14 Yngson v. Philippine National Bank

4/26/22, 4:05 PM SUPREME COURT REPORTS ANNOTATED VOLUME 678
G.R. No. 171132. August 15, 2012.*
MANUEL D. YNGSON, JR. (in his capacity as the

Liquidator of ARCAM & COMPANY, INC.), petitioner, vs.
PHILIPPINE NATIONAL BANK, respondent.
Financial Rehabilitation and Insolvency Act (FRIA) of 2010

(RA No. 10142); 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.―It is worth mentioning that under
Republic Act No. 10142, otherwise known as the Financial
Rehabilitation and Insolvency Act (FRIA) of 2010, the right of a
secured creditor to enforce his lien during liquidation proceedings
is retained. Section 114 of said law thus provides: SEC. 114.
Rights of Secured Creditors.―The Liquidation Order shall not
affect the right of a secured creditor to enforce his lien in
accordance with the applicable contract or law. A secured creditor
may: (a) waive his rights under the security or lien, prove his
claim in the liquidation proceedings and share in the distribution
of the assets of the debtor; or (b) maintain his rights under his
security or lien; If the secured creditor maintains his rights
under the security or lien: (1) the value of the prop-
_______________
* FIRST DIVISION.
448
448 SUPREME COURT REPORTS ANNOTATED
Yngson, Jr. vs. Philippine National Bank
erty may be fixed in a manner agreed upon by the creditor and

the liquidator. When the value of the property is less than the
claim it secures, the liquidator may convey the property to the
secured creditor and the latter will be admitted in the liquidation
proceedings as a creditor for the balance; if its value exceeds the
claim secured, the liquidator may convey the property to the
creditor and waive the debtor’s right of redemption upon receiving
https://central.com.ph/sfsreader/session/0000018064ea5f64a2388af1000d00d40059004a/p/ARP418/?username=Guest 1/12
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.
“Preference of Credit,” and “Lien” Distinguished.―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, 229 SCRA 350
(1994), 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.
PETITION for review on certiorari of the resolutions of the

Court of Appeals.
The facts are stated in the opinion of the Court.
Yngson & Associates for petitioner.
Angara, Abello, Concepcion, Regala & Cruz for
respondent.
449
VOL. 678, AUGUST 15, 2012 449

VILLARAMA, JR., J.:

On appeal are the Resolutions dated April 14, 20051 and
January 24, 20062 of the Court of Appeals (CA) in CA-G.R.
SP No. 88735. The CA dismissed petitioner’s petition for
review of the January 4, 2005 Resolution3 and February 9,
2000 Order4 of the Securities and Exchange Commission
(SEC) for failure of petitioner to attach to the petition
copies of material portions of the records and other
relevant or pertinent documents.
The facts follow:
ARCAM & Company, Inc. (ARCAM) is engaged in the

operation of a sugar mill in Pampanga.5 Between 1991 and
1993, ARCAM applied for and was granted a loan by
respondent Philippine National Bank (PNB).6 To secure the
loan, ARCAM executed a Real Estate Mortgage over a
350,004 square meter parcel of land covered by TCT No.
340592-R and a Chattel Mortgage over various personal
properties consisting of machinery, generators, field
transportation and heavy equipment.
ARCAM, however, defaulted on its obligations to PNB.
Thus, on November 25, 1993, pursuant to the provisions of
the Real Estate Mortgage and Chattel Mortgage, PNB
initiated extrajudicial foreclosure proceedings in the Office
of the Clerk of Court/Ex Officio Sheriff of the Regional Trial
Court
_______________
1 Rollo, pp. 32-33. Penned by Associate Justice Perlita J. Tria Tirona
with Associate Justices Delilah Vidallon-Magtolis and Jose C. Reyes, Jr.
concurring.
2 Id., at p. 35. Penned by Associate Justice Jose C. Reyes, Jr. with
Associate Justices Rosmari D. Carandang and Monina Arevalo Zenarosa
concurring.
3 Id., at pp. 39-45.
4 Id., at pp. 36-38.
5 Id., at p. 10.
6 Id., at p. 265.
450

(RTC) of Guagua, Pampanga.7 The public auction was

scheduled on December 29, 1993 for the mortgaged real
properties and December 8, 1993 for the mortgaged
personal properties.
On December 7, 1993, ARCAM filed before the SEC a
Petition for Suspension of Payments, Appointment of a
Management or Rehabilitation Committee, and Approval of
Rehabilitation Plan, with application for issuance of a
temporary restraining order (TRO) and writ of preliminary
injunction. The SEC issued a TRO and subsequently a writ
of preliminary injunction, enjoining PNB and the Sheriff of
the RTC of Guagua, Pampanga from proceeding with the
foreclosure sale of the mortgaged properties.8 An interim
management committee was also created.
On February 9, 2000, the SEC ruled that ARCAM can

no longer be rehabilitated. The SEC noted that the petition
for suspension of payment was filed in December 1993 and
six years had passed but the potential “white knight”
investor had not infused the much needed capital to bail
out ARCAM from its financial difficulties.9 Thus, the SEC
decreed that ARCAM be dissolved and placed under
liquidation.10 The SEC Hearing Panel also granted PNB’s
motion to dissolve the preliminary injunction and
appointed Atty. Manuel D. Yngson, Jr. & Associates as
Liquidator for ARCAM.11 With this development, PNB
revived the foreclosure case and requested the RTC Clerk
of Court to re-schedule the sale at public auction of the
mortgaged properties.
Contending that foreclosure during liquidation was
improper, petitioner filed with the SEC a Motion for the
Issuance of a Temporary Restraining Order and/or Writ of
Preliminary Injunction to enjoin the foreclosure sale of
ARCAM’s
_______________
7 Id., at p. 272.
8 Id., at p. 39.
9 Id., at p. 37.
10 Id., at p. 38.
11 Id., at p. 11.
451
VOL. 678, AUGUST 15, 2012 451

assets. The SEC en banc issued a TRO effective for

seventy-two (72) hours, but said TRO lapsed without any
writ of preliminary injunction being issued by the SEC.
Consequently, on July 28, 2000, PNB resumed the
proceedings for the extrajudicial foreclosure sale of the
mortgaged properties.12 PNB emerged as the highest
winning bidder in the auction sale, and certificates of sale
were issued in its favor.
On November 16, 2000, petitioner filed with the SEC a
motion to nullify the auction sale.13 Petitioner posited that
all actions against companies which are under liquidation,
like ARCAM, are suspended because liquidation is a
continuation of the petition for suspension proceedings.
Petitioner argued that the prohibition against foreclosure
subsisted during liquidation because payment of all of
ARCAM’s obligations was proscribed except those

authorized by the Commission. Moreover, petitioner
asserted that the mortgaged assets should be included in
the liquidation and the proceeds shared with the unsecured
creditors.
In its Opposition, PNB asserted that neither
Presidential Decree (P.D.) No. 902-A nor the SEC rules
prohibits secured creditors from foreclosing on their
mortgages to satisfy the mortgagor’s debt after the
termination of the rehabilitation proceedings and during
liquidation proceedings.14
On January 4, 2005, the SEC issued a
15
Resolution denying petitioner’s motion to nullify the
auction sale. It held that PNB was not legally barred from
foreclosing on the mortgages.
Aggrieved, petitioner filed on February 28, 2005, a
petition for review in the CA questioning the January 4,
2005 Resolution of the SEC.16
_______________
12 Id., at p. 12.
13 Id.
14 Id., at p. 41.
15 Id., at pp. 39-45.
16 Id., at p. 13.
452

By Resolution dated April 14, 2005, the CA dismissed

the petition on the ground that petitioner failed to attach
material portions of the record and other documents
relevant to the petition as required in Rule 46, Section 3 of
the 1997 Rules of Civil Procedure, as amended. The CA
likewise denied ARCAM’s motion for reconsideration in its
Resolution dated January 24, 2006.
Hence this petition under Rule 45 arguing that:
4.1. THE SEC ERRED IN FAILING TO APPLY THE RULES

OF CONCURRENCE AND PREFERENCE OF CREDITS
UNDER THE CIVIL CODE AND JURISPRUDENCE WHEN PD
902-A PROVIDES THAT THE SAME BE APPLIED IN
INSTANCES WHEREBY AN ENTITY IS ORDERED
DISSOLVED AND PLACED UNDER LIQUIDATION ON
ACCOUNT OF FAILURE TO REHABILITATE DUE TO
INSOLVENCY.17
4.2. IT WAS GROSSLY ERRONEOUS FOR THE SEC TO

HAVE ALLOWED PNB TO FORECLOSE THE MORTGAGE
WITHOUT FIRST ALLOWING THE ARCAM LIQUIDATOR TO
MAKE A DETERMINATION OF THE LIENS OVER THE
ARCAM REAL PROPERTIES, SINCE THE LIQUIDATOR HAD
INITIALLY DETERMINED THAT ASIDE FROM PNB, SOME
ARCAM WORKERS MAY ALSO HAVE A LEGAL LIEN OVER
THE SAID PROPERTY AS REGARDS THEIR CLAIMS FOR
UNPAID WAGES. THESE LIENS OVER THE SAME MOVABLE
OR REAL PROPERTY ARE TO BE SATISFIED PRO-RATA
WITH THE CONTRACTUAL LIENS PURSUANT TO 2247 AND
2249 OF THE CIVIL CODE, IN RELATION TO 2241 TO 2242
RESPECTIVELY. ALSO, THERE MAY BE SOME TAX
ASSESSMENTS THAT THE LIQUIDATOR DOES NOT KNOW
ABOUT, AND IF THERE WERE, THESE COULD COMPRISE
TAX LIENS, WHICH UNDER ARTICLE 2243 OF THE CIVIL
CODE ARE CLEARLY GIVEN PRIORITY OVER OTHER
PREFERRED CLAIMS SINCE SUCH ARE TO BE SATISFIED
FIRST, OVER OTHER LIENS PROVIDED UNDER ARTICLES
2241 AND 2242 OF THE CIVIL CODE, SUCH AS MORTGAGE
LIENS.18
_______________
17 Id., at p. 15.
18 Id., at p. 16.
453
VOL. 678, AUGUST 15, 2012 453

4.3. THE SEC LABORED UNDER THE MISTAKEN

IMPRESSION THAT AFTER AN ENTITY IS DISSOLVED AND
PLACED UNDER LIQUIDATION DUE TO INSOLVENCY,
SECURED CREDITORS ARE AUTOMATICALLY ALLOWED
TO FORECLOSE OR EXECUTE OR OTHERWISE MAKE GOOD
ON THEIR CREDITS AGAINST THE DEBTOR.19
4.4. JURISPRUDENCE ON THE MATTER ALSO NEGATES
THE SEC’S HOLDING THAT THE FORECLOSURE BY PNB
WAS LEGAL. EVEN ASSUMING FOR THE SAKE OF
ARGUMENT THAT PNB IS THE SOLE AND ONLY LIEN
HOLDER, IT STILL CANNOT FORECLOSE UNLESS THE
LIQUIDATOR AGREES TO SUCH OR THAT THE SEC GAVE
PNB PRIOR PERMISSION TO INSTITUTE THE SEPARATE
FORECLOSURE PROCEEDINGS.20
4.5. RESPONDENT PNB SHOULD BE MADE TO PAY
DAMAGES FOR THE REASON THAT THE FORECLOSURE
PROCEEDINGS WERE ATTENDED WITH BAD FAITH.21
The issues to be resolved are: (1) whether the CA

correctly dismissed the petition for failure to attach
material documents referred to in the petition; and (2)
whether PNB, as a secured creditor, can foreclose on the
mortgaged properties of a corporation under liquidation
without the knowledge and prior approval of the liquidator
or the SEC.
On the procedural issue, the Court finds that the CA
erred in dismissing the petition for review before it on the
ground of failure to attach material portions of the record
and other documents relevant to the petition. A perusal of
the petition for review filed with the CA, and as admitted
by PNB,22 reveals that certified true copies of the assailed
January 4, 2005 SEC Resolution and the February 9, 2000
SEC Order appointing petitioner Atty. Manuel D. Yngson,
Jr. as liquidator were annexed therein.
_______________
19 Id., at p. 19.
20 Id., at p. 21.
21 Id., at p. 24.
22 Id., at p. 98.
454

We find the foregoing attached documents sufficient for

the appellate court to decide the case at bar considering
that the SEC resolution contains statements of the factual
antecedents material to the case. The Resolution also
contains the SEC’s findings on the legality of PNB’s
foreclosure of the mortgages. The SEC held that when the
rehabilitation proceeding was terminated and the
suspensive effect of the order staying the enforcement of
claims was lifted, PNB could already assert its preference
over unsecured creditors, and the secured asset and the
proceeds need not be included in the liquidation and shared
with the unsecured creditors.23 Before the CA, petitioner
raised only the same legal questions as there was no
controversy involving factual matters. Petitioner claimed
that the SEC erred in not applying the rules on
concurrence and preference of credits, and in denying its
motion to nullify the auction sale of the secured
properties.24 Therefore, the assailed SEC Resolution is the
only material portion of the record that should be annexed
with the petition for the CA to decide on the correctness of

the SEC’s interpretation of the law and jurisprudence on
the matter before it.
Having so ruled, this Court would normally order the
remand of the case to the CA for resolution of the
substantive issues. However, we find it more appropriate to
decide the merits of the case in the interest of speedy
justice considering that the parties have adequately argued
all points and issues raised. It is the policy of the Court to
strive to settle an entire controversy in a single proceeding,
and to leave no root or branch to bear the seeds of future
litigation.25 The ends of speedy justice would not be served
by a remand of this case to the CA especially since any
ruling of the CA on the matter could end up being appealed
to this Court.
_______________
23 Id., at pp. 44-45.
24 CA Rollo, p. 5.
25 Ching v. Court of Appeals, 387 Phil. 28, 42; 331 SCRA 16, 30
(2000); Golangco v. Court of Appeals, 347 Phil. 771, 778; 283 SCRA 493,
501 (1997).
455
VOL. 678, AUGUST 15, 2012 455

Did the SEC then err in ruling that PNB was not barred
from foreclosing on the mortgages? We answer in the
negative.
In the case of Consuelo Metal Corporation v. Planters
Development Bank,26 which involved factual antecedents
similar to the present case, the court has already settled
the above question and upheld the right of the secured
creditor to foreclose the mortgages in its favor during the
liquidation of a debtor corporation. In that case, Consuelo
Metal Corporation (CMC) filed with the SEC a petition to
be declared in a state of suspension of payment, for
rehabilitation, and for the appointment of a rehabilitation
receiver or management committee under Section 5(d) of
P.D. No. 902-A. On April 2, 1996, the SEC, finding the
petition sufficient in form and substance, declared that “all
actions for claims against CMC pending before any court,
tribunal, office, board, body and/or commission are deemed
suspended immediately until further orders” from the SEC.
Then on November 29, 2000, upon the management
committee’s recommendation, the SEC issued an Omnibus

Order directing the dissolution and liquidation of CMC.
Thereafter, respondent Planters Development Bank
(Planters Bank), one of CMC’s creditors, commenced the
extrajudicial foreclosure of CMC’s real estate mortgage.
Planters Bank extrajudicially foreclosed on the real estate
mortgage as CMC failed to secure a TRO. CMC questioned
the validity of the foreclosure because it was done without
the knowledge and approval of the liquidator. The Court
ruled in favor of the respondent bank, as follows:
In Rizal Commercial Banking Corporation v. Intermediate

Appellate Court, we held that if rehabilitation is no longer feasible
and the assets of the corporation are finally liquidated, secured
creditors shall enjoy preference over unsecured creditors, subject
only to the provisions of the Civil Code on concurrence and
preference of credits. Creditors of secured obligations may
pursue their secu-
_______________
26 G.R. No. 152580, June 26, 2008, 555 SCRA 465.
456

rity interest or lien, or they may choose to abandon the

preference and prove their credits as ordinary claims.
Moreover, Section 2248 of the Civil Code provides:
“Those credits which enjoy preference in relation to
specific real property or real rights, exclude all others to the
extent of the value of the immovable or real right to which
the preference refers.”
In this case, Planters Bank, as a secured creditor, enjoys
preference over a specific mortgaged property and has a right to
foreclose the mortgage under Section 2248 of the Civil Code. The
creditor-mortgagee has the right to foreclose the mortgage
over a specific real property whether or not the debtor-
mortgagor is under insolvency or liquidation proceedings.
The right to foreclose such mortgage is merely suspended
upon the appointment of a management committee or
rehabilitation receiver or upon the issuance of a stay
order by the trial court. However, the creditor-mortgagee
may exercise his right to foreclose the mortgage upon the
termination of the rehabilitation proceedings or upon the
lifting of the stay order.27 (Emphasis supplied)
It is worth mentioning that under Republic Act No.

10142, otherwise known as the Financial Rehabilitation
and Insolvency Act (FRIA) of 2010, the right of a secured
creditor to enforce his lien during liquidation proceedings is
retained. Section 114 of said law thus provides:
SEC. 114. Rights of Secured Creditors.―The Liquidation

Order shall not affect the right of a secured creditor to enforce his
lien in accordance with the applicable contract or law. A secured
creditor may:
(a) waive his rights under the security or lien, prove his claim
in the liquidation proceedings and share in the distribution of the
assets of the debtor; or
(b) maintain his rights under his security or lien;
_______________
27 Id., at pp. 474-475.
457
VOL. 678, AUGUST 15, 2012 457

If the secured creditor maintains his rights under the security

or lien:
(1) the value of the property may be fixed in a manner agreed
upon by the creditor and the liquidator. When the value of the
property is less than the claim it secures, the liquidator may
convey the property to the secured creditor and the latter will be
admitted in the liquidation proceedings as a creditor for the
balance; if its value exceeds the claim secured, the liquidator may
convey the property to the creditor and waive the debtor’s right of
redemption upon receiving the excess from the creditor;
(2) the liquidator may sell the property and satisfy the
secured creditor’s entire claim from the proceeds of the sale; or
(3) the secured creditor may enforce the lien or foreclose on
the property pursuant to applicable laws. (Emphasis supplied)
In this case, PNB elected to maintain its rights under

the security or lien; hence, its right to foreclose the
mortgaged properties should be respected, in line with our
pronouncement in Consuelo Metal Corporation.
As to petitioner’s argument on the right of first
preference as regards unpaid wages, the Court has
elucidated in the case of Development Bank of the
Philippines v. NLRC28 that a distinction should be made
between a preference of credit and a lien. A preference
applies only to claims which do not attach to specific
properties. A lien creates a charge on a particular property.
The right of first preference as regards unpaid wages

recognized by Article 110 of the Labor Code, does not
constitute a lien on the property of the insolvent debtor in
favor of workers. It is but a preference of credit in their
favor, a preference in application. It is a method adopted to
determine and specify the order in which credits should be
paid in the final distribution of the proceeds of the
insolvent’s assets. It is a right to a first preference in the
discharge of the funds of the judgment debtor.
Consequently, the right of first preference for unpaid wages
may not be invoked in this case to
_______________
28 G.R. No. 86227, January 19, 1994, 229 SCRA 350, 353.
458

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.
WHEREFORE, the petition for review on certiorari
is DENIED.
With costs against the petitioner.
SO ORDERED.
Carpio,** Leonardo-De Castro,*** Bersamin and Del

Castillo, JJ., concur.
Petition denied.
Notes.―The adjudication of a case which necessarily

involves the application of pertinent statutes and
jurisprudence to matters of assignment and preference of
credits is more suited for a trial court to carry out after a
full-blown trial, than an arbitration body specifically
devoted to construction contracts. (Fort Bonifacio
Development Corporation vs. Sorongon, 587 SCRA 613
[2009])
Under A.M. No. 00-8-10-SC, a petition for corporate
rehabilitation is considered a special proceeding; The
period of appeal shall be 30 days since a record of appeal is
required. (BPI Family Savings Bank, Inc. vs. Pryce Gases,
Inc., 653 SCRA 42 [2011])
――o0o――
_______________
** Designated Acting Member of the First Division per Special Order
No. 1284 dated August 6, 2012.
*** Designated Acting Chairperson of the First Division per Special
Order No. 1226 dated May 30, 2012.
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4/26/22, 4:05 PM SUPREME COURT REPORTS ANNOTATED VOLUME 678

G.R. No. 171132. August 15, 2012.*

MANUEL D. YNGSON, JR. (in his capacity as the

Financial Rehabilitation and Insolvency Act (FRIA) of 2010

448 SUPREME COURT REPORTS ANNOTATED

Yngson, Jr. vs. Philippine National Bank

erty may be fixed in a manner agreed upon by the creditor and

PETITION for review on certiorari of the resolutions of the

VOL. 678, AUGUST 15, 2012 449

VILLARAMA, JR., J.:

ARCAM & Company, Inc. (ARCAM) is engaged in the

450 SUPREME COURT REPORTS ANNOTATED

(RTC) of Guagua, Pampanga.7 The public auction was

On February 9, 2000, the SEC ruled that ARCAM can

VOL. 678, AUGUST 15, 2012 451

assets. The SEC en banc issued a TRO effective for

ARCAM’s obligations was proscribed except those

452 SUPREME COURT REPORTS ANNOTATED

By Resolution dated April 14, 2005, the CA dismissed

4.1. THE SEC ERRED IN FAILING TO APPLY THE RULES

4.2. IT WAS GROSSLY ERRONEOUS FOR THE SEC TO

VOL. 678, AUGUST 15, 2012 453

4.3. THE SEC LABORED UNDER THE MISTAKEN

The issues to be resolved are: (1) whether the CA

454 SUPREME COURT REPORTS ANNOTATED

We find the foregoing attached documents sufficient for

with the petition for the CA to decide on the correctness of

VOL. 678, AUGUST 15, 2012 455

committee’s recommendation, the SEC issued an Omnibus

In Rizal Commercial Banking Corporation v. Intermediate

456 SUPREME COURT REPORTS ANNOTATED

rity interest or lien, or they may choose to abandon the

It is worth mentioning that under Republic Act No.

SEC. 114. Rights of Secured Creditors.―The Liquidation

VOL. 678, AUGUST 15, 2012 457

If the secured creditor maintains his rights under the security

In this case, PNB elected to maintain its rights under

The right of first preference as regards unpaid wages

458 SUPREME COURT REPORTS ANNOTATED

nullify the foreclosure sales conducted pursuant to PNB’s

Carpio,** Leonardo-De Castro,*** Bersamin and Del

Notes.―The adjudication of a case which necessarily

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Carpio, Leonardo-De Castro,* Bersamin and Del