Aidan Manglinong

11689919
Credit Transactions G04

Case Digests under the Financial Rehabilitation and Insolvency Act

____________________________________________________________________________

G.R. No. L-14938 January 28, 1961

RESOLUTION ON MOTION TO RECONSIDER December 29, 1962
MAGDALENA C. DE BARRETO, ET AL.
Vs.
JOSE G. VILLANUEVA, ET AL

FACTS
Rosario Cruzado, for herself and as administratix of the intestate estate of her deceased husband
Pedro Cruzado obtained from Rehabilitation Finance Corporation a loan of P11,000. To secure
payment thereof, she mortgaged land in name of deceased husband. As she failed to pay certain
installments on the loan, the mortgage was foreclosed and the RFC acquired the property for
P11,000.00, subject to her rights as mortgagor to re-purchase the same. Upon her application, the
land was sold back to her conditionally for the amount of P14,269.03, payable in seven years.

Two years later on February 13, 1953 Rosario Cruzado was authorized by the court to sell with the
previous consent of the RFC the land together with the improvements for a sum not less than
P19,000. She sold to Pura L. Villanueva for P19,000.00 all their rights, interest,'title and dominion
and over the parcel of land together with the existing improvements on it, free from all charges and
encumbrances with the exception of the sum of P11,009.52, which is the stipulated interest which
the Cruzado is still presently obligated to the RFC and which Villanueva as vendee now assumes to
pay to the RFC under the same terms and conditions specified in that deed of sale dated July 26,
1951.

Pura L. Villanueva, the vendee, in consideration of the aforesaid sale, executed in favor of the
vendor Rosario Cruzado a promissory note undertaking to pay the balance of P17,500.00 in monthly
installments. She later mortgaged the said property to Magdalena C. Barretto as security for a loan
the amount of P30,000.00. Villanueva failed to pay the loan to Barreto and a complaint for the
recovery of the same from her and her husband was filed by Rosario Cruzado. Pending trial, a lien
was constituted upon the property in the nature of a levy in attachment in
favor of the Cruzados. Trial court ordered Villanueva to pay the Cruzados.

The Barrettos instituted against Villanuevas an action for foreclosure of mortgage and impleaded
Rosario Cruzado. The trial court later absolved Cruzados but ordered Villanueva to pay P30,000 to
Barrettos. Cruzados filed their "Vendor's Lien" in the amount of P12,000.00 over the real property.
The said amount representing the unpaid balance of the purchase price of the said property. The
lower courts favored Cruzados.
The lower courts favored Cruzados and ordered that they be credited with their pro-rata share in the
proceeds pursuant to the provision of Articles 2248 and 2249 of the new Civil Code in relation to
Article 2242, par. 2 of the same Code.

Appellants argue that the vendor's lien, under Articles 2242 and 2243 of the Civil Code can only
become effective in the event of insolvency of the vendee.

ISSUE: Whether or not Cruzado as an unpaid vendor can claim her vendor’s lien

ORIGINAL RULING: YES.

Applying Art. 2242 and 2249 of the Civil Code, Rosario Cruzado as an unpaid vendor of the property
in question has the right to share pro-rata with the appellants the proceeds of the foreclosure sale.
Art 2242 includes: “(2) For the unpaid price of real property sold, upon the immovable sold
and (5) Mortgage credits recorded in the Registry of Property”

Art. 2249 states: “...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 upon the
immovable property or real rights”

MOTION FOR RECONSIDERATION: REVERSED

In order to make the prorating in Art. 2249 fully effective, the preferred creditors enumerated in Nos.
2 to 14 of Article 2242 must necessarily be convened and the import of their claims ascertained. It is
thus apparent that the full, application of Articles 2249 and 2242 demands that there must be first
some proceedings where the claims of all the preferred creditors may be bindingly adjudicated, such
as insolvency, the settlement of decedents estate under Rule 87 of the Rules of Court, or other
liquidation proceedings of similar import.

In the absence of insolvency proceedings, the conflict must be decided pursuant to the principle
concerning registered lands that a purchaser in good faith and for value takes registered property
free from liens and encumbrances other than statutory liens and those recorded in the certificate of
title. There being no insolvency or liquidation, the claim of Cruzado as unpaid vendor did not require
the character and rank of a statutory lien co-equal to the mortgagee's recorded encumbrance, and
must remain subordinate to the latter.

G.R. No. 126200 August 16, 2001

DEVELOPMENT BANK OF THE PHILIPPINES
Vs.
HONORABLE COURT OF APPEALS and REMINGTON INDUSTRIAL SALES CORPORATION

FACTS
Marinduque Mining-Industrial Corporation obtained various loans from the Philippine National Bank
and as security for said loans executed Chattel Mortgage and Real Estate Mortgage in favor of PNB,
which covered land and property owned by MIMC including improvements. MIMC also executed a
Mortgage Trust Agreement in favor of the Development Bank of the Philippines covering various real
properties.

MIMC was unable to pay the obligations and PNB and DBP. In the ensuing public auction sale, PNB
and DBP emerged and were declared the highest bidders over the foreclosed real properties,
buildings, mining claims, leasehold rights together with the improvements thereon as well as
machineries and equipments of MMIC.

It was later found that between July 16, 1982 to October 4, 1983, Marinduque Mining purchased and
caused to be delivered construction materials and other merchandise from Remington Industrial
Sales Corporation worth P921,755.95. The purchases remained unpaid as of August 1, 1984
causing Remington filed a complaint for a sum of money and damages against Marinduque Mining
for the value of the unpaid construction materials and other merchandise purchased by Marinduque
Mining. PNB and DBP were later impleaded. Nonoc Mining, and Maricalum Mining were also
included as they were alleged to be owned by the banks.

The RTC and CA found the four entitles liable to Remington. The CA found that Remington has a
lien in on the unpaid purchases of Marinduque Mining, and as transferee of these purchases, DBP
should be held liable for their value.

ISSUE
Whether or not Remington can enforce the lien against DBP, PNB,Maricalum Mining and Nocnoc
Mining

RULING: NO
In the absence of liquidation proceedings, the claim of Remington cannot be enforced against DBP.

As provided for in the De Barretto case, one preferred creditor's third-party claim to the proceeds of
a foreclosure sale is not the proceeding contemplated by law for the enforcement of preferences
under Article 2242, unless the claimant were enforcing a credit for taxes that enjoy absolute priority.
If none of the claims is for taxes, a dispute between two creditors will not enable the Court to
ascertain the pro rata dividend corresponding to each, because the rights of the other creditors
likewise enjoying preference under Article 2242 can not be ascertained. As the extrajudicial
foreclosure instituted by PNB and DBP is not the liquidation proceeding contemplated by the Civil
Code, Remington cannot claim its pro-rata share from DBP

G.R. No. 105827 January 31, 2000

J.L. BERNARDO CONSTRUCTION, represented by attorneys-in-fact Santiago R. Sugay, Edwin A.

Sugay and Fernando S.A. Erana, SANTIAGO R. SUGAY, EDWIN A. SUGAY and FERNANDO S. A.
ERANA, petitioners,vs.

COURT OF APPEALS and MAYOR JOSE L. SALONGA, respondents.

FACTS
Petitioners won the bidding for the construction of the public market of San Antonio, Nueva Ecija. t.
A construction agreement was then entered into by the municipality thru respondent Salonga, then
the incumbent mayor and petitioner JL Bernardo Construction. Petitioners claim that under the
Construction Agreement, the Municipality agreed to assume the expenses for the demolition,
clearing and site filling of the construction site in the amount of P1,150,000 and to provide cash
equity of P767,305.99 to be remitted directly to petitioners.

Despite completion of 98% of the project and despite repeated demands, the Municipality refused to
pay. Petitioners filed for breach of contract, specific performance and collection of sum of money,
with prayer of preliminary attachment and enforcement of contractor’s lien against the municipality
and Salonga in his official and personal capacity.

RTC favored the petitioners, and found they stand in the position of an unpaid contractor and are
thus entitled to a lien of P2,653,576.84 pursuant to Art. 2242 and 2243 of the Civil Code. The RTC
also ruled that it was more practical and reasonable to permit plaintiffs to operate the public market
and to apply to their claims the income derived in the form of rentals and goodwill from the
prospective stallholders of the market.

CA annulled the orders of the RTC after ruling that Art. 2242 of the Civil Code finds application only
in the context of insolvency proceedings, as expressly stated in Article 2243. It also found that even
if it is conceded that plaintiffs are entitled to retain possession of the market under its contractor's
lien, the same right cannot be expanded to include the right to use the building. Therefore, the trial
court's grant of authority to plaintiffs to operate the San Antonio Public Market amounts to a grave
abuse of discretion.

ISSUE

Whether or not petitioners can operate the market and use the proceeds to satisfy their lien

RULING: NO

Art. 2242 applies only when there is a concurrence of credits such as when the same specific
property of the debtor is subjected to the claims of several creditors and the value of such is
insufficient to pay in full all creditors. In such a case, the question of preference will arise, that is, to
whom of the creditors shall be first. Due process will dictate that this statutory lien should be
enforced only in the context of a proceeding where the claims of all preferred creditors may be
bindingly adjudicated, such as insolvency proceedings.

The action filed by petitioners in the trial court does not partake of the nature of an insolvency
proceeding as it is for specific performance and damages. Even if it is finally adjudicated that
petitioners herein actually stand in the position of unpaid contractors and are entitled to invoke the
contractor's lien granted under Art. 2242, the lien cannot be enforced in the present action for there
is no way of determining whether or not there exists other preferred creditors with claims over the
San Antonio Public Market. The records do not contain any allegation that petitioners are the only
creditors with respect to such property.
G.R. No. 146555 July 3, 2007

JOSE C. CORDOVA, Petitioner,

vs.
REYES DAWAY LIM BERNARDO LINDO ROSALES LAW OFFICES, ATTY. WENDELL
CORONEL and the SECURITIES AND EXCHANGE COMMISSION

FACTS
Petitioner Jose C. Cordova bought from Philippine Underwriters Finance Corporation certificates
of stock of Celebrity Sports Plaza Incorporated and shares of stock of 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 in behalf of and for the
benefit of petitioner.

Philfinance was placed under receivership by public respondent Securities and Exchange
Commission. Private respondents Reyes Daway Lim Bernardo Lindo Rosales Law Offices and
Atty. Wendell Coronel were appointed as liquidators. Without the knowledge and consent of
petitioner and without authority from the SEC or Cordova, private respondents withdrew the
CSPI shares from the custodian banks and sold the shares to Northeast Corporation and
included the proceeds thereof in the funds of Philfinance. Petitioner learned about the
unauthorized sale of his shares only in September 1996. He lodged a complaint with private
respondents but the latter ignored it, prompting him to file a formal complaint against private
respondents in the receivership proceedings with the SEC, for the return of the shares. Later,
the SEC approved a 15% rate of recovery for Philfinance’s creditors and investors

SEC later granted the claims held that petitioner was the owner of the CSPI shares by virtue of
a confirmation of sale but since the shares had already been sold and the proceeds commingled
with the other assets of Philfinance, petitioner’s status was converted into that of an ordinary
creditor for the value of such shares.

Petitioner argues that he was a preferred creditor because private respondents illegally
withdrew his CSPI shares from the custodian banks and sold them without his knowledge and
consent and without authority from the SEC.

ISSUE
Whether Cordova should be considered a secured/preferred creditor of philfrance

RULING
Cordova should be considered only an ordinary creditor. Cordova had become an ordinary
creditor of Philfinance. His CSPI shares were specific or determinate movable properties. But
after they were sold, the money raised from the sale became generic and were commingled with
the cash and other assets of Philfinance. It thus became impossible to identify the exact
proceeds of the sale of the CSPI shares since they could no longer be particularly designated
nor distinctly segregated from the assets of Philfinance. Petitioner’s only remedy was to file a
claim on the whole mass of these assets to which all of the other creditors and investors of
Philfinance also had a claim.

Article 2241 refers only to specific movable property. His claim was for the payment of money,
which, as already discussed, is generic property and not specific or determinate. As Cordova
did not fall under any of the provisions applicable to preferred creditors, he should be deemed
an ordinary creditor under Article 2245 which provides that: “Credits of any other kind or class,
or by any other right or title not comprised in the four preceding articles, shall enjoy no
preference.”

Article 2251 (2) states that: “Common credits referred to in Article 2245 shall be paid pro rata
regardless of dates.” Like all the other ordinary creditors or claimants against Philfinance, he
was entitled to a rate of recovery of only 15% of his money claim.

G.R. No. 172892, June 13, 2013

PHILIPPINE DEPOSIT INSURANCE CORPORATION, Petitioner, v. BUREAU OF INTERNAL

REVENUE, Respondent.

FACTS
The Monetary Board of the Bangko Sentral ng Pilipinas prohibited the Rural Bank of Tuba
(RBTI) from doing business in the Philippines, placed it under receivership in accordance with
Section 30 of Republic Act No. 7653, otherwise known as the “New Central Bank Act,” and
designated the Philippine Deposit Insurance Corporation as receiver.

PDIC conducted an evaluation of RBTI’s financial condition and determined that RBTI remained
insolvent. Thus, the Monetary Board issued Resolution No. 675 dated June 6, 1997 directing
PDIC to proceed with the liquidation of RBTI. Accordingly and pursuant to Sec. 30 of the New
Central Bank Act, PDIC filed in the RTCof La Trinidad, Benguet a petition for assistance in the
liquidation of RBTI. The trial court gave the petition due course.

The BIR intervened as one of the creditors of RBTI. The BIR prayed that the proceedings be
suspended until PDIC has secured a tax clearance required under Section 52(C) of Republic
Act No. 8424 or the“Tax Code of 1997. The RTC granted the BIR’s motion and ordered PDIC to
get the tax clearance.

The CA agreed with the trial court that banks under liquidation by PDIC are covered by Section
52(C) of the Tax Code of 1997.

PDIC insists that Section 52(C) of the Tax Code of 1997 is not applicable to banks ordered
placed under liquidation by the Monetary Board of the BSP. It argues that closed banks placed
under liquidation pursuant to Section 30 of the New Central Bank Act are not “corporations
contemplating liquidation” within the purview of Section 52(C) of the Tax Code of 1997. As
opposed to the liquidation of all other corporations, the Monetary Board, not the Securities and
Exchange Commission (SEC), has the power to order or approve the closure and liquidation of
banks. Section 52(C) of the Tax Code of 1997 applies only to corporations under the
supervision of the SEC.

ISSUE
Whether a bank placed under liquidation has to secure a tax clearance from BIR before
the project of distribution of the assets of the bank can be approved by the liquidation court

RULING: No.
The petition is granted. It has been settled in In Re: Petition for Assistance in the Liquidation of
the RBBI, that Sec. 52 (C) is not applicable to banks ordered placed under
liquidation by the Monetary Board, and a tax clearance is not a prerequisite to the
approval of the project of distribution of the assets of a bank under liquidation by the
PDIC. First, Sec. 52 (C) pertains only to a regulation of the relationship between the SEC
and the BIR with respect to corporations contemplating dissolution or reorganization.
Banks under liquidation by the PDIC constitute a special case governed by the special rules and
procedures under Sec. 30 of the New Central Bank Act, which does not require that a tax
clearance be secured from the BIR.Second, only a final tax return is required to satisfy the
interest of the BIR in the liquidation of a closed bank, which is the determination of the tax
liabilities of a bank under liquidation by the PDIC.

The Supreme Court also ruled that debts and liabilities of the bank under liquidation are to be
paid in accordance with the rules on concurrence and preference of credit under the
Civil Code. Duties, taxes, and fees due the Government enjoy priority only when they
are with reference to a specific movable property, under Article 2241 (1), or
immovable property, under Article 2242.

G.R. No. 74851 December 9, 1999

RIZAL COMMERCIAL BANKING CORPORATION, petitioner,
vs.
INTERMEDIATE APPELLATE COURT AND BF HOMES, INC., respondents

FACTS
On September 28, 1984, BF Homes filed a Petition for Rehabilitation and for Declaration of
Suspension of Payments with the SEC. RCBC was one of its creditors. On October 26, 1984,
RCBC requested the Provincial Sheriff of Rizal to extra-judicially foreclose its real estate
mortgage on some properties of BF Homes. A TRO was issued by the SEC on sale. The sheriff
proceeded with the public auction sale on January 29, 1985, in which RCBC was the highest
bidder for the properties auctioned.
BF Homes filed in the SEC a consolidated motion to annul the auction sale. Because of the
proceedings in the SEC, the sheriff withheld the delivery to RCBC of a certificate of sale
covering the auctioned properties.

Despite the SEC case, RCBC filed with the Regional Trial Court an action for mandamus
against the provincial sheriff of Rizal to execute in its favor a certificate of sale of the auctioned
properties.

On March 18, 1985, the SEC appointed a Management Committee for BF Homes. RTC ordered
the sheriff to deliver the certificate of sale. IAC granted BF HOMES’ appeal. The Supreme Court
in a prior decision upheld the IAC decision.

ISSUE: Whether the extrajudicial foreclosure to satisfy RCBC’s claims was valid despite the
management committee being appointed

RULING: YES. Motion for Reconsideration granted.

Insofar as RCBC is concerned, the provisions of PD No. 902-A are not yet applicable and
it may still be allowed to assert its preferred status because it foreclosed on the mortgage prior
to the appointment of the management committee.

Suspension of claims against a corporation under rehabilitation is counted or figured

up upon the appointment of a management committee or a rehabilitation receiver. The
holding that suspension of actions for claims against a corporation under rehabilitation
takes effect as soon as the application or a petition for rehabilitation is filed with the
SEC.

The suspension of actions for claims commences only from the time a management committee
or receiver is appointed by the SEC. Petitioner RCBC, therefore, could have rightfully, as it did,
move for the extrajudicial foreclosure of its mortgage on October 26, 1984 because a
management committee was not appointed by the SEC until March 18, 1985

The Court laid down two important rules in this case:

“1. All claims against corporations, partnerships, or associations that are pending before
any court, tribunal, or board, without distinction as to whether or not a creditor is secured or
unsecured, shall be suspended effective upon the appointment of a management committee,
rehabilitation receiver, board, or body in accordance which the provisions of Presidential Decree
No. 902-A.

2. Secured creditors retain their preference over unsecured creditors, but enforcement of
such preference is equally suspended upon the appointment of a management committee,
rehabilitation receiver, board, or body. In the event that the assets of the corporation,
partnership, or association are finally liquidated, however, secured and preferred credits under
the applicable provisions of the Civil Code will definitely have preference over unsecured ones.”

G.R. No. 173610 and G.R. No. 174132

October 1, 2012

TOWN AND COUNTRY ENTERPRISES, INC., Petitioner,

vs.
HONORABLE NORBERTO J. QUISUMBING, JR., ET. AL, and METROPOLITAN BANK AND
TRUST CO Respondents.

FACTS
Town & Country Enterprises, Inc. obtained loans in the aggregate sum of ₱ 12,000,000.00 from
respondent Metropolitan Bank & Trust Co. To secure the prompt payment of the loan, TCEI
executed in favor of Metrobank a thrice amended Deed of Real Estate Mortgage over twenty
parcels of land registered in its name and/or its corporate officers, petitioners Spouses
Reynaldo and Lydia Campos.

TCEI failed to pay the loans despite demand from Metrobank which caused. Metrobank to extra-
judicially foreclose the parcels of land. Metrobank emerged as the highest bidder from the
auction sale. Metrobank was unable to redeem the property within the three-month period
allowed by the law.

Claiming difficulty in servicing its obligations as a consequence of the Asian financial crisis, on
the other hand, TCEI filed on October 1 2002 a petition for declaration of a state of suspension
of payments, with approval of a proposed rehabilitation plan.

After the issuance of a Stay Order on in the corporate rehabilitation case, TCEI filed on a motion
to suspend the proceedings in the land registration case over the mortgaged real property. The
writ of possession issued in the latter case was suspended. CA granted the certiorari petition
filed by Metrobank and ordered RTC to issue a writ of possession. CA denied TCEI and
Spouses Campos’ appeal.

Petitioners maintain that the rehabilitation receiver, as an officer of the court empowered to take
possession, control and custody of the debtor’s assets, should have been considered a third
person whose possession of the foreclosed properties was an exception to the rule that the
grant of a writ of possession is ministerial.

ISSUE
Whether the issuance of the writ of possession violated the rules on rehabilitation

RULING: NO
Metrobank had already acquired ownership over the subject realties when TCEI commenced its
petition for corporate rehabilitation.

Having purchased the subject realties at public auction on November 7 2001, Metrobank
undoubtedly acquired ownership over the same when TCEI failed to exercise its right of
redemption within the three-month period prescribed under Act 3135.

A principal feature of corporate rehabilitation is the Stay Order which defers all actions or claims
against the corporation seeking corporate rehabilitation from the date of its issuance until the
dismissal of the petition or termination of the rehabilitation proceedings.Under Sec. 24, Rule 4 of
the Interim Rules of Procedure on Corporate Rehabilitation which was in force at the time the
approval of the rehabilitation plan also produces the following results:

a. The plan and its provisions shall be binding upon the debtor and all persons who may be
affected by it, including the creditors, whether or not such persons have participated in the
proceedings or opposed the plan or whether or not their claims have been scheduled;

b. The debtor shall comply with the provisions of the plan and shall take all actions necessary to
carry out the plan;

c. Payments shall be made to the creditors in accordance with the provisions of the plan;

d. Contracts and other arrangements between the debtor and its creditors shall be interpreted
as continuing to apply to the extent that they do not conflict with the provisions of the plan; and

e. Any compromises on amounts or rescheduling of timing of payments by the debtor shall be

binding on creditors regardless of whether or not the plan is successfully implemented.

G.R. No. 180036 January 16, 2013

SITUS DEV. CORPORATION, DAILY SUPERMARKET, INC. and COLOR LITHOGRAPH

PRESS, INC., Petitioners,
vs.
ASIATRUST BANK, ALLIED BANKING CORPORATION, METROPOLITAN BANK AND
TRUST COMPANY and CAMERON GRANVILLE II ASSET MANAGEMENT, INC.
("CAMERON"), Respondents.

FACTS
Resolution resolving the motion for reconsideration for the case involving petitioners herein,
Situs Development Corporation, Daily Supermarket, Inc. and Color Lithographic Press, Inc. The
Supreme Court answered the issues without going over the facts.

ISSUE
Whether the subject properties should be included in the ambit of the Stay Order by virtue of the
provisions of the FRIA, which should be given retroactive effect

RULING: NO
Petitioners argue that the trial court was correct in including the subject properties in the ambit
of the Stay Order. Under the FRIA, the Stay Order may now cover third-party or accommodation
mortgages, in which the "mortgage is necessary for the rehabilitation of the debtor as
determined by the court upon recommendation by the rehabilitation receiver."

The wording of Sec. 146 of the FRIA clearly shows that it is applicable to all further
proceedings. In no way could it be made retrospectively applicable to the Stay Order issued by
the rehabilitation court back in 2002.

At the time of the issuance of the Stay Order, the rules in force were the 2000 Interim Rules of
Procedure on Corporate Rehabilitation. Under those rules, one of the effects of a Stay Order is
the stay of the "enforcement of all claims, whether for money or otherwise and whether such
enforcement is by court action or otherwise, against the debtor, its guarantors and sureties not
solidarily liable with the debtor." Nowhere there is it stated that the rehabilitation court is
authorized to suspend foreclosure proceedings against properties of third-party mortgagors.

G.R. No. 160732 June 21, 2004

METROPOLITAN WATERWORKS AND SEWERAGE SYSTEM, petitioner,
vs.
HON. REYNALDO B. DAWAY, in his capacity as Presiding Judge of the Regional Trial Court of
Quezon City, Branch 90 and Maynilad Water Services, Inc., respondent

FACTS
MWSS granted Maynilad under a Concession Agreement to manage, operate, repair,
decommission and refurbish the existing MWSS water delivery and sewerage service. Maynilad
undertook to pay concession fees. Maynilad arranged for a three-year facility with a
number of foreign banks, for the issuance of an Irrevocable Standby Letter of Credit in favor of
MWSS for the full and prompt performance of Maynilads obligations to MWSS, as required in
their agreement.

On November 5, 2002, Maynilad served upon MWSS a Notice of Event of Termination, claiming
that MWSS failed to comply with its obligations under the Concession Agreement and
Amendment No. 1 regarding the adjustment mechanism that would cover Maynilad’s foreign
exchange losses. MWSS, thereafter, submitted a written notice to Citicorp International Limited,
as agent for the participating banks, that by virtue of Maynilad’s failure to perform its obligations
under the Concession Agreement, it was drawing on the Irrevocable Standby Letter of Credit
and demanded payment in the amount of US$98,923,640.15
Earlier, Maynilad had filed on November 13, 2003, a petition for rehabilitation before the court a
quo which resulted in the issuance of the Stay Order of November 17, 2003.

Petitioner argues that a call made on the Standby Letter of Credit does not involve any asset of
Maynilad but only assets of the banks and that a call on the Standby Letter of Credit cannot also
be considered a "claim" falling under the purview of the stay order as alleged by respondent as
it is not directed against the assets of respondent Maynilad.

ISSUE
Whether the Standby Letter of Credit is covered by the stay order due to the petition for
rehabilitation

RULING: NO.
The claim is not one against the debtor but against an entity that respondent Maynilad has
procured to answer for its non-performance of certain terms and conditions of the Concession
Agreement, particularly the payment of concession fees.

The prohibition under Sec 6 (b) of Rule 4 of the Interim Rules does not apply to the
the standby letter of credit issued by the bank as the former prohibition is on the enforcement of
claims against guarantors or sureties of the debtors whose obligations are not solidary with the
debtor.The participating banks’ obligation are solidary with respondent Maynilad in that it is a
primary, direct, definite and an absolute undertaking to pay and is not conditioned on the prior
exhaustion of the debtor’s assets. Obligor. Being solidary, the claims against them can be
pursued separately from and independently of the rehabilitation case.

G.R. No. 173846 February 2, 2011

JOSE MARCEL PANLILIO, ERLINDA PANLILIO, NICOLE MORRIS and MARIO T.

CRISTOBAL, Petitioners,
vs.
REGIONAL TRIAL COURT, BRANCH 51, CITY OF MANILA, represented by HON.
PRESIDING JUDGE ANTONIO M. ROSALES; PEOPLE OF THE PHILIPPINES; and the
SOCIAL SECURITY SYSTEM, Respondents.

FACTS
Jose Marcel Panlilio, Erlinda Panlilio, Nicole Morris and Marlo Cristobal as corporate officers of
Silahis International Hotel, Inc. (SIHI), filed with the RTC Branch 24 of Manila, a petition for
Suspension of Payments and Rehabilitation. The RTC issued a stay order against all claims
against SIHI upon finding the petition sufficient in form and substance.

At the time, of the filing of the petition for rehabilitation, there were a number of criminal charges
pending against petitioners in Branch 51 of the RTC of Manila. These criminal charges were
initiated by respondent SSS for violations of Section 28 (h)8 of Republic Act 8282, or the Social
Security Act of 1997 or SSS Law in relation to Article 315 (1) (b)9 of the Revised Penal Code, or
Estafa. Petitioners filed a motion to suspend the proceedings in Branch 51 of the RTC of
Manila.The RTC denied the motion to suspend, ruling that the Stay Order issued by Branch 24
did not cover criminal proceedings. CA affirmed, holding that that the criminal proceedings
against the petitioners should not be considered a claim against the corporation and thus not
covered by the stay order issued by Branch 24.

ISSUE
Whether the stay order issued by the RTC Branch 24 includes the criminal cases

RULING: NO
The term "claim" in Sec.6 (c) of P.D 902-A has been construed to refer to debts or demands of a
pecuniary nature, or the assertion to have money paid. The suspension of "all claims" as an
incident to a corporate rehabilitation does not contemplate the suspension of criminal charges
filed against the corporate officers of the corporation.

The rehabilitation of SIHI and the settlement of claims against the corporation is not a legal
ground for the extinction of petitioners’ criminal liabilities. There is no reason why criminal
proceedings should be suspended during corporate rehabilitation. The prosecution of the
officers of the corporation has no bearing on the pending rehabilitation of the corporation,
especially since they are charged in their individual capacities.

The Supreme Court pointed out the under the Financial Rehabilitation and Insolvency Act of
2010 recently passed then, Secc. 18 thereof explicitly provides that criminal actions against the
individual officer of a corporation are not subject to the Stay or Suspension Order in
rehabilitation proceedings.

G.R. No. 164641 December 20, 2007

BANK OF THE PHILIPPINE ISLANDS, as successor of Far East Bank and Trust Company,
petitioner,vs.

SECURITIES AND EXCHANGE COMMISSION, REHABILITATION HOLDINGS, INC.,

VELASCO, JR., ASB DEVELOPMENT CORPORATION, ASB LAND, INC., ASB FINANCE,
INC., MAKATI HOPE CHRISTIAN SCHOOL, INC., BEL-AIR HOLDINGS CORP.,
WINCHESTER TRADING, INC., VYL DEVELOPMENT CORP., GERRICK HOLDINGS CORP.,
NEIGHBORHOOD HOLDINGS, INC., and THE COURT OF APPEALS, respondents.

FACTS

Petitioner BPI through its predecessor-in- interest Far East Bank and Trust Company extended
credit accommodations to the ASB Group in outstanding aggregate amount of P86,800,000.00,
secured by a real estate mortgage over two properties located in Greenhills, San Juan. ASB
Group filed a petition for rehabilitation and suspension of payments before SEC. The Interim
Receiver submitted a rehabilitation plan which included dacion en pago on properties of ASB for
the obligations of ASB to BPI. The dacion en pago would constitute full payment of the entire
obligation due to BPI because the balance was then to be considered waived.

BPI opposed the Rehabilitation Plan and moved for the dismissal of the ASB Group’s petition for
rehabilitation. However, the SEC hearing panel issued an order approving ASB Group’s
proposed rehabilitation plan and appointed Fortunato Cruz as rehabilitation receiver.

BPI filed a petition for review with SEC and imputed grave abuse of discretion on the the
hearing panel, arguing that the order constituted an arbitrary violation of BPI’s freedom and right
to contract since the Rehabilitation Plan compelled BPI to enter into a dacion en pago
agreement with the ASB Group.

CA dismissed BPI’s petition, holding that the dacion en pago transaction could proceed only
proceed upon the mutual agreement of the parties and BPI’s assertion that it is being coerced
could not be sustained. CA added that at no point would the rehabilitation plan compel secured
creditors such as BPI to agree to a settlement agreement against their will

ISSUE

Whether the proposed rehabilitation plan is a violation of the non-impairment of contracts under
the Constitution

RULING: NO

SEC’s approval of the Rehabilitation Plan did not impair BPI’s right to contract. The non-impairment
clause is a limit on the exercise of legislative power and not of judicial or quasi-judicial power. The
SEC, through the hearing panel that heard the petition for approval of the Rehabilitation Plan, was
acting as a quasi-judicial body and thus, its order approving the plan cannot constitute an
impairment of the right and the freedom to contract. The mere fact that the Rehabilitation Plan
proposes a dacion en pago does not render it defective due to impairment of the right to 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. Being a form of contract, the dacion
en pago agreement cannot be perfected without the consent of the parties involved.

If BPI does not find the dacion en pago acceptable, the ASB Group can propose to settle its debts at
an amount equivalent to the selling price of the mortgaged properties. If BPI still refuses this option,
it can assert its rights in the liquidation and distribution of the ASB Group’s assets. And will not lose
its status as a secured creditor, and will retain preference over unsecured creditors when the assets
of the corporation are liquidated.
G.R. No. 175844 July 29, 2013

BANK OF THE PHILIPPINE ISLANDS, Petitioner,

vs.

SARABIA MANOR HOTEL CORPORATION, Respondent.

FACTS

In 1997, Sarabia obtained a P150,000,000.00 special loan package from Far East Bank and Trust
Company in order to finance the construction of a five-storey hotel building for the expansion of its
business. An additional P20,000,000.00 stand-by credit line was approved by FEBTC in the same
year. The loans were secured by real estate mortgage over land owned by Sarabia. FEBTC later
merged with BPI.

Sarabia started to pay loans but faced cash flow problems due to default of its contractor for the
building, stalling its completion. Despite the fact that it had more assets than liabilities at that time,
Sarabia filed a petition for corporate rehabilitation with prayer for the issuance of a stay order before
the RTC saying it foresaw the impossibility of meeting its maturing obligations to its creditors when
they fall due. Sarabia claimed it failed to generate enough cash flow to service its maturing
obligations to its creditors including BPI, which it computed to be in the amount of P191,476,421.42.

Sarabia sought for the restructuring of all its outstanding loans, submitting that the interest payments
on the same be pegged at a uniform escalating rate of: (a) 7% per annum for the years 2002 to
2005; (b) 8% p.a. for the years 2006 to 2010; (c) 10% p.a. for the years 2011 to 2013; (d) 12% p.a.
for the years 2014 to 2015; and (e) 14% p.a. for the year 2018. The Stay Order was issued after the
RTC found the petition sufficient in form and substance.

RTC gave due course to the rehabilitation petition and referred Sarabia’s proposed rehabilitation
plan to the receiver. The receiver found that Sarabia could be rehabilitated. RTC approved the plan
and the CA affirmed, finding the 6.75% p.a fixed in the approved rehabilitation plan valid.

BPI argues that the approved rehabilitation plan did not give due regard to its interests as a secured
creditor in imposing a fixed interest rate of 6.75% p.a. and the extended loan repayment period.

ISSUE

Whether or not the terms in the approved rehabilitation plan are valid

RULING: YES

Based on the Receiver’s Report, Sarabia’s financial history shows that it has the capacity to
generate funds to repay its loan obligations if applied through the proper financial framework. The
Receiver’s examination and analysis of Sarabia’s financial data reveals that its business is not only
an ongoing but also a growing concern but despite its financial constraints, Sarabia continues to be
profitable with its hotelier business as its operations have not been disrupted.
Sarabia still has the ability to have sustainable profits over a long period of time. Sarabia’s projected
revenues shall have a steady year-on-year growth from the time that it applied for rehabilitation until
the end of its rehabilitation plan in 2018 but with decreasing growth rates.

The Supreme Court also found that the CA correctly found that creditors’ interests are still protected.
The safeguards were:

(a) That any deficiency in the required minimum payments to creditors based on the presented
amortization schedule shall be paid personally by Sarabia’s stockholders;

(b) the conversion of the advances from stockholders amounting to P18,748,306.00 and deferred
credits amounting to P42,688,734 as of the December 31, 2002 tentative audited financial
statements to stockholder’s equity;

(c) all capital expenditures which are over and above what is provided in the cash flow of the
approved rehabilitation plan which will materially affect the cash position of the hotel but which are
deemed necessary in order to maintain the hotel’s competitiveness in the industry were to be subject
to the approval by the Court prior to implementation;

(d) the formation of Sarabia’s new management team and requirement that it shall be required to
submit a comprehensive business plan to support the generation of revenues as reported in the
Rehabilitation Plan, both short term and long term;

(e) the maintenance of all Sarabia’s existing real estate mortgages over hotel properties as
collaterals and securities in favor of BPI until Sarablia full and final liquidation of its outstanding loan
obligations; and

(f) the reinstatement of the comprehensive surety agreement of Sarabia’s stockholders regarding the
Sarabia’s debt to BPI

G.R. No. 193108 December 10, 2014

MARILYN VICTORIO-AQUINO, Petitioner,vs.

PACIFIC PLANS, INC. and MAMERTO A. MARCELO, JR. (Court-Appointed Rehabilitation

Receiver of Pacific Plans, Inc.), Respondents.

FACTS

Pacific Plans, Inc. (now APEC)is engaged in the business of selling pre-need plans and
educational plans, including traditional open-ended educational plans called PepTrads, which
are educational plans where respondent guarantees to pay the planholder, without regard to the
actual cost at the time of enrolment, the full amount of tuition and other school fees of a
designated beneficiary. Petitioner Victorio-Aquino held two PepTrads.
Foreseeing the impossibility of meeting its obligations to the planholders as they fall due,
respondent filed a Petition for Corporate Rehabilitation with the RTC. Respondent prayed that it
be placed under rehabilitation and suspension of payments pursuant to P.D 902-A, in relation to
the Interim Rules of Procedure on Corporate Rehabilitation. The Rehabilitation Court issued a
Stay Order, directing the suspension of payments of the obligations of respondent and ordering
all creditors and interested parties to file their comments/oppositions, respectively, to the
Petition for Corporate Rehabilitation. Mameto Marcerlo was named Rehabilitation Receiver.

The Rehabilitation Receiver submitted an Alternative Rehabilitation Plan (ARP) for the approval
of the Rehabilitation Court. The ARP had the following proposal:

The benefits under the PEP Trads shall be translated into fixed-value benefits as of
December 31, 2004, which will be termed as Base Year-end 2004 Entitlement, and shall
be computed as follows:

(i) For availing plan holders, based on fifty-percent (50%) of Average School Fee of SY
2005-2006 for every remaining year of availment;

(ii) For non-availing (Group 1) plan holders, based on the higher of Base Year-end 2004
Entitlement under the Rehabilitation Proposal or fifty-percent (50%) of Average School
Fee of SY 2005-2006 for every year of availment

(iii) For non-availing (Group 2) plan holders, based on the planholders’ contributions with
seven percent (7%) net interest per annum from date of full payment on record to
December 31, 2004.

The ARP had a tuition support system would depend on the prevailing market rate of the
NAPOCOR Bonds and Peso-Dollar exchange rate. When the value of the Philippine Peso
strengthened, the ARP was modified as the trust fund of respondent is mainly composed of
NAPOCOR bonds that are denominated in US Dollars. The Modified Rehabilitation Plan had the
following modifications:

(a) suspension of the tuition support;

(b) converting the Philippine Peso liabilities to U.S. Dollar liabilities by assigning to each
planholder a share of the remaining asset in proportion to the share of liabilities in 2010; and

(c) payments of the trust fund assets in U.S. Dollars at maturity

The MRP was approved by the Rehabilitation Court. Citing the cram down power of the
rehabilitation court under Sec. 23 of the Interim Rules which provides that courts have the
power to approve a rehabilitation plan over the objection of creditors and even when such
proposed rehabilitation plan involves the impairment of contractual obligations.
Petitioner opposed the MRP, contending that the MRP reduces the original claim and original
amount that petitioner was to receive under the ARP and thatit was beyond the authority of the
Rehabilitation Court to sanction a rehabilitation plan or a modification of it when the essential
feature of the plan involves forcing creditors to reduce their claims against respondent.

ISSUE

Whether or not the proposal in the Modified Rehabilitation Plan is valid

RULING: YES

The cram-down power of the Rehabilitation Court has long been established and is codified
under Section 23, Rule 4 of the Interim Rules.

“Section 23. Approval of the Rehabilitation Plan. – The court may approve a
rehabilitation plan over the opposition of creditors, holding a majority of the total liabilities
of the debtor if, in its judgment, the rehabilitation of the debtor is feasible and the
opposition of the creditors is manifestly unreasonable”

Under said Sec. 23, the court may approve a rehabilitation plan over the objection of the
creditors if, in its judgment, the rehabilitation of the debtors is feasible and the opposition of the
creditors is manifestly unreasonable.

According to the Supreme Court, it is undeniable that there is a need to move to a regime of
modern restructuring, cram-down and court supervision in the matter of corporation
rehabilitation in order to address the greater interest of the public.

While the voice and participation of the creditors is crucial in the determination of the viability of
the rehabilitation plan, the interests of all stakeholders is the ultimate and prime consideration.
Thus, while the Supreme Court recognized the predisposition of the planholders on the
enforcement of the MRP, since the terms and conditions stated therein have been
fundamentally changed from those stated in the Original and Amended Rehabilitation Plan, the
MRP cannot be considered an abrogation of rights to the planholders or creditors. It is a
reasonable defense mechanism to ensure that regardless of the performance of the Philippine
Peso, planholders of petitioner are guaranteed payment upon maturity of the NAPOCOR Bonds,
without fear that their share will be substantially diluted.
G.R. No. 224764

BUREAU OF INTERNAL REVENUE, ASSISTANT COMMISSIONER ALFREDO V. MISAJON,

GROUP SUPERVISOR ROLANDO M. BALBIDO, and EXAMINER REYNANTE DP.
MARTIREZ, Petitioners,

vs.

LEPANTO CERAMICS, INC., Respondent.

FACTS

Respondent Lepanto Ceramics, Inc. filed a petition for corporate rehabilitation pursuant to the FRIA
before the Special Commercial Court. LCI alleged it faced the financial difficulties since the Asian
financial crisis and entered a state of insolvency due to its inability to pay obligations as they become
due and that its total liabilities amounting to P4,213 ,682, 715. exceeded its total assets worth
P1,112,723,941.00. LCI admitted in annexes to the petition that it had i tax liabilities to the national
government in the amount of at least P6,355,368.00.

The Court issued Commencement Order that declared LCI under corporate rehabilitation,
,suspended all actions or proceedings for the enforcement of claims against LCI, prohibited LCI from
making any payment of its liabilities outstanding as of even date, except as may be provided under
RA 10142 and directed the BIR to file and serve on LCI its comment or opposition to the petition, or
its claims against LCI.

Assistant Commissioner Misajon of the BIR however still sent LCI a notice of informal conference
informing LCI of its deficiency internal tax liabilities for the Fiscal Year ending June 30, 2010. The
Court reminded BIR of pendency of the rehabilitation proceedings but the BIR still sent BIR sent LCI
a Formal Letter of Demand requiring LCI to pay deficiency taxes in the amount of P567,519,348.39.
LCI file a petition for indirect contempt against petitioners.

The RTC found Misajon and the BIR guilty of indirect contempt and asked them to pay fine of P5000
each. It ruled that petitioners' acts of sending LCI a notice of informal conference and Formal Letter
of Demand are covered by the Commencement Order as they were for the purpose of pursuing and
enforcing a claim for deficiency taxes.

ISSUE

Whether or not the RTC correctly found Misajon, et al. to have defied the Commencement Order

RULING: YES

The sending for the Formal Letter of Demand was covered. Misajon defied the Commencement
Order.

Under Section 4 (gg) of RA 10142, “Rehabilitation” shall refer to the restoration of the debtor to a
condition of successful operation and solvency, if it is shown that its continuance of operation is
economically feasible and its creditors can recover by way of the present value of payments
projected in the plan, more if the debtor continues as a going concern than if it is immediately
liquidated.”

Section 16 of the FRIA provides that upon the issuance of a Commencement Order, including a Stay
or Suspension Order, all actions or proceedings, in court or otherwise, for the enforcement of
"claims" against the distressed company shall be suspended.

Under the said provision:

“Claim "shall refer to all claims or demands of whatever nature or character against the
debtor or its property, whether for money or otherwise, liquidated or unliquidated, fixed or
contingent, matured or unmatured, disputed or undisputed, including, but not limited to; (1)
all claims of the government, whether national or local, including taxes, tariffs and customs
duties; and (2) claims against directors and officers of the debtor arising from acts done in
the discharge of their functions falling within the scope of their authority: Provided, That, this
inclusion does not prohibit the creditors or third parties from filing cases against the directors
and officers acting in their personal capacities."

In the case at bar, Misajon et al. still sent the Notice of Informal Conference and Formal Letter of
Demand to pay the deficiencies, which are part and parcel of the entire process for the assessment
and collection of deficiency taxes from a delinquent taxpayer, despite the issuance of the
Commencement Order and the reminder by the Court of the pendency of the rehabilitation
proceedings. Misajon, et al. 's are in clear defiance of the Commencement Order.

G.R. No. 213020 March 20, 2017

PUERTO AZUL LAND, INC. and TERNATE UTILITIES, INC., Petitioners

vs

EXPORT INDUSTRY BANK, INC., (formerly named Urban Bank, Inc.), through its TRUST
DEPARTMENT (formerly named Urban Trust Department); PACIFIC WIDE HOLDINGS,
INCORPORATED; PHILIPPINE BUSINESS BANK - TRUST and INVESTMENT CENTER; HON.
RACQUELEN ABARYV ASQUEZ, in her capacity as Executive Judge, and ATTY. MARIVIC S.
TIBAYAN, in her capacity as Clerk of Court and Ex-Officio Sheriff, both of the Regional Trial Court of
Pasay City, Respondents

FACTS

Petitioner Puerto Azul Land, Inc is owner and developer of the Puerto Azul Complex in Ternate,
Cavite. To finance its operations and the development of Puerto Azul into a satellite city with
residential areas, resort, tourism and retail commercial centers with recreational areas, PALI
obtained loans from various creditors. PALI and accomodation mortgagors among them Ternate
Development Corporation and petitioner Ternate Utilities, Inc. executed a Mortgage Trust Indenture
with Urban Bank Inc, to secure obligations amounting to P627,000,000. Two parcels of land owned
by TUI were covered by real estate mortgage to secure the obligations. PALI later failed to pay
obligations due to Asian Financial Crisis.

In July 2004, Export and Industry Bank, Inc,, which was later merged with UBI, filed a petition for
extrajudicial foreclosure of real estate mortgage over TUI’s properties. In September the same year,
PALI filed a Petition for suspension of payments and rehabilitation with the RTC. The RTC found the
petition sufficient in form and substance and issued a stay order against enforcement of all claims
against debtor, but excluded one of the parcels of land, TCT No. T-133164. The CA reversed the
order and ruled that TCT No. T-133164 should be covered by the stay order. PBB-Trust later
succeeded EIB.

The Supreme Court in the prior case "Pacific Wide Realty and Dev't. Corp v. Puerto Azul Land, Inc”
ruled that the TCT No. T-133164 should be excluded from the stay order. PALU filed a TRO against
the RTC to stop the sherriff continuing with public auction of the property but it proceeded

The mortgaged properties covered by TCT No. T-133164 were sold on auction to SM Development
Corporation or having submitted the highest bid in the amount of ₱570,000,000.00. However,
proceeds of the sale were deposited to the Regional Trial Court, Pasay City, pending determination
of the actual payee of the bid price, considering that EIB, the mortgagee bank, is already closed.

Petitioner instituted the current action against Executive Judge Asquez for ordering the release in
favor of PBB-Trust the entire bid amount of P570,000,000.00

ISSUE

Whether the order of the Executive Judge to release the bid amount of P570,000,000 was an error
on her part

RULING: YES

Despite having noted in the June 30, 2014 Order that there is still a "genuine dispute" on the amount
due to the foreclosing mortgagee-assignee, PBB-Trust, as a result of the rehabilitation plan covering
PALI and the sale of EIB's loan accounts to PACWIDE, the Executive Judge erroneously estimated
that the interest, penalties and other expenses alone would far exceed PALI' s P311,000,000.00
principal loan obligation, and authorized the release of the entire P570,000,000.00 auction sale
proceeds to PBB-Trust.
G.R. No. 152580 June 26, 2008

CONSUELO METAL CORPORATION, petitioner,

vs.

PLANTERS DEVELOPMENT BANK and ATTY. JESUSA PRADO-MANINGAS, in her capacity as

Ex-officio Sheriff of Manila, respondents.

FACTS

Consuelo Metal Corporation filed a petition with SEC 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. SEC found 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 order" from
the SEC. SEC directed the creation of a management committee to undertake CMC’s rehabilitation.

The management committee recommended the SEC to issue an Omnibus Order directing the
dissolution and liquidation of CMC.The SEC also directed that proceedings on implementation of the
order of liquidation be commenced at the RTC, thus transferring the case.

Respondent Planters Development Bank (Planters Bank), one of CMC’s creditors, commenced the
extra-judicial foreclosure of CMC’s real estate mortgage. Public auctions were scheduled. CMC filed
a motion for the issuance of a temporary restraining order and a writ of preliminary injunction with
the SEC to enjoin the foreclosure of the real estate mortgage.

The case was transferred to the RTC, which denied the TRO since SEC no longer had jurisdiction. It
ruled that CMC’s petition for suspension of payment could not be converted into a petition for
dissolution and liquidation because they covered different subject matters and were governed by
different rules and that CMC’s remedy was to file a new petition for dissolution and liquidation either
with the SEC or the trial court. On June 2001, the Planters Bank extra-judicially foreclosed
mortgage.

CA favored CMC but later reversed itself and reinstate the order of the RTC. Later it partially granted
CMC’s MRand ordered that the case be remanded to the SEC under Section 121 of the Corporation
Code

ISSUES

1. Whether the present case falls under Section 121 of the Corporation Code, which refers to the
SEC’s jurisdiction over CMC’s dissolution and liquidation, or is only a continuation of the SEC’s
jurisdiction over CMC’s petition for suspension of payment; and

2. Whether Planters Bank’s foreclosure of the real estate mortgage is valid.

RULING:
1. Republic Act No. 8799 transferred to the appropriate regional trial courts the SEC’s jurisdiction
defined under Section 5(d) of Presidential Decree No. 902-A SEC’s jurisdiction does not extend to
the liquidation of a corporation. While the SEC has jurisdiction to order the dissolution of a
corporation,jurisdiction over the liquidation of the corporation now pertains to the appropriate
regional trial courts. This is the reason why the SEC, in its November 2000 Omnibus Order, directed
that the proceedings on and implementation of the order of liquidation be commenced at the
Regional Trial Court to which this case shall be transferred. The Supreme Court said that is the
correct procedure because the liquidation of a corporation requires the settlement of claims for and
against the corporation, which clearly falls under the jurisdiction of the regular courts. According to
the Supreme Court, the trial court is in the best position to convene all the creditors of the
corporation, ascertain their claims, and determine their preferences.

2. The foreclosure is valid. Planters Bank, as a secured creditor, enjoys preference over a specific
mortgaged property and has a right to foreclose the mortgage under Sec. 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 since right to foreclose
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, which took place as since the TRO was not granted by the trial
court.

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

FACTS

ARCAM applied for and was granted a loan by respondent PNB between 1991 and 1993. 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 to secure the loan, but ARCAM defaulted. PNB
initiated extrajudicial foreclosure proceedings in the Office of the Clerk of Court/Ex Officio Sheriff of
the RTCof Pampanga. The public auction was scheduled on December 29, 1993 for the mortgaged
real properties and December 8, 1993 for the mortgaged personal properties. Prior to the scheduled
dates, 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 TRO and writ of preliminary injunction on December 7.

The SEC issued a TRO but in February the same year ruled that ARCAM can no longer be
rehabilitated and noted as there was no investor that infused the necessary capital. SEC
recommended that ARCAM be dissolved and placed under liquidation. PNB revived the foreclosure
case and requested the RTC Clerk of Court to re-schedule the sale at public auction of the
mortgaged properties.

Petitioner Yngson, the liquidator filed with the SEC a motion to nullify the auction sale, positing that
all actions against companies which are under liquidation, like ARCAM, are suspended because
liquidation is a continuation of the petition for suspension proceedings. SEC denied the motion and
ruled PNB was not barred from foreclosing the properties.

CA denied Yngson’s petition on procedural grounds.

ISSUE: Whether PNB as secured creditor can foreclose the mortgaged properties of a corporation
under liquidation without knowledge and prior approval of the liquidator or SEC

RULING: YES

As previously held by the Supreme Court in the Consuelo case:

“...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.”

Sec 114 of the FRIA 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 property may be fixed in a manner agreed upon by the creditor
and the liquidator.1âwphi1 When the value of the property is less than the claim it
secures, the liquidator may convey the property to the secured creditor and the latter
will be admitted in the liquidation proceedings as a creditor for the balance; if its
value exceeds the claim secured, the liquidator may convey the property to the
creditor and waive the debtor’s right of redemption upon receiving the excess from
the creditor;
 (2) the liquidator may sell the property and satisfy the secured creditor’s entire claim
from the proceeds of the sale; or

(3) the secured creditor may enforce the lien or foreclose on the property pursuant to
applicable laws.

In this case, PNB elected to maintain its rights under the security or lien. Its right to foreclose the
mortgaged properties should be respected