DE GUZMAN, Jalena Jesse K.

11780509 CREDIT TRANSACTIONS G04

1. De Barretto v Villanueva | G.R. No. L-14938| January 28, 1961| Ponente: J. Mortgage credits recorded in the Registry of Property. Article 2249 also provides that
Gutierrez David "if there are two or more credits with respect to the same specific real property or real
rights, they shall be satisfied pro-rata after the payment of the taxes and assessment
Facts upon the immovable property or real rights. Application of the said provisions to the
Rosario Cruzado, for herself and as administratix of the intestate estate of her deceased case at bar would mean that Rosario Cruzado as an unpaid vendor of the property in
husband Pedro Cruzado, obtained from the Rehabilitation Finance Corporation an question has the right to share pro-rata with the appellants the proceeds of the
P11,000 loan. To secure payment thereof, she mortgaged a land issued in her name foreclosure sale.
and that of her deceased husband. As she failed to pay certain installments on the loan,
the mortgage was foreclosed and the RFC acquired the property for P11,000. The land Resolution (J. JBL Reyes)
was sold back to her conditionally for the amount of P14,269.03, payable in seven An MR was filed by petitioners, praying that a new decision be entered declaring that
years, in view of her right to repurchase the same. Two years after, Rosario Cruzado, their right as mortgagees remain superior to the unrecorded claim of herein appellee
as guardian of her minor children, was authorized by the court, to sell with the previous for the balance of the purchase price of her rights, title, and interests in the mortgaged
consent of the RFC the land in question together with the improvements thereon for a property. Barretto argues that the vendor's lien, under Articles 2242 and 2243 can only
sum not less than P19,000. She then sold to Pura Villanueva the subject property, become effective in the event of insolvency of the vendee, which has not been proved
subject to the condition that Pura will assume the obligation of Rosario to RFC for the to exist in the instant case. The Court resolved to reconsider their claim and ultimately
amount of P11,000. Having paid in advance the amount of P500, Pura then executed found for the Barrettos The Court explained that, in order to make the pro rata rule
a deed of sale in favor of Rosario. Pura, however, failed to pay the remaining effective under Article 2249, the preferred creditors enumerated in Nos. 2 to 14 of
installments on the unpaid balance of P12,000. A complaint for recovery of the parcel Article 2242 (or such of their, as have credits outstanding) must necessarily be
of land was filed by Rosario. Pura, having likewise failed to pay her indebtedness of convened, and the import of their claims ascertained. There must be first some
P30,000 to Magdalena Barretto, the latter instituted against Pura an action for adjudication on the claims of the preferred creditors. Thus, it becomes evident that
foreclosure of mortgage. Upon the finality of the decision, Magdalena filed a motion one preferred creditor's third-party claim to the proceeds of a foreclosure sale (as in
for the issuance of a writ of execution which was granted by the lower court. Rosario the case at bar) is not the proceeding contemplated by law for the enforcement of
filed her "Vendor's Lien" in the amount of P12,000.00, plus legal interest, over the real preferences under Article 2242, unless the claimant were enforcing a credit for taxes
property subject of the foreclosure suit, the said amount representing the unpaid that enjoy absolute priority. If none of the claims is for taxes, a dispute between two
balance of the purchase price of the said property. The lower court ruled that should creditors will not enable the Court to ascertain the pro-rata dividend corresponding to
the realty in question be sold at public auction in the foreclosure proceedings, the each, because the rights of the other creditors likewise enjoying preference under
Cruzados shall be credited with their pro-rata share in the proceeds thereof. Magdalena Article 2242 cannot be ascertained. In the absence of insolvency proceedings (or other
opposed said decision and argued that the P12,000 cannot constitute a basis for the equivalent general liquidation of the debtor's estate), the conflict between the parties
vendor's lien since the action filed by Rosario was merely to recover the balance of a now before us must be decided pursuant to the well-established principle concerning
promissory note. registered lands; that a purchaser in good faith and for value (as the appellant
concededly is) takes registered property free from liens and encumbrances other than
Issue statutory liens and those recorded in the certificate of title. There being no insolvency
Whether Cruzado can recover the P12,000 as a vendor's lien (YES) or liquidation, the claim of the appellee, as unpaid vendor, did not require the character
and rank of a statutory lien co-equal to the mortgagee's recorded encumbrance, and
Ruling must remain subordinate to the latter.
While, apparently, the action was to recover the remaining obligation of promissor
Pura Villanueva on the note, the fact remains that Rosario P. Cruzado, as guardian of 2. DBP v CA | G.R. No. 126200| August 16, 2001| Ponente: J. Kapunan
her minor children, was an unpaid vendor of the realty in question, and the promissory
note, was, precisely, for the unpaid balance of the price of the property bought by Pura Facts
Villanueva. Article 2242 of the new Civil, Code enumerates the claims, mortgage and Marinduque Mining-Industrial Corporation obtained from PNB various loan
liens that constitute an encumbrance on specific immovable property, and among them accommodations. To secure the loans, Marinduque Mining executed a Deed of REM
are: (2) For the unpaid price of real property sold, upon the immovable sold; and (5) and Chattel Mortgage in favor of PNB. The mortgage covered all of Marinduque

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Mining's real properties, including the improvements thereon. The loans extended by 3. Bernardo Construction v CA | G.R. No. 105827| January 31, 2000| Ponente: J.
PNB amounted to P4 Billion, exclusive of interest and charges. Subsequently, Gonzaga-Reyes
Marinduque Mining executed in favor of PNB and the DBP a second Mortgage Trust
Agreement. In said agreement, Marinduque Mining mortgaged to PNB and DBP all Doctrine
its real properties including the improvements thereon. Apparently, Marinduque Article 2242 only finds application when there is a concurrence of credits, i.e. when
Mining had also obtained loans totaling P2 Billion from DBP, exclusive of interest the same specific property of the debtor is subjected to the claims of several creditors
and charges. Marinduque Mining executed in favor of PNB and DBP an Amendment and the value of such property of the debtor is insufficient to pay in full all the
to Mortgage Trust Agreement by virtue of which Marinduque Mining mortgaged in creditors. In such a situation, the question of preference will arise, that is, there will be
favor of PNB and DBP all other real and personal properties and other real rights a need to determine which of the creditors will be paid ahead of the others. This
subsequently acquired by Marinduque Mining. For failure of Marinduque Mining to statutory lien should then only be enforced in the context of some kind of a proceeding
settle its loan obligations, PNB and DBP instituted extrajudicial foreclosure where the claims of all the preferred creditors may be bindingly adjudicated, such as
proceedings over the mortgaged properties, where they emerged as the highest bidders. insolvency proceedings. The fact that no third-party claims have been filed in the trial
In the meantime, Marinduque Mining purchased and caused to be delivered court will not bar other creditors from subsequently bringing actions and claiming that
construction materials and other merchandise from Remington Industrial Sales they also have preferred liens against the property involved.
Corporation worth P921,755.95. The purchases remained unpaid when Remington
filed a complaint for a sum of money and damages against Marinduque Mining for the Facts
value of the unpaid construction materials. Remington amended its complaint to The municipal government of San Antonio, Nueva Ecija approved the construction of
include PNB and DBP as co-defendants in view of the foreclosure made by the said the San Antonio Public Market, which would be funded by the Economic Support
banks. The RTC rendered a decision in favor of Remington, ordering DBP, PNB and Fund Secretariat, a government agency working with the USAID. Under ESFS' "grant-
Marinduque Mining to pay the former the amount of P921,755.95, representing the loan-equity" financing program, the funding for the market would be composed of a
unpaid construction materials. The CA affirmed the decision of the RTC, holding that (a) grant from ESFS, (b) loan extended by ESFS to the Municipality of San Antonio,
there exists in Remington's favor a "lien" on the unpaid purchases of Marinduque and (c) equity or counterpart funds from the Municipality. Petitioners allege that they
Mining, and as transferee of these purchases, DBP should be held liable for the value entered into a business venture for the purpose of participating in the bidding for the
thereof. public market. J.L. Bernardo Construction, thru petitioner Santiago Sugay, submitted
its bid together with other qualified bidders. After evaluating the bids, the municipal
Issue pre-qualification bids and awards committee, headed by respondent Mayor Salonga,
Whether Remington can enforce its claim against DBP (NO) awarded the contract to petitioners. A Construction Agreement was entered into by the
Municipality of San Antonio, through respondent Salonga, and petitioner J.L.
Ruling Bernardo Construction, whereby the Municipality agreed to assume the expenses for
In the absence of liquidation proceedings, the claim of Remington cannot be enforced the demolition, clearing and site filling of the construction site in the amount of
against DBP. The case of Barretto v. Villanueva squarely falls in the ambit of this case. P1,150,000 and, in addition, to provide cash equity of P767,305.99 to be remitted
Although in Barretto v. Villanueva, what was involved was specific immovable directly to petitioners. However, although the whole amount of the cash equity became
property, the ruling therein should apply equally in this case where specific movable due, the Municipality refused to pay the same, despite repeated demands and
property is involved. As the extrajudicial foreclosure instituted by PNB and DBP is notwithstanding that the public market was more than 98% complete. Furthermore,
not the liquidation proceeding contemplated by the Civil Code, Remington cannot petitioners maintain that Salonga induced them to advance the expenses for the
claim its pro rata share from DBP. demolition, clearing and site filling work by making representations that the
Municipality had the financial capability to reimburse them later on. However,
petitioners claim that they have not been reimbursed for their expenses. Thus,
petitioners filed a complaint for breach of contract, specific performance, and
collection of a sum of money with prayer for preliminary attachment and enforcement
of contractor's lien against the respondents. The trial court ruled in favor of the
petitioners, holding that since plaintiffs have not been reimbursed for the cash equity

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and for the demolition, clearing and site filling expenses, they stand in the position of 4. Cordova v Reyes Daway Lim Bernardo Lindo Rosal Law Offices | G.R. No.
an unpaid contractor and as such are entitled, pursuant to Articles 2242 and 2243 of 146555| July 3, 2007| Ponente: J. Corona
the Civil Code, to a lien in the amount of P2,653,576.84 upon the public market which
they constructed, which was reversed by the CA. The appellate court reasoned that Facts
Petitioner Jose Cordova bought from Philippine Underwriters Finance Corporation
said provisions finds application only in the context of insolvency proceedings, as certificates of stock of Celebrity Sports Plaza Incorporated and shares of stock of
expressly stated in Article 2243. various other corporations. The CSPI shares were physically delivered by Philfinance
to the former Filmanbank and Philtrust Bank, as custodian banks, to hold these shares
Issue
Whether the provisions on concurrence and preference of credits applies in this case in behalf of and for the benefit of petitioner. Philfinance was placed under receivership
(NO) by public respondent SEC. Thereafter, private respondents Reyes Daway Lim
Bernardo Lindo Rosales Law Offices and Atty. Wendell Coronel were appointed as
Ruling
Article 2242 only finds application when there is a concurrence of credits, i.e. when liquidators. Without the knowledge and consent of petitioner and without authority
the same specific property of the debtor is subjected to the claims of several creditors from the SEC, private respondents withdrew the CSPI shares from the custodian
and the value of such property of the debtor is insufficient to pay in full all the banks. They sold the shares to Northeast Corporation and included the proceeds
creditors. In such a situation, the question of preference will arise, that is, there will be thereof in the funds of Philfinance. Meanwhile, the SEC approved a 15% rate of
a need to determine which of the creditors will be paid ahead of the others. This recovery for Philfinance’s creditors and investors. Petitioner lodged a complaint with
statutory lien should then only be enforced in the context of some kind of a proceeding private respondents but the latter ignored it prompting him to file a formal complaint
where the claims of all the preferred creditors may be bindingly adjudicated, such as against private respondents in the receivership proceedings with the SEC, for the return
insolvency proceedings. This is made explicit by Article 2243 which states that the of the shares. The SEC dismissed the petition, but subsequently reconsidered the
claims and liens enumerated in articles 2241 and 2242 shall be considered as decision in a resolution and granted the claims of the petitioner. It held that petitioner
mortgages or pledges of real or personal property, or liens within the purview of legal was the owner of the CSPI shares by virtue of a confirmation of sale (which was
provisions governing insolvency. The action filed by petitioners in the trial court does considered as a deed of assignment) issued to him by Philfinance. But since the shares
not partake of the nature of an insolvency proceeding. It is basically for specific had already been sold and the proceeds commingled with the other assets of
performance and damages. Thus, even if it is finally adjudicated that petitioners herein Philfinance, petitioner’s status was converted into that of an ordinary creditor for the
actually stand in the position of unpaid contractors and are entitled to invoke the value of such shares. Thus, it ordered private respondents to pay petitioner the amount
contractor's lien granted under Article 2242, such lien cannot be enforced in the present of ₱5,062,500 representing 15% of the monetary value of his CSPI shares plus interest
action for there is no way of determining whether or not there exist other preferred at the legal rate from the time of their unauthorized sale. This was affirmed by the CA.
creditors with claims over the San Antonio Public Market. The records do not contain On appeal, petitioner argues that he was a preferred creditor because private
any allegation that petitioners are the only creditors with respect to such property. The respondents illegally withdrew his CSPI shares from the custodian banks and sold
fact that no third-party claims have been filed in the trial court will not bar other them without his knowledge and consent and without authority from the SEC, citing
creditors from subsequently bringing actions and claiming that they also have Article 2241 (2) of the Civil Code which states that "[w]ith reference to specific
preferred liens against the property involved. It not having been alleged in their movable property of the debtor, the following claims or liens shall be preferred: (2)
pleadings that they have any rights as a mortgagee under the contracts, petitioners may Claims arising from misappropriation, breach of trust, or malfeasance by public
only obtain possession and use of the public market by means of a preliminary officials committed in the performance of their duties, on the movables, money or
attachment upon such property, in the event that they obtain a favorable judgment in securities obtained by them". He asserts that, as a preferred creditor, he was entitled to
the trial court. the entire monetary value of his shares.

Issue
Whether petitioner should be considered as a preferred (and secured) creditor of
Philfinance (NO)

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Ruling that the requirement of a tax clearance under Section 52(C) of the Tax Code of 1997
Petitioner had the right to demand the return of his CSPI shares. He in fact filed a is applicable to rural banks undergoing liquidation proceedings under Section 30 of
complaint in the liquidation proceedings in the SEC to get them back but was the New Central Bank Act. For the BIR, the authority given to the BSP to supervise
confronted by an impossible situation as they had already been sold. Consequently, he banks does not mean that all matters regarding banks are exclusively under the power
sought instead to recover their monetary value. Petitioner’s CSPI shares were specific of the BSP. Thus, banking corporations are still subject to reasonable regulations
or determinate movable properties. But after they were sold, the money raised from imposed by the SEC on corporations.
the sale became generic and were commingled with the cash and other assets of
Philfinance. Unlike shares of stock, money is a generic thing. This means that once a Issue
Whether PDIC is required to secure a tax clearance under the Tax Code of 1997 (NO)
certain amount is added to the cash balance, one can no longer pinpoint the specific
amount included which then becomes part of a whole mass of money. It thus became Ruling
impossible to identify the exact proceeds of the sale of the CSPI shares since they Section 52(C) of the Tax Code of 1997 is not applicable to banks ordered placed under
could no longer be particularly designated nor distinctly segregated from the assets of liquidation by the Monetary Board, and a tax clearance is not a prerequisite to the
Philfinance. Petitioner’s only remedy was to file a claim on the whole mass of these approval of the project of distribution of the assets of a bank under liquidation by the
assets, to which unfortunately all of the other creditors and investors of Philfinance PDIC. Section 52(C) of the Tax Code of 1997 pertains only to a regulation of the
also had a claim. Article 2241 refers only to specific movable property. His claim was relationship between the SEC and the BIR with respect to corporations contemplating
for the payment of money, which is generic property and not specific or determinate. dissolution or reorganization. On the other hand, banks under liquidation by the PDIC
Considering that petitioner did not fall under any of the provisions applicable to as ordered by the Monetary Board constitute a special case governed by the special
preferred creditors, he was deemed an ordinary creditor under Article 2245. Like all rules and procedures provided under Section 30 of the New Central Bank Act, which
the other ordinary creditors or claimants against Philfinance, he was entitled to a rate does not require that a tax clearance be secured from the BIR. Moreover, Section 30
of recovery of only 15% of his money claim. of the New Central Bank Act states that if the receiver determines that the institution
cannot be rehabilitated or permitted to resume business, the Monetary Board shall
5. Philippine Deposit Insurance Corporation v Bureau of Internal Revenue | G.R. notify in writing the board of directors of its findings and direct the receiver to proceed
No. 172892 | June 13, 2013 | Ponente: J. Leonardo-De Castro with the liquidation of the institution. The receiver shall convert the assets of the
institution to money, dispose of the same to creditors and other parties, for the purpose
Facts of paying the debts of such institution in accordance with the rules on concurrence and
By virtue of a resolution, the Monetary Board of the BSP prohibited the Rural Bank preference of credit under the Civil Code. Duties, taxes, and fees due the Government
of Tuba, Inc. from doing business in the Philippines, placed it under receivership and enjoy priority only when they are with reference to a specific movable property, under
designated the Philippine Deposit Insurance Corporation, herein petitioner, as Article 2241(1) or immovable property, under Article 2242(1). However, with
receiver. Subsequently, PDIC conducted an evaluation of RBTI’s financial condition reference to the other real and personal property of the debtor, the taxes and
and determined that RBTI remained insolvent. Thus, the Monetary Board directed assessments due the National Government, other than those in Articles 2241(1) and
PDIC to proceed with the liquidation of RBTI. Accordingly, PDIC filed in the RTC a 2242(1), such as the corporate income tax, will come only in ninth place in the order
petition for assistance in the liquidation of RBTI. The BIR intervened as one of the of preference. On the other hand, if the BIR’s contention that a tax clearance be secured
creditors of RBTI. BIR prayed that the proceedings be suspended until PDIC has first before the project of distribution of the assets of a bank under liquidation may be
secured a tax clearance required under Section 52(C) of the Tax Reform Act of 1997. approved, then the tax liabilities will be given absolute preference in all instances,
The trial court granted BIR's petition and directed PDIC to secure a tax clearance. including those that do not fall under Articles 2241(1) and 2242(1) of the Civil Code.
PDIC moved to reconsider the decision of the RTC, arguing that Section 52(C) of the In order to secure a tax clearance which will serve as proof that the taxpayer had
Tax Code of 1997 does not cover closed banking institutions as the liquidation of completely paid off his tax liabilities, PDIC will be compelled to settle and pay first
closed banks is governed by Section 30 of the New Central Bank Act. The motion was, all tax liabilities and deficiencies of the bank, regardless of the order of preference
however, denied. The CA also denied the petition for certiorari of PDIC. On appeal, under the pertinent provisions of the Civil Code. Following the BIR’s stance, therefore,
PDIC raises the same argument, contending that the non-applicability of the Tax Code only then may the project of distribution of the bank’s assets be approved and the other
of 1997 did not require them to secure a tax clearance. For its part, the BIR counters debts and claims thereafter settled, even though under Article 2244 of the Civil Code

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such debts and claims enjoy preference over taxes and assessments due the National 7. Sps. Sobrejuanite v ASB Development Corporation | G.R. No. 165675 |
Government. The BIR effectively wants this Court to ignore Section 30 of the New September 30, 2005 | Ponente: Ynares-Santiago, J.
Central Bank Act and disregard Article 2244 of the Civil Code. However, as a court
of law, the Court has the solemn duty to apply the law. Facts
Spouses Sobrajuanite filed a complaint for rescission of contract, refund of payment,
6. RCBC v IAC | G.R. No. 74851 | December 9, 1999 | Ponente: Melo, J. and damages against ASB before the HLURB. Petitioners alleged that they entered
into a contract to sell with ASB over a condominium unit and a parking space in the
Facts BSA Twin Tower-B Condominium in Ortigas. They averred that despite full payment
BF Homes filed a petition for rehabilitation and for declaration of suspension of and demands, they failed to deliver the property on the date they agreed on. ASB filed
payments with the SEC. One of the creditors listed in its inventory of creditors and a motion to dismiss or suspend proceedings in view of the approval by the SEC of the
rehabilitation plan. The HLURB arbiter however denied the motion and ordered the
liabilities was RCBC. Upon request of RCBC, the provincial sheriff of Rizal continuation of the proceedings. The HLURB Board affirmed the ruling of the arbiter
extrajudicially foreclosed the real estate mortgage on some properties of BF Homes. that the approval of the rehabilitation plan and the appointment of a receiver by the
After notice, a public auction sale was held in which RCBC was the highest bidder. SEC did not have the effect of suspending the proceedings. It held that the HLRUB
The sheriff, however withheld the delivery of the certificate of sale covering the
auctioned properties because of the proceedings in the SEC. The Sec then belatedly could properly take cognizance of the case since whatever monetary award that ma be
issued a writ of preliminary injunction stopping the auction sale. RCBC then filed with granted by it will ultimately be filed as a claim before the rehabilitation receiver. The
the RTC an action for mandamus against the provincial sheriff and his deputy to CA revered the ruling of the HLURB Boar and held that the approval by the SEC of
compel them to execute in their favor a certificate of sale. The SEC then appointed a the rehabilitation plan and the appointment of a receiver caused the suspension of the
Management Committee for BF Homes. In the mandamus case, the trial court issued HLURB proceedings. The appellate court noted that Sobrejuanite’s complaint for
an order granting RCBC’s petition, ordering the provincial sheriff to execute and rescission ad damages is a claim under the contemplation of the SEC Reorganization
deliver the certificate of auction sale. BF Homes filed an original complaint with the Act and the Interim Rules of Procedure on Corporate Rehabilitation because it sought
IAC praying for the annulment of the order. The IAC rendered a decision setting aside to enforce a pecuniary demand. Therefore, jurisdiction lies with the SEC, not the
the order of the trial court, dismissing the case for mandamus and suspending the HLURB.
issuance to RCBC of the new land titles until the resolution of the SEC case. Upon
appeal, the SC upheld the decision of the IAC. Issue
Whether the proceedings before the HLURB should be suspended (YES)
Ruling
Once a management committee, rehabilitation receiver, board or body is appointed, all Ruling
actions for claims of both a secured and unsecured creditor, without distinction, against The HLURB arbiter should have suspended the proceedings upon the approval by the
a distressed corporation pending before any court, tribunal, or board, shall be SEC of the rehabilitation plan and the appointment of ASB’s rehabilitation receiver.
suspended. In the meantime, secured creditors shall not be allowed to assert such By the suspension of the proceedings, the receiver is allowed to fully devote his time
preference with the SEC. this should give the receiver a chance to rehabilitate the and efforts to the rehabilitation plan and restructuring of the distressed corporation.
corporation if there should still be a possibility for doing so. However, in the event The purpose for the suspension of the proceedings is to prevent a creditor from
that rehabilitation is no longer feasible and claims against the distressed company obtaining advantage or preference over another and to protect and preserve the rights
would then have to be settled, the secured creditors shall enjoy a preference over the of party litigants as well as the interest of the investing public or creditors. Such
unsecured creditors subject only to the Civil Code provisions on concurrence and suspension is intended to give enough breathing space for the management committee
preference of credit. or rehabilitation receiver to make the business viable again, without having to divert
attention and resources to litigations in various fora. The suspension would enable the
management committee or rehabilitation receiver to effectively exercise its/his powers
free from any judicial or extra-judicial interference that might unduly hinder or prevent
the "rescue" of the debtor company. To allow such other action to continue would only

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later, and had consolidated its ownership over a year later. "The mortgagor
add to the burden of the management committee or rehabilitation receiver, whose time, loses all interest over the foreclosed property after the expiration of the
effort and resources would be wasted in defending claims against the corporation redemption period and the purchaser becomes the absolute owner thereof
instead of being directed toward its restructuring and rehabilitation. when no redemption is made." Thus, having acquired ownership of the said
properties, Metrobank can simply file an ex-parte motion for issuance of the
8. Town and Country Enterprises, Inc. v Quisimbing | G.R. No. 173610; 174132 | writ of possession - "the issuance of which has been held to be a ministerial
October 1, 2012 | Ponente: Perez, J. function which cannot be hindered by an injunction or an action for the
annulment of the mortgage or the foreclosure itself." There is an exception to
Facts this rule, however, and that is where the property is held by a third party
Town and Country Enterprises, Inc. (TCEI) borrowed P12M from Metrobank. The claiming a right adverse to that of the judgment debtor. But, on the other hand,
loan was secured by a mortgage over 20 parcels of land. TCEI was nable to pay upon the rehabilitation receiver's claim is far from adverse. He is an officer of the
demand. TCEI lost the properties to Metrobank due to foreclosure and auction. court who is appointed to protect the interests of TCEI's investors and
Metrobank asked the RTC to issue a writ of possession in the bank's favor. Meanwhile, creditors, not the interests of TCEI per se or its officers and directors.
in a separate corporate rehabilitation proceeding, TCEI successfully asked the
Securities and Exchange Commission (SEC) for a stay order on the payment of its b. It follows then that the register of deeds can transfer the titles to Metrobank.
obligations. Based on that stay order, TCEI asked the RTC which is hearing the writ "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
of possession case to suspend the said proceedings for which the RTC granted. CA certificate of title in favor of the purchaser becomes ministerial upon the
reversed the decision and ordered the RTC to continue with the writ of possession Register of Deeds." Finally, proceedings in corporate rehabilitation cases are
case. RTC later granted Metrobank's petition and issued a writ of possession. CA later summary and non-adversarial, and do not impair the debtor's contracts or
on affirmed RTC’s decision and thus placed TCEI’s lands in the name of Metrobank. diminish the status of preferred creditors. Thus, the stay order, which only
TCEI later on sought remedy before the SEC, the rehabilitation court which had earlier suspends the enforcement of all claims, cannot be held to extend to the period
issued the stay order, to annul the said cancellation and transfer of titles. SEC denied not within its scope. In this case, there was no more claim by Metrobank to
TCEI's petition. CA agreed with SEC. Hence, this petition to the Supreme Court. speak of because the bank had already acquired ownership over the subject
properties prior to the issuance of the stay order.
Issues
a. Whether the granting of the Writ of Possession by the RTC in favor of 9. Situs Development Corp. v Asiatrust | G.R. No. 180036 | January 16, 2013 |
Metrobank valid despite the stay order issued by SEC (YES) Ponente: Sereno, C.J.
b. Whether the registry of deeds was correct in transferring such titles despite
the stay order (YES) Facts
Ruling In 1972, the Chua Family, headed by its patriarch, Cua Yong Hu, a.k.a. Tony Chua,
a. The writ of possession is valid because such properties are not within the started a printing business and put up Color Lithographic Press, Inc. (COLOR). On
ambit of the rehabilitation proceedings and are therefore not protected by June 6, 1995, the Chua Family ventured into real estate development/leasing by
such stay order by the SEC. The purpose of corporate rehabilitation is to organizing Situs Development Corporation (SITUS) in order to build a shopping mall
enable an insolvent company to gain a new lease on life and eventually pay complex, known as Metrolane Complex (COMPLEX) at 20th Avenue corner Cubao,
its loans. To allow this to happen, a stay order is issued to defer all present Quezon City. To finance the construction of the COMPLEX, SITUS, COLOR and
claims against the company until the time of its projected recovery. In this Tony Chua and his wife, Siok Lu Chua, obtained several loans from. ALLIED secured
case, however, Metrobank had already acquired ownership over the by real estate mortgages over two lots covered by TCT Nos. RT-13620 and RT-13621;
mortgaged parcels of land when TCEI started its petition for corporate ASIATRUST secured by a real estate mortgage over a lot covered by TCT No. 79915;
rehabilitation. No doubt Metrobank acquired ownership over the properties and Global Banking Corporation, now METROBANK, secured by a real estate
when TCEI failed to redeem these within the three-month period prescribed mortgage over a lot covered by TCT No. 79916. The COMPLEX was built on said
by Sec. 47 of RA 8791. It does not matter, then, if Metrobank only had the four (4) lots, all of which are registered in the names of Tony Chua and his wife, Siok
certificate of sale registered before the Deed of Registry a couple of months Lu Chua. On March 21, 1996, the Chua Family expanded into retail merchandising
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"Interim Rules"). Under those rules, one of the effects of a Stay Order is the
and organized Daily Supermarket, Inc. (DAILY). All three (3) corporations have stay of the "enforcement of all claims, whether for money or otherwise and
interlocking directors and are all housed in the COMPLEX. The Chua Family also whether such enforcement is by court action or otherwise, against the debtor,
resides in the COMPLEX, while the other units are being leased to tenants. SITUS, its guarantors and sureties not solidarily liable with the debtor." Nowhere in
COLOR and DAILY obtained additional loans from ALLIED, ASIATRUST and the Interim Rules is the rehabilitation court authorized to suspend foreclosure
METROBANK and their real estate mortgages were updated and/or amended. Spouses proceedings against properties of third-party mortgagors. In fact, we have
Chua likewise executed five (5) Continuing Guarantee/Comprehensive Surety in favor expressly ruled in Pacific Wide Realty and Development Corp. v. Puerto Azul
of ALLIED to guarantee the payment of the loans of SITUS and DAILY. SITUS, Land, Inc. that the issuance of a Stay Order cannot suspend the foreclosure
COLOR, DAILY and the spouses Chua failed to pay their obligations as they fell due, of accommodation mortgages. Whether or not the properties subject of the
despite demands. 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.
Issues To repeat, when the Stay Order was issued, the rehabilitation court was only
a. Whether the properties belonging to petitioner corporations’ majority empowered to suspend claims against the debtor, its guarantors, and sureties
stockholders may be included in the rehabilitation plan pursuant to not solidarily liable with the debtor. Thus, it was beyond the jurisdiction of
Metropolitan Bank and Trust Company v. ASB Holdings, Inc the rehabilitation court to suspend foreclosure proceedings against properties
of third-party mortgagors.
c. The third issue, therefore, is immaterial. Whether or not respondent banks
had acquired ownership of the subject properties at the time of the issuance
b. Whether the subject properties should be included in the ambit of the Stay of the Stay Order, the same conclusion will still be reached. The subject
Order by virtue of the provisions of the Financial Rehabilitation and properties will still fall outside the ambit of the Stay Order issued by the
Insolvency Act of 2010 (FRIA), which should be given a retroactive effect rehabilitation court. Since the subject properties are beyond the reach of the
c. Whether Allied Bank and Metro Bank were not the owners of the mortgaged Stay Order, and since foreclosure and consolidation of title may no longer be
properties when the Stay Order was issued by the rehabilitation court
stalled, petitioners’ rehabilitation plan is no longer feasible. We therefore
affirm our earlier finding that the dismissal of the Petition for the Declaration
Ruling
a. Petitioners incorrectly argue that the properties belonging to their majority of State of Suspension of Payments with Approval of Proposed Rehabilitation
stockholders may be included in the rehabilitation plan, because these Plan is in order.
properties were mortgaged to secure petitioners’ loans.
b. Under the FRIA, the Stay Order may now cover third-party or
10. MWSS v Dawat and Maynilad Water | G.R. No. 160732 | June 21, 2004 |
accommodation mortgages, in which the "mortgage is necessary for the
Ponente: Azcuna, J
rehabilitation of the debtor as determined by the court upon recommendation
by the rehabilitation receiver." The FRIA likewise provides that its provisions
Facts
may be applicable to further proceedings in pending cases, except to the
Metropolitan Water and Sewerage System (MWSS) granted Maynilad Water Services,
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 Inc. (MWSI), under a Concession Agreement (“agreement”), a 20-year period to
"all further proceedings in insolvency, suspension of payments and manage, operate, repair, decommission and refurbish the existing MWSS water
rehabilitation cases x x x except to the extent that in the opinion of the court delivery and sewerage services in the West Zone Service Area, for which MWSI
their application would not be feasible or would work injustice," still undertook to pay the corresponding concession fees on the dates agreed upon in said
presupposes a prospective application. The wording of the law clearly shows agreement which, among other things, consisted of payments of MWSS’s mostly
that it is applicable to all further proceedings. In no way could it be made foreign loans. To secure the concessionaire’s performance of its obligations under the
retrospectively applicable to the Stay Order issued by the rehabilitation court agreement, MWSI was required to put up a bond, bank guarantee or other security
back in 2002. At the time of the issuance of the Stay Order, the rules in force acceptable to MWSS. In compliance with this requirement, MWSI arranged for a 3-
were the 2000 Interim Rules of Procedure on Corporate Rehabilitation (the year facility with a number of foreign banks, led by Citicorp International Limited
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DE GUZMAN, Jalena Jesse K. 11780509 CREDIT TRANSACTIONS G04

(CIL), for the issuance of an Irrevocable Standby Letter of Credit (L/C) in favor of distinguishes letters of credit from other accessory contracts, is the engagement of the
MWSS for the full and prompt performance of MWSI’s obligations to MWSS. A few issuing bank to pay the seller once the draft and other required shipping documents are
years later, however, MWSI served upon MWSS a Notice of Event of Termination, presented to it. They are definite undertakings to pay at sight once the documents
claiming that MWSS failed to comply with its obligations under the agreement and an stipulated therein are presented. The prohibition under Sec 6 (b) of Rule 4 of the
amendment thereto regarding the adjustment mechanism that would cover MWSI’s Interim Rules does not apply to herein petitioner as the prohibition is on the
foreign exchange losses. Consequently, MWSI filed a Notice of Early Termination of enforcement of claims against guarantors or sureties of the debtors whose obligations
the agreement, which was challenged by MWSS. This matter was eventually brought are not solidary with the debtor. The participating banks obligation are solidary with
by MWSS before the Appeals Panel, which eventually ruled that there was no Event respondent Maynilad in that it is a primary, direct, definite and an absolute undertaking
of Termination as defined under the agreement and that, therefore, MWSI should pay to pay and is not conditioned on the prior exhaustion of the debtor’s assets. These are
the concession fees that had fallen due. Upon the finality of the panel’s award, MWSS the same characteristics of a surety or solidary obligor. And being solidary, the claims
submitted a written notice to CIL, as agent for the participating banks, that by virtue against them can be pursued separately from and independently of the rehabilitation
of MWSI’s failure to perform its obligations under the agreement, it was drawing on case. The terms of the Irrevocable Standby Letter of Credit do not show that the
the Irrevocable Standby L/C and thereby demanded payment. Prior to this demand, obligations of the banks are not solidary with those of respondent Maynilad. On the
however, MWSI filed a petition for rehabilitation before the Regional Trial Court of contrary, it is issued at the request of and for the account of Maynilad in favor of the
Quezon City – which resulted in the issuance of a Stay Order enjoining MWSS from MWSS as a bond for the full and prompt performance of the obligations by the
drawing on the Standby L/C. concessionaire under the Concession Agreement and herein MWSS is authorized by
the banks to draw on it by the simple act of delivering to the agent a written
Issue certification substantially in the form of the Letter of Credit. Taking into consideration
Whether the rehabilitation court sitting as such, acted in excess of its authority or
our own rulings on the nature of letters of credit and the customs and usage developed
jurisdiction when it enjoined herein petitioner from seeking the payment of the
over the years in the banking and commercial practice of letters of credit, we hold that
concession fees from the banks that issued the Irrevocable Standby Letter of Credit in
its favor (YES) except when a letter of credit specifically stipulates otherwise, the obligation of the
banks issuing letters of credit are solidary with that of the person or entity requesting
Ruling for its issuance, the same being a direct, primary, absolute and definite undertaking to
First, the claim is not one against the debtor but against an entity that respondent pay the beneficiary upon the presentation of the set of documents required therein. The
Maynilad has procured to answer for its non-performance of certain terms and public respondent, therefore, exceeded his jurisdiction, in holding that he was
conditions of the Concession Agreement, particularly the payment of concession fees. competent to act on the obligation of the banks under the Letter of Credit under the
Secondly, Sec. 6 (b) of Rule 4 of the Interim Rules does not enjoin the enforcement of argument that this was not a solidary obligation with that of the debtor. Being a
all claims against guarantors and sureties, but only those claims against guarantors and solidary obligation, the letter of credit is excluded from the jurisdiction of the
sureties who are not solidarily liable with the debtor. Respondent Maynilad’s claim rehabilitation court and therefore in enjoining petitioner from proceeding against the
that the banks are not solidarily liable with the debtor does not find support in Standby Letters of Credit to which it had a clear right under the law and the terms of
jurisprudence. Letters of credit were developed for the purpose of insuring to a seller said Standby Letter of Credit, public respondent acted in excess of his jurisdiction.
payment of a definite amount upon the presentation of documents and is thus a
11. Panlilio et al. v RTC | G.R. No. 173846 | February 2, 2011 | Ponente: Peralta,
commitment by the issuer that the party in whose favor it is issued and who can collect
J.
upon it will have his credit against the applicant of the letter, duly paid in the amount
specified in the letter. They are in effect absolute undertakings to pay the money Facts
advanced or the amount for which credit is given on the faith of the instrument. They Jose Marcel Panlilio, Erlinda Panlilio, Nicole Morris and Marlo Cristobal (petitioners),
are primary obligations and not accessory contracts and while they are security as corporate officers of Silahis International Hotel, Inc. (SIHI), filed with the Regional
arrangements, they are not converted thereby into contracts of guaranty. What Trial Court (RTC) of Manila, Branch 24, a petition for Suspension of Payments and
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DE GUZMAN, Jalena Jesse K. 11780509 CREDIT TRANSACTIONS G04

Rehabilitation. The RTC of Manila, Branch 24, issued an Order staying all claims liabilities. There is no reason why criminal proceedings should be suspended during
against SIHI upon finding the petition sufficient in form and substance. At the time, corporate rehabilitation, more so, since the prime purpose of the criminal action is to
however, of the filing of the petition for rehabilitation, there were a number of criminal punish the offender in order to deter him and others from committing the same or
charges pending against petitioners in Branch 51 of the RTC of Manila. These criminal similar offense, to isolate him from society, reform and rehabilitate him or, in general,
charges were initiated by respondent Social Security System (SSS) and involved to maintain social order. As correctly observed in Rosario, it would be absurd for one
charges of Estafa. Consequently, petitioners filed with the RTC of Manila, Branch 51, who has engaged in criminal conduct could escape punishment by the mere filing of a
a Manifestation and Motion to Suspend Petitioners argued that the stay order issued petition for rehabilitation by the corporation of which he is an officer. The prosecution
by Branch 24 should also apply to the criminal charges pending in Branch 51. of the officers of the corporation has no bearing on the pending rehabilitation of the
Petitioners, thus, prayed that Branch 51 suspend its proceedings until the petition for corporation, especially since they are charged in their individual capacities. Such being
rehabilitation was finally resolved. Branch 51 issued an Order denying petitioners’ the case, the purpose of the law for the issuance of the stay order is not compromised,
motion to suspend the proceedings. It ruled that the stay order issued by Branch 24 did since the appointed rehabilitation receiver can still fully discharge his functions as
not cover criminal proceedings. Branch 51. Then denied the motion for reconsideration mandated by law.
filed by petitioners. Petitioners filed a petition for certiorari with the CA assailing the
12. BPI v SEC | G.R. No. 164641 | December 20, 2007 | Ponente: Tinga, J.

Order of Branch 51 but the CA issued a Decision denying the petition. Hence Facts
petitioners filed before the Supreme Court a petition for review on certiorari. The Bank of the Philippine Islands (BPI), through its predecessor-in- interest, Far East
Bank and Trust Company (FEBTC), extended credit accommodations to the ASB
Issue Group with an outstanding aggregate principal amount of P86,800,000.00, secured by
Whether the suspension of "all claims" as an incident to a corporate rehabilitation also a real estate mortgage over two (2) properties located in Greenhills, San Juan. On 2
includes the suspension of criminal charges filed against the corporate officers of the May 2000, the ASB Group filed a petition for rehabilitation and suspension of
distressed corporation (NO) payments before the SEC. Thereafter, on 18 August 2000, the interim receiver
submitted its Proposed Rehabilitation Plan for the ASB Group. The Rehabilitation
Ruling Plan provides, among others, a dacion en pago by the ASB Group to BPI of one of the
The criminal charges are not included. A criminal action has a dual purpose, namely, properties mortgaged to the latter at the ASB Group as selling value of P84,000,000.00
the punishment of the offender and indemnity to the offended party. The dominant against the total amount of the ASB Group’s exposure to the bank. In turn, ASB Group
and primordial objective of the criminal action is the punishment of the offender. The would require the release of the other property mortgaged to BPI, to be thereafter
civil action is merely incidental to and consequent to the conviction of the accused. placed in the asset pool.
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 Issue
the vindication of the disturbance to the social order caused by the offender. On the Whether the requirement for SEC approval of the Rehabilitation Plan impair the
other hand, the action between the private complainant and the accused is intended obligations of contract (NO)
solely to indemnify the former. 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 Ruling
The Court reiterates that the SEC’s approval of the Rehabilitation Plan did not impair
Estafa. The SSS law clearly "criminalizes" the non-remittance of SSS contributions by
BPI’s right to contract. As correctly contended by private respondents, the non-
an employer to protect the employees from unscrupulous employers. Therefore, public
impairment clause is a limit on the exercise of legislative power and not of judicial or
interest requires that the said criminal acts be immediately investigated and prosecuted quasi-judicial power. The SEC, through the hearing panel that heard the petition for
for the protection of society. The rehabilitation of SIHI and the settlement of claims approval of the Rehabilitation Plan, was acting as a quasi-judicial body and thus, its
against the corporation is not a legal ground for the extinction of petitioners’ criminal order approving the plan cannot constitute an impairment of the right and the freedom
Page 9 of 16
DE GUZMAN, Jalena Jesse K. 11780509 CREDIT TRANSACTIONS G04

to contract. The mere fact that the Rehabilitation Plan proposes a dacion en pago consideration all the interests of the parties and the terms and conditions stated therein
approach does not render it defective on the ground of impairment of the right to are more reasonable than what BPI proposes.
contract. Dacion en pago is a special mode of payment where the debtor offers another
thing to the creditor who accepts it as equivalent of payment of an outstanding debt. Issue
The undertaking really partakes in a sense of the nature of sale, that is, the creditor is Whether BP’s opposition is manifestly unreasonable, thus making it comply with the
really buying the thing or property of the debtor, the payment for which is to be Rehabilitation Plan in accordance with the cram-down effect (YES)
charged against the debtor’s debt. As such, the essential elements of a contract of sale,
namely; consent, object certain, and cause or consideration must be present. Being a Ruling
form of contract, the dacion en pago agreement cannot be perfected without the Among other rules that foster the foregoing policies, Section 23, Rule 4 of the Interim
consent of the parties involved. Rules of Procedure on Corporate Rehabilitation (Interim Rules) states that a
rehabilitation plan may be approved even over the opposition of the creditors holding
13. BPI v Sarabia Manor Hotel Corp | July 29, 2013 | Perlas-Bernabe 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
Facts as the "cram-down" clause, this provision, which is currently incorporated in the FRIA,
In 1997, Sarabia obtained a P150M special loan package from Far East Bank and Trust is necessary to curb the majority creditors' natural tendency to dictate their own terms
Company (FEBTC) in order to finance the construction of a 5-storey new hotel and conditions to the rehabilitation, absent due regard to the greater long-term benefit
building for the purpose of expanding its hotel business. The foregoing debts were of all stakeholders. Otherwise stated, it forces the creditors to accept the terms and
secured by real estate mortgages over several parcels of land owned by Sarabia and a conditions of the rehabilitation plan, preferring long-term viability over immediate but
comprehensive surety agreement dated September 1, 1997 signed by its stockholders. incomplete recovery. Although undefined in the Interim Rules, it may be said that the
By virtue of a merger, Bank of the Philippine Islands (BPI) assumed all of FEBTC's opposition of a distressed corporation's majority creditor is manifestly unreasonable if
rights against Sarabia. However, largely because of the delayed completion of the New it counter-proposes unrealistic payment terms and conditions which would, more
Building, Sarabia incurred various cash flow problems. Thus, despite the fact that it likely than not, impede rather than aid its rehabilitation. The unreasonableness
had more assets than liabilities at that time, it nevertheless filed, on July 26, 2002, a becomes further manifest if the rehabilitation plan, in fact, provides for adequate
Petition for corporate rehabilitation with prayer for the issuance of a stay order before safeguards to fulfill the majority creditor's claims, and yet the latter persists on
the RTC as it foresaw the impossibility to meet its maturing obligations to its creditors speculative or unfounded assumptions that his credit would remain unfulfilled. BPI
when they fall due. In an Order dated August 7, 2003, the RTC approved Sarabia's neither proposes Sarabia's liquidation over its rehabilitation nor questions the
rehabilitation plan as recommended by the Receiver, finding the same to be feasible. controlling interest of Sarabia's shareholders or owners. It only takes exception to: (a)
In this accord, it observed that the rehabilitation plan was realistic since, based on the imposition of the fixed interest rate of 6.75% p.a. as recommended by the Receiver
Sarabia's financial history, it was shown that it has the inherent capacity to generate and as approved by the courts a quo, proposing that the original escalating interest
funds to pay its loan obligations given the proper perspective. The recommended rates of 7%, 8%, 10%, 12%, and 14%, over seventeen years be applied instead; and
rehabilitation plan was also practical in terms of the interest rate pegged at 6.75% p.a. (b) the fact that Sarabia's misrepresentations in the rehabilitation petition, i.e., that it
since it is based on Sarabia's ability to pay and the creditors' perceived cost of money. physically acquired additional property whereas in fact the increase was mainly due to
The RTC further noted that while it may be true that Sarabia has been unable to comply the recognition of Revaluation Increment and because of capital expenditures, were
with its existing terms with BPI, it has nonetheless complied with its obligations to its not taken into consideration by the courts a quo. It is the objective of a rehabilitation
employees and suppliers and pay its taxes to both local and national government proceeding to provide the best possible framework for the corporation to gradually
without disrupting the day-to-day operations of its business as an ongoing concern. regain or achieve a sustainable operating form. Hence, if a creditor, whose interests
BPI mainly argues that the approved rehabilitation plan did not give due regard to its remain well-preserved under the existing rehabilitation plan, still declines to accept
interests as a secured creditor in view of the imposition of a fixed interest rate of 6.75% interests pegged at reasonable rates during the period of rehabilitation, and, in turn,
p.a. and the extended loan repayment period. It likewise avers that Sarabia's proposes rates which are largely counter-productive to the rehabilitation, then it may
misrepresentations in its rehabilitation petition remain unresolved. On the contrary, be said that the creditor's opposition is manifestly unreasonable.
Sarabia essentially maintains that the approved rehabilitation plan takes into

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DE GUZMAN, Jalena Jesse K. 11780509 CREDIT TRANSACTIONS G04

14. Victorio-Aquino v Pacific Plans, Inc. | G.R. No. 193108 | December 10, 2014 | the Rehabilitation Plan by the creditors, the court may confirm the Rehabilitation Plan
Ponente: Peralta, J. if all of the following circumstances are present: Free bank account, Owner, Approve,
2014 tax act, Act, Alternatives. The Rehabilitation Plan complies with the
Facts requirements specified in this Act; the rehabilitation receiver recommends
Respondent Pacific Plans, Inc. (now “APEC”) is engaged in the business of selling the confirmation of the Rehabilitation Plan; The shareholders, owners or partners of
pre-need plans and educational plans, including traditional open-ended educational the juridical debtor lose at least their controlling interest as a result of the
plans (PEPTrads). PEPTrads are educational plans where respondent guarantees to pay Rehabilitation Plan; and The Rehabilitation Plan would likely provide the objecting
the planholder, without regard to the actual cost at the time of enrolment, the full class of creditors with compensation which has a net present value greater than that
amount of tuition and other school fees of a designated beneficiary. Petitioner is a which they would have received if the debtor were under liquidation.
holder of two (2) units of respondent’s PEPTrads. On April 7, 2005, foreseeing the
15. BIR Assistant Commissioner v Lepanto Ceramics, Inc. | April 24, 2017 |
impossibility of meeting its obligations to the availing planholders as they fall due,
Ponente: Perlas-Bernabe, J.
respondent filed a Petition for Corporate Rehabilitation with the Regional Trial Court,
praying that it be placed under rehabilitation and suspension of payments. At the time Facts
of filing of the Petition for Corporate Rehabilitation, respondent had more or less Respondent filed for corporate rehabilitation on December 23, 2011. It alleged that
34,000 outstanding PEPTrads. On April 12, 2005, the Rehabilitation Court issued a due to the financial difficulties it has been experiencing dating back to the Asian
Stay Order, directing the suspension of payments of the obligations of respondent and financial crisis, it had entered into a state of insolvency considering its inability to pay
ordering all creditors and interested parties to file their comments/oppositions, its obligations as they become due and that its total liabilities amounting to
respectively, to the Petition for Corporate Rehabilitation. The same Order also P4,213,682,715. far exceed its total assets worth P1,112,723,941. On January 13,
appointed respondent Marcelo as the rehabilitation receiver. Pursuant to the prevailing 2012, the Rehabilitation Court issued a Commencement Order, which (a) declared LCI
rules on corporate rehabilitation, respondent submitted to the Rehabilitation Court to be under corporate rehabilitation; (b) suspended all actions or proceedings, in court
its proposed rehabilitation plan. Under the terms thereof, respondent proposed the or otherwise, for the enforcement of claims against LCI; (c) prohibited LCI from
implementation of a “Swap,” which will essentially give the planholder a means to making any payment of its liabilities outstanding as of even date, except as may be
exit from the PEPTrads at terms and conditions relative to a termination value that is provided under RA 10142; and (d) directed the BIR to file and serve on LCI its
comment or opposition to the petition, or its claims against LCI. Despite the foregoing,
more advantageous than those provided under the educational plan in case of
Misajon, et al., acting as Assistant Commissioner, Group Supervisor, and Examiner,
voluntary termination. The rehabilitation receiver submitted an Alternative respectively, of the BIR's Large Taxpayers Service, informed LCI of its deficiency
Rehabilitation Plan and was approved by the Court. However due to the fact that the internal tax liabilities for the Fiscal Year ending June 30, 2010. In response, LCI's
value of the Philippine Peso strengthened and appreciated, the rehabilitation receiver reminded BIR of the pendency of LCI's corporate rehabilitation proceedings, as well
submitted a Modified Rehabilitation Plan as the issuance of a Commencement Order in connection therewith. Undaunted, the
BIR sent a Formal Letter of Demand requiring LCI to pay deficiency taxes in the
Issue amount of P567,519,348.39. LCI asserted that petitioners' act of pursuing the BIR's
Whether or not the Rehabilitation Court has the authority to sanction a rehabilitation claims for deficiency taxes against LCI outside of the pending rehabilitation
plan, or the modification thereof, even when the essential feature of the plan involves proceedings in spite of the Commencement Order issued by the Rehabilitation Court
forcing creditors to reduce their claims against respondent (YES) is a clear defiance of the aforesaid Order. Petitioners maintain that (a) RTC Br. 35 had
no jurisdiction to cite them in contempt as it is only the Rehabilitation Court, being the
Ruling one that issued the Commencement Order, which has the authority to determine
The Court upheld the “cram-down” power of the Rehabilitation Court pursuant to Sec. whether or not such Order was defied; (b) the instant petition had already been mooted
23 of FRIA which states that the court may approve a rehabilitation plan over the by the Rehabilitation Court's Order dated August 28, 2014 which declared LCI to have
opposition of creditors, holding a majority of the total liabilities of the debtor if, in its been successfully rehabilitated resulting in the termination of the corporate
judgment, the rehabilitation of the debtor is feasible and the opposition of rehabilitation proceedings; (c) their acts do not amount to a defiance of the
the creditors is manifestly unreasonable. Moreover, notwithstanding the rejection of Commencement Order as it was done merely to toll the prescriptive period in

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DE GUZMAN, Jalena Jesse K. 11780509 CREDIT TRANSACTIONS G04

collecting deficiency taxes, and thus, sanctioned by the Rules of Procedure of the
FRIA; (d) their acts of sending a Notice of Informal Conference and Formal Letter of 16. Puerto Azul Land, Inc. v Export Industry Bank | G.R. No. 213020 | March 20,
Demand do not amount to a "legal action or other recourse" against LCI outside of the 2017 | Ponente: Peralta, J.
rehabilitation proceedings; and (e) the indirect contempt proceedings interferes with
the exercise of their functions to collect taxes due to the government. RTC held Facts
petitioners guilty and found that (a) the supervening termination of the rehabilitation Petitioner Puerto Azul Land, Inc. (PALI) is the owner and developer of the Puerto
proceedings and the consequent lifting of the Commencement Order did not render Azul Complex in Ternate, Cavite. To finance its operations and the development of
moot the petition for indirect contempt as the acts complained of were already Puerto Azul into a satellite city with residential areas, resort, tourism and retail
consummated; (b) petitioners' acts of sending LCI a notice of informal conference and commercial centers with recreational areas, PALI obtained loans from various
Formal Letter of Demand are covered by the creditors. As security for its obligations amounting to P627,000,000.00, PALI, as
borrower, and its accommodation mortgagors, i.e., Ternate Development Corporation
Commencement Order as they were for the purpose of pursuing and enforcing a claim (TDC), petitioner Ternate Utilities, Inc. (TUI), and Mrs. Trinidad Diaz-Enriquez,
for deficiency taxes, and thus, are in clear defiance of the Commencement Order; and
(c) petitioners could have tolled the prescriptive period to collect deficiency taxes executed with Urban Bank Incorporated (UBI) a Mortgage Trust Indenture (MTI)[6]
without violating the Commencement Order by simply ventilating their claim before dated February 3, 1995 and the Supplemental Mortgage Trust Indenture (SMTI) date
the rehabilitation proceedings, which they were adequately notified of. March 21, 1995. Among the properties that served as security for the loans were TUI's
two (2) parcels of land situated in Pasay City and covered by Transfer Certificate of
Issue Title (TCT) No. T-133164. PALI's business problems started when the Philippine
Whether the act of petitioners in sending LCI a demand letter for tax deficiencies is in Stock Exchange rejected the listing of its shares in its initial public offering, which
contravention with the Commencement Order (YES) drove away potential investors and real estate buyers from the business venture. Due
to the ensuing 1997 Asian financial crisis and the decline of the real estate market,
Ruling PALI failed to keep up with the payments of its debts and obligations. On July 29,
Upon the issuance of a Commencement Order — which includes a Stay or Suspension 2004, Export and Industry Bank, Inc. (EIB), which was later merged with UBI, filed a
Order — all actions or proceedings, in court or otherwise, for the enforcement of petition for extrajudicial foreclosure of real estate mortgage with the Office of the
"claims" against the distressed company shall be suspended. Under the same law, Clerk of Court and Ex-Officio Sheriff of the Regional Trial Court (RTC) of Pasay
claim "shall refer to all claims or demands of whatever nature or character against the City. In its petition docketed as REM No. 04-025, EIB sought to foreclose the
debtor or its property, whether for money or otherwise, liquidated or unliquidated, mortgage constituted on TUI's properties covered by TCT No. T-133164 to satisfy
fixed or contingent, matured or unmatured, disputed or undisputed, including, but not PALI's outstanding obligations as of June 30, 2004, namely: P311,000,000.00
limited to; (1) all claims of the government, whether national or local, including taxes, exclusive of interest, penalty charges, attorney's fees and other incidental expenses.
tariffs and customs duties; and (2) claims against directors and officers of the debtor Attached to the petition is a demand letter[9] dated May 3, 2004, stating that PALI's
arising from acts done in the discharge of their functions falling within the scope of outstanding account, inclusive of interest and penalties, as of March 31, 2004 is
their authority: Provided, That, this inclusion does not prohibit the creditors or third P1,386,279,000.00. On September 14, 2004, PALI filed a Petition for suspension of
parties from filing cases against the directors and officers acting in their personal payments and rehabilitation with the RTC of Manila entitled "In the Matter of the
capacities. It is likewise undisputed that the BIR — personally and by publication — Corporate Rehabilitation/Suspension of Payments of Puerto Azul Land, Inc.," the case
was notified of the rehabilitation proceedings involving LCI and the issuance of the was docketed as Civil Case No. 04-110914 and raffled to Branch 24 of the said RTC
Commencement Order related thereto. Notably, the acts of sending a notice of (rehabilitation court). On September 17, 2004, the rehabilitation court, after finding
informal conference and a Formal Letter of Demand are part and parcel of the entire that the petition was sufficient in form and substance, issued a Stay Order pursuant to
process for the assessment and collection of deficiency taxes from a delinquent Section 6, Rule 4 of the Interim Rules on Corporate Rehabilitation, (a) staying the
taxpayer, — an action or proceeding for the enforcement of a claim which should have enforcement of all claims against the debtor, its guarantors and sureties not solidarity
been suspended pursuant to the Commencement Order. Unmistakably, Misajon, et al.'s liable with the debtor, (b) prohibiting PALI from making any payment of its liabilities
foregoing acts are in clear defiance of the Commencement Order. outstanding as of the date of filing of the petition, (c) prohibiting PALI from selling,
encumbering, transferring, or disposing any of its properties except in the ordinary

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DE GUZMAN, Jalena Jesse K. 11780509 CREDIT TRANSACTIONS G04

course of business, and (d) appointing Patrick V. Caoile as rehabilitation receiver. In

the meantime, the properties covered by TCT No. T-133164 were levied upon by the rehabilitation court removed TCT No. T-133164 from the coverage of the Stay
Treasurer's Office of Pasay City for non-payment of realty taxes. On March 3, 2005, Order, since the Interim Rules on Corporate Rehabilitation only covers the
EIB filed an Urgent Motion to order PALI and/or the mortgagor TUI/rehabilitation suspension of the enforcement of all claims against the debtors, its guarantors,
receiver to pay all the taxes due on TCT No. T-133164. On March 31, 2005, the
rehabilitation court modified the Stay Order by excluding from its coverage TCT No.
and sureties not solidarity liable with the mortgagor, and is silent on the
T-133164, to wit: Accordingly, and as being invoked by the creditor movant, this enforcement of claims against accommodation mortgagors, such as TUI. With
Court hereby modifies the Stay Order of September 17, 2004, in such a manner that the resignation of EIB as trustee of the MTI on November 4, 2011, however,
TCT No. 133164, which is mortgaged with creditor movant Export and Industry Bank, private respondent Philippine Business Bank-Trust and Investment Center
Inc. is now excluded from the Stay Order. As such, Export and Industry Bank, Inc., (PBB-Trust) was appointed as a new trustee to administer the MTI, pursuant
may settle the above-stated realty taxes of third party mortgagor with the local
to a Memorandum of Agreement dated December 29, 2011 entered into by and
government of Pasay City. In return, and to adequately protect the creditor movant
Export and Industry Bank, Inc., the latter may foreclose on TCT No. 133164. On April among the following parties: (1) EIB, as the outgoing trustee; (2) PBB-Trust,
12, 2005, PALI filed an Urgent Motion for a status quo order, praying that the Stay as the successor-trustee; (3) Pacific Wide Holdings Inc., as the majority lender
Order be maintained, and that the enforcement of the claim of Pasay City be held in and (4) Philippine Deposit Insurance Corporation (PDIC), as the minority
abeyance pending the hearing of its motion. On August 16, 2005, the rehabilitation lender. On August 30, 2013, an Entry of Judgment in Pacific Wide Realty and
court issued an Order, maintaining its March 31, 2005 Order, and reiterating that TCT Dev't. Corp. v. Puerto Azul Land, Inc. was issued. In a letter dated January 24,
No. T-133164 is excluded from the Stay Order and that EIB may foreclose it and settle
the delinquency taxes of third-party mortgagor TUI with the local government of 2014, PBB-Trust requested (1) that a new notice of sale be issued setting the
Pasay City. Aggrieved by the Order dated August 16, 2005, PALI filed with the CA a sale at public auction of the properties covered by TCT No. T-133164; (2) that
petition for certiorari under Rule 65. The case was docketed as CA-G.R. SP No. 91996 said notice be served, published and posted; and (3) that the foreclosure sale
and entitled, “Puerto Azul Land, Inc. v. The Regional Trial Court of Manila, Br. 24; be conducted in accordance with Act No. 3135, as amended. PBB-Trust, as
Sheriff IV of Pasay City Virgilio F. Villar; and Pacific Wide Realty & Development successor-trustee, claimed that it was authorized by the majority lenders,
Corporation as substitute for Export and Industry Bank, Inc.” On December 13, 2005,
the rehabilitation court rendered a Decision approving PALI’s petition for suspension
namely, Pacific Wide and PDIC, in a meeting called for the purpose to effect
of payments and rehabilitation. such foreclosure. On February 25, 2014, Sheriff Virgilio F. Villar, for the Ex-
Officio Sheriff of Pasay City, issued a New Notice of Sheriff Sale, setting the
Issues auction sale of TCT No. 133164 on April 10, 2014 to satisfy PALI's obligation
a. Whether the terms of the rehabilitation plan are unreasonable and in violation in the amount of P311,000,000.00, plus interests, penalties, publication of the
of the non-impairment clause
notice of sale and expenses of the foreclosure proceedings. On April 3, 2014,
b. Whether the rehabilitation court erred when it allowed the foreclosure of the
accommodation mortgagee's property and excluded the same from the PALI and TUI filed a Petition for Declaratory Relief before the RTC of Pasay
coverage of the Stay Order City, seeking a judicial declaration of the parties' respective rights and
obligations under the MTI and the SMTI, in relation to the Financial
Ruling Rehabilitation and Insolvency Act of 2010, the LSPA and the terms and
Court held that the restructuring of PALI's debts is part and parcel of its conditions of the approved rehabilitation plan.
rehabilitation, and is not prejudicial to the interest of PWRDC as secured
creditor. It sustained the CA's affirmation of PALI's Rehabilitation Plan, They prayed for the following reliefs: (1) Issuance of a 72-hour temporary
including those terms which its creditors had found objectionable, i.e., the 50% restraining order and, eventually, a writ of preliminary injunction, restraining
"haircut" reduction of the principal obligations and the condonation of accrued the Clerk of Court and Ex-Officio Sheriff and the Sheriff of the RTC Pasay
interest and penalty charges. It also found no reversible error when the City (a) from conducting an auction sale over the properties covered by TCT
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No. T-133164, and (b) from issuing a Certificate of Sale in the event that such proceeds of the bid price. Moreover, this Office notes that there are two (2)
an auction sale is held; and (2) Rendition of a decision declaring that (a) the related cases involving the same parties: a case for Declaratory Relief pending
September 17, 2004 Stay Order of the RTC of Manila, Branch 24, applies to before Branch 231 of this Court, the resolution of which will affect the
the properties covered by TCT No. T-133164, considering that such properties propriety of the auction sale of the TUI property conducted on April 10, 2014.
are necessary for the corporate rehabilitation of PALI; and (b) EIB and The other is the Corporate Rehabilitation case pending before RTC, Branch
PWRDC cannot foreclose on the mortgage constituted over the subject 24, Manila (The "Rehabilitation Court"), which is in a better position to
properties covered by TCT No. T-133164 based on the allegations set forth in interpret and determine the amount corresponding to the fifty percent (50%)
the Petition for Extrajudicial Foreclosure dated July 27, 2004 filed before the loan reduction of PALI pursuant to the approved Rehabilitation plan. In a letter
Clerk of Court of the RTC of Pasay City. On April 10, 2014, with the denial dated May 2, 2014, PBB-Trust sought a reconsideration of the Order dated
of PALI's and TUI's application for temporary restraining order, and pursuant April 24, 2014, and requested for the release in its favor of the amount of
to the New Notice of Sheriffs Sale, the mortgaged properties covered by TCT P570,000,000.00 representing the amount tendered and paid by SMDC as bid
No. T-133164 were sold on auction to SM Development Corporation (SMDC) price relative to the properties covered by TCT No. T-133164, subject of the
for having submitted the highest bid in the amount of P570,000,000.00. extrajudicial foreclosure sale. TUI argued as follows: (1) the obligation of the
However, proceeds of the sale were deposited to the Regional Trial Court, principal borrower, PALI, arising from the MTI dated February 3, 1995, the
Pasay City, pending determination of the actual payee of the bid price, SMTI dated March 21, 1995 and related instruments is not P311,000,000.00
considering that EIB, the mortgagee bank, is already closed. In a letter dated but only P81,358,500.00 as of April 2014; (2) pursuant to the Petition for
April 14, 2014, TUI requested for the release in its favor of the amount of Rehabilitation and Suspension of Payments, the RTC-Manila, Branch 24,
P488,641,500.00 representing the alleged surplus amount after deducting the approved the Rehabilitation Plan submitted by the Rehabilitation Receiver; (3)
amount of its supposed indebtedness to EIB in the amount of P81,358,500.00. in the Decision of the Supreme Court dated November 25, 2009, the
In a letter of even date, PBB-Trust claimed that the total bid price of consolidated cases of "PACWIDE REALTY AND DEVELOPMENT
P570,000,000.00 should be remitted to them, being the successor-trustee of CORPORATION v. PUERTO AZUL LAND, INC." the rehabilitation plan
mortgagee bank EIB, pursuant to the Memorandum of Agreement executed on called, among others, for a 50% reduction on PALI's obligation, the imposition
December 29, 2011. In an Order dated April 24, 2014, the Executive Judge of 2% annual interest for the first five years and 5% interest rate thereafter until
advised the parties to avail of the appropriate legal remedies to protect their the obligation is fully paid; (4) pursuant to a Loan Sale Purchase Agreement
rights and interest. She also ruled that, in the meantime, the bid price of dated December 11, 2006, the loan obligations of PALI and another
P570,000,000.00, which was deposited with the Land Bank of the Philippines, corporation, Silahis International Hotel (SIH), were sold by EIB to PACWIDE
shall continue to be held in trust by the Regional Trial Court of Pasay City for P150,000,000.00 [44.58% represented PALI's obligation and 55.42% for
until the court of proper jurisdiction shall have finally determined the rightful SIH's obligation]; (5) the P150,000,000.00 purchase price equitably reduced
recipient of the subject bid price, and/or the respective amount due the PALI's loan obligation to P81,358,500.00 as of April 2014, or 44.58% of the
claimants. She held as follows: In view of the conflicting claims of TUI and total purchase price; and (6) that as purchaser-assignee of the PALI loan,
[PBB-Trust], which will need the presentation of evidence by both parties in a PACWIDE cannot recover from PALI more than what it had paid EIB for the
full-blown trial, the Office of the Executive Judge, which only exercises loan. Confronted, therefore, with the foregoing issues, the most prudent,
administrative functions, has no judicial discretion to determine which, logical and legal recourse then was to have the check, representing the bid
between the two (2) claimants, has the better right to receive the price of SMDC, issued in the name of the "Regional Trial Court of Pasay City",
and deposited to its Fiduciary Fund with the Land Bank of the Philippines
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DE GUZMAN, Jalena Jesse K. 11780509 CREDIT TRANSACTIONS G04

branches that shall exercise jurisdiction over these cases. The Commission shall retain
pending the determination of the issues. At any rate, applying the relevant law jurisdiction over pending cases involving intra-corporate disputes submitted for final
and based on the records of the case, this Office hereby resolves to release the resolution which should be resolved within one (1) year from the enactment of this
full amount of the bid price less the costs of sale and other charges to the Code. The Commission shall retain jurisdiction over pending suspension of
payments/rehabilitation cases filed as of 30 June 2000 until finally disposed. SEC
foreclosing mortgagee-assignee, without prejudice to the right of the assumed jurisdiction over CMC’s petition. While the petition was still pending, with
mortgagor TUI to claim the surplus, if any, in a proper proceeding. the SEC, it was finally disposed of on November 29, 2000, when the SEC issued its
omnibus order directing the dissolution of CMC and the transfer of the liquidation
17. Consuelo Metal Corporation v Planters Development Bank & Maningas |
proceedings. SEC finally disposed of CMC’s petition for suspension of payment when
G.R. No. 152580 | June 26, 2008 | Ponente: Carpio, J.
it determined that CMC could no longer be successfully rehabilitated. SEC’s
jurisdiction however does not extend to the liquidation of the corporation. While it has
Facts
the jurisdiction to order the dissolution, jurisdiction over the liquidation now pertains
On April 1, 1996, CMC filed before the SEC a petition to be declared in a state of
to the appropriate RTC. This is the reason why the SEC in its November 29, 2000
suspension of payment, for rehab, and for appointment of a rehabilitation receiver or
Omnibus Order, directed that the proceedings be commenced at the RTC. This is the
management committee under Sec 5(d) of PD 902-A. On April 2, SEC declared all
correct procedure because the liquidation of a corporation requires the settlement of
actions for claims against CMC pending before any court, office, or tribunal suspended
claims for and against the corporation, which clearly falls under the jurisdiction of the
immediately. On September 13, 1999, SEC directed the creation of a management
regular courts. Trial Court is the best option to convene all the creditors of the
committee for CMC’s rehabilitation. On November 29, 2000, upon the management’s
corporation, ascertain their claims, and determine their preferences
recommendation, the SEC issued on Omnibus Order directing the dissolution and
liquidation of CMC and directed the proceedings and implementation of the order of
18. Yngson v PNB | G.R. No. 171132 | August 15, 2012 | Ponente: Villarama, Jr.,
liquidation be commenced in the RTC. Respondent Planters Bank, one of their
J
creditors, foreclosed a real estate mortgage and scheduled 2 biddings. CMC filed for
an issuance of TRO and preliminary injunction to enjoin foreclosure. On Jan 29, 2001,
Facts
SEC issued a TRO and ordered immediate transfer to RTC. RTC denied CMC’s
Between 1991 and 1993, ARCAM, engaged in the operation of a sugar mill in
motion for TRO since SEC had already terminated and decided on the merits CMC’s
petition for suspension of payment, court no longer had legal basis to act on CMC’s Pampanga, applied for and was granted a loan by respondent. To secure the loan,
motion. RTC denied MR. On June 13, 2001, Planters Bank extra-judicially foreclosed. ARCAM executed a real estate mortgage over a P350,004 sqm parcel of land and a
Chattel Mortgage over various personal properties consisting of machinery,
CA dismissed the petition adding under Sec 121 of the corporation code, SEC has generators, field transportation and heavy equipment. ARCAM defaulted on its
jurisdiction to hear CMC’s petition for dissolution and liquidation. CMC filed an MR, obligations to PNB, thus prompted the latter to initiate an extrajudicial foreclosure
and CA partially granted, ordering the case be remanded to SEC under Sec 121, proceeding in the RTC of Guagua, Pampanga. On Dec. 7, 1993, the day prior to the
however, since SEC already ordered CMC’s dissolution and liquidation, Planter scheduled public auction of the mortgaged personal properties, ARCAM filed before
Bank’s foreclosure was valid. Petitioner raised to the SC the SEC a petition for suspension of payments, appointment of a management or
rehabilitation committee, and approval of rehabilitation plan, with application for
Issue issuance of a TRO and a writ of preliminary injunction. The SEC issued a TRO and a
Whether the RTC has jurisdiction over CMC’s liquidation (YES) writ of preliminary injunction enjoining PNB and sheriff from proceeding with the
foreclosure sale of the mortgaged properties. Feb. 9, 2000 – The SEC ruled that
Ruling
ARCAM can no longer be rehabilitated. Six years have passed since the petition to
RA 8799 transferred to the RTC the SEC’s jurisdiction defined under Sec 5(d) of PD
902-A which provides; The Commission’s jurisdiction over all cases enumerated suspend payment but the white knight investor had not infused much needed capital to
under Sec. 5 of Presidential Decree No. 902-A is hereby transferred to the Courts of bail out ARCAM from its financing difficulties. Thus, SEC decreed that ARCAM be
general jurisdiction or the appropriate Regional Trial Court: Provided, That the dissolved and liquidated. With this development, PNB revived the foreclosure case
Supreme Court in the exercise of its authority may designate the Regional Trial Court and requested the RTC to reschedule the sale of the mortgaged properties. Contending
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DE GUZMAN, Jalena Jesse K. 11780509 CREDIT TRANSACTIONS G04

that foreclosure during liquidation was improper, petitioner filed with the SEC a SEC. 114. Rights of Secured Creditors. – The Liquidation Order shall not affect the
motion for the issuance of a TRO and/or writ of preliminary injunction to enjoin the right of a secured creditor to enforce his lien in accordance with the applicable contract
foreclosure sale of ARCAM’s assets. SEC issued a TRO effective for 72hrs but the or law. A secured creditor may:
same lapsed without a writ of preliminary injuction being issued. PNB resumed the
proceedings and eventually came out as the highest bidder and certificates of sale was (a) waive his rights under the security or lien, prove his claim in the
issued in its favor. Petitioner filed with the SEC a motion to nullify the auction sale liquidation proceedings and share in the distribution of the assets of the
and argued that all actions against companies which are under liquidation are debtor; or
suspended because liquidation is a continuation of the petition for suspension (b) maintain his rights under his security or lien;
proceedings. Furthermore, mortgaged assets should be included in the liquidation and
the proceeds shared with the unsecured creditors. PNB, in its opposition, asserted that If the secured creditor maintains his rights under the security or lien:
neither PD 902-A nor the SEC prohibits secured creditors from foreclosing their
(1) the value of the property may be fixed in a manner agreed upon by the
mortgages to satisfy the mortgagor’s debt after the termination of the rehabilitation
creditor and the liquidator.1âwphi1When the value of the property is less than
proceedings and during liquidation proceedings. Jan. 4, 2005 – SEC denied
the claim it secures, the liquidator may convey the property to the secured
petitioner’s motion to nullify the auction sale. PNB was not legally barred from
creditor and the latter will be admitted in the liquidation proceedings as a
foreclosing on the mortgages. Petitioner filed a petition for review in the CA. CA
creditor for the balance; if its value exceeds the claim secured, the liquidator
dismissed the petition on the ground that petitioner failed to attach material portions
may convey the property to the creditor and waive the debtor’s right of
of the record and other docs relevant to the petition. Hence this petition for certiorari
redemption upon receiving the excess from the creditor;
under rule 45.
(2) the liquidator may sell the property and satisfy the secured creditor’s
Issue
Whether PNB can foreclose on the mortgaged properties of a corporation under entire claim from the proceeds of the sale; or
liquidation without the knowledge and prior approval of the liquidator or the SEC (3) the secured creditor may enforce the lien or foreclose on the property
(YES)
pursuant to applicable laws.
Ruling In this case, PNB elected to maintain its rights under the security or lien; hence, its
PNB was not barred from foreclosing the mortgages. In the case of Consuelo Metal right to foreclose the mortgaged properties should be respected, in line with our
Corporation v. Planters Development Bank,26 which involved factual antecedents pronouncement in Consuelo Metal Corporation.
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 this case, the Supreme Court also cited its ruling
in Rizal Commercial Banking Corporation v. Intermediate Appellate Court wherein it
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.
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:

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