Вы находитесь на странице: 1из 160

CASES: (2013-December 2016)

• BANKING AND SPCL


• INTELLECTUAL PROPERTY
• FINANCIAL REHABILITATION
AND INSOLVENCY ACT
D E A N N I LO T. D I V I N A
Faculty of Civil Law, University of Santo Tomas
CASES: (2014-December 2016)
BANKING AND SPCL
LETTERS OF CREDIT
Philippine National Bank vs. San Miguel Corporation
G.R. No. 186063; January 15, 2014 , J. Peralta

• Where the trial court rendered a decision finding the


applicant of a letter of credit solely liable to pay the
beneficiary and omitted by inadvertence to insert in its
decision the phrase ‘without prejudice to the decision that
will be made against the issuing bank,’ the bank cannot
evade responsibility base on this ground. The
Independence Principle assures the seller or the
beneficiary of prompt payment independent of any
breach of the main contract and precludes the issuing
bank from determining whether the main contract is
actually accomplished or not.
Hongkong and Shanghai Banking Corporation Limited v.
National Steel Corporation and Citytrust Banking Corporation
G.R. No. 183486, February 24, 2016, Jardeleza, J:
• Letters of credit are governed primarily by their own provisions, by laws
specifically applicable to them, and by usage and custom. Consistent
with the rulings in several cases, usage and custom refers to UCP 400.
• Article 17 of UCP 400 explains that under this principle, an issuing bank
assumes no liability or responsibility "for the form, sufficiency, accuracy,
genuineness, falsification or legal effect of any documents, or for the
general and/or particular conditions stipulated in the documents or
superimposed thereon..." Thus, as long as the proper documents are
presented, the issuing bank has an obligation to pay even if the
buyer should later on refuse payment. To allow issuing bank to refuse
to honor the Letter of Credit simply because it could not collect first
from the buyer is to countenance a breach of the Independence
Principle.
TRUST RECEIPTS LAW
HUR TIN YANG vs. PEOPLE OF THE PHILIPPINES
G.R. No. 195117. August 14, 2013, J. Velasco, Jr.

• When both parties enter into an agreement knowing fully


well that the return of the goods subject of the trust receipt
is not possible even without any fault on the part of the
trustee, it is not a trust receipt transaction penalized under
Sec. 13 of PD 115 in relation to Art. 315, par. 1(b) of the RPC,
as the only obligation actually agreed upon by the parties
would be the return of the proceeds of the sale transaction.
This transaction becomes a mere loan, where the borrower
is obligated to pay the bank the amount spent for the
purchase of the goods.
BANKING LAWS
GOLDENWAY MERCHANDISING CORPORATION vs.
EQUITABLE PCI BANK
G.R. No. 195540, March 13, 2013 J. Villarama, Jr.
• Section 47 of R.A. No. 8791 otherwise known as “The
General Banking Law of 2000” which took effect on June
13, 2000, amended Act No. 3135. Under the new law, an
exception is thus made in the case of juridical persons
which are allowed to exercise the right of redemption
only “until, but not after, the registration of the
certificate of foreclosure sale” and in no case more than
three (3) months after foreclosure, whichever comes
first.
Development Bank of the Philippines v. Guariña Agricultural
and Realty Dev’t Corp. G.R. No. 160758; January 15, 2014
J. Bersamin
• The lender who refuses to release the full amount of the
loan cannot foreclose the mortgage constituted
thereon. Foreclosure prior to the mortgagor’s default is
premature and unenforceable and the mortgagee who
has been given possession over the mortgaged property
by virtue of a writ of possession may be ordered to
restore the possession of the same to the mortgagor
and to pay reasonable rent for its use during the
intervening period
DOÑA ADELA EXPORT INTERNATIONAL, INC.
vs. TRADE AND INVESTMENT DEVELOPMENT CORPORATION
and the BANK OF THE PHILIPPINE ISLANDS
G.R. No. 201931, February 11, 2015, J. Villarama, Jr.
• Section 2 of R.A. No. 1405, the Law on Secrecy of Bank Deposits, provides for
exceptions when records of deposits may be disclosed. These are under any of
the following instances: (a) upon written permission of the depositor, (b) in
cases of impeachment, (c) upon order of a competent court in the case of
bribery or dereliction of duty of public officials or, (d) when the money
deposited or invested is the subject matter of the litigation, and (e) in cases of
violation of the Anti-Money Laundering Act, the Anti-Money Laundering
Council may inquire into a bank account upon order of any competent court.
The Joint Motion to Approve Agreement was executed by BPI and TIDCORP
only. There was no written consent given by Doña Adela or its representative
that it is waiving the confidentiality of its bank deposits. It is clear therefore
that Doña Adela is not bound by the said provision since it was without the
express consent of Doña Adela who was not a party and signatory to the said
agreement.
AMLA
(Anti-Money Laundering Act)
Subido Pagente Certeza Mendoza and Binay Law
Offices Vs. The Court of Appeals, et al.,
G.R. No. 216914. December 6, 2016
• Taken into account Section 11 of the AMLA, the Court
found nothing arbitrary in the allowance and
authorization to AMLC to undertake an inquiry into
certain bank accounts or deposits. Instead, the Court
found that it provides safeguards before a bank inquiry
order is issued, ensuring adherence to the general state
policy of preserving the absolutely confidential nature of
Philippine bank accounts:
a. The AMLC is required to establish probable cause as basis for its ex-
parte application for bank inquiry order;
b. The CA, independent of the AMLC's demonstration of probable
cause, itself makes a finding of probable cause that the deposits or
investments are related to an unlawful activity under Section 3(i) or
a money laundering offense under Section 4 of the AMLA;
c. A bank inquiry court order ex-parte for related accounts is
preceded by a bank inquiry court order ex-parte for the principal
account which court order ex-parte for related accounts is
separately based on probable cause that such related account is
materially linked to the principal account inquired into; and
d. The authority to inquire into or examine the main or principal
account and the related accounts shall comply with the
requirements of Article III, Sections 2 and 3 of the Constitution.
CASES: (2014-December 2016)
INTELLECTUAL
PROPERTY CODE
ECOLE DE CUISINE MANILLE (CORDON BLEU OF THE PHILIPPINES),
INC.vs. RENAUS COINTREAU & CIE AND LE CORDON BLEU INT'L, B.V
G.R. No. 185830. June 5, 2013 J. Perlas-Bernabe
• Under Section 2 of RA No. 166, in order to register a trademark, one
must be the owner thereof and must have actually used the mark in
commerce in the Philippines for two (2) months prior to the
application for registration. It is clear that actual use in commerce is
the test of ownership. Thus, under R.A. No. 166, one may be an owner
of a mark due to its actual use but may not yet have the right to
register such ownership here due to the owner’s failure to use the
same in the Philippines for two (2) months prior to registration.
• However, under the Paris Convention to which the Philippines is a
signatory, a trade name of a national of a State that is a party to the
Paris Convention, whether or not the trade name forms part of a
trademark, is protected “without the obligation of filing or
registration".
Birkenstock Orthopaedie GMBH and Co. KG vs. Philippine Shoe
Expo Marketing Corporation
G.R. No. 194307, November 20, 2013 J. Perlas-Bernabe
• The registration of trademark, by itself, is not a mode of
acquiring ownership. If the applicant is not the owner of the
trademark, he has no right to apply for its registration.
Registration merely creates a prima facie presumption of
the validity of the registration, of the registrant’s ownership
of the trademark, and of the exclusive right to the use
thereof. Such presumption, just like the presumptive
regularity in the performance of official functions, is
rebuttable and must give way to evidence to the contrary.
REPUBLIC GAS CORPORATION, et al. vs. PETRON CORPORATION,
PILIPINAS SHELL PETROLEUM CORPORATION AND SHELL
INTERNATIONAL PETROLEUM COMPANY, LIMITED
G.R. No. 194062, June 17, 2013 J. Peralta

• Trademark infringement is the unauthorized use in


commerce any reproduction, counterfeit, copy or
colorable imitation of a registered mark. The mere
unauthorized use of a container bearing a registered
trademark in connection with the sale, distribution or
advertising of goods or services which is likely to cause
confusion, mistake or deception among the buyers or
consumers can be considered as trademark
infringement.
• Onthe other hand, unfair competition has been
defined as the passing off (or palming off) or
attempting to pass off upon the public of the
goods or business of one person as the goods or
business of another with the end and probable
effect of deceiving the public.
Century Chinese Medicine Co., et al. vs. People of the
Philippines and Ling Na Nau
G.R. No. 188526; November 11, 2013 J. Peralta

• Where the Search and Seizure Warrants are applied for


in anticipation of criminal actions for violation of the
intellectual property rights under RA 8293, otherwise
known as the Intellectual Property Code, Rule 126 of the
Rules of Criminal Procedure and not the Rules on the
Issuance of the Search and Seizure in Civil Actions for
Infringement of Intellectual Property Rights applies.
TAIWAN KOLIN CORPORATION, LTD. vs. KOLIN ELECTRONICS CO., INC.,
G.R. No. 209843, March 25, 2015, J. Velasco, Jr.

• Intrademark registration, while both competing marks refer to the


word “KOLIN” written in upper case letters and in bold font, but one is
italicized and colored black while the other is white in pantone red
color background and there are differing features between the two,
registration of the said mark could be granted. It is hornbook
doctrine that emphasis should be on the similarity of the products
involved and not on the arbitrary classification or general description
of their properties or characteristics. The mere fact that one person
has adopted and used a trademark on his goods would not, without
more, prevent the adoption and use of the same trademark by others
on unrelated articles of a different kind.
UFC Philippines, Inc. v. Barrio Fiesta Manufacturing
Corporation
G.R. No. 198889, January 20, 2016, Leonardo-De Castro, J:
• The test of dominancy is now explicitly incorporated into law in
Section 155.1 of the Intellectual Property Code which defines
infringement as the "colorable imitation of a registered mark x x
x or a dominant feature thereof.
• Under the dominancy test, if the competing trademark contains
the main or essential or dominant features of another, and
confusion and deception is likely to result, infringement takes
place. Actual confusion is not required. Only likelihood of
confusion on the part of the buying public is necessary so as to
render two marks confusingly similar so as to deny the
registration of the junior mark.
SHANG PROPERTIES REALTY CORPORATION (formerly THE SHANG
GRAND TOWER CORPORATION) and SHANG PROPERTIES, INC.
(formerly EDSA PROPERTIES HOLDINGS, INC.), vs. ST. FRANCIS
DEVELOPMENT CORPORATION
G.R. No. 190706, July 21, 2014, J. Perlas-Bernabe
• Section 168 of Republic Act No. 8293, otherwise known as the
“Intellectual Property Code of the Philippines” (IP Code), provides for
the rules and regulations on unfair competition. Section 168.2 proceeds
to the core of the provision, describing forthwith who may be found
guilty of and subject to an action of unfair competition — that is, “any
person who shall employ deception or any other means contrary to good
faith by which he shall pass off the goods manufactured by him or in
which he deals, or his business, or services for those of the one having
established such goodwill, or who shall commit any acts calculated to
produce said result x x x.” In this case, the Court finds the element of
fraud to be wanting; hence, there can be no unfair competition.
ROBERTO CO vs.
KENG HUAN JERRY YEUNG and EMMA YEUNG
G.R. No. 212705, September 10, 2014, J. Perlas-Bernabe

• Unfaircompetition is defined as the passing off (or


palming off) or attempting to pass off upon the public of
the goods or business of one person as the goods or
business of another with the end and probable effect of
deceiving the public. This takes place where the
defendant gives his goods the general appearance of the
goods of his competitor with the intention of deceiving
the public that the goods are those of his competitor. . .
. . . . Here, it has been established that Co conspired with the Laus
in the sale/distribution of counterfeit Greenstone products to the
public, which were even packaged in bottles identical to that of
the original, thereby giving rise to the presumption of fraudulent
intent. In light of the foregoing definition, it is thus clear that Co,
together with the Laus, committed unfair competition, and
should, consequently, be held liable therefor. Although liable for
unfair competition, the Court deems it apt to clarify that Co was
properly exculpated from the charge of trademark infringement
considering that the registration of the trademark "Greenstone" –
essential as it is in a trademark infringement case – was not
proven to have existed during the time the acts complained of
were committed.
ABS-CBN CORPORATION v. FELIPE GOZON, GILBERTO R.
DUAVIT, JR. MARISSA L. FLORES, JESSICA SOHO, GRACE
DELA PENA-REYES, JOHN OLIVER T. MANALASTAS, JOHN
DOES AND JANE DOES
G.R. No. 195956, March 11, 2015, LEONEN, J.

• News or the event itself is not copyrightable.


However, an event can be captured and presented
in a specific medium. News as expressed in a
video footage is entitled to copyright protection.
GMA NETWORK, INC. vs. CENTRAL CATV, INC.
G.R. No. 176694, July 18, 2014, J. Brion

• The must carry rule mandates that the local television (TV)
broadcast signals of an authorized TV broadcast station, such as
the GMA Network, Inc., should be carried in full by the cable
antenna television (CATV) operator, without alteration or
deletion. In this case, the Central CATV, Inc. was found not to
have violated the must-carry rule when it solicited and showed
advertisements in its cable television (CATV) system. Such
solicitation and showing of advertisements did not constitute an
infringement of the “television and broadcast markets” under
Section 2 of E.O. No. 205.
MICROSOFT CORPORATION v. ROLANDO D. MANANSALA
AND/OR MEL MANANSALA, DOING BUSINESS AS DATAMAN
TRADING COMPANY AND/OR COMIC ALLEY
G.R. No. 166391, October 21, 2015, BERSAMIN, J.

• The mere sale of the illicit copies of the software


programs was enough by itself to show the
existence of probable cause for copyright
infringement.
Sison Olano, et. al. v. Lim Eng Co
G.R. No. 195835, March 14, 2016, Reyes, J:
• Copyright infringement is committed by any person who
shall use original literary or artistic works, or derivative
works, without the copyright owner's consent in such a
manner as to violate the foregoing copy and economic
rights. For a claim of copyright infringement to prevail,
the evidence on record must demonstrate: (1) ownership
of a validly copyrighted material by the complainant;
and (2) infringement of the copyright by the respondent.
• Certificate of Registration Nos. I-2004-13 and I-2004-14 pertain
to class work "I" under Section 172 of R.A. No. 8293 which covers
"illustrations, maps, plans, sketches, charts and three-
dimensional works relative to geography, topography,
architecture or science." As such, LEC's copyright protection
there under covered only the hatch door sketches/drawings and
not the actual hatch door they depict.
• A hatch door, by its nature is an object of utility. It is defined as a
small door, small gate or an opening that resembles a window
equipped with an escape for use in case of fire or emergency. It is
thus by nature, functional and utilitarian serving as egress access
during emergency. It is not primarily an artistic creation but
rather an object of utility designed to have aesthetic appeal. It is
intrinsically a useful article, which, as a whole, is not eligible for
copyright.
EI Du Pont De Nemours v. Dir. Francisco,
G.R. No. 174379, August 31, 2016
• It is the Rules of Court, not the 1962 Revised Rules of Practice, which
governs the Court of Appeals' proceedings in appeals from the decisions of
the Director-General of the Intellectual Property Office regarding the
revival of patent applications. Rule 19 of the Rules of Court provides that a
court has the discretion to determine whether to give due course to an
intervention. If an administrative agency's procedural rules expressly
prohibit an intervention by third parties, the prohibition is limited only to
the proceedings before the administrative agency. Once the matter is
brought before the Court of Appeals in a petition for review, any prior
prohibition on intervention does not apply since the only question to be
determined is whether the intervenor has established a right to intervene
under the Rules of Court. In this case, respondent Therapharma, Inc. filed its
Motion for Leave to Intervene before the Court of Appeals, not before the
Intellectual Property Office and therefore, the intervention of
Therapharma, Inc.is not prohibited.
• Rule 930 of the Rules and Regulations on Inventions, and Rule 929 of
the Revised Implementing Rules and Regulations for Patents, Utility
Models and Industrial Design provide for a period of four (4) months
from the date of abandonment of a patent application to revive the
same. Section 133.4 of the Intellectual Property Code even provides
for a shorter period of three (3) months within which to file for revival.
In this case, petition for revival of the patent application should be
denied. The rules do not provide any exception that could extend this
four (4)-month period to 13 years.

• The right of priority given to a patent applicant is only relevant when


there are two or more conflicting patent applications on the same
invention. Because a right of priority does not automatically grant
letters patent to an applicant, possession of a right of priority does
not confer any property rights on the applicant in the absence of an
actual patent.
CATERPILLAR, INC v. SAMSON,
G.R. No. 205972, November 09, 2016
• An action for the cancellation of trademark is a remedy available to a
person who believes that he is or will be damaged by the registration of a
mark. On the other hand, the criminal actions for unfair competition
involved the determination of whether or not Samson had given his goods
the general appearance of the goods of Caterpillar, with the intent to
deceive the public or defraud Caterpillar as his competitor. In the suit for
the cancellation of trademark, the issue of lawful registration should
necessarily be determined, but registration was not a consideration
necessary in unfair competition. Indeed, unfair competition is committed if
the effect of the act is "to pass off to the public the goods of one man as the
goods of another; it is independent of registration. As fittingly put in R.F. &
Alexander & Co. v. Ang,"one may be declared unfair competitor even if his
competing trade-mark is registered."
FINANCIAL REHABILITATION AND
INSOLVENCY ACT OF 2010
(R.A. NO.10142)
1. Debt reliefs or remedies
available to a juridical
insolvent debtor under
Financial Rehabilitation
and Insolvency Act (FRIA)
I. Rehabilitation
a. Court supervised rehabilitation
i. Voluntary
ii. Involuntary
b. Pre-negotiated rehabilitation
c. Out of court or informal restructuring agreement or
Rehabilitation Plan

II. Petition for liquidation


i. Voluntary
ii. Involuntary
2. Reliefs or remedies available to
individual debtor

Suspension of payments
Voluntary liquidation
Involuntary Liquidation
3. What do you mean by insolvent
debtor?
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
Previous ruling ( New Frontier vs Equitable Bank case (
2007), that an insolvent debtor can not file petition for
rehabilitation no longer holds.
4. What is the objective of rehabilitation?
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. Thus, the basic issues in rehabilitation
proceedings concern the viability and desirability of continuing the
business operations of the distressed corporation, all with a view of
effectively restoring it to a state of solvency or to its former healthy
financial condition through the adoption of a rehabilitation plan.
Philippine Asset Growth Two, Inc. and Planters Development Bank vs.
Fastech Synergy Philippines Inc., et al. G.R. No. 206528, 28 June 2016
4. What is the objective of
rehabilitation

Given the various stakeholders of the insolvent


debtor- shareholders, creditors, the state-, it is better
to rehabilitate the debtor than to carry out its
liquidation. Is the present value recovery better than if
the debtor is to go under liquidation within 120 days
from filing of the petition?
In the recent case of Viva Shipping Lines,
Inc. v. Keppel Philippines Mining, Inc.,the
Court took note of the characteristics of an
economically feasible rehabilitation plan.
a.The debtor has assets that can generate more cash
if used in its daily operations than if sold.
b.Liquidity issues can be addressed by a practicable
business plan that will generate enough cash to
sustain daily operations.
c.The debtor has a definite source of financing for the
proper and full implementation of a Rehabilitation
Plan that is anchored on realistic assumptions and
goals.
In addition to the tests of economic feasibility, the Financial and
Rehabilitation and Insolvency Act of 2010 emphasizes on rehabilitation
that provides for better present value recovery for its creditors. Present
value recovery acknowledges that, in order to pave way for
rehabilitation, the creditor will not be paid by the debtor when the credit
falls due. The court may order a suspension of payments to set a
rehabilitation plan in motion; in the meantime, the creditor remains
unpaid. By the time the creditor is paid, the financial and economic
conditions will have been changed. Money paid in the past has a
different value in the future. It is unfair if the creditor merely receives
the face value of the debt. Present value of the credit takes into account
the interest that the amount of money would have earned if the creditor
were paid on time.
Trial courts must ensure that the projected cash flow
from a business' rehabilitation plan allows for the
closest present value recovery for its creditors. If the
projected cash flow is realistic and allows the
corporation to meet all its obligations, then courts
should favor rehabilitation over liquidation. However, if
the projected cash flow is unrealistic, then courts should
consider converting the proceedings into that for
liquidation to protect the creditors.
5. How is this objective attained?
During the pendency of the rehabilitation, enforcement of claims
against the debtor are generally suspended- to give time to the
debtor and the rehabilitation receiver to rehabilitate the company
undistracted by court suits.
Likewise, the rehabilitation plan is binding on the debtor and all
creditors affected by the proceedings even to those who did not
take part or opposed the rehabilitation plan under the cram down
effect of the plan.
National and local taxes are waived until approval of the
rehabilitation plan or its termination.
6. What is the objective of liquidation of
juridical debtors?
To resolve and adjust competing claims and
property rights of the creditors and the debtor,
maximize asset recovery of the debtor and
equitably distribute the debtor’s properties to
the creditors based on the rules on concurrence
and preference of credit.
7.
WHAT IS THE Unlike in liquidation,
the individual debtor
OBJECTIVE OF does not ask for
SUSPENSION discharge. He only
OF PAYMENTS wants deferment of
FOR payments to give him
INDIVIDUAL time to be back on his
feet.
DEBTOR?
8.
WHAT IS THE
OBJECTIVE OF The objective is to
VOLUNTARY be discharged from
LIQUIDATION OF his obligations and
to start afresh.
AN INDIVIDUAL
DEBTOR?
9. How do we distinguish voluntary from
involuntary liquidation of individual debtors ?
Voluntary liquidation is filed by the debtor
whose assets are less than liabilities. Involuntary
liquidation is filed by three or more creditors
whose aggregate claim is at least 500,000 if the
debtor commits an act of insolvency ( basically
fraudulent act to defeat the rights of
creditor/creditors.
10. Who can file petition for
rehabilitation?
sole proprietorship
Partnership when the filing is approved by at least a majority of
the partners
Corporation when approved by at least majority vote of the
board of directors or trustees and authorized by the vote of the
stockholders representing at least two-thirds (2/3) of the
outstanding capital stock, or in case of nonstock corporation, by
the vote of at least two-thirds (2/3) of the members, in a
stockholder's or member's meeting duly called for the purpose.
11. What is the procedure for debtor initiated
rehabilitation?
The procedure is as follows:
1. File a petition for rehabilitation in the RTC of the city where the debtor
has principal office. It shall be verified to establish the insolvency of the
debtor and the viability of its rehabilitation. It shall include, among
others, a rehabilitation plan and names of at least three nominees to the
position of rehabilitation receiver (who will implement the rehabilitation
plan).
2. If the court finds the petition to be sufficient in form and substance, it
shall issue within five working days a commencement order. Otherwise,
the court, at its discretion, give petitioner time to amend the petition to
make it sufficient in form and substance
3. The rehabilitation proceedings shall commence upon issuance of the
commencement order. The commencement order, among others, appoint
the rehabilitation receiver and set the case for initial hearing. It shall also
include a stay order which shall suspend all actions or proceedings for the
enforcement of claims against the debtor, as well as actions to enforce any
judgment or attachment or provisional remedy against the debtor; prohibits
disposition or encumbrance of property except in the ordinary course of
business and prohibit debtor from making any payment except when
authorized by the rules. The stay order does not include, among others,
cases on appeal with the sc, cases falling with a specialized court or quasi-
judicial agency, enforcement of claims against surety and other persons
solidarily liable with the debtor and third party or accommodation
mortgagors as well as issuers of letter of credit, unless the property subject
of third party mortgage is necessary for the rehabilitation of the debtor as
determined by the court; criminal action against the debtor.
4. At the hearing, court will direct creditors to give their
comments to the petition and rehab plan and the rehab
receiver to submit report to the court on whether debtor can be
rehabilitated.
5. Receiver submits report to the court on whether debtor can be
rehabilitated.
6. Within ten days from submission of the report, the court may
give due course to the petition or convert the proceedings into
one for liquidation ( if debtor is insolvent and no substantial
likelihood for rehabilitation.
7. If the petition is given due course, the court shall direct receiver
to review, revise and/or recommend action on the rehab plan.
8. Receiver consults with debtor and creditors.
9. Receiver submits rehab plan to the court.
10.Court directs creditors to give comments to the rehab plan.
11. Court approves rehab plan upon recommendation of receiver
and even over the objection of creditors if objection is
manifestly unreasonable.
12.The court has one year from filing of petition to approve rehab
plan.
13. Proceedings terminated by order of the court declaring
successful implementation of the rehab plan or a failure of
rehab.
 The Blue Star Corporation filed with the RTC a petition
for rehabilitation on the ground that it foresaw the
impossibility of paying its obligations as they fall due.
Finding the petition sufficient in form and substance,
the court issued an Order appointing a rehabilitation
receiver and staying the enforcement of all claims
against the corporation.

What is the rationale for the Stay Order?


 Answer: The stay order is a recognition that all assets of a corporation
under rehabilitation are held in trust for the equal benefit of all creditors
under the doctrine of “equality is equity”. As all the creditors ought to
stand on equal footing, not any one of them should be paid ahead of
others. Furthermore, the stay order will enable the management
committee or the rehabilitation receiver to effectively exercise its or his
powers free from judicial or extrajudicial interference that might unduly
hinder or prevent the “rescue” of the distressed company, rather than to
waste its/his time, effort and resources in defending claims against the
corporation. (BAR 2006)

NB The stay order is now referred to under FRIA as commencement order.


The commencement order includes a stay order
 PA Assurance (PA) was incorporated in 1980 to engage
in the sale of pre-need educational plans. It sold open-
ended educational plans which guaranteed the
payment of tuition and other fees to planholders
irrespective of the cost at the time of availment. It also
engaged in the sale of fixed value plans which
guaranteed the payment of a pre-determined amount
to planholders. In 1982, PA was among the country’s
top corporations. However, it subsequently suffered
financial difficulties.
 On September 8, 2005, PA filed a Petition for Corporate
Rehabilitation before the RTC of Makati City. On
October 17, 2005, 10 plan holders filed an Opposition
and Motion to Exclude Planholders from Stay Order on
the ground that planholders are not creditors as they
(planholders) have a trust relationship with PA.

Are the planholders correct?


 Answer: No. The planholders is not correct. On November 21,
2000, the Court approved the Interim Rules of Procedure on
Corporate Rehabilitation of 2000 (Interim Rules), which took
effect on December 15, 2000. The Interim Rules apply to
petitions for rehabilitation filed by corporations, partnerships,
and associations pursuant to PD 902-A, as amended. Under
the Interim Rules, “claim” shall include “all claims or demands
of whatever nature or character against the debtor or its
property, whether for money or otherwise.” “Creditor” shall
mean “any holder of a claim.” Hence, the claim of the
planholders from PA is included in the definition of “claims”
under the Interim Rules. (BAR 2014)
Important points
a. Stay order covers claims of pecuniary
nature

b. It does not cover surety, issuers of l/c and


third party mortgagors except if property
of latter needed for rehab of the debtor
IMPORTANT POINTS
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. "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.

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.
IMPORTANT POINTS
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." 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. 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. SITUS DEV. CORPORATION ET AL., VS. ASIATRUST BANK
ET AL., G.R. NO. 180036, 16 JANUARY 2013, C.J. SERENO
The Court, however, finds no legal basis to retroactively apply
the 2008 Rules. Rule 9, Section 2 of the 2008 Rules allows the
retroactive application of the 2008 Rules to pending
rehabilitation proceedings only when these have not yet
undergone the initial hearing stage at the time of the effectivity
of the 2008 Rules. In the present case, the rehabilitation court
conducted the initial hearing on January 22, 2007, and approved
the rehabilitation plan on April 15, 2008 - long before the
effectivity of the 2008 Rules on January 16, 2009. Clearly, the
2008 Rules cannot be retroactively applied to the rehabilitation
petition filed by the petitioners. The petitioners cannot jointly
file the petition for rehabilitation under the Interim Rules.
The rules in effect at the time the rehabilitation petition was
filed were the Interim Rules. The Interim Rules took effect
on December 15, 2000, and did not allow the joint or
consolidated filing of rehabilitation petitions. MERVIC REALTY,
INC. AND VICCY REALTY, INC., Petitioners, v. CHINA BANKING
CORPORATION, Respondent.
G.R. No. 193748, February 03, 2016,
c. The court not bound by the
report of the receiver
The CA' s reliance on the expertise of the court-appointed Rehabilitation Receiver,
who opined that respondents' rehabilitation is viable, in order to justify its finding that the
financial statements submitted were reliable, overlooks the fact that the determination of
the validity and the approval of the rehabilitation plan is not the responsibility of the
rehabilitation receiver, but remains the function of the court. The rehabilitation receiver's
duty prior to the court's approval of the plan is to study the best way to rehabilitate the
debtor, and to ensure that the value of the debtor's properties is reasonably maintained; and
after approval, to implement the rehabilitation plan.103 Notwithstanding the credentials of
the court-appointed rehabilitation receiver, the duty to determine the feasibility of the
rehabilitation of the debtor rests with the court. While the court may consider the receiver's
report favorably recommending the debtor's rehabilitation, it is not bound thereby if, in its
judgment, the debtor's rehabilitation is not feasible. PHILIPPINE ASSET GROWTH TWO,
INC. AND PLANTERS DEVELOPMENT BANK VS. FASTECH SYNERGY PHILIPPINES
INC., ET AL. G.R. NO. 206528, 28 JUNE 2016, J. PERLAS-BERNABE
d. The court may terminate rehab if there is
no material financial commitment of the
debtor to make it work
Rule 43 of the Rules of Court prescribes the procedure to assail the final orders and
decisions in corporate rehabilitation cases filed under the Interim Rules of Procedure
on Corporate Rehabilitation. Liberality in the application of the rules is not an end in
itself. It must be pleaded with factual basis and must be allowed for equitable ends.
There must be no indication that the violation of the rule is due to negligence or
design. Liberality is an extreme exception, justifiable only when equity exists.

The Interim Rules of Procedure on Corporate Rehabilitation covers


petitions for rehabilitation filed before the Regional Trial Court. Thus,
Rule 2, Section 2 of the Interim Rules of Procedure on Corporate
Rehabilitation, which refers to liberal construction, is limited to the
Regional Trial Court. The liberality was given "to assist the parties in
obtaining a just, expeditious, and inexpensive disposition of the case."
The Regional Trial Court correctly dismissed petitioner's
rehabilitation plan. It found that petitioner's assets are non-
performing. Petitioner admitted this in its Amended Petition
when it stated that its vessels were no longer
serviceable. In Wonder Book Corporation v. Philippine Bank of
Communications, a rehabilitation plan is infeasible if the assets
are nearly fully or fully depreciated. This reduces the probability
that rehabilitation may restore and reinstate petitioner to its
former position of successful operation and solvency.
The plan of selling properties of petitioner's sister company to
generate cash flow cannot be a basis for the approval of the
rehabilitation plan. As pointed out by the Regional Trial Court, this
plan requires conformity from the sister company. Even if the two
companies have the same directorship and ownership, they are
still two separate juridical entities. VIVA SHIPPING LINES,
INC., Petitioner, v. KEPPEL PHILIPPINES MINING, INC.,
METROPOLITAN BANK & TRUST COMPANY, PILIPINAS SHELL
PETROLEUM CORPORATION, CITY OF BATANGAS, CITY OF LUCENA,
PROVINCE OF QUEZON, ALEJANDRO OLIT, NIDA MONTILLA, PIO
HERNANDEZ, EUGENIO BACULO, AND HARLAN
BACALTOS, Respondents. G.R. No. 177382, February 17, 2016,
LEONEN, J.
Important points

e. Equality is equity principle


f. Mortgagee and pledgee can not foreclose
g. Commencement order retroacts to date of petition
h. Affects even objecting creditors
Among other rules that foster the foregoing policies, Section 23, Rule 4 of the
Interim Rules of Procedure on Corporate Rehabilitation (Interim Rules) states that a
rehabilitation plan may be approved even over the opposition of the creditors
holding a majority of the corporation’s total liabilities if there is a showing that
rehabilitation is feasible and the opposition of the creditors is manifestly
unreasonable. Also known as the "cram-down" clause, this provision, which is
currently incorporated in the FRIA, 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
Sarabia’s rehabilitation. BANK OF THE PHILIPPINE ISLANDS V. SARABIA MANOR
HOTEL CORPORATION, G.R. NO. 175844, 29 JULY 2013, J. PERLAS-BERNABE
 Debtor Corporation and its principal stockholders filed
with the SEC a petition for rehabilitation and declaration of
a state of suspension of payments under P.D. 902-A. The
objective was for SEC to take control of the corporation
and all its assets and liabilities, earnings and operations
and rehabilitating the company for the benefit of investors
and creditors.
 Generally, the unsecured creditors had manifested
willingness to cooperate with Debtor Corporation. The
secured creditors, however, expressed serious objections
and reservations.
 First Bank had already initiated judicial foreclosure
proceedings on the mortgage constituted on the factory of
Debtor Corporation.
 Second Bank had already initiated foreclosure
proceedings on a third-party mortgage constituted on
certain assets of the principal stockholders.
 Third Bank had already filed a suit against the principal
stockholders who had held themselves liable jointly and
severally for the loans of Debtor Corporation with said
Bank.
 After hearing, the SEC a. Discuss the validity of the SEC order of
suspension?
directed the b. Discuss the effects of the SEC order of
appointment of a suspension on the judicial foreclosure
proceedings initiated by First Bank.
rehabilitation receiver c. Would the order of suspension have any
and ordered the legal effect on the foreclosure proceedings
initiated by Second Bank? Explain.
suspension of all
d. Would the order of suspension have any
actions and claims effect on the suit filed by Third Bank?
against the debtor Explain.
e. What are the legal consequences of a
corporation as well as rehabilitation receivership?
against the principal f. What measures may the receiver take to
stockholders. preserve the assets of Debtor Corporation?
a) Discuss the validity of the SEC order of
suspension?
Answer: The SEC order of suspension of payment is valid with
respect to the debtor corporation, but not with respect to the
principal stockholder. The SEC has jurisdiction to declare
suspension of payments with respect to corporations,
partnership or associations, but not with respect to individuals.
NB FRIA includes filing of a group of debtors which covers
corporations financially related to one another' partnerships that
are owned more than 50% by the same person and single
proprietorships that are owned by the same person.
b) Discuss the effects of the SEC order of suspension on the
judicial foreclosure proceedings initiated by First Bank.

Answer: The SEC order of suspension of payment


suspended the judicial proceedings initiated by First
Bank. According to the Supreme Court in a line of cases,
the suspension order applies to secured creditors and to
the action to enforce the security against the corporation
regardless of the stage thereof.
NB same answer except that for the jurisdiction of the
SEC which has been transferred to the RTC
c) Would the order of suspension have any legal effect on the
foreclosure proceedings initiated by Second Bank? Explain.

• Answer: The order of suspension of payments suspended the


foreclosure proceedings initiated by the Second Bank. While the
foreclosure is against the property of a third party, it is in reality
an action to collect the principal obligation owed by the
corporation. During the time that the payment of the principal
obligation is suspended, the debtor corporation is considered to
be not in default and, therefore, even the right to enforce the
security, whether owned by the debtor-corporation or of a third
party, has not yet arisen.
NB Under Section 18 of FRIA, the stay order shall not
apply to the enforcement of claims against sure ties and
other persons solidarily liable with the debtor, and third
party or accommodation mortgagors as well as issuers
of letter of credit, unless the property subject of the
third party or accommodation mortgage is necessary
for the rehabilitation of the debtor as determined by the
court upon the recommendation of the rehabilitation
receiver.
d) Would the order of suspension have any effect on the suit
filed by Third Bank? Explain.

Answer: For the same reason as in (c), the


order of suspension of payments suspended
the suit filed by Third Bank against the
principal stockholders.
e) What are the legal consequences of a rehabilitation
receivership?

Answer: Under PD 902-A, the appointment of a


rehabilitation receiver will suspend all actions for claims
against the corporation and the corporation will be
placed under rehabilitation in accordance with a
rehabilitation plan approved by the Commission.
NB The FRIA repealed PD 902-A insofar as it is now the
RTC not the SEC that has authority to appoint
rehabilitation receiver
f) What measures may the receiver take to preserve the
assets of Debtor Corporation?

• Answer: To preserve the assets of the Debtor


Corporation, the receiver may take custody of, and
control over, all the existing assets and property of the
corporation; evaluate existing assets and liabilities,
earnings and operations of the corporation; and
determine the best way to salvage and protect the
interest of the investors and creditors. (BAR 1999)
12. When may creditor/s commence
involuntary Proceedings?
Any creditor or group of creditors with a claim of, or the aggregate of whose
claims is, at least One Million Pesos (Php1,000,000.00) or at least twenty-
five percent (25%) of the subscribed capital stock or partners' contributions,
whichever is higher, may initiate involuntary proceedings against the debtor
by filing a petition for rehabilitation with the court if:
(a) there is no genuine issue of fact on law on the claim/s of the petitioner/s,
and that the due and demandable payments thereon have not been made for
at least sixty (60) days or that the debtor has failed generally to meet its
liabilities as they fall due; or (b) a creditor, other than the petitioner/s, has
initiated foreclosure proceedings against the debtor that will prevent the
debtor from paying its debts as they become due or will render it insolvent.
13. What do you understand by pre-
negotiated rehabilitation plan?
An insolvent debtor, by itself or jointly with any of its creditors, may
file a verified petition with the court for the approval of a pre-
negotiated Rehabilitation Plan which has been endorsed or approved
by creditors holding at least two-thirds (2/3) of the total liabilities of the
debtor, including secured creditors holding more than fifty percent
(50%) of the total secured claims of the debtor and unsecured creditors
holding more than fifty percent (50%) of the total unsecured claims of
the debtor. The petition shall include the pre-negotiated Rehabilitation
Plan, including the names of at least three (3) qualified nominees for
rehabilitation receiver.
EXAMPLE. 180 million liabilities to five creditors – a, b,
c, d and e. The obligations due to a, b, and c amount to
120 million but all of them are secured. The obligations
due to d and e amounting to 80 million are unsecured.
The plan has to be approved by the creditors holding at
least 120m liabilities. Of the secured creditors who gave
the approval, they shoud hold at least 60 million and one
peso and of the unsecured creditors who gave the
approval, they should hold at least 40 million and one
peso.
14. What are the requirements for an Out of Court or
Informal restructuring agreement or rehab plan ?

(a) The debtor must agree to the out-of-court or informal


restructuring/workout agreement or Rehabilitation Plan;
(b) It must be approved by creditors representing at least sixty-seven
(67%) of the secured obligations of the debtor;
(c) It must be approved by creditors representing at least seventy-five
percent (75%) of the unsecured obligations of the debtor; and
(d) It must be approved by creditors holding at least eighty-five percent
(85%) of the total liabilities, secured and unsecured, of the debtor.
It means that among the
secured and unsecured
creditors and total number of
creditors, there is a threshold
percentage of liabilities. The
approval is based of amount
of liabilities and not based on
number of creditors
15. When may an insolvent juridical debtor file a
petition for voluntary liquidation ?

An insolvent debtor may apply for liquidation by filing a petition for
liquidation with the court. The petition shall be verified, shall establish
the insolvency of the debtor and shall contain (a) a schedule of the
debtor's debts and liabilities including a list of creditors with their
addresses, amounts of claims and collaterals, or securities, if any; (b) an
inventory of all its assets including receivables and claims against third
parties; and (c) the names of at least three (3) nominees to the position
of liquidator.
If the petitionis sufficient in form and substance, the court shall issue a
Liquidation Order.
 Act No. 1956, more popularly known as The
Insolvency Law, deals with XXX voluntary
insolvency and involuntary insolvency.

Briefly discuss the said subjects and outline the


procedure that will have to be undertaken in
connection therewith.
Answer:

1. Requisites for Voluntary Insolvency—Voluntary


insolvency shall be instituted under the following
requisites:

NB FOR JURIDICAL DEBTORS –VOLUNTARY


INSOLVENCY IS NOW REFERRED TO AS VOLUNTARY
LIQUIDATION
A) PETITION: TO BE FILED BY AN INSOLVENT DEBTOR,
1) a.1) Owing debts exceeding in the amount the sum of P1,000, and

NB. If the petition will be filed by a juridical debtor, no threshold


amount of debts is required.
If the petition will be filed by three or more creditors of the juridical
debtor, the aggregate of the claim should be at least 1 million or 25%
of the subscribed capital stock or partner’s contribution whichever is
higher

If the petition will be filed by an individual insolvent debtor or three


creditors of such debtor by way of involuntary liquidation, the
aggregate claims should be at least P 500,000
 His place of residence
 The period of his residence therein
immediately prior to filing said petition
a.2)
 His inability to pay, all his debts in full
Setting
 His willingness to surrender all his
forth in property, estate and effects not exempt
his from execution for the benefit of his
petition: creditors, and
 An application to be adjudged an
insolvent
a.3) To be verified by the petitioner.
B) Documents to accompany the petition:
• Verified schedule ( OF ASSETS AND LIABILITIES
INCLUDING LIST OF CREDIOTRS WITRH
ADDRESSES AND AMOUNTS OF CLAIMS AND
COLLATERALS OR SECURITIES, IF ANY)
• Verified inventory ( OF ALL ITS ASSETS
INCLUDING RECEIVABLES AND CLAIMS AGAINST
THIRD PARTIES
• ( Names of at least three nominees to the position
of liquidator )
C) Venue:

RTC of the province or city in which the debtor has


resided for 6 months next preceding the filing of such
petition. (BAR 1985) .

NB FOR JURIDICAL DEBTOR, VENUE IS THE CITY


WHERE PRINCIPAL OFFICE OF THE
CORPO/PARTNERSHIP LOCATED
Is the issuance of Answer:
an order, declaring Assuming that the
a petitioner in a petition was in due
voluntary form and substance and
insolvency that the assets of the
proceeding petitioner are less than
insolvent, his liabilities, the court
mandatory upon must adjudicate the
the court? insolvency. (BAR 1991)
16. Who may file petition for involuntary
liquidation?

 Three (3) or more creditors the aggregate of whose claims is at least


either One million pesos (Php1,000,000,00) or at least twenty-five
percent (25%0 of the subscribed capital stock or partner's
contributions of the debtor, whichever is higher, may apply for and
seek the liquidation of an insolvent debtor by filing a petition for
liquidation of the debtor with the court if (a) there is no genuine issue
of fact or law on the claims/s of the petitioner/s, and that the due and
demandable payments thereon have not been made for at least one
hundred eighty (180) days or that the debtor has failed generally to
meet its liabilities as they fall due; and (b) there is no substantial
likelihood that the debtor may be rehabilitated.
16. Who may file petition for involuntary
liquidation?

If the petition is sufficient in form and substance, the court shall issue
an Order: (1) directing the publication of the petition or motion in a
newspaper of general circulation once a week for two (2) consecutive
weeks; and (2) directing the debtor and all creditors who are not the
petitioners to file their comment on the petition or motion within
fifteen (15) days from the date of last publication.
If,after considering the comments filed, the court determines that
the petition or motion is meritorious, it shall issue the Liquidation
Order.
Act No. 1956, more popularly known as The
Insolvency Law, deals with XXX involuntary
insolvency.

Briefly discuss the said subjects and outline


the procedure that will have to be undertaken
in connection therewith.
Answer:
2) Requisites for Involuntary Insolvency—
Involuntary insolvency shall be instituted
under the following requisites:
A) PETITION: TO BE FILED,
1) By 3 or more creditors, residents of the Philippines, and none of them has become a
creditor by assignment within 30 days prior to the filing of the petition,

NB THE REQUIRMENT OF RESIDENCY ELIMINATED AND SO WITH THE


CREDITOR WHO BECAME SUCH BY ASSIGNMENT

1) Said creditors with credits accrued in the Philippines and in the aggregate amount not
less than
P1,000, and NB NOW AT LEAST ONE MILLION OR 25% OF SUBSCRIBED CAPITAL
STOCK
1) Setting forth in the petition one or more acts of insolvency mentioned in Section 20 of
the
Insolvency Law; and NB THIS IS ONLY IF DEBTOR IS A NATURAL PERSON
1) To be verified by at least 3 of the petitioning creditors.
A) PETITION: TO BE FILED,
B) DOCUMENT TO ACCOMPANY THE PETITION: A BOND,
APPROVED BY THE COURT, WITH AT LEAST TWO (2)
SURETIES, IN SUCH PENAL SUM AS THE COURT SHALL
DIRECT.
C) VENUE: RTC OF THE PROVINCE OR CITY IN WHICH THE
DEBTOR RESIDES OR HAS PRINCIPAL PLACE OF
BUSINESS (NO NEED OF 6 MONTHS RESIDENCE). (BAR
1985)
Distinguish between voluntary insolvency and
involuntary insolvency.

Answer:
In voluntary insolvency, it is the debtor himself who
files the petition for insolvency, while in involuntary
insolvency, at least 3 creditors are the ones who file
the petition for insolvency against the insolvent
debtor. (BAR 1995)
Add: In voluntary liquidation by juridical debtor or voluntary
insolvency by a natural person, the filing of the petition is by
itself the act of insolvency whereas in involuntary insolvency
filed by creditors against an insolvent natural person debtor,
the latter must have committed acts of insolvency.

The amount of debt and number of creditors is not material in


voluntary insolvency whereas in involuntary liquidation, there
is a minimum amount of debt and number of creditors
required for the filing of the petition.
 In involuntary liquidation against a juridical debtor, the
petition must show that there is no genuine issue of
fact or law on the claims of the petitioners and that the
due and demandable payments thereon have not been
made for at least 180 days or that the debtor has
generally failed to meet its liabilities as they fall due:
and there is no substantial likelihood that the debtor
may be rehabilitated
a. Can a distressed corporation file a
petition for corporate rehabilitation
after the dismissal of its earlier petition
for insolvency? Why?
Answer:
Yes, the dismissal of a petition for insolvency
does not preclude the distressed corporation
from filing a petition for corporate
rehabilitation. The dismissal of the petition for
insolvency only means that the corporation may
still be restored to solvency.

NB same
b. Can the corporation file a petition for
rehabilitation first, and after it is
dismissed file a petition for insolvency?
Why?
Answer:
Yes, the dismissal of a petition for rehabilitation
means that the corporation can no longer be restored
to solvency. Hence, it can file a petition for
insolvency.

NOT NECESSARY BECAUSE UNDER FRIA THE PETITION FOR


REHABILITATION CAN BE CONVERTED TO A LIQUIDATION
PROCEEDINGS IF THE COURT FINDS THAT THE DEBTOR CAN
NOT BE REHABILITATED
c. Explain the key phrase “equality is
equity” in corporate rehabilitation
proceedings.
Answer:
All assets of a corporation under rehabilitation receivership
are held in trust for the equal benefit of all creditors,
precluding one from obtaining an advantage or preference
over another by the expediency of attachment, execution
or otherwise. Once the corporation is taken over by a
receiver, all the creditors stand on equal footing and no one
may be paid ahead of the others. This is precisely the
reason for suspending all pending claims against the
corporation under receivership. This is called the “pari
passu principle”. (BAR 2008)
17. When may an individual debtor file a petition for
Suspension of Payments?

 An individual debtor who, possessing sufficient property to


cover all his debts but foreseeing the impossibility of meeting
them when they respectively fall due, may file a verified
petition that he be declared in the state of suspension of
payments by the court of the province or city in which he has
resides for six (6) months prior to the filing of his petition. He
shall attach to his petition, as a minimum: (a) a schedule of
debts and liabilities; (b) an inventory of assess; and (c) a
proposed agreement with his creditors.
17. When may an individual debtor file a petition for
Suspension of Payments?
If the court finds the petition sufficient in form and substance, it shall, within five (5)
working days from the filing of the petition, issue an Order, among others, calling a
meeting of all the creditors named in the schedule of debts and liabilities; directing
such creditors to prepare and present written evidence of their claims before the
scheduled creditors' meeting and forbidding the individual debtor from selling,
transferring, encumbering or disposing in any manner of his property, except those
used in the ordinary operations of commerce or of industry and prohibiting the
individual debtor from making any payment outside of the necessary or legitimate
expenses of his business or industry, so long as the proceedings relative to the
suspension of payments are pending;
The suspension order shall lapse when three (3) months shall have passed without the
proposed agreement being accepted by the creditors or as soon as such agreement is
denied.
One day jerry haw, doing business under the name
Starlight Enterprises, a sole proprietorship, finds
himself short on cash and unable to pay his debts
as they fall due although he has sufficient property
to cover such debts. He asks you, as his retained
counsel, for advice on the following queries:
a.) Should he file a petition with the
SEC to be declared in a state of
suspension of payments in view of
the said financial condition he
faces? Explain your answer.
Answer:
a.) I would counsel Jerry Haw to file the Petition for Suspension
of Payment with the ordinary courts, rather than the SEC. SEC’s
jurisdiction over such cases is confined only to petitions filed by
corporations and partnerships under its regulatory powers.

NB Jurisdiction of SEC over petition for rehabilitation transferred


to the RTC. Suspension of payments as a remedy is part of the
commencement order in a petition for rehabilitation insofar as
juridical persons are concerned. Natural persons may file petition
for suspension of payments.
b.) Should he sell profit
participation certificates to his 10
brothers and sisters in order to
raise cash for his business?
Explain your answer.
Answer:
Instead of selling profit participation
certificates, I would urge Jerry Haw to
enter into a partnership or to incorporate
in order to raise cash for his business.
(BAR 1990)
a) Distinguish insolvency from suspension of payment.

ANSWER:
In insolvency, the liabilities of the debtor are more than his assets,
while in suspension of payments, assets of the debtor are more
than his liabilities.

In insolvency, the assets of the debtor are to be converted into


cash for distribution among his creditors, while in suspension of
payments, the debtor is only asking for time within which to
convert his frozen assets into liquid cash with which to pay his
obligations when the latter fall due.
b) Horacio opened a coffee shop using money borrowed from
financial institutions. After 3 months, Horacio left for the USA
with the intent of defrauding his creditors. While his liabilities
are P1.2 M, his assets, however are worth P1.5. M. May
Horacio be declared insolvent?

ANSWER:
No. Horacio may not be declared insolvent. His assets worth
P1.5 M are more than his liabilities worth P1.2 M. (BAR 1998)
1. Distinguish between “suspension of payments” and
“insolvency”.
2. Who has jurisdiction over suspension of payments filed by
corporations, partnerships, or association?

b) A debtor who has been adjudged insolvent is given his


discharge by the court after his properties have been applied
to his debts. A year later, with those debts still not fully paid,
he wins in the sweepstakes and comes into a large fortune. His
creditors sue him for the balance.

Would the suit prosper? Reasons.


Answer:
1. Suspension of payment is a legal scheme whereby a debtor, who has sufficient
assets but who may be unable to meet his obligations as when they fall due, may
petition for more time within which to settle such obligations. The debtor’s
proposal, or a modification thereof, can be sustained if it is approved by at least
2/3 of the creditors representing at least 3/5 of the total liabilities of the debtor.
Insolvency, upon the other hand, may be petitioned when the assets of the
debtor are less than, or insufficient to answer for, his total liabilities. Whereas, a
suspension of payment may be initiated only by the debtor, an insolvency
petition may be filed by either by the debtor (voluntary insolvency) or at least
three of his creditors whose aggregate credit is not than PH= 1,000 (involuntary
insolvency). There is no discharge in suspension of payment, but such discharge is
possible in insolvency proceedings. (NB BUT ONLY FOR NATURAL PERSONS )
NB another distinction is that the court order on
petition for suspension of payments for natural
persons does not include secured creditors
whereas in petition for liquidation, foreclosure
proceedings shall not be allowed for a period of
180 days after issuance of the liquidation order.

NB SEE PREVIOUS COMMENTS.


2. In the case of corporations,
partnerships or associations, a
suspension of payment (but not
insolvency) now falls under the exclusive
jurisdiction of the SEC.
B.) The suit will not prosper on debts that are properly discharged in
insolvency. Those that are not discharged, assuming that a discharge
can be obtained, include:

1. Taxes and assessments due the government, national or local;


2. Obligation arising from embezzlement or fraud;
3. Obligations of any person liable to the insolvent debtor for the
same debt;
4. Alimony or claim for support;
5. In general, debts that are not provable against the estate of the
insolvent or not listed in the schedule submitted by the insolvent
debtor. (BAR 1988)
18. Who are not covered by the court order and
proceedings on suspension of payments ?

(a) those creditors having claims for personal labor,


maintenance, expense of last illness and funeral of the wife
or children of the debtor incurred in the sixty (60) days I
immediately prior to the filing of the petition; and
(b) secured creditors
(c) creditors whose claims are not listed in the petition.
19. What are the requisites for the approval of the
petition by the court?

 The presence of creditors holding claims amounting


to at least three-fifths (3/5) of the liabilities shall be
necessary for holding a meeting.
The creditors and individual debtor shall discuss the
propositions in the proposed agreement and put
them to a vote;
TO FORM A MAJORITY, IT IS NECESSARY:

1) that two-thirds (2/3) of the creditors voting unite upon the same
proposition; and
2) that the claims represented by said majority vote amount to at least
three-fifths (3/5) of the total liabilities of the debtor mentioned in the
petition; and

If the decision of the majority of the creditors to approve the proposed


agreement or any amendment thereof made during the creditors' meeting
is uphold by the court, or when no opposition or objection to said decision
has been presented, the court shall order that the agreement be carried
out and all parties bound thereby to comply with its terms.
NB for petition for suspension of payments, the
number of creditors is important.

 The total amount of liabilities owing to 6 creditors, a, b, c , d,


e and f is 25o million. The amount due to each of a, b and c is
150 million. In the creditors meeting, the three agreed to the
petition but not the remaining creditors. The petition can not
be approved by the court because a, b and c while
representing at least 3/5 of total liabilities do not represent at
least 2/3s of number of creditors.
20. When may creditor/s file a petition for
involuntary liquidation against an individual debtor?

 Any creditor or group of creditors with a claim of, or


with claims aggregating at least Five hundred
thousand pesos (Php500, 000.00) may file a verified
petition for liquidation with the court of the province
or city in which the individual debtor resides alleging
that the debtor committed an act of insolvency.
1. May the following be declared insolvent?
Married woman;
(1)

Partnership;
(2)

Insane person
(3)

Explain your answer.


Answer:
Yes, a married woman may be declared insolvent in respect to
(1)

her own debts.


Under the Insolvency Law, a partnership may be declared
(2)

insolvent, either in a voluntary or involuntary insolvency


proceeding.
An insane person can be declared insolvent in involuntary
(3)

proceedings as long as his interests are protected by a duly


appointed guardian. He cannot however file a petition for
voluntary insolvency because he lacks legal capacity to act.
(BAR 1976)
21.
WHAT ARE The following
CONSIDERED shall be
ACTS OF considered acts
INSOLVENCY of insolvency:
UNDER FRIA?
(a) That such person ( debtor) is about to depart or has departed from
the Republic of the Philippines, with intent to defraud his creditors;

(b) That being absent from the Republic of the Philippines, with intent
to defraud his creditors, he remains absent;

(c) That he conceals himself to avoid the service of legal process for
the purpose of hindering or delaying the liquidation or of
defrauding his creditors;

(d) That he conceals, or is removing, any of his property to avoid its


being attached or taken on legal process;
(e) That he has suffered his property to remain under attachment
or legal process for three (3) days for the purpose of hindering
or delaying the liquidation or of defrauding his creditors;

(f) That he has confessed or offered to allow judgment in favor of


any creditor or claimant for the purpose of hindering or
delaying the liquidation or of defrauding any creditors or
claimant;

(g) That he has willfully suffered judgment to be taken against


him by default for the purpose of hindering or delaying the
liquidation or of defrauding his creditors;
(h) That he has suffered or procured his property to be taken on
legal process with intent to give a preference to one or more
of his creditors and thereby hinder or delay the liquidation
or defraud any one of his creditors;

(i) That he has made any assignment, gift, sale, conveyance or


transfer of his estate, property, rights or credits with intent
to hinder or delay the liquidation or defraud his creditors;

(j) That he has, in contemplation of insolvency, made any


payment, gift, grant, sale, conveyance or transfer of his
estate, property, rights or credits;
(k) That being a merchant or tradesman, he has generally
defaulted in the payment of his current obligations for a
period of thirty (30) days;

(l) That for a period of thirty (30) days, he has failed, after
demand, to pay any moneys deposited with him or
received by him in a fiduciary; and

(m) That an execution having been issued against him on final


judgment for money, he shall have been found to be
without sufficient property subject to execution to satisfy
the judgment.
“X”, owner of a general merchandise store,
departed from the Philippines with intent to
defraud her creditors and has remained absent
from the country. While she has liabilities totaling
P100,000, her assets, however, are worth
P120,000.

(a) May “X” be declared an insolvent? Reason.


Answer:
(a) Yes, X may be declared insolvent. Under the Insolvency
Law, although the debtor has more than sufficient
property to pay all his creditors, yet if she would commit
any act of insolvency, she should be declared insolvent.
One of the acts of insolvency out of the 13 enumerated
by the Insolvency Law, is: that being absent from the
Philippines, with intent to defraud his/her creditors,
he/she remains absent. (Sec. 20, Insolvency Law)
22. What does the Liquidation Order
contain?
The Liquidation Order shall:

a. declare the debtor insolvent;


b. order the liquidation of the debtor and, in the case of a juridical
debtor, declare it as dissolved;
c. order the sheriff to take possession and control of all the property of
the debtor, except those that may be exempt from execution;
d. order the publication of the petition or motion in a newspaper of
general circulation once a week for two (2) consecutive weeks;
e. direct payments of any claims and conveyance of any property due the
debtor to the liquidator;
f. prohibit payments by the debtor and the transfer of any property by
the debtor;
g. direct all creditors to file their claims with the liquidator within the
period set by the rules of procedure;
h. authorize the payment of administrative expenses as they become
due;
i. state that the debtor and creditors who are not petitioner/s may
submit the names of other nominees to the position of liquidator;
and
j. set the case for hearing for the election and appointment of the
liquidator, which date shall not be less than thirty (30) days nor more
than forty-five (45) days from the date of the last publication.
23. What are the effects of the Liquidation
Order?
Upon the issuance of the Liquidation Order:

a. the juridical debtor shall be deemed dissolved and its


corporate or juridical existence terminated;
b. legal title to and control of all the assets of the debtor, except
those that may be exempt from execution, shall be deemed
vested in the liquidator or, pending his election or
appointment, with the court;
c. all contracts of the debtor shall be deemed terminated and/or
breached, unless the liquidator, within ninety (90) days from the date
of his assumption of office, declares otherwise and the contracting
party agrees;
d. no separate action for the collection of an unsecured claim shall be
allowed. Such actions already pending will be transferred to the
Liquidator for him to accept and settle or contest. If the liquidator
contests or disputes the claim, the court shall allow, hear and resolve
such contest except when the case is already on appeal. In such a case,
the suit may proceed to judgment, and any final and executor
judgment therein for a claim against the debtor shall be filed and
allowed in court; and
e. no foreclosure proceeding shall be allowed for a period of one hundred
eighty (180) days.
A final decision promulgated by the Court of Appeals affirmed the payment
by M Line, Inc. of the overtime compensation to its 50 employees in the
amount of P150,000.00. The case was remanded by the CFI, Bohol, so that
the Company may present evidence of overtime compensation already paid
by it to said 50 employees. The Bohol court set the case for hearing, but the
same was postponed several times on motions of the Company. Meanwhile,
said Company filed a petition for voluntary insolvency in CFI, Cebu. The
schedule annexed to the petition named only two creditors, X for
P102,000.00 and Y for P80,000.00. its 50 employees, to whom it was already
ordered by a final decision of the Court of Appeals to pay overtime
compensation, were not included in the Schedule. After adjudication of
insolvency and election of assignee in the CFI, Cebu, the said 50 employees
were allowed to intervene. They then moved to dismiss the insolvency
proceedings. Decide with reasons.
Answer:
Yes, the motion of the 50 employees to dismiss the voluntary
insolvency proceedings filed by M Line, Inc., in the CFI in Cebu, shall be
granted. Under the circumstances, the M Line, Inc., acted in gross bad
faith in the filing of the petition for insolvency, in violation of the
purpose for which the Insolvency Law was enacted. The non-inclusion
of its said 50 employees in the schedule completely vitiated the
insolvency proceedings. (See In re: Estate of Mindanao Motor Line, Inc.,
57 SCRA 98) (BAR 1978)

NB under section 123 of FRIA, the liquidator shall prepare a registry


of claim which should be submitted to the court. After a certain
period,
Whom does the assignee in solvency
represent—the debtor, the creditors,
the court, etc? Can said assignee in
insolvency take possession of the
assets of the conjugal partnership?
Answer:
The assignee in insolvency represents the insolvent debtor, the unsecured
creditors, and secured creditors who as allowed to prove their claims and the
court which has control over him. Provision of the Civil Code 2238 states that:
So long as the conjugal partnership or absolute community subsists, its
property shall not be among the assets to be taken possession of by the
assignee for the payment of the insolvent debtor’s obligation, except insofar
as the latter have redounded to the benefit of family. If it is the husband who
is insolvent, the administration of the conjugal partnership or absolute
community may, by order of the court, be transferred to the wife or to a third
person other than the assignee. (BAR 1975)

NB The assignee in insolvency is now referred to under FRIA as the liquidator


1. ON June 16, 1995, Vicente obtained a writ of preliminary
attachment against Carlito. The levy on Carlito’s property
occurred on June 25, 1995. On July 29, 1995, another
creditor filed a petition for involuntary insolvency against
Carlito. The insolvency court gave due course to the
petition. In the meantime, the case filed by Vicente
proceeded, and resulted in a judgment award in favor of
Vicente.

May the judgment obtained by Vicente be enforced


independently of the insolvency proceedings? Explain.
Answer:
The judgment obtained by Vicente can be enforced independently of
the insolvency proceedings. Under Section 32 of the Insolvency Law,
the assignment to the assignee of all the real and personal property,
estate and effects of the debtor made by the clerk of court shall vacate
and set aside any judgment entered in any action commenced within 30
days immediately prior to the commencement of insolvency
proceedings. In this case, however, the action filed by Vicente against
Carlito was commenced by Vicente not later than June 16, 1995 (the
facts on this point are not clear) when Vicente obtained a writ of
preliminary attachment against Carlito or more than 30 days before the
petition for involuntary insolvency was filed against Carlito by his other
creditors. (BAR 1996)
NB THE COMMENCEMENT ORDER HAS THE
EFFECT OF CONSOLIDATING THE RESOLUTION
OF ALL LEGAL PROCEEDINGS BY AND AGAINST
THE DEBTOR TO THE COURT PROVIDED
HOWEVER THAT THE COURT MAY ALLOW THE
CONTINUATION OF CASES ON OTHER COURTS
WHERE THE DEBTOR HAD INITIATED THE SUIT.
“X”, owner of a general merchandise store, departed from the
Philippines with intent to defraud her creditors and has
remained absent from the country. While she has liabilities
totaling P100,000, her assets, however, are worth P120,000.

(a) May “X” be declared an insolvent? Reason.


(b) Assuming that “X” is declared an insolvent but all her assets
consisting of general merchandise and office equipment were
sold only for P60,000 how would you distribute said amount in
the order and proportion established by law among the
following creditors whose claims are indicated hereunder:
(1) Creditor for a loan to the insolvent…………………………P20,000.00
(2) Assignee’s fees and legal expenses……………………….P10,000.00
(3) Creditor by virtue of a final judgment………………………P10,000.00
(4) Land taxes due to city government………………………...P3,000.00
(5) Rental of the store for 6 months before insolvency……….P20,000.00
(6) Amounts due to employees entitled to indemnity
Under the law…………………………………………………P7,000.00
(1) For merchandise sold to insolvent and disposed of before
insolvency…………………………………………P30,000.00
Answer:
(a) Yes, X may be declared insolvent. Under the Insolvency Law, although the
debtor has more than sufficient property to pay all his creditors, yet if she
would commit any act of insolvency, she should be declared insolvent. One
of the acts of insolvency out of the 13 enumerated by the Insolvency Law, is:
that being absent from the Philippines, with intent to defraud his/her
creditors, he/she remains absent. (Sec. 20,
Insolvency Law)

(a) (Note: The question in letter (b) calls for the classification and preference of
creditors which are exclusively governed by the new Civil Code and already
excluded from the coverage of Insolvency Law, for purposes of Bar
Examination.) (BAR 1982)
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. NLRC 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. Manuel D. Yngson Jr., vs. Philippine
National Bank, G.R. No. 171132, 15 August 2012, J.
Villarama Jr.
During liquidation proceedings, a secured
creditor may waive its security or lien,
prove its claim, and share in the
distribution of the assets of the debtor, in
which case it will be admitted as an
unsecured creditor; or maintain its rights
under the security or lien, in which case:
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 . . . the [creditor] will be
admitted . . . as a creditor for the balance. If its value exceeds
the claim . . . 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.
A secured creditor, however, is subject to the
temporary stay of foreclosure proceedings for a
period of 180 days, upon the issuance by the
court of the Liquidation Order. Metropolitan
Bank and Trust Company vs. S.F. Naguiat
Enterprises, G.R. No. 178407, 18 March 2015,
J. Leonen
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.

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. NLRC 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. Manuel D. Yngson Jr.,
vs. Philippine National Bank, G.R. No. 171132, 15 August 2012, J. Villarama Jr.
24.What will guide the liquidator in carrying the
liquidation of the insolvent debtor ?

The Liquidator shall submit to the court a


Liquidation Plan. The Plan shall take into account
the rules on concurrence and preference of credit
unless a preferred creditor voluntarily waives his
preferred right. Once approved, the Plan shall be
carried out to settle the claims against the
individual debtor.
Congratulations in advance for an
outstanding grade in COMMERCIAL LAW.

THANK YOU!
©2017 Dean Nilo T. Divina, All Rights Reserved