.R. No. 174132.30rll
In G.R. No. 173610, petitioners TCEI and the Spouses Campos seek the reversal of the CAs 30 November 2005
Decision in CA-G.R. CV No. 84464 on the following grounds:
1. The Order granting the Writ of Possession in favor of Metrobank is invalid and unenforceable considering that
the properties of TCEI are now in the possession of the rehabilitation receiver in view of the earlier judgment of
approval of the Petition for Corporate Rehabilitation in SEC Case No. 023-02.
2. The Rehabilitation Receiver is considered a Third-Party in possession of the properties adversely against
Metrobank for the benefit of the creditors and the debtor.
3. Possession of the Rehabilitation Receiver by virtue of a final judgment in a Rehabilitation Proceeding must be
respected as among the exemptions why the Petition for Writ of Possession must be denied or must not be
implemented.
4. TCEI, Spouses Campos and Metrobank agreed that Act 3135 will be applicable in case of foreclosure sale. Section
47 of the General Banking Act, Republic Act 8791, is not applicable. While the Certificate of Sale was issued in 10
April 2002 there was no transfer until 26 June 2003 when the Stay Order was already effective.
In G.R. No. 174132, on the other hand, the setting aside of the CAs 24 May 2006 Decision in CA-G.R. SP No. 90311
is urged by TCEI on the following grounds:
1. The Register of Deeds cannot legally transfer the titles subject matter of the Petition for Rehabilitation in favor
of Metrobank on 26 June 2003 in view of the existence of the Stay Order on 8 October 2002 prohibiting the
enforcement of claims and the subsequent judgment approving the Rehabilitation Plan in favor of Petitioner.
2. The Register of Deeds should cancel the titles issued to Metrobank on 26 June 2003 and re-issue titles in favor of
TCEI as the same was made in violation of the Stay Order and the Rehabilitation Proceedings as the Decision therein
binds the whole world being a proceeding in rem.

3. The Decision of the CA failed to take into consideration the far reaching effects of a Petition for Rehabilitation as
against a Motion for Issuance of a Writ of Possession which is ex-parte and not a judicial proceeding.
We find both petitions bereft of merit.
Corporate rehabilitation contemplates a continuance of corporate life and activities in an effort to restore and reinstate
the corporation to its former position of successful operation and solvency, the purpose being to enable the company
to gain a new lease on life and allow its creditors to be paid their claims out of its earnings.31A principal feature of
corporate rehabilitation is the Stay Order which defers all actions or claims against the corporation seeking corporate
rehabilitation from the date of its issuance until the dismissal of the petition or termination of the rehabilitation
proceedings.32rll Under Section 24, Rule 4 of the Interim Rules of Procedure on Corporate Rehabilitation which
was in force at the time TCEI filed its petition for rehabilitation a quo, the approval of the rehabilitation plan also
produces the following results:
a. The plan and its provisions shall be binding upon the debtor and all persons who may be affected by it, including
the creditors, whether or not such persons have participated in the proceedings or opposed the plan or whether or not
their claims have been scheduled;
b. The debtor shall comply with the provisions of the plan and shall take all actions necessary to carry out the plan;
c. Payments shall be made to the creditors in accordance with the provisions of the plan;
d. Contracts and other arrangements between the debtor and its creditors shall be interpreted as continuing to apply to
the extent that they do not conflict with the provisions of the plan; and
e. Any compromises on amounts or rescheduling of timing of payments by the debtor shall be binding on creditors
regardless of whether or not the plan is successfully implemented.
In addition to the issuance of the Stay Order in SEC Case No. 023-02 on 8 October 2002, petitioners call attention to
the fact that the Rehabilitation Court approved TCEIs rehabilitation plan in the Order dated 29 March 2004.
Considering that orders issued by the Rehabilitation Court are immediately executory under Section 5, Rule 3 of
the Interim Rules,33rll petitioners argue that the subject properties were placed in custodia legis upon approval of
TCEIs rehabilitation plan and that the grant of the writ of possession in favor of Metrobank was tantamount to taking
said properties away from the rehabilitation receiver. Petitioners maintain that the rehabilitation receiver, as an officer
of the court empowered to take possession, control and custody of the debtors assets,34rll should have been
considered a third person whose possession of the foreclosed properties was an exception to the rule that the grant of a
writ of possession is ministerial. For these reasons, petitioners claim that the writ of possession issued in favor of
Metrobank is invalid and unenforceable.35rll
The dearth of merit in petitioners position is, however, evident from the fact that, Metrobank had already acquired
ownership over the subject realties when TCEI commenced its petition for corporate rehabilitation on 1 October 2002.
Although Metrobank concededly invoked Act No. 3135 in seeking the extrajudicial foreclosure of the mortgages
executed by TCEI, the second paragraph of Section 47 of RA 8791 the law in force at said time specifically provides
as follows:

Section 47. Foreclosure of Real Estate Mortgage. x x x x


Notwithstanding Act 3135, juridical persons whose property is being sold pursuant to an extrajudicial foreclosure,
shall have the right to redeem the property in accordance with this provision until, but not after, the registration of the
certificate of foreclosure sale with the applicable Register of Deeds which in no case shall be more than three (3)
months after foreclosure, whichever is earlier. Owners of property that has been sold in a foreclosure sale prior to the
effectivity of this Act shall retain their redemption rights until their expiration.
Having purchased the subject realties at public auction on 7 November 2001, Metrobank undoubtedly acquired
ownership over the same when TCEI failed to exercise its right of redemption within the three-month period
prescribed under the foregoing provision. With ownership already vested in its favor as of 6 February 2002, it matters
little that Metrobank caused the certificate of sale to be registered with the Cavite Provincial Registry only on 10 April
2002 and/or executed an affidavit consolidating its ownership over the same properties only on 25 April 2003. The
rule is settled that the mortgagor loses all interest over the foreclosed property after the expiration of the redemption
period and the purchaser becomes the absolute owner thereof when no redemption is made.36rll By the time that
the Rehabilitation Court issued the 8 October 2002 Stay Order in SEC Case No. 023-02, it cannot, therefore, be
gainsaid that Metrobank had long acquired ownership over the subject realties.
Viewed in the foregoing light, the CA cannot be faulted for upholding the RTCs grant of a writ of possession in favor
of Metrobank on 11 January 2005. If the purchaser at the foreclosure sale, upon posting of the requisite bond, is
entitled to a writ of possession even during the redemption period under Section 7 of Act 3135,37rll as amended, it
has been consistently ruled that there is no reason to withhold said writ after the expiration of the redemption period
when no redemption is effected by the mortgagor. Indeed, the rule is settled that the right of the purchaser to the
possession of the foreclosed property becomes absolute after the redemption period, without a redemption being
effected by the property owner. Since the basis of this right to possession is the purchaser's ownership of the property,
the mere filing of an ex parte motion for the issuance of the writ of possession would suffice, and no bond is
required.38rll
Considering that Metrobank acquired ownership over the mortgaged properties upon the expiration of the redemption
period on 6 February 2002, TCEI is also out on a limb in invoking the Stay Order issued by the Rehabilitation Court
on 8 October 2002 and the approval of its rehabilitation plan on 29 March 2004. An essential function of corporate
rehabilitation is, admittedly, the Stay Order which is a mechanism of suspension of all actions and claims against the
distressed corporation upon the due appointment of a management committee or rehabilitation receiver.39rll The
Stay Order issued by the Rehabilitation Court in SEC Case No. 023-02 cannot, however, apply to the mortgage
obligations owing to Metrobank which had already been enforced even before TCEIs filing of its petition for
corporate rehabilitation on 1 October 2002.
In Equitable PCI Bank, Inc v. DNG Realty and Development Corporation,40rll the Court upheld the validity of the
writ of possession procured by the creditor despite the subsequent issuance of a stay order in the rehabilitation
proceedings instituted by the debtor. In said case, Equitable PCI Bank (Equitable) foreclosed on 30 June 2003 the
mortgage executed in its favor by DNG Realty and Development Corporation (DNG) and was declared the highest
bidder at the 4 September 2003 public auction of the property. On 21 October 2003, DNG also instituted a petition for
corporate rehabilitation which resulted in the issuance of a Stay Order on 27 October 2003. Having caused the
recording of the Certificate of Sale on 3 December 2003, on the other hand, Equitable executed an affidavit of
consolidation of its ownership which served as basis for the issuance of a new title in its favor on 10 December 2003.
Equitable subsequently filed an action for the issuance of a writ of possession on 17 March 2004 which was

eventually granted on 6 September 2004. In affirming the validity of the certificate of sale, certificate of title and writ
of possession issued in favor of Equitable, the Court ruled as follows:
In RCBC, we upheld the extrajudicial foreclosure sale of the mortgage properties of BF Homes wherein RCBC
emerged as the highest bidder as it was done before the appointment of the management committee. Noteworthy to
mention was the fact that the issuance of the certificate of sale in RCBCs favor, the consolidation of title, and the
issuance of the new titles in RCBCs name had also been upheld notwithstanding that the same were all done after the
management committee had already been appointed and there was already a suspension of claims. Thus,
applying RCBC v. IAC in this case, since the foreclosure of respondent DNG's mortgage and the issuance of the
certificate of sale in petitioner EPCIB's favor were done prior to the appointment of a Rehabilitation Receiver and the
Stay Order, all the actions taken with respect to the foreclosed mortgage property which were subsequent to the
issuance of the Stay Order were not affected by the Stay Order. Thus, after the redemption period expired without
respondent redeeming the foreclosed property, petitioner becomes the absolute owner of the property and it was
within its right to ask for the consolidation of title and the issuance of new title in its name as a consequence of
ownership; thus, it is entitled to the possession and enjoyment of the property. (Italics supplied)
A similar dearth of merit may be said of TCEIs claim that the subject properties were in custodia legis upon the
issuance of the Stay Order and the approval of the rehabilitation plan fails to persuade. As early as 7 February 2002 or
three months after the foreclosure sale on 7 November 2001, Metrobank acted well-within its rights in applying for a
writ of possession, the issuance of which has consistently been held to be a ministerial function which cannot be
hindered by an injunction or an action for the annulment of the mortgage or the foreclosure itself.41rll While it is
true that the function ceases to be ministerial where the property is in the possession of a third party claiming a right
adverse to that of the judgment debtor,42rll the rehabilitation receivers power to take possession, control and
custody of TCEIs assets is far from adverse to the latter. A rehabilitation receiver is an officer of the court who is
appointed for the protection of the interests of the corporate investors and creditors.43rll It has been ruled that
there is nothing in the concept of corporate rehabilitation that would ipso facto deprive the officers of a debtor
corporation of control over its business or properties.44rll
Neither are we inclined to hospitably entertain TCEIs harping on the supposed primacy of the one-year redemption
period provided under Act 3135 over the three-month redemption period provided under the second paragraph of
Section 47 of RA 8791 where the property being sold pursuant to an extrajudicial foreclosure is owned by a juridical
person. As may be gleaned from the record, Metrobanks acquisition of the subject properties would still pass muster
even if tested alongside the longer redemption period provided under Act 3135. Having purchased the same properties
at public auction on 7 November 2001, Metrobank was issued a 13 December 2001 certificate of sale which it caused
to be registered on 10 April 2002. Despite the shorter redemption period provided under RA 8791, Metrobank also
executed an affidavit of consolidation of ownership over the subject realties on 25 April 2003 or after the lapse of the
one-year redemption period provided under Act 3135.
Not having exercised its right of redemption in the intervening period, TCEI cannot be heard to complain about the
cancellation of its titles and the issuance of new ones in favor of Metrobank on 26 June 2003. In Union Bank of the
Philippines v. Court of Appeals,45rll the Court ruled that, after the purchasers consolidation of title over foreclosed
property, the issuance of a certificate of title in his favor is ministerial upon the Register of Deeds, thus:
In real estate mortgage, when the principal obligation is not paid when due, the mortgage has the right to foreclose the
mortgage and to have the property seized and sold with a view to applying the proceeds to the payment of the

principal obligation. Foreclosure may be effected either judicially or extrajudicially. In a public bidding during extrajudicial foreclosure, the creditor-mortgagee, trustee, or other person authorized to act for the creditor may participate
and purchase the mortgaged property as any other bidder. Thereafter the mortgagor has one year within which to
redeem the property from and after registration of sale with the Register of Deeds. In case of non-redemption, the
purchaser at foreclosure sale shall file with the Register of Deeds, either a final deed of sale executed by the person
authorized by virtue of the power of attorney embodied in the deed or mortgage, or his sworn statement attesting to
the fact of nonredemption; whereupon, the Register of Deeds shall issue a new certificate of title in favor of the
purchaser after the owner's duplicate of the certificate has been previously delivered and cancelled. Thus, upon failure
to redeem foreclosed realty, consolidation of title becomes a matter of right on the part of the auction buyer, and the
issuance of a certificate of title in favor of the purchaser becomes ministerial upon the Register of Deeds.
In upholding the RTCs denial of its motion for the cancellation of the certificates of title issued in favor of Metrobank,
TCEI, finally, argues that the CA erroneously gave more premium to the ex-parte proceedings for the issuance of a
writ of possession over those in the corporate rehabilitation case which, being in rem, binds the whole world. Aside
from the fact that this matter had already been addressed in the 30 January 2004 Decision earlier rendered in CA-G.R.
SP No. 76147, TCEI loses sight of the fact, that the proceedings in corporate rehabilitation cases are also summary
and nonadversarial46rll and do not impair the debtors contracts47rll or diminish the status of preferred
creditors.48rll Concededly, the issuance of the Stay Order suspends the enforcement of all claims against the
debtor, whether for money or otherwise, and whether such enforcement is by court action or otherwise, effective from
the date of its issuance until the dismissal of the petition or the termination of the rehabilitation
proceedings.49rll This does not, however, apply to Metrobank which already acquired ownership over the subject
realties even before TCEI filed its petition for rehabilitation a quo.
WHEREFORE, premises considered, both petitions for review on certiorari are DENIED for lack of merit.rl
lbrr

[G.R. No. 173846 : February 02, 2011]


JOSE MARCEL PANLILIO, ERLINDA PANLILIO VS. REGIONAL TRIAL COURT, BRANCH 51
Before this Court is a petition for review on certiorari1 under Rule 45 of the Rules of Court, seeking to set aside the
April 27, 2006 Decision2 and August 2, 2006 Resolution3 of the Court of the Appeals (CA) in CA-G.R. SP No. 90947.
The facts of the case are as follows:
On October 15, 2004, Jose Marcel Panlilio, Erlinda Panlilio, Nicole Morris and Marlo Cristobal (petitioners), as
corporate officers of Silahis International Hotel, Inc. (SIHI), filed with the Regional Trial Court (RTC) of Manila,
Branch 24, a petition for Suspension of Payments and Rehabilitation4 in SEC Corp. Case No. 04-111180.
On October 18, 2004, the RTC of Manila, Branch 24, issued an Order5 staying all claims against SIHI upon finding
the petition sufficient in form and substance. The pertinent portions of the Order read:
Finding the petition, together with its annexes, sufficient in form and substance and pursuant to Section 6, Rule 4 of
the Interim Rules on Corporate Rehabilitation, the Court hereby:
2) Stays the enforcement of all claims, whether for money or otherwise and whether such enforcement is by court
action or otherwise, against the debtor, its guarantors and sureties not solidarily liable with the debtor.6
At the time, however, of the filing of the petition for rehabilitation, there were a number of criminal charges7 pending
against petitioners in Branch 51 of the RTC of Manila. These criminal charges were initiated by respondent Social
Security System (SSS) and involved charges of violations of Section 28 (h)8 of Republic Act 8282, or the Social
Security Act of 1997 (SSS law), in relation to Article 315 (1) (b)9 of the Revised Penal Code, or Estafa.
Consequently, petitioners filed with the RTC of Manila, Branch 51, a Manifestation and Motion to Suspend
Proceedings.10 Petitioners argued that the stay order issued by Branch 24 should also apply to the criminal charges
pending in Branch 51. Petitioners, thus, prayed that Branch 51 suspend its proceedings until the petition for
rehabilitation was finally resolved.
On December 13, 2004, Branch 51 issued an Order11 denying petitioners' motion to suspend the proceedings. It ruled
that the stay order issued by Branch 24 did not cover criminal proceedings, to wit:
Clearly then, the issue is, whether the stay order issued by the RTC commercial court, Branch 24 includes the abovecaptioned criminal cases.

The Court shares the view of the private complainants and the SSS that the said stay order does not include the
prosecution of criminal offenses. Precisely, the law "criminalizes" the non-remittance of SSS contributions by an
employer to protect the employees from unscrupulous employers. Clearly, in these cases, public interest requires that
the said criminal acts be immediately investigated and prosecuted for the protection of society.
From the foregoing, the inescapable conclusion is that the stay order issued by RTC Branch 24 does not include the
above-captioned cases which are criminal in nature.12
Branch 51 denied the motion for reconsideration filed by petitioners.
On August 19, 2005, petitioners filed a petition for certiorari13 with the CA assailing the Order of Branch 51.
On April 27, 2006, the CA issued a Decision denying the petition, the dispositive portion of which reads:
WHEREFORE, premises considered, the Petition is hereby DENIED and is accordingly DISMISSED. No costs.14
The CA discussed that violation of the provisions of the SSS law was a criminal liability and was, thus, personal to
the offender. As such, the CA held that the criminal proceedings against the petitioners should not be considered a
claim against the corporation and, consequently, not covered by the stay order issued by Branch 24.
Petitioners filed a Motion for Reconsideration,15 which was, however, denied by the CA in a Resolution dated August
2, 2006.
Hence, herein petition, with petitioners raising a lone issue for this Court's resolution, to wit:
x x x WHETHER OR NOT THE STAY ORDER ISSUED BY BRANCH 24, REGIONAL TRIAL COURT OF
MANILA, IN SEC CORP. CASE NO. 04-111180 COVERS ALSO VIOLATION OF SSS LAW FOR NONREMITTANCE OF PREMIUMS AND VIOLATION OF [ARTICLE] 3 515 OF THE REVISED PENAL CODE.16
The petition is not meritorious.
To begin with, corporate rehabilitation connotes the restoration of the debtor to a position of successful operation and
solvency, if it is shown that its continued operation is economically feasible and its creditors can recover more, by
way of the present value of payments projected in the rehabilitation plan, if the corporation continues as a going
concern than if it is immediately liquidated.17 It contemplates a continuance of corporate life and activities in an effort
to restore and reinstate the corporation to its former position of successful operation and solvency, the purpose being
to enable the company to gain a new lease on life and allow its creditors to be paid their claims out of its earnings.18
A principal feature of corporate rehabilitation is the suspension of claims against the distressed corporation. Section 6
(c) of Presidential Decree No. 902-A, as amended, provides for suspension of claims against corporations undergoing
rehabilitation, to wit:
Section 6 (c). x x x
x x x Provided, finally, that upon appointment of a management committee, rehabilitation receiver, board or body,
pursuant to this Decree, all actions for claims against corporations, partnerships or associations under management or
receivership pending before any court, tribunal, board or body, shall be suspended accordingly.19

In November 21, 2000, this Court En Banc promulgated the Interim Rules of Procedure on Corporate
Rehabilitation,20 Section 6, Rule 4 of which provides a stay order on all claims against the corporation, thus:
Stay Order. - If the court finds the petition to be sufficient in form and substance, it shall, not later than five (5) days
from the filing of the petition, issue an Order x x x; (b) staying enforcement of all claims, whether for money or
otherwise and whether such enforcement is by court action or otherwise, against the debtor, its guarantors and sureties
not solidarily liable with the debtor; x x x21
In Finasia Investments and Finance Corporation v. Court of Appeals,22 the term "claim" has been construed to refer to
debts or demands of a pecuniary nature, or the assertion to have money paid. The purpose for suspending actions for
claims against the corporation in a rehabilitation proceeding is to enable the management committee or rehabilitation
receiver to effectively exercise its/his powers free from any judicial or extrajudicial interference that might unduly
hinder or prevent the rescue of the debtor company.23
The issue to be resolved then is: does the suspension of "all claims" as an incident to a corporate rehabilitation also
contemplate the suspension of criminal charges filed against the corporate officers of the distressed corporation?
This Court rules in the negative.
In Rosario v. Co24 (Rosario), a case of recent vintage, the issue resolved by this Court was whether or not during the
pendency of rehabilitation proceedings, criminal charges for violation of Batas Pambansa Bilang 22 should be
suspended, was disposed of as follows:
x x x the gravamen of the offense punished by B.P. Blg. 22 is the act of making and issuing a worthless check; that is,
a check that is dishonored upon its presentation for payment. It is designed to prevent damage to trade, commerce,
and banking caused by worthless checks. In Lozano v. Martinez, this Court declared that it is not the nonpayment of an
obligation which the law punishes. The law is not intended or designed to coerce a debtor to pay his debt. The thrust
of the law is to prohibit, under pain of penal sanctions, the making and circulation of worthless checks. Because of its
deleterious effects on the public interest, the practice is proscribed by the law. The law punishes the act not as an
offense against property, but an offense against public order. The prime purpose of the criminal action is to punish the
offender in order to deter him and others from committing the same or similar offense, to isolate him from society, to
reform and rehabilitate him or, in general, to maintain social order. Hence, the criminal prosecution is designed to
promote the public welfare by punishing offenders and deterring others.
Consequently, the filing of the case for violation of B.P. Blg. 22 is not a "claim" that can be enjoined within the
purview of P.D. No. 902-A. True, although conviction of the accused for the alleged crime could result in the
restitution, reparation or indemnification of the private offended party for the damage or injury he sustained
by reason of the felonious act of the accused, nevertheless, prosecution for violation of B.P. Blg. 22 is a criminal
action.
A criminal action has a dual purpose, namely, the punishment of the offender and indemnity to the offended party. The
dominant and primordial objective of the criminal action is the punishment of the offender. The civil action is merely
incidental to and consequent to the conviction of the accused. The reason for this is that criminal actions are primarily
intended to vindicate an outrage against the sovereignty of the state and to impose the appropriate penalty for the
vindication of the disturbance to the social order caused by the offender. On the other hand, the action between the
private complainant and the accused is intended solely to indemnify the former.25

Rosario is at fours with the case at bar. Petitioners are charged with violations of Section 28 (h) of the SSS law, in
relation to Article 315 (1) (b) of the Revised Penal Code, or Estafa. The SSS law clearly "criminalizes" the nonremittance of SSS contributions by an employer to protect the employees from unscrupulous employers. Therefore,
public interest requires that the said criminal acts be immediately investigated and prosecuted for the protection of
society.
The rehabilitation of SIHI and the settlement of claims against the corporation is not a legal ground for the extinction
of petitioners' criminal liabilities. There is no reason why criminal proceedings should be suspended during corporate
rehabilitation, more so, since the prime purpose of the criminal action is to punish the offender in order to deter him
and others from committing the same or similar offense, to isolate him from society, reform and rehabilitate him or, in
general, to maintain social order.26 As correctly observed in Rosario,27 it would be absurd for one who has engaged in
criminal conduct could escape punishment by the mere filing of a petition for rehabilitation by the corporation of
which he is an officer.
The prosecution of the officers of the corporation has no bearing on the pending rehabilitation of the corporation,
especially since they are charged in their individual capacities. Such being the case, the purpose of the law for the
issuance of the stay order is not compromised, since the appointed rehabilitation receiver can still fully discharge his
functions as mandated by law. It bears to stress that the rehabilitation receiver is not charged to defend the officers of
the corporation. If there is anything that the rehabilitation receiver might be remotely interested in is whether the court
also rules that petitioners are civilly liable. Such a scenario, however, is not a reason to suspend the criminal
proceedings, because as aptly discussed in Rosario, should the court prosecuting the officers of the corporation find
that an award or indemnification is warranted, such award would fall under the category of claims, the execution of
which would be subject to the stay order issued by the rehabilitation court.28 The penal sanctions as a consequence of
violation of the SSS law, in relation to the revised penal code can therefore be implemented if petitioners are found
guilty after trial. However, any civil indemnity awarded as a result of their conviction would be subject to the stay
order issued by the rehabilitation court. Only to this extent can the order of suspension be considered obligatory upon
any court, tribunal, branch or body where there are pending actions for claims against the distressed corporation.29
On a final note, this Court would like to point out that Congress has recently enacted Republic Act No. 10142, or the
Financial Rehabilitation and Insolvency Act of 2010.30 Section 18 thereof explicitly provides that criminal actions
against the individual officer of a corporation are not subject to the Stay or Suspension Order in rehabilitation
proceedings, to wit:
The Stay or Suspension Order shall not apply:
(g) any criminal action against individual debtor or owner, partner, director or officer of a debtor shall not be affected
by any proceeding commenced under this Act.
Withal, based on the foregoing discussion, this Court rules that there is no legal impediment for Branch 51 to proceed
with the cases filed against petitioners.
WHEREFORE, premises considered, the petition is DENIED. The April 27, 2006 Decision and August 2, 2006
Resolution of the Court of Appeals in CA-G.R. SP No. 90947 are AFFIRMED. The Regional Trial Court of Manila,
Branch 51, is ORDERED to proceed with the criminal cases filed against petitioners.

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


MANUEL D. YNGSON, JR. v. PHILIPPINE NATIONAL BANK,
On appeal are the Resolutions dated April 14, 20051 and January 24, 20062 of the Court of Appeals (CA) in CA-G.R.
SP No. 88735. The CA dismissed petitioner's Petition for Review of the January 4, 2005 Resolution3 and February 9,
2000 Order4 of the Securities and Exchange Commission (SEC) for failure of petitioner to attach to the petition copies
of material portions of the records and other relevant or pertinent documents. lbrr
The facts follow:law library
ARCAM & Company, Inc. (ARCAM) is engaged in the operation of a sugar mill in Pampanga.5 Between 1991 and
1993, ARCAM applied for and was granted a loan by respondent Philippine National Bank (PNB).6 To secure the
loan, ARCAM executed a Real Estate Mortgage over a 350,004-square meter parcel of land covered by TCT No.
340592-R and a Chattel Mortgage over various personal properties consisting of machinery, generators, field
transportation and heavy equipment.
ARCAM, however, defaulted on its obligations to PNB. Thus, on November 25, 1993, pursuant to the provisions of
the Real Estate Mortgage and Chattel Mortgage, PNB initiated extrajudicial foreclosure proceedings in the Office of
the Clerk of Court/Ex Officio Sheriff of the Regional Trial
Court (RTC) of Guagua, Pampanga.7 The public auction was scheduled on December 29, 1993 for the mortgaged real
properties and December 8, 1993 for the mortgaged personal properties.
On December 7, 1993, ARCAM filed before the SEC a Petition for Suspension of Payments, Appointment of a
Management or Rehabilitation Committee, and Approval of Rehabilitation Plan, with application for issuance of a
temporary restraining order (TRO) and writ of preliminary injunction. The SEC issued a TRO and subsequently a writ
of preliminary injunction, enjoining PNB and the Sheriff of the RTC of Guagua, Pampanga from proceeding with the
foreclosure sale of the mortgaged properties.8 An interim management committee was also created.
On February 9, 2000, the SEC ruled that ARCAM can no longer be rehabilitated. The SEC noted that the petition for
suspension of payment was filed in December 1993 and six years had passed but the potential white knight" investor
had not infused the much needed capital to bail out ARCAM from its financial difficulties.9 Thus, the SEC decreed
that ARCAM be dissolved and placed under liquidation.10 The SEC Hearing Panel also granted PNB s motion to
dissolve the preliminary injunction and appointed Atty. Manuel D. Yngson, Jr. & Associates as Liquidator for

ARCAM.11 With this development, PNB revived the foreclosure case and requested the RTC Clerk of Court to reschedule the sale at public auction of the mortgaged properties.
Contending that foreclosure during liquidation was improper, petitioner filed with the SEC a Motion for the Issuance
of a Temporary Restraining Order and/or Writ of Preliminary Injunction to enjoin the foreclosure sale of ARCAM s
assets. The SEC en banc issued a TRO effective for seventy-two (72) hours, but said TRO lapsed without any writ of
preliminary injunction being issued by the SEC. Consequently, on July 28, 2000, PNB resumed the proceedings for
the extrajudicial foreclosure sale of the mortgaged properties.12 PNB emerged as the highest winning bidder in the
auction sale, and certificates of sale were issued in its favor.
On November 16, 2000, petitioner filed with the SEC a motion to nullify the auction sale.13 Petitioner posited that all
actions against companies which are under liquidation, like ARCAM, are suspended because liquidation is a
continuation of the petition for suspension proceedings. Petitioner argued that the prohibition against foreclosure
subsisted during liquidation because payment of all of ARCAM s obligations was proscribed except those authorized
by the Commission. Moreover, petitioner asserted that the mortgaged assets should be included in the liquidation and
the proceeds shared with the unsecured creditors.
In its Opposition, PNB asserted that neither Presidential Decree (P.D.) No. 902-A nor the SEC rules prohibits secured
creditors from foreclosing on their mortgages to satisfy the mortgagor s debt after the termination of the rehabilitation
proceedings and during liquidation proceedings.14rll
On January 4, 2005, the SEC issued a Resolution15 denying petitioner s motion to nullify the auction sale. It held that
PNB was not legally barred from foreclosing on the mortgages. Aggrieved, petitioner filed on February 28, 2005, a
Petition for Review in the CA questioning the January 4, 2005 Resolution of the SEC.16rll
By Resolution dated April 14, 2005, the CA dismissed the petition on the ground that petitioner failed to attach
material portions of the record and other documents relevant to the petition as required in Rule 46, Section 3 of
the 1997 Rules of Civil Procedure, as amended. The CA likewise denied ARCAM s motion for reconsideration in its
Resolution dated January 24, 2006. lbrr
Hence this petition under Rule 45 arguing that:rl
4.1. THE SEC ERRED IN FAILING TO APPLY THE RULES OF CONCURRENCE AND PREFERENCE OF
CREDITS UNDER THE CIVIL CODE AND JURISPRUDENCE WHEN PD 902-A PROVIDES THAT THE SAME
BE APPLIED IN INSTANCES WHEREBY AN ENTITY IS ORDERED DISSOLVED AND PLACED UNDER
LIQUIDATION ON ACCOUNT OF FAILURE TO REHABILITATE DUE TO INSOLVENCY.17rll
4.2. IT WAS GROSSLY ERRONEOUS FOR THE SEC TO HAVE ALLOWED PNB TO FORECLOSE THE
MORTGAGE WITHOUT FIRST ALLOWING THE ARCAM LIQUIDATOR TO
MAKE A DETERMINATION OF THE LIENS OVER THE ARCAM REAL PROPERTIES, SINCE THE
LIQUIDATOR HAD INITIALLY DETERMINED THAT ASIDE FROM PNB, SOME ARCAM WORKERS MAY
ALSO HAVE A LEGAL LIEN OVER THE SAID PROPERTY AS REGARDS THEIR CLAIMS FOR UNPAID
WAGES. THESE LIENS OVER THE SAME MOVABLE OR REAL PROPERTY ARE TO BE SATISFIED PRORATA WITH THE CONTRACTUAL LIENS PURSUANT TO 2247 AND 2249 OF THE CIVIL CODE, IN
RELATION TO 2241 TO 2242 RESPECTIVELY. ALSO, THERE MAY BE SOME TAX ASSESSMENTS THAT

THE LIQUIDATOR DOES NOT KNOW ABOUT, AND IF THERE WERE, THESE COULD COMPRISE TAX
LIENS, WHICH UNDER ARTICLE 2243 OF THE CIVIL CODE ARE CLEARLY GIVEN PRIORITY OVER
OTHER PREFERRED CLAIMS SINCE SUCH ARE TO BE SATISFIED FIRST, OVER OTHER LIENS
PROVIDED UNDER ARTICLES 2241 AND 2242 OF THE CIVIL CODE, SUCH AS MORTGAGE LIENS.18rll
4.3. THE SEC LABORED UNDER THE MISTAKEN IMPRESSION THAT AFTER AN ENTITY IS DISSOLVED
AND PLACED UNDER LIQUIDATION DUE TO INSOLVENCY, SECURED CREDITORS ARE
AUTOMATICALLY ALLOWED TO FORECLOSE OR EXECUTE OR OTHERWISE MAKE GOOD ON THEIR
CREDITS AGAINST THE DEBTOR.19rll
4.4. JURISPRUDENCE ON THE MATTER ALSO NEGATES THE SEC S HOLDING THAT THE
FORECLOSURE BY PNB WAS LEGAL. EVEN ASSUMING FOR THE SAKE OF ARGUMENT THAT PNB IS
THE SOLE AND ONLY LIEN HOLDER, IT STILL CANNOT FORECLOSE UNLESS THE LIQUIDATOR
AGREES TO SUCH OR THAT THE SEC GAVE PNB PRIOR PERMISSION TO INSTITUTE THE SEPARATE
FORECLOSURE PROCEEDINGS.20rll
4.5. RESPONDENT PNB SHOULD BE MADE TO PAY DAMAGES FOR THE REASON THAT THE
FORECLOSURE PROCEEDINGS WERE ATTENDED WITH BAD FAITH.21rllaw library
The issues to be resolved are: (1) whether the CA correctly dismissed the petition for failure to attach material
documents referred to in the petition; and (2) whether PNB, as a secured creditor, can foreclose on the mortgaged
properties of a corporation under liquidation without the knowledge and prior approval of the liquidator or the SEC.
On the procedural issue, the Court finds that the CA erred in dismissing the Petition for Review before it on the
ground of failure to attach material portions of the record and other documents relevant to the petition. A perusal of
the Petition for Review filed with the CA, and as admitted by PNB,22 reveals that certified true copies of the assailed
January 4, 2005 SEC Resolution and the February 9, 2000 SEC Order appointing petitioner Atty. Manuel D. Yngson,
Jr. as liquidator were annexed therein.
We find the foregoing attached documents sufficient for the appellate court to decide the case at bar considering that
the SEC resolution contains statements of the factual antecedents material to the case. The Resolution also contains
the SEC s findings on the legality of PNB s foreclosure of the mortgages. The SEC held that when the rehabilitation
proceeding was terminated and the suspensive effect of the order staying the enforcement of claims was lifted, PNB
could already assert its preference over unsecured creditors, and the secured asset and the proceeds need not be
included in the liquidation and shared with the unsecured creditors.23 Before the CA, petitioner raised only the same
legal questions as there was no controversy involving factual matters. Petitioner claimed that the SEC erred in not
applying the rules on concurrence and preference of credits, and in denying its motion to nullify the auction sale of the
secured properties.24 Therefore, the assailed SEC Resolution is the only material portion of the record that should be
annexed with the petition for the CA to decide on the correctness of the SEC s interpretation of the law and
jurisprudence on the matter before it.
Having so ruled, this Court would normally order the remand of the case to the CA for resolution of the substantive
issues. However, we find it more appropriate to decide the merits of the case in the interest of speedy justice
considering that the parties have adequately argued all points and issues raised. It is the policy of the Court to strive to
settle an entire controversy in a single proceeding, and to leave no root or branch to bear the seeds of future

litigation.25 The ends of speedy justice would not be served by a remand of this case to the CA especially since any
ruling of the CA on the matter could end up being appealed to this Court.
Did the SEC then err in ruling that PNB was not barred from foreclosing on the mortgages? We answer in the
negative.
In the case of Consuelo Metal Corporation v. Planters Development Bank,26 which involved factual antecedents
similar to the present case, the court has already settled the above question and upheld the right of the secured creditor
to foreclose the mortgages in its favor during the liquidation of a debtor corporation. In that case, Consuelo Metal
Corporation (CMC) filed with the SEC a petition to be declared in a state of suspension of payment, for rehabilitation,
and for the appointment of a rehabilitation receiver or management committee under Section 5(d) of P.D. No. 902-A.
On April 2, 1996, the SEC, finding the petition sufficient in form and substance, declared that "all actions for claims
against CMC pending before any court, tribunal, office, board, body and/or commission are deemed suspended
immediately until further orders" from the SEC. Then on November 29, 2000, upon the management committee s
recommendation, the SEC issued an Omnibus Order directing the dissolution and liquidation of CMC. Thereafter,
respondent Planters Development Bank (Planters Bank), one of CMC s creditors, commenced the extrajudicial
foreclosure of CMC s real estate mortgage. Planters Bank extrajudicially foreclosed on the real estate mortgage as
CMC failed to secure a TRO. CMC questioned the validity of the foreclosure because it was done without the
knowledge and approval of the liquidator. The Court ruled in favor of the respondent bank, as follows: lbrr
In Rizal Commercial Banking Corporation v. Intermediate Appellate Court, we held that if rehabilitation is no longer
feasible and the assets of the corporation are finally liquidated, secured creditors shall enjoy preference over
unsecured creditors, subject only to the provisions of the Civil Code on concurrence and preference of credits.
Creditors of secured obligations may pursue their security interest or lien, or they may choose to abandon the
preference and prove their credits as ordinary claims.
lbrr
Moreover, Section 2248 of the Civil Code provides:rl
"Those credits which enjoy preference in relation to specific real property or real rights, exclude all others to the
extent of the value of the immovable or real right to which the preference refers."law library
In this case, Planters Bank, as a secured creditor, enjoys preference over a specific mortgaged property and has a right
to foreclose the mortgage under Section 2248 of the Civil Code. The creditor-mortgagee has the right to foreclose the
mortgage over a specific real property whether or not the debtor-mortgagor is under insolvency or liquidation
proceedings. The right to foreclose such mortgage is merely suspended upon the appointment of a management
committee or rehabilitation receiver or upon the issuance of a stay order by the trial court. However, the creditormortgagee may exercise his right to foreclose the mortgage upon the termination of the rehabilitation proceedings or
upon the lifting of the stay order.27(Emphasis suppliedlibrary
It is worth mentioning that under Republic Act No. 10142, otherwise known as the Financial Rehabilitation and
Insolvency Act (FRIA) of 2010, the right of a secured creditor to enforce his lien during liquidation proceedings is
retained. Section 114 of said law thus provides:rbl r l l lbrr
SEC. 114. Rights of Secured Creditors. The Liquidation Order shall not affect the right of a secured creditor to enforce
his lien in accordance with the applicable contract or law. A secured creditor may:rl

(a) waive his rights under the security or lien, prove his claim in the liquidation proceedings and share in the
distribution of the assets of the debtor; or
(b) maintain his rights under his security or lien;
If the secured creditor maintains his rights under the security or lien:rl
(1) the value of the property may be fixed in a manner agreed upon by the creditor and the liquidator. When the value
of the property is less than the claim it secures, the liquidator may convey the property to the secured creditor and the
latter will be admitted in the liquidation proceedings as a creditor for the balance; if its value exceeds the claim
secured, the liquidator may convey the property to the creditor and waive the debtor s right of redemption upon
receiving the excess from the creditor;
(2) the liquidator may sell the property and satisfy the secured creditor s entire claim from the proceeds of the sale; or
(3) the secured creditor may enforce the lien or foreclose on the property pursuant to applicable laws.
In this case, PNB elected to maintain its rights under the security or lien; hence, its right to foreclose the mortgaged
properties should be respected, in line with our pronouncement in Consuelo Metal Corporation.
As to petitioner's argument on the right of first preference as regards unpaid wages, the Court has elucidated in the
case of Development Bank of the Philippines v. NLRC28 that a distinction should be made between a preference of
credit and a lien. A preference applies only to claims which do not attach to specific properties. A lien creates a charge
on a particular property. The right of first preference as regards unpaid wages recognized by Article 110 of the Labor
Code, does not constitute a lien on the property of the insolvent debtor in favor of workers. It is but a preference of
credit in their favor, a preference in application. It is a method adopted to determine and specify the order in which
credits should be paid in the final distribution of the proceeds of the insolvent's assets. It is a right to a first preference
in the discharge of the funds of the judgment debtor. Consequently, the right of first preference for unpaid wages may
not be invoked in this case to nullify the foreclosure sales conducted pursuant to PNB 's right as a secured creditor to
enforce its lien on specific properties of its debtor, ARCAM. brr
WHEREFORE, the Petition for Review on Certiorari is DENIED.

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