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PHILIPPINE VETERANS BANK EMPLOYEES UNION-N.U.B.E. AND PERFECTO V. FERNANDEZ, PETITIONERS, VS.

HONORABLE BENJAMIN VEGA, PRESIDING JUDGE OF BRANCH 39 OF THE REGIONAL TRIAL COURT OF MANILA, THE CENTRAL BANK OF THE PHILIPPINES AND THE LIQUIDATOR OF THE PHILIPPINE VETERANS BANK, RESPONDENTS June 28, 2001 DECISION KAPUNAN, J.: May a liquidation court continue with liquidation proceedings of the Philippine Veterans Bank (PVB) when Congress had mandated its rehabilitation and reopening? This is the sole issue raised in the instant Petition for Prohibition with Petition for Preliminary Injunction and application for Ex Parte Temporary Restraining Order. The antecedent facts of the case are as follows: Sometime in 1985, the Central Bank of the Philippines (Central Bank, for brevity) filed with Branch 39 of the Regional Trial Court of Manila a Petition for Assistance in the Liquidation of the Philippine Veterans Bank, the same docketed as Case No. SP-32311. Thereafter, the Philipppine Veterans Bank Employees Union-N.U.B.E., herein petitioner, represented by petitioner Perfecto V. Fernandez, filed claims for accrued and unpaid employee wages and [1] benefits with said court in SP-32311. After lengthy proceedings, partial payment of the sums due to the employees were [2] made. However, due to the piecemeal hearings on the benefits, many remain unpaid. On March 8, 1991, petitioners moved to disqualify the respondent judge from hearing the [3] above case on grounds of bias and hostility towards petitioners. On January 2, 1992, the Congress enacted Republic Act No. 7169 providing for the [4] rehabilitation of the Philippine Veterans Bank. Thereafter, petitioners filed with the labor tribunals their residual claims for benefits and [5] for reinstatement upon reopening of the bank. Sometime in May 1992, the Central Bank issued a certificate of authority allowing the PVB [6] to reopen. Despite the legislative mandate for rehabilitation and reopening of PVB, respondent judge continued with the liquidation proceedings of the bank. Moreover, petitioners learned that respondents were set to order the payment and release of employee benefits upon motion of another lawyer, while petitioners' claims have been frozen to their prejudice. Hence, the instant petition. Petitioners argue that with the passage of R.A. 7169, the liquidation court became functus

officio, and no longer had the authority to continue with liquidation proceedings. In a Resolution, dated June 8, 1992, the Supreme Court resolved to issue a Temporary Restraining Order enjoining the trial court from further proceeding with the case. On June 22, 1992, VOP Security & Detective Agency (VOPSDA) and its 162 security guards filed a Motion for Intervention with prayer that they be excluded from the operation of the Temporary Restraining Order issued by the Court. They alleged that they had filed a motion before Branch 39 of the RTC of Manila, in SP-No. 32311, praying that said court order PVB to pay their backwages and salary differentials by authority of R.A. No 6727, Wage Orders No. NCR-01 and NCR-01-Ad and Wage Orders No. NCR-02 and NCR-02-A; and, that said court, in an Order dated June 5, 1992, approved therein movants' case and directed the bank liquidator or PVB itself to pay the backwages and differentials in accordance with the computation incorporated in the order. Said intervenors likewise manifested that there was an error in the computation of the monetary benefits due them. On August 18, 1992, petitioners, pursuant to the Resolution of this Court, dated July 6, 1992, filed their Comment opposing the Motion for Leave to File Intervention and for exclusion from the operation of the T.R.O. on the grounds that the movants have no legal interest in the subject matter of the pending action; that allowing intervention would only cause delay in the proceedings; and that the motion to exclude the movants from the T.R.O. is without legal basis and would render moot the relief sought in the petition. On September 3, 1992, the PVB filed a Petition-In-Intervention praying for the issuance of the writs of certiorari and prohibition under Rule 65 of the Rules of Court in connection with the issuance by respondent judge of several orders involving acts of liquidation of PVB even after the effectivity of R.A. No. 7169. PVB further alleges that respondent judge clearly acted in excess of or without jurisdiction when he issued the questioned orders. We find for the petitioners. Republic Act No. 7169 entitled "An Act To Rehabilitate The Philippine Veterans Bank Created Under Republic Act No. 3518, Providing The Mechanisms Therefor, And For Other Purposes", which was signed into law by President Corazon C. Aquino on January 2, 1992 and which was published in the Official Gazette on February 24, 1992, provides in part for the reopening of the Philippine Veterans Bank together with all its branches within the [7] period of three (3) years from the date of the reopening of the head office. The law likewise provides for the creation of a rehabilitation committee in order to facilitate the [8] implementation of the provisions of the same. Pursuant to said R.A. No. 7169, the Rehabilitation Committee submitted the proposed Rehabilitation Plan of the PVB to the Monetary Board for its approval. Meanwhile, PVB filed a Motion to Terminate Liquidation of Philippine Veterans Bank dated March 13, 1992 with the respondent judge praying that the liquidation proceedings be immediately terminated in view of the passage of R.A. No. 7169. On April 10, 1992, the Monetary Board issued Monetary Board Resolution No. 348 which

approved the Rehabilitation Plan submitted by the Rehabilitaion Committee. Thereafter, the Monetary Board issued a Certificate of Authority allowing PVB to reopen. On June 3, 1992, the liquidator filed A Motion for the Termination of the Liquidation Proceedings of the Philippine Veterans Bank with the respondent judge. As stated above, the Court, in a Resolution dated June 8, 1992, issued a temporary restraining order in the instant case restraining respondent judge from further proceeding with the liquidation of PVB. On August 3, 1992, the Philippine Veterans Bank opened its doors to the public and started regular banking operations. Clearly, the enactment of Republic Act No. 7169, as well as the subsequent developments has rendered the liquidation court functus officio. Consequently, respondent judge has been stripped of the authority to issue orders involving acts of liquidation. Liquidation, in corporation law, connotes a winding up or settling with creditors and [9] debtors. It is the winding up of a corporation so that assets are distributed to those entitled to receive them. It is the process of reducing assets to cash, discharging liabilities and dividing surplus or loss. On the opposite end of the spectrum is rehabilitation which connotes a reopening or reorganization. Rehabilitation contemplates a continuance of corporate life and activities in an effort to restore and reinstate the corporation to its former position of successful [10] operation and solvency. It is crystal clear that the concept of liquidation is diametrically opposed or contrary to the concept of rehabilitation, such that both cannot be undertaken at the same time. To allow the liquidation proceedings to continue would seriously hinder the rehabilitation of the subject bank. Anent the claim of respondents Central Bank and Liquidator of PVB that R.A. No. 7169 became effective only on March 10, 1992 or fifteen (15) days after its publication in the Official Gazette; and, the contention of intervenors VOP Security, et. al. that the effectivity of said law is conditioned on the approval of a rehabilitation plan by the Monetary Board, among others, the Court is of the view that both contentions are bereft of merit. While as a rule, laws take effect after fifteen (15) days following the completion of their publication in the Official Gazette or in a newspaper of general circulation in the Philippines, the legislature has the authority to provide for exceptions, as indicated in the clause "unless otherwise provided." In the case at bar, Section 10 of R.A. No. 7169 provides: Sec. 10. Effectivity. - This Act shall take effect upon its approval. Hence, it is clear that the legislature intended to make the law effective immediately upon its approval. It is undisputed that R.A. No. 7169 was signed into law by President Corazon C. Aquino on January 2, 1992. Therefore, said law became effective on said date. Assuming for the sake of argument that publication is necessary for the effectivity of R.A. No. 7169, then it became legally effective on February 24, 1992, the date when the same was published in the Official Gazette, and not on March 10, 1992, as erroneously claimed by respondents Central Bank and Liquidator. WHEREFORE, in view of the foregoing, the instant petition is hereby GIVEN DUE COURSE and GRANTED. Respondent Judge is hereby PERMANENTLY ENJOINED from further proceeding with Civil Case No. SP- 32311.

Feb. 27, 2012 SAN JOSE TIMBER CORPORATION AND CASILAYAN SOFTWOOD DEVELOPMENT CORPORATION, PETITIONERS, VS. SECURITIES AND EXCHANGE COMMISSION, TIERRA FACTOR CORPORATION AND OTHER CREDITORS OF SAN JOSE TIMBER CORPORATION AND CASILAYAN SOFTWOOD DEVELOPMENT CORPORATION, RESPONDENTS. DECISION MENDOZA, J.: This is a petition for review on certiorari under Rule 45 seeking to set aside the September [1] 22, 2003 Decision of the Court of Appeals (CA) in CA-G.R. SP No. 70898, entitled San Jose Timber Corporation, et al. v. Securities and Exchange Commission, et al., which [2] affirmed the May 6, 2002 Decision of the Securities and Exchange Commission (SEC), in SEC Case No. 3843, dismissing the petition for appointment of a rehabilitation receiver and suspension of payments filed by San Jose Timber Corporation (SJTC) and Casilayan Softwood Development Corporation (CSDC) and ordering the dissolution and liquidation of SJTC. The Facts Petitioner CSDC is a corporation duly organized and existing under and by virtue of the laws of the Republic of the Philippines and the controlling stockholder and creditor of petitioner SJTC, being the owner of more than 99% of its outstanding capital stock. Petitioner SJTC is primarily engaged in the operation of a logging concession with a base camp in Pabanog, Wright, Western Samar, under and by virtue of a Timber License Agreement (TLA) No. 118 issued by the Department of Environment and Natural Resources (DENR). The TLA was to expire in 2007. On February 8, 1989, the DENR issued a Moratorium Order (MO) suspending all logging operations in the island of Samar effective February 1989 up to May 30, 1989. As a consequence, SJTC was constrained to cease operations effective February 8, 1989,

despite the fact that the expiration of the period set forth in the MO was still up to May 30, 1989. The cessation of its operations caused SJTC to lose all its income. Thus, on August 7, 1990, SJTC and CSDC filed with the SEC a petition for the appointment of a rehabilitation receiver and for suspension of payments entitled, In Re: Petition for the Appointment of a Rehabilitation Receiver for SJTC Timber Corporation and For Suspension of Payments, which was docketed as SEC Case No. 3843. After due hearing, the SEC Hearing Panel, in its Order dated March 14, 1991, granted the appointment of a rehabilitation receiver and suspension of payments with the condition that SJTC would resuscitate its operations and properly service its liabilities in accordance [3] with the duly approved schedule to be submitted by the Rehabilitation Receiver within a one (1) year period. On February 26, 1992, the petitioners submitted their Motion to Approve Revised Rehabilitation Plan and Urgent Motion to Extend Waiting Period for Commencement of Rehabilitation dated February 24, 1992 to allow the proper government authorities to deliberate on and approve the lifting of the existing logging moratorium in Samar. The petitioners prayed that the waiting period be extended by one (1) year and five (5) months from March 15, 1992. The SEC Hearing Panel extended the waiting period up to August 15, 1992 but held in abeyance its approval of the revised rehabilitation plan. Upon subsequent motions of petitioners, SJTC and CSDC, the SEC Hearing Panel extended the waiting period several times. Meanwhile, on March 4, 1996, prior to the expiration of the waiting period to commence rehabilitation, the petitioners filed their Motion For Settlement of Claims Against Petitioner San Jose dated February 21, 1996. Considering that the lifting of the logging moratorium in Samar did not appear to be close to fulfillment at that juncture, the petitioners offered to either (1) pay the claims of the creditor in full provided they await the rehabilitation of SJTC; or (2) immediately settle the claims of the creditors by paying them 30% of their substantiated claims. They alleged that: 1. The Honorable Hearing Panels Order of 6 March 1995 extended the waiting period for the commencement of the rehabilitation of petitioner San Jose Timber Corporation (San Jose) for one year, or up to 6 March 1996. 1.1 However, with barely a week before the lapse of this deadline, the precondition for the commencement of the rehabilitation as set forth in the proposed rehabilitation plan, i.e., the lifting of the logging moratorium in the place where the timber concession is located either by the enactment of a selective logging law or the administrative cessation of the moratorium, does not appear to be close to fulfillment soon. 1.2 The claimants thus face the uninviting prospect of seeing petitioner San Jose being dissolved and its few remaining assets, worth no more than P15 Million, being fought over

by supposed creditors whose combined claim exceeds P54 Million. Even if these assets are [4] prorated among the creditors, each one of them will get less than 25% of his claim. In its Order dated July 30, 1996, the SEC granted the motion for settlement of claims subject to certain conditions specifically stated in the dispositive portion of the said order, which reads: WHEREFORE, it appearing that the approval of the proposal of petitioner is to the best interest of all the creditors of SJTC, and considering that the same is not contrary to law, morals or public policy the proposal that SJTC shall pay the interested claimants 30% of the principal claims is hereby APPROVED, and shall be binding upon all those interested claimants subject to the following conditions: 1. That the claims of the interested claimants are sufficiently substantiated and the same are confirmed by the Rehabilitation Receiver; 2. That the funding for the settlement will be sourced from the advances to be made by corporate creditors Jaka Equities Corporation, Royal Match, Inc., Eurasia Carriers Company, Inc. and Casilayan Softwood Development Corporation, which corporate creditors will be reimbursed the full amount of their advances plus interests at the same rates applicable to the remaining creditors upon the rehabilitation of SJTC; 3. That those who objected to the 30% settlement offer and those who while failing to object, deem it appropriate not to accept the offer now, still have the option to wait for the eventual rehabilitation of SJTC and be paid in the manner and to the extent set forth in the rehabilitation plan that will be approved by this Hearing Panel; and 4. That the rehabilitation of SJTC will commence upon the lifting of the logging moratorium in its logging concession either by the enactment of a statute allowing selective logging or the lifting of the said moratorium. Petitioners are hereby directed to furnish the creditors of this Order at their own expense. SO ORDERED. Subsequently, the petitioners filed their Motion to Dispose of Personal Properties dated May 7, 1997 which was granted by the SEC in its Order dated November 26, 1997. The SEC ordered the proceeds of the sale be deposited in an escrow account to be withdrawn only [6] for the settlement of petitioners obligation. On May 6, 2002, however, the SEC En Banc motu proprio handed down its decision terminating the rehabilitation proceedings and dismissing the petition for rehabilitation. The SEC opined that SJTC could no longer be rehabilitated because the logging moratorium/ban, which was crucial for its rehabilitation, had not been lifted. The SEC decision, in its pertinent parts, reads: Based on the foregoing, it is evident that the instant petition should have been dismissed long ago. It is quite obvious that San Jose can no longer be rehabilitated. In fact, the prospect for its rehabilitation has been dim from the very beginning in the light of the
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uncertainty surrounding the lifting of the logging moratorium. If the previous Hearing Panel had been lenient and accommodating, it could only have been because of its honest belief that it would be in the best interest of all parties, particularly the creditors who would not be able to collect fully on their claims, to attempt to rehabilitate San Jose. But even the best of intentions cannot prop an unachievable aspiration ad infinitum. It has been more than thirteen years since the DENR imposed the logging moratorium and the same is still effective. Xx x. The hopelessness and futility of petitioners cause is further made manifest in the petitioners and the rehabilitation receivers silence and inaction for almost five years. The only thing that keeps petitioners interested in the instant petition is San Joses Timber Licensing Agreement (TLA) that is set to expire in 2007, the preservation of which appears [7] to still be of some value to petitioners. X x x. The May 6, 2002 Decision of the SEC was affirmed by the CA in its September 22, 2003 Decision stating, among others, that: . . . Adequately clear from the records is that the proposed rehabilitation plan submitted by the petitioners depends entirely on the lifting of the logging ban either because of the lifting of the moratorium on logging activities in Samar issued by the DENR, or by the enactment of a law on selective logging. Needless to say, the lifting of the logging ban is indispensable to the rehabilitation of petitioners logging company. However, other than the petitioners bare assertion that the lifting of the logging moratorium or the enactment of a law on selective logging is foreseeable and is likely to happen in the near future, there is simply no evidence on record to show, with certainty that it is indeed, going to take place in the immediate future. Verily, to sustain petitioners assertions could result to an unjust situation wherein the corporate rehabilitation will continually be held in abeyance pending the approval of the law on selective logging or the lifting of logging moratorium, the happening of which is uncertain considering the absence of evidence to prove that there is an imminent likelihood of its occurrence. Such a situation is definitely prejudicial to the interests of the creditors and the investors whose rights the law is precisely designed [8] to protect. The petitioners filed a motion for reconsideration of the aforesaid decision but it was denied in the CA Resolution dated January 29, 2004. On March 8, 2004, the petitioners filed this petition for review before this Court on the ground that the CA erred in affirming the dissolution of SJTC when the vast majority of the creditors had agreed to await the rehabilitation of SJTC. They believe that the rehabilitation was still feasible considering that the TLA was still valid up to 2007 and under the proposed revised rehabilitation plan of SJTC, the latter would only need 24 months after the lifting of the logging moratorium to fully settle the claims of the creditors, except those of the affiliates. Significantly, except for the Social Security System (SSS), which incidentally had no more claims against SJTC, none of the creditors filed an opposition to or comment on the petition.

Meanwhile, during the pendency of the petition before the Court, the DENR issued an Order dated August 15, 2005, allowing SJTC to resume operations and extending the term of the TLA up to 2021. The dispositive portion of the Order reads: WHEREFORE, in light of the foregoing, the Moratorium Order dated 8 February 1998 is hereby recognized as having lapsed on 30 May 1989. San Jose Timber Corporation is hereby allowed to pursue its rights and activities under its TLA No. 118 until 30 June 2007, with an extension of the period of said TLA equivalent to the time that elapsed from 31 May 1989 until promulgation of this Order. SO ORDERED.
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Consequently, on October 14, 2005, the petitioners filed their Supplemental [10] Petition with the Court citing the August 15, 2005 DENR Order praying for the reversal of the CA decision and the remand of the case to the SEC for the immediate approval and implementation of the rehabilitation plan. On July 9, 2008, the Court resolved to dispense with the comments of the other respondent creditors, gave due course to the petition and directed the parties to submit [11] their respective memoranda within thirty (30) days from notice. Records disclose that on October 6, 2008, SJTC and CSDC filed their Memorandum. Thereafter, the SEC and the SSS filed their respective memoranda. On January 29, 2009, petitioners SJTC and CSDC filed their Reply Memorandum. In its Resolution dated March 30, 2009, the Court resolved to note the filing of the Reply Memorandum and to await the memoranda of the other respondent creditors. To date, no other memorandum has been filed. In their Memorandum, the petitioners advanced the following ARGUMENTS

A. THE COURT OF APPEALS GRAVELY ERRED AND ACTED CONTRARY TO LAW WHEN IT UPHELD THE DECISION DATED 6 MAY 2002 OF THE SECURITIES AND EXCHANGE COMMISSION WHICH ORDERED THE IMMEDIATE DISSOLUTION OF PETITIONER SAN JOSE, CONSIDERING THAT: 1. THE MANDATE OF THE SEC IS NOT TO IMMEDIATELY LIQUIDATE ANY DISTRESSED CORPORATION; RATHER, IT IS TO PROMOTE A WIDER AND MORE EQUITABLE DISTRIBUTION OF WEALTH. 2. THE REHABILITATION OF PETITIONER SAN JOSE IS STILL FEASIBLE. 3. THE SEC ILLEGALLY SUBSTITUTED ITS WILL OVER THAT OF THE CREDITORS, THE VAST MAJORITY OF WHOM HAVE AGREED TO WAIT FOR THE LIFTING OF THE LOGGING MORATORIUM SO THAT PETITIONER SAN JOSE CAN COMMENCE REHABILITATION.

its logging operations under TLA No. 118. 4. LIQUIDATION WILL NOT SERVE ANY USEFUL PURPOSE. IT IS DISADVANTAGEOUS TO BOTH CREDITORS AND PETITIONERS. MOREOVER, THE PURPOSE OF THE LIQUIDATION [12] HAS BEEN SERVED IN THE REHABILITATION PROCEEDINGS. In advocacy of their position, the petitioners argue that the SEC acted illegally and beyond its statutory mandate when it ordered the termination of the rehabilitation proceedings. The CA, in turn, acted contrary to law when it upheld the SECs decision. The petitioners posit that while the SEC is empowered to motu propio terminate rehabilitation when, in its opinion, it is no longer feasible, Presidential Decree (P.D.) No. 902-A qualifies that such power must be exercised taking into consideration the best interest of the stockholders, parties-litigants, creditors, or the general public. Clearly, the SEC is mandated to protect not only the creditors but the distressed corporation as well. This is because the rehabilitation of a financially distressed corporation benefits its [13] employees, creditors, stockholders and, in a larger sense, the general public. It is further argued that when the decision of the SEC to terminate the rehabilitation of a corporation and order its dissolution will not lead to a meaningful and equitable distribution of wealth among the creditors, stockholders and employees, such decision can be struck down as illegal for being violative of the statutory mandate of the SEC. The SEC illegally ordered the dissolution of SJTC because (1) the rehabilitation is still feasible; and [14] (2) the immediate dissolution is actually detrimental to the interests of the creditors. The petitioners believe that the rehabilitation of SJTC is feasible because its major corporate creditors, namely: Jaka Investment Corporation, Jaka Equities Corporation, Royal Match, Inc., Eurasia Carriers Company, Inc. and Casilayan Softwood Development Corporation, have a combined credit of P36 million. This amount constitutes more than 66% of the liabilities of SJTC. These corporate creditors have agreed to extend the waiting period for the commencement of the rehabilitation of SJTC until such time that the logging moratorium is lifted. It is likewise averred that liquidation will not have any useful purpose. It is disadvantageous to both creditors and petitioners. Moreover, the purpose of the liquidation has been served in the rehabilitation proceedings. If SJTC is liquidated, its assets, divided by its existing liabilities, will give each creditor only 27% of their respective [15] claims. Indeed, as found by the SEC Hearing Panel in its July 30, 1996 Order, [It] is clear from the uncontested figures relative to the total assets and liabilities of SJTC that each creditor will get less than 30% of the value of its claim. The reason for this is that dividing SJTCs total assets in the amount of ?14,405,868.00 by its total liabilities in the amount of P53,519,650.00 will yield a factor of only .27, which corresponds to 27%. Position of the SEC The SEC agrees that its primary basis in dismissing the petition for the appointment of a rehabilitation receiver and suspension of payment has been lost because of the DENRs Order dated August 15, 2005 lifting the logging moratorium and allowing SJTC to continue After the DENR issued its Order allowing SJTC to immediately resume operations, it adjusted its revised rehabilitation plan (1992) taking into account the present requirement to operate the logging concessions. Based on the Adjusted Rehabilitation Plan (ARP), SJTC will need P70 million pesos to fully operate the logging operations in 1989. There is more Despite the same, it is of the position that SJTCs rehabilitation is no longer feasible and viable because it has already disposed of its properties such as various machineries and equipment and other valuable assets which are indispensable to its logging operations. In other words, SJTC can no longer continue its logging operations because it now lacks the [16] necessary tools and equipment to pursue its business operations. Moreover, SJTCs failure to report to the SEC what happened to the disposition of its personal properties and the status of the settlement of 30% claims as enumerated in its May 6, 2002 Decision justifies the dismissal of its petition pursuant to Section 4-26, Rule IV [17] of the SEC Rules of Procedure on Corporate Rehabilitation. In sum, notwithstanding the lifting of the logging moratorium, the SEC avers that SJTC can no longer be revived and restored to its former successful operation and solvency given the foregoing considerations. The SEC also avers that as to the inaction of the creditors of STJC, it cannot be construed as an acquiescence to await its full rehabilitation. What appears on record is that some of SJTCs creditors manifested their desire that SJTC be liquidated now so that their claims [18] against it may be finally settled. Finally, the SEC posits that liquidating SJTC would work to its advantage because the accrued interest on all its debts would no longer accumulate. Its creditors would get a higher percentage for the settlement of their claims. Likewise, the early liquidation of SJTC could result in a big turnout of proceeds of the sale of its assets that could satisfy all the [19] claims of its creditors. SJTCs Reply to SEC SJTC replies that notwithstanding the sale of its machineries and equipment, the rehabilitation of SJTC remains viable and feasible. As stated in its petition for certiorari in the CA, SJTCs corporate affiliates have undertaken to infuse the necessary capital to jumpstart its operations as soon as the logging ban would be lifted. Conditions have dramatically changed with the August 15, 2005 Order of DENR categorically holding that the logging moratorium had already lapsed and that, accordingly, SJTC could resume operations immediately. The DENR extended the TLA by the period equivalent to the time that elapsed from May 31, 1989 until the promulgation of the said order. The TLA will, thus, subsist for another fourteen (14) years, or up to 2021. The sole impediment to the rehabilitation of SJTC has, thus, been removed.

than sufficient quantity of commercial timber to support the intended operations of SJTC. Under the ARP, SJTC would be able to complete the set-up for its commercial operations within nine (9) months from resumption. During that period, SJTC would hire personnel, purchase new equipment, rehabilitate the roads, buildings and other infrastructure necessary for the commercial operations. Commercial operations would begin on the second year of operation at an annual production of 56,000 cubic meters, which was only about 75% of the companys allowable harvest of 75,000 cubic meters. Under the 2009 prevailing market, the average selling price for the first grade logs was estimated at P7,200.00 per cubic meter and P5,100.00 per cubic meter for the second grade logs. Based on these projections, SJTC would be able to generate gross revenue in the amount of at least P342 million on the first year of commercial production, or within eighteen months from the date of the resumption of operation. The remaining unpaid liabilities to the creditors, excluding corporate affiliates who agreed to be paid last, was estimated to be no more than P11 million. As of December 1991, the unpaid claims of creditors excluding that of the petitioners corporate affiliates amounted to P14,369,531.27. Subsequently, the petitioners settled the claims of 22 creditors who opted to be paid 30% of their claims instead of waiting for the rehabilitation of SJTC. The aggregate value of the settled claims was P3,110,885.00. Under the proposed ARP, SJTC would be able to pay its creditors, except its corporate affiliates, in full within 18 months from the time it would resume operation. This is an improvement from the old rehabilitation plan which provided payment to the creditors, excluding the affiliates, within 24 months from resumption of operations. By contrast, if SJTC would be dissolved and liquidated, each creditor would receive no more than 14% of their principal claims. SJTC argues that this has been the reason why the remaining creditors have not opposed the move to rehabilitate SJTC. The records will show that although there were initially four (4) out of 144 creditors who opposed the petition for rehabilitation at the SEC level, none of the creditors opposed the petition at the CA level. Before this Court, only the SSS, which [20] is no longer a creditor, filed an opposition. Position of SSS SSS agrees with the decision of the SEC and the CA in dismissing the petition for rehabilitation quoting the CAs decision that: Rehabilitation of a corporation must be based on a viable and feasible plan; otherwise, the rehabilitation sought cannot be [21] granted.

The liability of the petitioners to SSS consists of the delinquent contribution for the SSS and ECC contributions of its employees, almost 50% of which represents deduction from the employees salaries and, therefore, do not form part of the assets of the corporation. Hence, said liabilities should be settled ahead of the creditors. The 3% penalty imposed on the delayed remittance of contributions is enforced by law while the loan amortizations were deducted from the salary of its employees for remittance to the SSS. SJTCS Reply to SSS Memorandum On May 23, 1997, SJTC submitted a proposal to avail itself of the SSS condonation program for its contribution delinquency in the amount of P1,394,672.00. In a letter dated April 6, 1998, the Employer Accounts Collection Department of the SSS favorably endorsed its proposal for approval, provided payment was made on or before May 23, 1998. On May 22, 1998, SJTC paid its SSS obligations in full. SSS did not question the fact of payment. By its silence, SSS has acknowledged that SJTC is no longer indebted to it, The Courts Ruling Rehabilitation contemplates a continuance of corporate life and activities in an effort to restore and reinstate the corporation to its former position of successful operation and solvency. The purpose of rehabilitation proceedings is to enable the company to gain a new lease on life and thereby allow creditors to be paid their claims from its earnings. The rehabilitation of a financially distressed corporation benefits its employees, creditors, [22] stockholders and, in a larger sense, the general public. Under the Rules of Procedure on Corporate Rehabilitation, rehabilitation is defined as the restoration of the debtor to a position 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 [23] corporation continues as a going concern than if it is immediately liquidated. An indispensable requirement in the rehabilitation of a distressed corporation is the rehabilitation plan. Section 5 of the Interim Rules of Procedure on Corporate Rehabilitation provides the requisites thereof: SEC. 5. Rehabilitation Plan. -- The rehabilitation plan shall include (a) the desired business targets or goals and the duration and coverage of the rehabilitation; (b) the terms and conditions of such rehabilitation which shall include the manner of its implementation, giving due regard to the interests of secured creditors; (c) the material financial commitments to support the rehabilitation plan; (d) the means for the execution of the rehabilitation plan, which may include conversion of the debts or any portion thereof to equity, restructuring of the debts, dacion en pago, or sale of assets or of the controlling interest; (e) a liquidation analysis that estimates the proportion of the claims that the creditors and shareholders would receive if the debtor's properties were liquidated; and (f) such other relevant information to enable a reasonable investor to make an informed decision on the feasibility of the rehabilitation plan.

A successful rehabilitation usually depends on two factors: (1) a positive change in the business fortunes of the debtor, and (2) the willingness of the creditors and shareholders to arrive at a compromise agreement on repayment burdens, extent of dilution, etc. The debtor must demonstrate by convincing and compelling evidence that these circumstances exist or are likely to exist by the time the debtor submits his revised or substitute [24] rehabilitation plan for the final approval of the court." Given the high standards that the Rules require, mere unsupported assertions by the debtor that "the parties are close to an agreement" or that "business is expected to pick up in the next several quarters" are not sufficient. Circumstances that might demonstrate in a convincing and compelling manner that the debtor could successfully be rehabilitated include the following: a) the business fortunes of the debtor have actually improved since the petition was filed; b) the general circumstances and forecast for the sector in which the debtor is operating supports the likelihood that the debtor's business will revive; c) the debtor has taken concrete steps to improve its operating efficiency; d) the debtor has obtained legally binding investment commitments from parties contingent on the approval of a rehabilitation plan; e) the debtor has successfully addressed other factors that would increase the risk that the debtor's rehabilitation plan would fail; f) the majority of the secured and unsecured creditors have expressly demonstrated a preference that the debtor be rehabilitated rather than liquidated and are willing to compromise on their claims to reach that result; g) the debtor's shareholders have expressed a willingness to dilute their equity in [25] connection with a debt equity swap. Both the SEC and the CA had reasonable basis in deciding to terminate the rehabilitation proceedings of SJTC because of the lack of certainty that the logging ban would, in fact, be lifted. It is clear from the records that the proposed rehabilitation plan of the petitioners would depend entirely on the lifting of the logging ban either by the lifting of the moratorium on logging activities in Samar issued by the DENR, or by the enactment of a law on selective logging. Such lifting of the logging ban is indispensable to the rehabilitation of SJTC. If it would not be lifted, the company would have no source of income or revenues and no investor or creditor would come in to lend a hand in its resuscitation. At the time of the promulgation of the CA decision, there was no certainty that the moratorium on logging activities in Samar would be lifted or a law on selective logging was forthcoming. There being no assurance, the CA was correct in sustaining the decision of the SEC to terminate the rehabilitation proceedings to protect the interest of all concerned, particularly the investors and the creditors. To have resolved otherwise would have been prejudicial to these entities as they would be made to wait indefinitely for something the likelihood of which was quite remote. On August 15, 2005, however, an event supervened. With the lifting of the logging moratorium in Samar, an indispensable element for the possible rehabilitation of SJTC has

been made a reality. Considering the extension granted by the DENR, the TLA of SJTC will expire on 2021, or nine (9) years from now. It appears from the proposed Adjusted [26] Rehabilitation Plan, that SJTC would only need a period of 24 months from the lifting of the logging moratorium within which to liquidate all of its liabilities, except those of its affiliates. The petitioners have claimed that as of December 31, 1988, the concessions virgin forest cover was 37,800 hectares, with commercial timber estimated at 2.25 million cubic [27] meters. Since the logging operations of SJTC had been stopped in 1989, the petitioners believe that the quantity of commercial timber has grown considerably. Thus, there is more than sufficient quantity of commercial timber to pay the obligations of SJTC to the creditors and to realize a reasonable return of investment. The Court is of the considered view that SJTC should be given a second chance to recover and pay off its creditors. The only practical way of doing it is to resume the rehabilitation of SJTC which estimated its first year production upon resumption of operations at 29,000 [28] cubic meters. Thereafter, production is projected to rise to 60,000 cubic meters per [29] year. If the estimated selling price per cubic meter as of December 31, 1991 was [30] [31] P3,500.00 and between P5,000.00 and P6,000.00 in 2004, there is no doubt that the price has again risen. The Court is not unaware of the issuance of Executive Order (E.O.) No. 23 on February 1, 2011. E.O. No. 23 declares a Moratorium on the Cutting and Harvesting of Timber in the Natural and Residual Forests and Creates the Anti-Illegal Logging Task Force that will enforce the moratorium. It aims mainly at the promotion of intergeneration responsibility to protect the environment. As pronounced in the DENR website, however, it does not impose a total log ban in the country. What is being protected by the executive order is [32] simply the natural forests and residual forests. Section 2 thereof provides for a moratorium on the cutting and harvesting of timber in the natural and residual forests of the entire country. Timber companies, such as petitioner SJTC, may still be allowed to cut trees subject to the provisions thereof. Thus, SJTCs rehabilitation appears highly feasible and the proceedings thereon should be revived. It should, therefore, be given an opportunity to be heard by the SEC to determine if it could maintain its corporate existence. For said reason, the case should be remanded to the SEC so that it could factor in the aforecited figures and claims of SJTC and assess whether or not SJTC could still recover. It appears from the figures that SJTC can generate sufficient income to pay all its obligations to all its creditors except, as the petitioners pledged, its corporate affiliates who allegedly represent more than 66% of the liabilities. WHEREFORE, the September 22, 2003 Decision of the Court of Appeals and its January 29, 2004 Resolution are REVERSED and SET ASIDE. The case is herebyREMANDED to the SEC for further evaluation and appropriate action.

Jan. 25, 2012

ADVENT CAPITAL AND FINANCE CORPORATION, PETITIONER, VS. NICASIO I. ALCANTARA AND EDITHA I. ALCANTARA, RESPONDENTS. DECISION ABAD, J.: This case is about the validity of a rehabilitation court's order that compelled a third party, in possession of money allegedly belonging to the debtor of a company under rehabilitation, to deliver such money to its court-appointed receiver over the debtor's objection. The Facts and the Case On July 16, 2001 petitioner Advent Capital and Finance Corporation (Advent Capital) filed a [1] petition for rehabilitation with the Regional Trial Court (RTC) of Makati [2] City. Subsequently, the RTC named Atty. Danilo L. Concepcion as rehabilitation [3] receiver. Upon audit of Advent Capital's books, Atty. Concepcion found that respondents Nicasio and Editha Alcantara (collectively, the Alcantaras) owed Advent Capital P27,398,026.59, representing trust fees that it supposedly earned for managing their [4] several trust accounts. Prompted by this finding, Atty. Concepcion requested Belson Securities, Inc. (Belson) to deliver to him, as Advent Capital's rehabilitation receiver, the P7,635,597.50 in cash dividends that Belson held under the Alcantaras' Trust Account 95-013. Atty. Concepcion claimed that the dividends, as trust fees, formed part of Advent Capital's assets. Belson refused, however, citing the Alcantaras' objections as well as the absence of an appropriate [5] order from the rehabilitation court. Thus, Atty. Concepcion filed a motion before the rehabilitation court to direct Belson to release the money to him. He said that, as rehabilitation receiver, he had the duty to take custody and control of Advent Capital's assets, such as the sum of money that Belson held [6] on behalf of Advent Capital's Trust Department. The Alcantaras made a special appearance before the rehabilitation court to oppose Atty. Concepcion's motion. They claimed that the money in the trust account belonged to them [8] under their Trust Agreement with Advent Capital. The latter, they said, could not claim any right or interest in the dividends generated by their investments since Advent Capital merely held these in trust for the Alcantaras, the trustors-beneficiaries. For this reason, Atty. Concepcion had no right to compel the delivery of the dividends to him as receiver. The Alcantaras concluded that, under the circumstances, the rehabilitation court had no jurisdiction over the subject dividends. On February 5, 2007 the rehabilitation court granted Atty. Concepcion's motion. It held that, under Rule 59, Section 6 of the Rules of Court, a receiver has the duty to immediately take possession of all of the corporation's assets and administer the same for the benefit of corporate creditors. He has the duty to collect debts owing to the corporation, which debts form part of its assets. Complying with the rehabilitation court's order and Atty. Concepcion's demand letter, Belson turned over the subject dividends to him.
[9] [7]

Meanwhile, the Alcantaras filed a special civil action of certiorari before the Court of Appeals (CA), seeking to annul the rehabilitation court's order. On January 30, 2008 the CA [10] rendered a decision, granting the petition and directing Atty. Concepcion to account for the dividends and deliver them to the Alcantaras. The CA ruled that the Alcantaras owned those dividends. They did not form part of Advent Capital's assets as contemplated under the Interim Rules of Procedure on Corporate Rehabilitation (Interim Rules). The CA pointed out that the rehabilitation proceedings in this case referred only to the assets and liabilities of the company proper, not to those of its Trust Department which held assets belonging to other people. Moreover, even if the Trust Agreement provided that Advent Capital, as trustee, shall have first lien on the Alcantara's financial portfolio for the payment of its trust fees, the cash dividends in Belson's care cannot be summarily applied to the payment of such charges. To enforce its lien, Advent Capital has to file a collection suit. The rehabilitation court cannot simply enforce the latter's claim by ordering [11] Belson to deliver the money to it. The CA denied Atty. Concepcion and Advent Capital's motion for [12] reconsideration, prompting the filing of the present petition for review under Rule 45. The Issue Presented The sole issue in this case is whether or not the cash dividends held by Belson and claimed by both the Alcantaras and Advent Capital constitute corporate assets of the latter that the rehabilitation court may, upon motion, require to be conveyed to the rehabilitation receiver for his disposition. Ruling of the Court Advent Capital asserts that the cash dividends in Belson's possession formed part of its assets based on paragraph 9 of its Trust Agreement with the Alcantaras, which states: 9.Trust Fee: Other Expenses - As compensation for its services hereunder, the TRUSTEE shall be entitled to a trust or management fee of 1 (one) % per annum based on the quarterly average market value of the Portfolio or a minimum annual fee of P5,000.00, whichever is higher. The said trust or management fee shall automatically be deducted from the Portfolio at the end of each calendar quarter. The TRUSTEE shall likewise be reimbursed for all reasonable and necessary expenses incurred by it in the discharge of its powers and duties under this Agreement, and in all cases, the TRUSTEE shall have a first lien on the Portfolio for the payment of the trust fees and other reimbursable expenses. According to Advent Capital, it could automatically deduct its management fees from the Alcantaras' portfolio that they entrusted to it. Paragraph 9 of the Trust Agreement provides that Advent Capital could automatically deduct its trust fees from the Alcantaras' portfolio, "at the end of each calendar quarter," with the corresponding duty to submit to [13] the Alcantaras a quarterly accounting report within 20 days after. But the problem is that the trust fees that Advent Capital's receiver was claiming were for past quarters. Based on the stipulation, these should have been deducted as they became due. As it happened, at the time Advent Capital made its move to collect its supposed

management fees, it neither had possession nor control of the money it wanted to apply to its claim. Belson, a third party, held the money in the Alcantaras' names. Whether it should deliver the same to Advent Capital or to the Alcantaras is not clear. What is clear is that the issue as to who should get the same has been seriously contested. The practice in the case of banks is that they automatically collect their management fees from the funds that their clients entrust to them for investment or lending to others. But the banks can freely do this since it holds or has control of their clients' money and since their trust agreement authorized the automatic collection. If the depositor contests the deduction, his remedy is to bring an action to recover the amount he claims to have been illegally deducted from his account. Here, Advent Capital does not allege that Belson had already deducted the management fees owing to it from the Alcantaras' portfolio at the end of each calendar quarter. Had this been done, it may be said that the money in Belson's possession would technically be that of Advent Capital. Belson would be holding such amount in trust for the latter. And it would be for the Alcantaras to institute an action in the proper court against Advent Capital and Belson for misuse of its funds. But the above did not happen. Advent Capital did not exercise its right to cause the automatic deduction at the end of every quarter of its supposed management fee when it had full control of the dividends. That was its fault. For their part, the Alcantaras had the right to presume that Advent Capital had deducted its fees in the manner stated in the contract. The burden of proving that the fees were not in fact collected lies with Advent Capital. Further, Advent Capital or its rehabilitation receiver cannot unilaterally decide to apply the entire amount of cash dividends retroactively to cover the accumulated trust fees. Advent Capital merely managed in trust for the benefit of the Alcantaras the latter's portfolio, [14] which under Paragraph 2 of the Trust Agreement, includes not only the principal but also its income or proceeds. The trust property is only fictitiously attributed by law to the trustee "to the extent that the rights and powers vested in a nominal owner shall be used [15] by him on behalf of the real owner." The real owner of the trust property is the trustor-beneficiary. In this case, the trustorsbeneficiaries are the Alcantaras. Thus, Advent Capital could not dispose of the Alcantaras' portfolio on its own. The income and principal of the portfolio could only be withdrawn [16] upon the Alcantaras' written instruction or order to Advent Capital. The latter could not also assign or encumber the portfolio or its income without the written consent of the [17] Alcantaras. All these are stipulated in the Trust Agreement. Ultimately, the issue is what court has jurisdiction to hear and adjudicate the conflicting claims of the parties over the dividends that Belson held in trust for their owners. Certainly, not the rehabilitation court which has not been given the power to resolve ownership disputes between Advent Capital and third parties. Neither Belson nor the Alcantaras are its debtors or creditors with interest in the rehabilitation.

Advent Capital must file a separate action for collection to recover the trust fees that it allegedly earned and, with the trial court's authorization if warranted, put the money in escrow for payment to whoever it rightly belongs. Having failed to collect the trust fees at the end of each calendar quarter as stated in the contract, all it had against the Alcantaras was a claim for payment which is a proper subject for an ordinary action for collection. It cannot enforce its money claim by simply filing a motion in the rehabilitation case for delivery of money belonging to the Alcantaras but in the possession of a third party. Rehabilitation proceedings are summary and non-adversarial in nature, and do not contemplate adjudication of claims that must be threshed out in ordinary court proceedings. Adversarial proceedings similar to that in ordinary courts are inconsistent with the commercial nature of a rehabilitation case. The latter must be resolved quickly and expeditiously for the sake of the corporate debtor, its creditors and other interested parties. Thus, the Interim Rules "incorporate the concept of prohibited pleadings, affidavit evidence in lieu of oral testimony, clarificatory hearings instead of the traditional approach of receiving evidence, and the grant of authority to the court to decide the case, or any [18] incident, on the basis of affidavits and documentary evidence." Here, Advent Capital's claim is disputed and requires a full trial on the merits. It must be resolved in a separate action where the Alcantaras' claim and defenses may also be presented and heard. Advent Capital cannot say that the filing of a separate action would defeat the purpose of corporate rehabilitation. In the first place, the Interim Rules do not exempt a company under rehabilitation from availing of proper legal procedure for collecting debt that may be due it. Secondly, Court records show that Advent Capital had in fact sought to recover one of its assets by filing a separate action for replevin involving a [19] car that was registered in its name. WHEREFORE, the petition is DENIED for lack of merit and the assailed decision and resolution of the Court of Appeals in CA-G.R. SP 98692 are AFFIRMED, without prejudice to any action that petitioner Advent Capital and Finance Corp. or its rehabilitation receiver might institute regarding the trust fees subject of this case.

Aug. 3, 2011 ADVENT CAPITAL AND FINANCE CORPORATION, PETITIONER, VS. ROLAND YOUNG, RESPONDENT. DECISION CARPIO, J.: The Case This petition for review assails the 28 December 2007 Decision and 15 May 2008 [3] Resolution of the Court of Appeals in CA-G.R. SP No. 96266. The Court of Appeals set [4] aside the 24 March 2006 and 5 July 2006 Orders of the Regional Trial Court of Makati City, Branch 147, and directed petitioner Advent Capital and Finance Corporation to return
[1] [2]

the seized vehicle to respondent Roland Young. The Court of Appeals denied the motion for reconsideration. The Antecedents The present controversy stemmed from a replevin suit instituted by petitioner Advent Capital and Finance Corporation (Advent) against respondent Roland Young (Young) to recover the possession of a 1996 Mercedes Benz E230 with plate number UMN-168, which [5] is registered in Advent's name. Prior to the replevin case, or on 16 July 2001, Advent filed for corporate rehabilitation with [6] the Regional Trial Court of Makati City, Branch 142 (rehabilitation court). On 27 August 2001, the rehabilitation court issued an Order (stay order) which states that "the enforcement of all claims whether for money or otherwise, and whether such enforcement is by court action or otherwise, against the petitioner (Advent), its guarantors [7] and sureties not solidarily liable with it, is stayed." On 5 November 2001, Young filed his Comment to the Petition for Rehabilitation, claiming, among others, several employee benefits allegedly due him as Advent's former president and chief executive officer. On 6 November 2002, the rehabilitation court approved the rehabilitation plan submitted by Advent. Included in the inventory of Advent's assets was the subject car which remained in Young's possession at the time. Young's obstinate refusal to return the subject car, after repeated demands, prompted Advent to file the replevin case on 8 July 2003. The complaint, docketed as Civil Case No. 03-776, was raffled to the Regional Trial Court of Makati City, Branch 147 (trial court). After Advent's posting of P3,000,000 replevin bond, which was double the value of the subject car at the time, through Stronghold Insurance Company, Incorporated (Stronghold), [8] the trial court issued a Writ of Seizure directing the Sheriff to seize the subject car from [9] Young. Upon receipt of the Writ of Seizure, Young turned over the car to Advent, which [10] delivered the same to the rehabilitation receiver. Thereafter, Young filed an Answer alleging that as a former employee of Advent, he had the option to purchase the subject car at book value pursuant to the company car plan and to offset the value of the car with the proceeds of his retirement pay and stock option plan. Young sought the (1) execution of a deed of sale over the subject car; and (2) determination and payment of the net amount due him as retirement benefits under the stock option plan. Advent filed a Reply with a motion to dismiss Young's counterclaim, alleging that the counterclaim did not arise from or has no logical relationship with the issue of ownership of the subject car. After issues have been joined, the parties entered into pre-trial on 2 April 2004, which

resulted in the issuance of a pre-trial order of even date reciting the facts and the issues to be resolved during the trial. On 28 April 2005, the trial court issued an Order dismissing the replevin case without prejudice for Advent's failure to prosecute. In the same order, the trial court dismissed Young's counterclaim against Advent for lack of jurisdiction. The order pertinently reads: It appears that as of July 28, 2003, subject motor vehicle has been turned over to the plaintiff, thru its authorized representative, and adknowledged by the parties' respective counsels in separate Manifestations filed. To date, no action had been taken by the plaintiff in the further prosecution of this case. Accordingly, this case is ordered dismissed without prejudice on the ground of failure to prosecute. Anent plaintiff's Motion to Dismiss defendant Young's counterclaim for benefits under the retirement and stock purchase plan, the Court rules as follows: The only issue in this case is who is entitled to the possession of the subject motor vehicle. This issue may have a connection, but not a necessary connection with defendant's rights under the retirement plan and stock purchase plan as to be considered a compulsory counterclaim. xxx Notably, defendant's claim is basically one for benefits under and by virtue of his employment with the plaintiff, and the subject vehicle is merely an incident in that claim. Said claim is properly ventilated, as it is resolvable by, the Rehabilitation Court which has jurisdiction and has acquired jurisdiction, to the exclusion of this Court. Accordingly, [11] plaintiff's Motion To Dismiss defendant Young's counterclaim is granted. On 10 June 2005, Young filed a motion for partial reconsideration of the dismissal order with respect to his counterclaim. On 8 July 2005, Young filed an omnibus motion, praying that Advent return the subject car and pay him P1.2 million in damages "(f)or the improper and irregular seizure" of the subject car, to be charged against the replevin bond posted by Advent through Stronghold. On 24 March 2006, the trial court issued an Order denying Young's motion for partial reconsideration, viz: In the instant case, defendant, in his counterclaim anchored her [sic] right of possession to the subject vehicle on his alleged right to purchase the same under the company car plan. However, considering that the Court has already declared that it no longer has jurisdiction to try defendant's counterclaim as it is now part of the rehabilitation proceedings before the corporate court concerned, the assertions in the Motion for Reconsiderations (sic) will no longer stand. On the other hand, the plaintiff did not file a Motion for Reconsideration of the same Order, dismissing the complaint for failure to prosecute, within the reglementary period. Hence, the same has attained finality. Defendant alleged that the dismissal of the case resulted in the dissolution of the writ.

Nonetheless, the Court deems it proper to suspend the resolution of the return of the subject vehicle. In this case, the subject vehicle was turned over to plaintiff by virtue of a writ of replevin validly issued, the latter having sufficiently shown that it is the absolute/registered owner thereof. This was not denied by the defendant. Plaintiff's ownership includes its right of possession. The case has been dismissed without a decision on the merits having been rendered. Thus, to order the return of the vehicle to one who is yet to prove his right of possession would not be proper. Accordingly, the Motion for Partial Reconsideration is denied.
[12]

the case. The Supreme Court's ruling in Olympia International, Inc. vs. Court of Appeals (supra) squarely applies to the present controversy, to wit: "Indeed, logic and equity demand that the writ of replevin be cancelled. Being provisional and ancillary in character, its existence and efficacy depended on the outcome of the case. The case having been dismissed, so must the writ's existence and efficacy be dissolved. To let the writ stand even after the dismissal of the case would be adjudging Olympia as the prevailing party, when precisely, no decision on the merits had been rendered. The case having been dismissed, it is as if no case was filed at all and the parties must revert to their status before the litigation." Indeed, as an eminent commentator on Remedial Law expounds: "The plaintiff who obtains possession of the personal property by a writ of replevin does not acquire absolute title thereto, nor does the defendant acquire such title by rebonding the property, as they only hold the property subject to the final judgment in the action." (I Regalado, Remedial Law Compendium, Eighth Revised Edition, p. 686) Reversion of the parties to the status quo ante is the consequence ex proprio vigore of the dismissal of the case. Thus, in Laureano vs. Court of Appeals(324 SCRA 414), it was held: "(A)lthough the commencement of a civil action stops the running of the statute of prescription or limitations, its dismissal or voluntary abandonment by plaintiff leaves the parties in exactly the same position as though no action had been commenced at all." By the same token, return of the subject car to petitioner pending rehabilitation of Advent does not constitute enforcement of claims against it, much more adjudication on the merits of petitioner's counterclaim. In other words, an order for such return is not a violation of the stay order, which was issued by the rehabilitation court on August 27, 2001. x x x Corollarily, petitioner's claim against the replevin bond has no connection at all with the rehabilitation proceedings. The claim is not against the insolvent debtor (Advent) but against bondsman, Stronghold. Such claim is expressly authorized by Sec. 10, Rule 60, in [14] relation to Sec. 20, Rule 57, id., x x x The dispositive portion of the Court of Appeals' decision reads: WHEREFORE, premises considered, the instant petition is PARTLY GRANTED. The orders of the Regional Trial Court dated March 24, 2006 and July 5, 2006 are ANNULLED and SET ASIDE in so far as they suspended resolution of petitioner's motion for, and/or disallowed, the return of the subject car to petitioner. Accordingly, respondent Advent Capital and Finance Corporation is directed to return the subject car to petitioner. The Regional Trial Court of Makati City (Branch 147) is directed to conduct a hearing on, and determine, petitioner's claim for damages against the replevin bond posted by Stronghold Insurance Co. SO ORDERED.
[15]

On 8 June 2006, Young filed a motion to resolve his omnibus motion. In an Order dated 5 July 2006, the trial court denied the motion to resolve, to wit: In the instant case, the Court suspended the resolution of the return of the vehicle to defendant Roland Young. It should be noted that the writ of replevin was validly issued in favor of the plaintiff and that it has sufficiently established ownership over the subject vehicle which includes its right to possess. On the other hand, the case (Olympia International vs. Court of Appeals) cited by defendant finds no application to this case, inasmuch as in the former the Court has not rendered judgment affirming plaintiff's (Olympia) right of possession on the property seized. Moreover, the Court, in the Order dated April 28, 2005, has already denied defendant's counterclaim upon which he based his right of possession on the ground of lack of jurisdiction. Accordingly, the Court reiterates its previous ruling that to order the return of the subject vehicle to defendant Young, who is yet to prove his right of possession before the Rehabilitation Court would not be proper. WHEREFORE, there being no new and substantial arguments raised, the Motion to Resolve [13] is denied. Young filed a petition for certiorari and mandamus with the Court of Appeals seeking to annul the trial court's Orders of 24 March 2006 and 5 July 2006. The Court of Appeals' Ruling In his petition before the Court of Appeals, Young argued mainly that the trial court committed grave abuse of discretion amounting to lack or excess of jurisdiction in (1) not directing the return of the subject vehicle to him; (2) refusing to hold a hearing to determine the damages to be recovered against the replevin bond; and (3) dismissing his counterclaim. The Court of Appeals ruled in favor of Young and annulled the assailed rulings of the trial court. The Court of Appeals held: It is noteworthy that the case was dismissed by the court a quo for failure of Advent to prosecute the same. Upon dismissal of the case, the writ of seizure issued as an incident of the main action (for replevin) became functus officio and should have been recalled or lifted. Since there was no adjudication on the merits of the case, the issue of who between Advent and petitioner has the better right to possess the subject car was not determined. As such, the parties should be restored to their status immediately before the institution of

Advent filed a motion for reconsideration, which was denied by the Court of Appeals in a Resolution dated 15 May 2008. The Issue The main issue in this case is whether the Court of Appeals committed reversible error in (1) directing the return of the seized car to Young; and (2) ordering the trial court to set a hearing for the determination of damages against the replevin bond. The Court's Ruling The petition is partially meritorious. On returning the seized vehicle to Young We agree with the Court of Appeals in directing the trial court to return the seized car to Young since this is the necessary consequence of the dismissal of the replevin case for failure to prosecute without prejudice. Upon the dismissal of the replevin case for failure to prosecute, the writ of seizure, which is merely ancillary in nature, became functus officio and should have been lifted. There was no adjudication on the merits, which means that there was no determination of the issue who has the better right to possess the subject car. Advent cannot therefore retain possession of the subject car considering that it was not adjudged as the prevailing party entitled to the remedy of replevin. Contrary to Advent's view, Olympia International Inc. v. Court of Appeals applies to this case. The dismissal of the replevin case for failure to prosecute results in the restoration of the parties' status prior to litigation, as if no complaint was filed at all. To let the writ of seizure stand after the dismissal of the complaint would be adjudging Advent as the prevailing party, when precisely no decision on the merits had been rendered. Accordingly, the parties must be reverted to their status quo ante. Since Young possessed the subject car before the filing of the replevin case, the same must be returned to him, as if no complaint was filed at all. Advent's contention that returning the subject car to Young would constitute a violation of the stay order issued by the rehabilitation court is untenable. As the Court of Appeals correctly concluded, returning the seized vehicle to Young is not an enforcement of a claim against Advent which must be suspended by virtue of the stay order issued by the rehabilitation court pursuant to Section 6 of the Interim Rules on Corporate Rehabilitation [17] (Interim Rules). The issue in the replevin case is who has better right to possession of the car, and it was Advent that claimed a better right in filing the replevin case against Young. In defense, Young claimed a better right to possession of the car arising from Advent's car plan to its executives, which he asserts entitles him to offset the value of the car against the proceeds of his retirement pay and stock option plan. Young cannot collect a money "claim" against Advent within the contemplation of the Interim Rules. The term "claim" has been construed to refer to debts or demands of a pecuniary nature, or the assertion to have money paid by the company under [18] rehabilitation to its creditors. In the replevin case, Young cannot demand that Advent
[16]

pay him money because such payment, even if valid, has been "stayed" by order of the rehabilitation court. However, in the replevin case, Young can raise Advent's car plan, coupled with his retirement pay and stock option plan, as giving him a better right to possession of the car. To repeat, Young is entitled to recover the subject car as a necessary consequence of the dismissal of the replevin case for failure to prosecute without prejudice. On the damages against the replevin bond Section 10, Rule 60 of the Rules of Court governs claims for damages on account of improper or irregular seizure in replevin cases. It provides that in replevin cases, as in receivership and injunction cases, the damages to be awarded upon the bond "shall be claimed, ascertained, and granted" in accordance with Section 20 of Rule 57 which reads: Sec. 20. Claim for damages on account of improper, irregular or excessive attachment. - An application for damages on account of improper, irregular or excessive attachment must be filed before the trial or before appeal is perfected or before the judgment becomes executory, with due notice to the attaching obligee or his surety or sureties, setting forth the facts showing his right to damages and the amount thereof. Such damages may be awarded only after proper hearing and shall be included in the judgment on the main case. If the judgment of the appellate court be favorable to the party against whom the attachment was issued, he must claim damages sustained during the pendency of the appeal by filing an application in the appellate court with notice to the party in whose favor the attachment was issued or his surety or sureties, before the judgment of the appellate court becomes executory. The appellate court may allow the application to be heard and decided by the trial court. Nothing herein contained shall prevent the party against whom the attachment was issued from recovering in the same action the damages awarded to him from any property of the attaching obligee not exempt from execution should the bond or deposit given by the latter be insufficient or fail to fully satisfy the award. The above provision essentially allows the application to be filed at any time before the [20] judgment becomes executory. It should be filed in the same case that is the main [21] action, and with the court having jurisdiction over the case at the time of the [22] application. In this case, there was no application for damages against Stronghold resulting from the issuance of the writ of seizure before the finality of the dismissal of the complaint for failure to prosecute. It appears that Young filed his omnibus motion claiming damages against Stronghold after the dismissal order issued by the trial court on 28 April 2005 had attained finality. While Young filed a motion for partial reconsideration on 10 June 2005, it only concerned the dismissal of his counterclaim, without any claim for damages against the replevin bond. It was only on 8 July 2005 that Young filed an omnibus motion seeking damages against the replevin bond, after the dismissal order had already become final for Advent's non-appeal of such order. In fact, in his omnibus motion, Young stressed the [23] finality of the dismissal order. Thus, Young is barred from claiming damages against the replevin bond.
[19]

In Jao v. Royal Financing Corporation, the Court held that defendant therein was precluded from claiming damages against the surety bond since defendant failed to file the application for damages before the termination of the case, thus: The dismissal of the case filed by the plaintiffs-appellees on July 11, 1959, had become final and executory before the defendant-appellee corporation filed its motion for judgment on the bond on September 7, 1959. In the order of the trial court, dismissing the complaint, there appears no pronouncement whatsoever against the surety bond. The appelleecorporation failed to file its proper application for damages prior to the termination of the case against it. It is barred to do so now. The prevailing party, if such would be the proper term for the appellee-corporation, having failed to file its application for damages against the bond prior to the entry of final judgment, the bondsman-appellant is relieved of further liability thereunder. Since Young is time-barred from claiming damages against the replevin bond, the dismissal order having attained finality after the application for damages, the Court of Appeals erred in ordering the trial court to set a hearing for the determination of damages against the replevin bond. WHEREFORE, the Court GRANTS the petition IN PART. The Court SETS ASIDE the portion in the assailed decision of the Court of Appeals in CA-G.R. SP No. 96266 ordering the trial court to set a hearing for the determination of damages against the replevin bond.

[24]

In 1996, Amethyst Pearl executed a Deed of Assignment in Liquidation of the subject premises in favor of ASB Realty in consideration of the full redemption of Amethyst Pearl's [5] outstanding capital stock from ASB Realty. Thus, ASB Realty became the owner of the subject premises and obtained in its name Transfer Certificate of Title No. PT[6] 105797, which was registered in 1997 with the Registry of Deeds of Pasig City. Sometime in 2003, ASB Realty commenced an action in the Metropolitan Trial Court (MTC) [7] of Pasig City for unlawful detainer of the subject premises against petitioner Leonardo S. [8] Umale (Umale). ASB Realty alleged that it entered into a lease contract with Umale for the period June 1, 1999-May 31, 2000. Their agreement was for Umale to conduct a payparking business on the property and pay a monthly rent of P60,720.00 to ASB Realty. Upon the contract's expiration on May 31, 2000, Umale continued occupying the premises and paying rentals albeit at an increased monthly rent of P100,000.00. The last rental payment made by Umale to ASB Realty was for the June 2001 to May 2002 period, as [9] evidenced by the Official Receipt No. 56511 dated November 19, 2001. On June 23, 2003, ASB Realty served on Umale a Notice of Termination of Lease and [10] Demand to Vacate and Pay. ASB Realty stated that it was terminating the lease effective midnight of June 30, 2003; that Umale should vacate the premises, and pay to ASB Realty the rental arrears amounting to P1.3 million by July 15, 2003. Umale failed to comply with ASB Realty's demands and continued in possession of the subject premises, even constructing commercial establishments thereon. Umale admitted occupying the property since 1999 by virtue of a verbal lease contract but vehemently denied that ASB Realty was his lessor. He was adamant that his lessor was the original owner, Amethyst Pearl. Since there was no contract between himself and ASB Realty, the latter had no cause of action to file the unlawful detainer complaint against him. In asserting his right to remain on the property based on the oral lease contract with Amethyst Pearl, Umale interposed that the lease period agreed upon was "for a long [11] period of time." He then allegedly paid P1.2 million in 1999 as one year advance rentals [12] to Amethyst Pearl. Umale further claimed that when his oral lease contract with Amethyst Pearl ended in May 2000, they both agreed on an oral contract to sell. They agreed that Umale did not have to pay rentals until the sale over the subject property had been perfected between [13] them. Despite such agreement with Amethyst Pearl regarding the waiver of rent payments, Umale maintained that he continued paying the annual rent of P1.2 million. He was thus surprised when he received the Notice of Termination of Lease from ASB [14] Realty. Umale also challenged ASB Realty's personality to recover the subject premises considering that ASB Realty had been placed under receivership by the Securities and Exchange Commission (SEC) and a rehabilitation receiver had been duly appointed. Under Section

June 15, 2011 LEONARDO S. UMALE, [DECEASED] REPRESENTED BY CLARISSA VICTORIA, JOHN LEO, GEORGE LEONARD, KRISTINE, MARGUERITA ISABEL, AND MICHELLE ANGELIQUE, ALL SURNAMED UMALE, PETITIONERS, VS. ASB REALTY CORPORATION, RESPONDENT. DECISION DEL CASTILLO, J.: Being placed under corporate rehabilitation and having a receiver appointed to carry out the rehabilitation plan do not ipso facto deprive a corporation and its corporate officers of the power to recover its unlawfully detained property. Petitioners filed this Petition for Review on Certiorari assailing the October 15, 2007 [2] Decision of the Court of Appeals (CA) in CA-G.R. SP No. 91096, as well as its January 2, [3] 2008 Resolution. The dispositive portion of the assailed Decision reads: WHEREFORE, the Decision dated March 28, 2005 of the trial court is affirmed in toto. SO ORDERED. Factual Antecedents This case involves a parcel of land identified as Lot 7, Block 5, Amethyst Street, Ortigas Center, Pasig City which was originally owned by Amethyst Pearl Corporation (Amethyst Pearl), a company that is, in turn, wholly-owned by respondent ASB Realty Corporation (ASB Realty).
[4] [1]

14(s), Rule 4 of the Administrative Memorandum No. 00-8-10SC, otherwise known as the Interim Rules of Procedure on Corporate Rehabilitation (Interim Rules), it is the rehabilitation receiver that has the power to "take possession, control and custody of the debtor's assets." Since ASB Realty claims that it owns the subject premises, it is its duly[15] appointed receiver that should sue to recover possession of the same. ASB Realty replied that it was impossible for Umale to have entered into a Contract of Lease with Amethyst Pearl in 1999 because Amethyst Pearl had been liquidated in 1996. ASB Realty insisted that, as evidenced by the written lease contract, Umale contracted with ASB Realty, not with Amethyst Pearl. As further proof thereof, ASB Realty cited the official receipt evidencing the rent payments made by Umale to ASB Realty. Ruling of the Metropolitan Trial Court In its August 20, 2004 Decision, the MTC dismissed ASB Realty's complaint against Umale without prejudice. It held that ASB Realty had no cause to seek Umale's ouster from the subject property because it was not Umale's lessor. The trial court noted an inconsistency in the written lease contract that was presented by ASB Realty as basis for its complaint. Its whereas clauses cited ASB Realty, with Eden C. Lin as its representative, as Umale's lessor; but its signatory page contained Eden C. Lin's name under the heading Amethyst Pearl. The MTC then concluded from such inconsistency that Amethyst Pearl [17] was the real lessor, who can seek Umale's ejectment from the subject property. Likewise, the MTC agreed with Umale that only the rehabilitation receiver could file suit to [18] recover ASB Realty's property. Having been placed under receivership, ASB Realty had no more personality to file the complaint for unlawful detainer. Ruling of the Regional Trial Court ASB Realty appealed the adverse MTC Decision to the Regional Trial Court (RTC), [20] then reversed the MTC ruling.
[19] [16]

With the lease contract between Umale and ASB Realty duly established and Umale's failure to pay the monthly rentals since June 2002 despite due demands from ASB Realty, the latter had the right to terminate the lease contract and seek his eviction from the leased premises. Thus, when the contract expired on June 30, 2003 (as stated in the Notice of Termination of Lease), Umale lost his right to remain on the premises and his continued [21] refusal to vacate the same constituted sufficient cause of action for his ejectment. With respect to ASB Realty's personality to file the unlawful detainer suit, the RTC ruled that ASB Realty retained all its corporate powers, including the power to sue, despite the appointment of a rehabilitation receiver. Citing the Interim Rules, the RTC noted that the rehabilitation receiver was not granted therein the power to file complaints on behalf of [22] the corporation. Moreover, the retention of its corporate powers by the corporation under rehabilitation will advance the objective of corporate rehabilitation, which is to conserve and administer the assets of the corporation in the hope that it may eventually be able to go from financial distress to solvency. The suit filed by ASB Realty to recover its property and back rentals [23] from Umale could only benefit ASB Realty. The dispositive portion of the RTC Decision reads as follows: WHEREFORE, premises considered, the appealed decision is hereby reversed and set aside. Accordingly, judgment is hereby rendered in favor of the plaintiff-appellant ordering defendant-appellee and all persons claiming rights under him: 1) To immediately vacate the subject leased premises located at Lot 7, Block 5, Amethyst St., Pearl Drive, Ortigas Center, Pasig City and deliver possession thereof to the plaintiffappellant; 2) To pay plaintiff-appellant the sum of P1,300,000.00 representing rentals in arrears from June 2002 to June 2003; 3) To pay plaintiff-appellant the amount of P100,000.00 a month starting from July 2003 and every month thereafter until they finally vacate the subject premises as reasonable compensation for the continued use and occupancy of the same; 4) To pay plaintiff-appellant the sum of P200,000.00 as and by way of attorney's fees; and the costs of suit. SO ORDERED.
[24]

which

The RTC held that the MTC erred in dismissing ASB Realty's complaint for lack of cause of action. It found sufficient evidence to support the conclusion that it was indeed ASB Realty that entered into a lease contract with Umale, hence, the proper party who can assert the corresponding right to seek Umale's ouster from the leased premises for violations of the lease terms. In addition to the written lease contract, the official receipt evidencing Umale's rental payments for the period June 2001 to May 2002 to ASB Realty adequately established that Umale was aware that his lessor, the one entitled to receive his rent payments, was ASB Realty, not Amethyst Pearl. ASB Realty's positive assertions, supported as they are by credible evidence, are more compelling than Umale's bare negative assertions. The RTC found Umale's version of the facts incredible. It was implausible that a businessman such as Umale would enter into several transactions with his alleged lessor - a lease contract, payment of lease rentals, acceptance of an offer to sell from his alleged lessor, and an agreement to waive rentals sans a sliver of evidence.

Umale filed a Motion for Reconsideration while ASB Realty moved for the issuance of a writ of execution pursuant to Section 21 of the 1991 Revised Rules on Summary [26] Procedure. In its July 26, 2005 Order, the RTC denied reconsideration of its Decision and granted ASB [27] Realty's Motion for Issuance of a Writ of Execution.

[25]

Umale then filed his appeal with the CA insisting that the parties did not enter into a [29] lease contract. Assuming that there was a lease, it was at most an implied lease. Hence its period depended on the rent payments. Since Umale paid rent annually, ASB Realty had to respect his lease for the entire year. It cannot terminate the lease at the end of the [30] month, as it did in its Notice of Termination of Lease. Lastly, Umale insisted that it was [31] the rehabilitation receiver, not ASB Realty, that was the real party-in-interest. Pending the resolution thereof, Umale died and was substituted by his widow and legal heirs, per CA Resolution dated August 14, 2006. Ruling of the Court of Appeals The CA affirmed the RTC Decision in toto.
[33] [32]

[28]

3. Whether Umale is entitled to avail of the lease periods provided in Article 1687 of the Civil Code. Our Ruling Petitioners ask for the dismissal of the complaint for unlawful detainer on the ground that [42] it was not brought by the real party-in-interest. Petitioners maintain that the appointment of a rehabilitation receiver for ASB Realty deprived its corporate officers of the power to recover corporate property and transferred such power to the rehabilitation receiver. Section 6, Rule 59 of the Rules of Court states that a receiver has the power to bring actions in his own name and to collect debts due to the corporation. Under Presidential Decree (PD) No. 902-A and the Interim Rules, the rehabilitation receiver has the power to take custody and control of the assets of the corporation. Since the receiver for ASB Realty did not file the complaint for unlawful detainer, the trial court did not [43] acquire jurisdiction over the subject property. Petitioners cite Villanueva v. Court of Appeals,
[44]

Yam v. Court of

According to the appellate court, ASB Realty fully discharged its burden to prove the [34] existence of a lease contract between ASB Realty and Umale, as well as the grounds for [35] eviction. The veracity of the terms of the lease contract presented by ASB Realty was further bolstered, instead of demolished, by Umale's admission that he paid monthly rents [36] in accordance therewith. The CA found no merit in Umale's claim that in light of Article 1687 of the Civil Code the lease should be extended until the end of the year. The said provision stated that in cases where the lease period was not fixed by the parties, the lease period depended on the payment periods. In the case at bar, the rent payments were made on a monthly basis, not annually; thus, Umale's failure to pay the monthly rent gave ASB Realty the corresponding [37] right to terminate the lease at the end of the month. The CA then upheld ASB Realty's, as well as its corporate officers', personality to recover an unlawfully withheld corporate property. As expressly stated in Section 14 of Rule 4 of the Interim Rules, the rehabilitation receiver does not take over the functions of the corporate [38] officers. Petitioners filed a Motion for Reconsideration, assailed January 2, 2008 Resolution.
[40] [39]

Appeals, and Abacus Real Estate Development Center, Inc. v. The Manila Banking [46] Corporation, as authorities for the rule that the appointment of a receiver suspends the [47] authority of the corporation and its officers over its property and effects. ASB Realty counters that there is no provision in PD 902-A, the Interim Rules, or in Rule 59 of the Rules of Court that divests corporate officers of their power to sue upon the [48] appointment of a rehabilitation receiver. In fact, Section 14 , Rule 4 of the Interim Rules expressly limits the receiver's power by providing that the rehabilitation receiver does not take over the management and control of the corporation but shall closely oversee and [49] monitor the operations of the debtor. Further, the SEC Rules of Procedure on Corporate Recovery (SEC Rules), the rules applicable to the instant case, do not include among the [50] receiver's powers the exclusive right to file suits for the corporation. The Court resolves the issue in favor of ASB Realty and its officers. There is no denying that ASB Realty, as the owner of the leased premises, is the real party[51] in-interest in the unlawful detainer suit. Real party-in-interest is defined as "the party who stands to be benefited or injured by the judgment in the suit, or the party entitled to [52] the avails of the suit." What petitioners argue is that the corporate officer of ASB Realty is incapacitated to file this suit to recover a corporate property because ASB Realty has a duly-appointed rehabilitation receiver. Allegedly, this rehabilitation receiver is the only one that can file the instant suit. Corporations, such as ASB Realty, are juridical entities that exist by operation of law. As a creature of law, the powers and attributes of a corporation are those set out, expressly or impliedly, in the law. Among the general powers granted by law to a corporation is the [54] power to sue in its own name. This power is granted to a duly-organized corporation, unless specifically revoked by another law. The question becomes: Do the laws on
[53]

[45]

which was denied in the

Issues The petitioners raise the following issues for resolution:


[41]

1. Can a corporate officer of ASB Realty (duly authorized by the Board of Directors) file suit to recover an unlawfully detained corporate property despite the fact that the corporation had already been placed under rehabilitation? 2. Whether a contract of lease exists between ASB Realty and Umale; and

corporate rehabilitation - particularly PD 902-A, as amended, and its corresponding rules of procedure - forfeit the power to sue from the corporate officers and Board of Directors? Corporate rehabilitation is defined as "the restoration of the debtor to a position 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 corporation continues as a going concern than [56] if it is immediately liquidated." It was first introduced in the Philippine legal system [57] through PD 902-A, as amended. The intention of the law is "to effect a feasible and viable rehabilitation by preserving a floundering business as a going concern, because the assets of a business are often more valuable when so maintained than they would be when [58] liquidated." This concept of preserving the corporation's business as a going concern while it is undergoing rehabilitation is called debtor-in-possession or debtor-in-place. This means that the debtor corporation (the corporation undergoing rehabilitation), through its Board of Directors and corporate officers, remains in control of its business and [59] properties, subject only to the monitoring of the appointed rehabilitation receiver. The concept of debtor-in-possession, is carried out more particularly in the SEC Rules, the rule [60] that is relevant to the instant case. It states therein that the interim rehabilitation receiver of the debtor corporation "does not take over the control and management of the [61] debtor corporation." Likewise, the rehabilitation receiver that will replace the interim receiver is tasked only to monitor the successful implementation of the rehabilitation [62] plan. There is nothing in the concept of corporate rehabilitation that would ipso [63] facto deprive the Board of Directors and corporate officers of a debtor corporation, such as ASB Realty, of control such that it can no longer enforce its right to recover its property from an errant lessee. To be sure, corporate rehabilitation imposes several restrictions on the debtor corporation. [64] The rules enumerate the prohibited corporate actions and transactions (most of which involve some kind of disposition or encumbrance of the corporation's assets) during the pendency of the rehabilitation proceedings but none of which touch on the debtor corporation's right to sue. The implication therefore is that our concept of rehabilitation does not restrict this particular power, save for the caveat that all its actions are monitored closely by the receiver, who can seek an annulment of any prohibited or anomalous transaction or agreement entered into by the officers of the debtor corporation. Petitioners insist that the rehabilitation receiver has the power to bring and defend actions in his own name as this power is provided in Section 6 of Rule 59 of the Rules of Court. Indeed, PD 902-A, as amended, provides that the receiver shall have the powers enumerated under Rule 59 of the Rules of Court. But Rule 59 is a rule of general application. It applies to different kinds of receivers - rehabilitation receivers, receivers of entities under management, ordinary receivers, receivers in liquidation - and for different [65] kinds of situations. While the SEC has the discretion to authorize the rehabilitation receiver, as the case may warrant, to exercise the powers in Rule 59, the SEC's exercise of such discretion cannot simply be assumed. There is no allegation whatsoever in this case that the SEC gave ASB Realty's rehabilitation receiver the exclusive right to sue.

[55]

Petitioners cite Villanueva, Yam, and Abacus Real Estate as authorities for their theory that the corporate officers of a corporation under rehabilitation is incapacitated to [69] act. In Villanueva, the Court nullified the sale contract entered into by the Philippine Veterans Bank on the ground that the bank's insolvency restricted its capacity to [70] act. Yam, on the other hand, nullified the compromise agreement that Manphil Investment Corporation entered into while it was under receivership by the Central [71] Bank. In Abacus Real Estate, it was held that Manila Bank's president had no authority to execute an "option to purchase" contract while the bank was under liquidation. These jurisprudence are inapplicable to the case at bar because they involve banking and financial institutions that are governed by different laws. In the cited [73] [74] cases, the applicable banking law was Section 29 of the Central Bank Act. In stark contrast to rehabilitation where the corporation retains control and management of its affairs, Section 29 of the Central Bank Act, as amended, expressly forbids the bank or the quasi-bank from doing business in the Philippines. Moreover, the nullified transactions in the cited cases involve dispositions of assets and [75] claims, which are prohibited transactions even for corporate rehabilitation because these may be prejudicial to creditors and contrary to the rehabilitation plan. The instant case, however, involves the recovery of assets and collection of receivables, for which there is no prohibition in PD 902-A. While the Court rules that ASB Realty and its corporate officers retain their power to sue to recover its property and the back rentals from Umale, the necessity of keeping the receiver apprised of the proceedings and its results is not lost upon this Court. Tasked to closely monitor the assets of ASB Realty, the rehabilitation receiver has to be notified of the developments in the case, so that these assets would be managed in accordance with the approved rehabilitation plan. Coming to the second issue, petitioners maintain that ASB Realty has no cause of action against them because it is not their lessor. They insist that Umale entered into a verbal lease agreement with Amethyst Pearl only. As proof of this verbal agreement, petitioners cite their possession of the premises, and construction of buildings [76] thereon, sans protest from Amethyst Pearl or ASB Realty. Petitioners concede that they may have raised questions of fact but insist nevertheless on their review as the appellate court's ruling is allegedly grounded entirely on speculations, surmises, and conjectures and its conclusions regarding the termination of the lease [77] contract are manifestly absurd, mistaken, and impossible. Petitioners' arguments have no merit. Ineluctably, the errors they raised involve factual [78] findings, the review of which is not within the purview of the Court's functions under Rule 45, particularly when there is adequate evidentiary support on record.
[72]

[66]

[67]

[68]

While petitioners assail the authenticity of the written lease contract by pointing out the inconsistency in the name of the lessor in two separate pages, they fail to account for Umale's actions which are consistent with the terms of the contract - the payment of lease rentals to ASB Realty (instead of his alleged lessor Amethyst Pearl) for a 12-month period. These matters cannot simply be brushed off as sheer happenstance especially when weighed against Umale's incredible version of the facts - that he entered into a verbal lease contract with Amethyst Pearl; that the term of the lease is for a "very long period of time;" that Amethyst Pearl offered to sell the leased premises and Umale had accepted the offer, with both parties not demanding any written documentation of the transaction and without any mention of the purchase price; and that finally, Amethyst Pearl agreed that Umale need not pay rentals until the perfection of the sale. The Court is of the same mind as the appellate court that it is simply inconceivable that a businessman, such as petitioners' predecessor-in-interest, would enter into commercial transactions with and pay substantial rentals to a corporation nary a single documentation. Petitioners then try to turn the table on ASB Realty with their third argument. They say that under Article 1687 of the New Civil Code, the period for rent payments determines the lease period. Judging by the official receipt presented by ASB Realty, which covers the 12month period from June 2001 to May 2002, the lease period should be annual because of [79] the annual rent payments. Petitioners then conclude that ASB Realty violated Article 1687 of the New Civil Code when it terminated the lease on June 30, 2003, at the beginning of the new period. They then implore the Court to extend the lease to the end of the [80] annual period, meaning until May 2004, in accordance with the annual rent payments. In arguing for an extension of lease under Article 1687, petitioners lost sight of the restriction provided in Article 1675 of the Civil Code. It states that a lessee that commits any of the grounds for ejectment cited in Article 1673, including non-payment of lease rentals and devoting the leased premises to uses other than those stipulated, cannot avail [81] of the periods established in Article 1687. Moreover, the extension in Article 1687 is granted only as a matter of equity. The law simply recognizes that there are instances when it would be unfair to abruptly end the lease contract causing the eviction of the lessee. It is only for these clearly unjust situations that Article 1687 grants the court the discretion to extend the lease.
[82]

Rehabilitation Receiver and to INFORM the Court of its compliance therewith within 10 days.

Feb. 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. DECISION PERALTA, J.: [1] Before this Court is a petition for review on certiorari under Rule 45 of the Rules of Court, [2] [3] seeking to set aside the April 27, 2006 Decision and August 2, 2006 Resolution of the Court of the Appeals (CA) in CA-G.R. SP No. 90947. The facts of the case are as follows: On October 15, 2004, Jose Marcel Panlilio, Erlinda Panlilio, Nicole Morris and Marlo Cristobal (petitioners), as corporate officers of Silahis International Hotel, Inc. (SIHI), filed with the Regional Trial Court (RTC) of Manila, Branch 24, a petition for Suspension of [4] Payments and Rehabilitation in SEC Corp. Case No. 04-111180. On October 18, 2004, the RTC of Manila, Branch 24, issued an Order staying all claims against SIHI upon finding the petition sufficient in form and substance. The pertinent portions of the Order read: Finding the petition, together with its annexes, sufficient in form and substance and pursuant to Section 6, Rule 4 of the Interim Rules on Corporate Rehabilitation, the Court hereby: xxxx 2) Stays the enforcement of all claims, whether for money or otherwise and whether such enforcement is by court action or otherwise, against the debtor, its guarantors and sureties [6] not solidarily liable with the debtor. At the time, however, of the filing of the petition for rehabilitation, there were a number of [7] criminal charges pending against petitioners in Branch 51 of the RTC of Manila. These criminal charges were initiated by respondent Social Security System (SSS) and involved [8] charges of violations of Section 28 (h) of Republic Act 8282, or the Social Security Act of [9] 1997 (SSS law), in relation to Article 315 (1) (b) of the Revised Penal Code, or Estafa. Consequently, petitioners filed with the RTC of Manila, Branch 51, a Manifestation [10] and Motion to Suspend Proceedings. Petitioners argued that the stay order issued by Branch 24 should also apply to the criminal charges pending in Branch 51. Petitioners, thus, prayed that Branch 51 suspend its proceedings until the petition for rehabilitation was finally resolved.
[5]

The particular circumstances of the instant case however, do not inspire granting equitable relief. Petitioners have not paid, much less offered to pay, the rent for 14 months and even had the temerity to disregard the pay-and-vacate notice served on them. An extension will only benefit the wrongdoer and punish the long-suffering property [83] owner. WHEREFORE, the petition is DENIED. The October 15, 2007 Decision and January 2, 2008 Resolution of the Court of Appeals in CA-G.R. SP No. 91096 are hereby AFFIRMED. ASB Realty Corporation is ordered to FURNISH a copy of the Decision on its incumbent

On December 13, 2004, Branch 51 issued an Order denying petitioners' motion to suspend the proceedings. It ruled that the stay order issued by Branch 24 did not cover criminal proceedings, to wit: xxxx Clearly then, the issue is, whether the stay order issued by the RTC commercial court, Branch 24 includes the above-captioned criminal cases. The Court shares the view of the private complainants and the SSS that the said stay order does not include the prosecution of criminal offenses. Precisely, the law "criminalizes" the non-remittance of SSS contributions by an employer to protect the employees from unscrupulous employers. Clearly, in these cases, public interest requires that the said criminal acts be immediately investigated and prosecuted for the protection of society. From the foregoing, the inescapable conclusion is that the stay order issued by RTC Branch [12] 24 does not include the above-captioned cases which are criminal in nature. Branch 51 denied the motion for reconsideration filed by petitioners. On August 19, 2005, petitioners filed a petition for certiorari Order of Branch 51.
[13]

[11]

payments projected in the rehabilitation plan, if the corporation continues as a going [17] concern than if it is immediately liquidated. It contemplates a continuance of corporate life and activities in an effort to restore and reinstate the corporation to its former position of successful operation and solvency, the purpose being to enable the company to gain a [18] new lease on life and allow its creditors to be paid their claims out of its earnings. A principal feature of corporate rehabilitation is the suspension of claims against the distressed corporation. Section 6 (c) of Presidential Decree No. 902-A, as amended, provides for suspension of claims against corporations undergoing rehabilitation, to wit: Section 6 (c). x x x x x x Provided, finally, that upon appointment of a management committee, rehabilitation receiver, board or body, pursuant to this Decree, all actions for claims against corporations, partnerships or associations under management or receivership pending [19] before any court, tribunal, board or body,shall be suspended accordingly. In November 21, 2000, this Court En Banc promulgated the Interim Rules of Procedure on [20] Corporate Rehabilitation, Section 6, Rule 4 of which provides a stay order on all claims against the corporation, thus: Stay Order. - If the court finds the petition to be sufficient in form and substance, it shall, not later than five (5) days from the filing of the petition, issue an Order x x x; (b) staying enforcement of all claims, whether for money or otherwise and whether such enforcement is by court action or otherwise, against the debtor, its guarantors and sureties [21] not solidarily liable with the debtor; x x x In Finasia Investments and Finance Corporation v. Court of Appeals, the term "claim" has been construed to refer to debts or demands of a pecuniary nature, or the assertion to have money paid. The purpose for suspending actions for claims against the corporation in a rehabilitation proceeding is to enable the management committee or rehabilitation receiver to effectively exercise its/his powers free from any judicial or extrajudicial [23] interference that might unduly hinder or prevent the rescue of the debtor company. The issue to be resolved then is: does the suspension of "all claims" as an incident to a corporate rehabilitation also contemplate the suspension of criminal charges filed against the corporate officers of the distressed corporation? This Court rules in the negative. In Rosario v. Co (Rosario), a case of recent vintage, the issue resolved by this Court was whether or not during the pendency of rehabilitation proceedings, criminal charges for violation of Batas Pambansa Bilang 22 should be suspended, was disposed of as follows: x x x the gravamen of the offense punished by B.P. Blg. 22 is the act of making and issuing a worthless check; that is, a check that is dishonored upon its presentation for payment. It is designed to prevent damage to trade, commerce, and banking caused by worthless checks. In Lozano v. Martinez, this Court declared that it is not the nonpayment of an obligation which the law punishes. The law is not intended or designed to coerce a debtor to pay his debt. The thrust of the law is to prohibit, under pain of penal sanctions, the making and
[24] [22]

with the CA assailing the

On April 27, 2006, the CA issued a Decision denying the petition, the dispositive portion of which reads: WHEREFORE, premises considered, the Petition is hereby DENIED and is accordingly [14] DISMISSED. No costs. The CA discussed that violation of the provisions of the SSS law was a criminal liability and was, thus, personal to the offender. As such, the CA held that the criminal proceedings against the petitioners should not be considered a claim against the corporation and, consequently, not covered by the stay order issued by Branch 24. Petitioners filed a Motion for Reconsideration, a Resolution dated August 2, 2006.
[15]

which was, however, denied by the CA in

Hence, herein petition, with petitioners raising a lone issue for this Court's resolution, to wit: x x x WHETHER OR NOT THE STAY ORDER ISSUED BY BRANCH 24, REGIONAL TRIAL COURT OF MANILA, IN SEC CORP. CASE NO. 04-111180 COVERS ALSO VIOLATION OF SSS LAW FOR [3] NON-REMITTANCE OF PREMIUMS AND VIOLATION OF [ARTICLE] 515 OF THE REVISED [16] PENAL CODE. The petition is not meritorious. To begin with, corporate rehabilitation connotes the restoration of the debtor to a position of successful operation and solvency, if it is shown that its continued operation is economically feasible and its creditors can recover more, by way of the present value of

circulation of worthless checks. Because of its deleterious effects on the public interest, the practice is proscribed by the law. The law punishes the act not as an offense against property, but an offense against public order. The prime purpose of the criminal action is to punish the offender in order to deter him and others from committing the same or similar offense, to isolate him from society, to reform and rehabilitate him or, in general, to maintain social order. Hence, the criminal prosecution is designed to promote the public welfare by punishing offenders and deterring others. Consequently, the filing of the case for violation of B.P. Blg. 22 is not a "claim" that can be enjoined within the purview of P.D. No. 902-A. True, although conviction of the accused for the alleged crime could result in the restitution, reparation or indemnification of the private offended party for the damage or injury he sustained by reason of the felonious act of the accused, nevertheless, prosecution for violation of B.P. Blg. 22 is a criminal action. A criminal action has a dual purpose, namely, the punishment of the offender and indemnity to the offended party. The dominant and primordial objective of the criminal action is the punishment of the offender. The civil action is merely incidental to and consequent to the conviction of the accused. The reason for this is that criminal actions are primarily intended to vindicate an outrage against the sovereignty of the state and to impose the appropriate penalty for the vindication of the disturbance to the social order caused by the offender. On the other hand, the action between the private complainant [25] and the accused is intended solely to indemnify the former. Rosario is at fours with the case at bar. Petitioners are charged with violations of Section 28 (h) of the SSS law, in relation to Article 315 (1) (b) of the Revised Penal Code, or Estafa. The SSS law clearly "criminalizes" the non-remittance of SSS contributions by an employer to protect the employees from unscrupulous employers. Therefore, public interest requires that the said criminal acts be immediately investigated and prosecuted for the protection of society. The rehabilitation of SIHI and the settlement of claims against the corporation is not a legal ground for the extinction of petitioners' criminal liabilities. There is no reason why criminal proceedings should be suspended during corporate rehabilitation, more so, since the prime purpose of the criminal action is to punish the offender in order to deter him and others from committing the same or similar offense, to isolate him from society, reform and [26] rehabilitate him or, in general, to maintain social order. As correctly observed [27] in Rosario, it would be absurd for one who has engaged in criminal conduct could escape punishment by the mere filing of a petition for rehabilitation by the corporation of which he is an officer. The prosecution of the officers of the corporation has no bearing on the pending rehabilitation of the corporation, especially since they are charged in their individual capacities. Such being the case, the purpose of the law for the issuance of the stay order is not compromised, since the appointed rehabilitation receiver can still fully discharge his functions as mandated by law. It bears to stress that the rehabilitation receiver is not charged to defend the officers of the corporation. If there is anything that the

rehabilitation receiver might be remotely interested in is whether the court also rules that petitioners are civilly liable. Such a scenario, however, is not a reason to suspend the criminal proceedings, because as aptly discussed in Rosario, should the court prosecuting the officers of the corporation find that an award or indemnification is warranted, such award would fall under the category of claims, the execution of which would be subject to [28] the stay order issued by the rehabilitation court. The penal sanctions as a consequence of violation of the SSS law, in relation to the revised penal code can therefore be implemented if petitioners are found guilty after trial. However, any civil indemnity awarded as a result of their conviction would be subject to the stay order issued by the rehabilitation court. Only to this extent can the order of suspension be considered obligatory upon any court, tribunal, branch or body where there are pending actions for [29] claims against the distressed corporation. On a final note, this Court would like to point out that Congress has recently enacted Republic Act No. 10142, or the Financial Rehabilitation and Insolvency Act of [30] 2010. Section 18 thereof explicitly provides that criminal actions against the individual officer of a corporation are not subject to the Stay or Suspension Order in rehabilitation proceedings, to wit: The Stay or Suspension Order shall not apply: xxxx (g) any criminal action against individual debtor or owner, partner, director or officer of a debtor shall not be affected by any proceeding commenced under this Act. Withal, based on the foregoing discussion, this Court rules that there is no legal impediment for Branch 51 to proceed with the cases filed against petitioners. WHEREFORE, premises considered, the petition is DENIED. The April 27, 2006 Decision and August 2, 2006 Resolution of the Court of Appeals in CA-G.R. SP No. 90947 are AFFIRMED. The Regional Trial Court of Manila, Branch 51, is ORDERED to proceed with the criminal cases filed against petitioners.

Aug. 8. 2010 EQUITABLE PCI BANK, INC., PETITIONER, VS. DNG REALTY AND DEVELOPMENT CORPORATION, RESPONDENT. DECISION PERALTA, J.: Before us is a petition for review on certiorari with prayer for the issuance of a temporary restraining order and/or writ of preliminary injunction filed by petitioner Equitable PCI [1] Bank, Inc., seeking to set aside the June 23, 2005 Decision of the Court of Appeals (CA) in CA-G.R. SP No. 86950. The undisputed facts, as found by the CA, are as follows:

(Respondent) DNG Realty and Development Corporation (DNG) obtained a loan of P20M from x x x Equitable PCI Bank (EPCIB) secured by a real estate mortgage over the 63,380 sq. meter land of the former situated in Cabanatuan City. Due to the Asian Economic Crisis, DNG experienced liquidity problems disenabling DNG from paying its loan on time. For this reason, EPCIB sought the extrajudicial foreclosure of the said mortgage by filing a petition for sale on 30 June 2003 before the Office of the Ex-Officio Sheriff. On 4 September 2003, the mortgage property was sold at public auction, which was eventually awarded to EPCIB as the highest bidder. That same day, the Sheriff executed a Certificate of Sale in favor of EPCIB. On October 21, 2003, DNG filed a petition for rehabilitation under Rule 4 of the Interim Rules of Procedure on Corporate Rehabilitation before the Regional Trial Court, Branch 28, docketed as Special Proceeding No. 125. Pursuant to this, a Stay Order was issued by RTC Branch 28 on 27 October 2003. The petition for rehabilitation was then published in a newspaper of general circulation on 19 and 26 November 2003. On the other hand, EPCIB caused the recording of the Sheriff's Certificate of Sale on 3 December 2003 with the Registry of Deeds of Cabanatuan City. EPCIB executed an Affidavit of Consolidation of Ownership and had the same annotated on the title of DNG (TCT No. 57143). Consequently, the Register of Deeds cancelled DNG's title and issued TCT No. T109482 in the name of EPCIB on 10 December 2003. This prompted DNG to file Civil Case No. 4631 with RTC-Br. 28 for annulment of the foreclosure proceeding before the Office of the Ex-Officio Sheriff. This case was dismissed for failure to prosecute. In order to gain possession of the foreclosed property, EPCIB on 17 March 2004 filed an ExParte Petition for Issuance of Writ of Possession docketed as Cadastral Case No. 2414-AF before RTC Br. 23 in Cabanatuan City. After hearing, RTC-Br. 23 on 6 September 2004 issued an order directing the issuance of a writ of possession. On 4 October 2004, RTC-Br. 23 issued the Writ of Possession. Consequently, the Office of the Ex-Officio Sheriff issued [2] the Notice to Vacate dated 6 October 2004. On October 15, 2004, respondent filed with the CA a petition for certiorari, prohibition and mandamus with prayer for the issuance of temporary restraining order/ preliminary injunction entitled DNG Realty and Development Corporation v. Hon. LYDIA BAUTO HIPOLITO, in her capacity as the Presiding Judge of Branch 23, Regional Trial Court, Third Judicial Region, Cabanatuan City; the OFFICE OF THE EX-OFFICIO SHERIFF of the Regional Trial Court, Third Judicial Region, Cabanatuan City; the OFFICE OF THE REGISTER OF DEEDS OF CABANATUAN CITY; and EQUITABLE PCIBANK, INC. The petition for certiorari sought to nullify (1) the affidavit of consolidation of ownership dated December 2, 2003; (2) the cancellation of DNG's TCT No. T-57143 covering the mortgaged property and the issuance of TCT No. T-109482 in favor of petitioner EPCIB by the Register of Deeds of Cabanatuan City; (3) the Order dated September 6, 2004 issued by the RTC, Branch 23, directing the issuance of the writ of possession and the writ of possession issued pursuant thereto; and (4) the sheriff's Notice to Vacate dated October 6, 2004, while the petition for prohibition sought to enjoin petitioner EPCIB, their agents and representatives from enforcing and implementing the above-mentioned actions. And the petition for mandamus sought to require petitioner EPCIB to cease and desist from taking further action both in the

foreclosure proceedings as well as in Cadastral Case No. 2414-AF, where the writ of possession was issued until the petition for rehabilitation pending before Branch 28 of the Regional Trial Court (RTC) of Cabanatuan City has been terminated or dismissed. On October 22, 2004, the CA issued a temporary restraining order (TRO).
[3]

After the parties filed their respective pleadings, the CA issued its assailed Decision, the dispositive portion of which reads: WHEREFORE, the instant petition is GRANTED. The Order of 6 September 2004 directing the issuance of a writ of possession; the Writ of Possession issued pursuant thereto; and the Notice to Vacate are all REVERSED and SET ASIDE for being premature and untimely issued. Lastly, the Transfer Certificate of Title No. T-109482 under the name of Equitable PCI Bank is hereby ordered CANCELLED for equally being issued prematurely and untimely, [4] and in lieu thereof the Transfer Certificate of Title No. 57143 is ordered REINSTATED. In finding the petition meritorious, the CA stated that under A.M. No. 00-8-10-SC adopting the Interim Rules of Procedure on Corporate Rehabilitation, all petitions for rehabilitation by corporations, partnerships and associations under Presidential Decree (PD) 902-A, as amended by Republic Act (RA) 8799, were directed to be transferred from the Securities and Exchange Commission (SEC) to the RTCs, and allowed the RTCs to issue a stay order, i.e., staying enforcements of all claims, whether for money or otherwise, and whether such enforcement is by court action or otherwise, against the debtor. And under Section 6 (c) of PD 902-A, the Commission (now the RTC) upon appointment of a management committee, rehabilitation receiver, board or body, all actions or claims against the corporations, partnerships or associations under management or receivership pending before any court, tribunal, board or body shall be suspended accordingly. The CA, [5] relying inBank of the Philippine Islands v. Court of Appeals (BPI v. CA) found no merit to petitioner EPCIB's claim that the foreclosure sale of the property was made prior to the issuance of the Stay Order and was, therefore, fait accompli; and that with the consummation of the extrajudicial foreclosure sale, all the valid and legal consequences of such could no longer be stayed. The CA ruled that after the issuance of the Stay Order, effective from the date of its issuance, all subsequent actions pertaining to respondent DNG's Cabanatuan property should have been held in abeyance. Petitioner EPCIB should have refrained from executing its Affidavit of Consolidation of ownership or filing its exparte petition for issuance of a writ of possession before the RTC Branch 23; respondent Office of the Register of Deeds of Cabanatuan City should not have cancelled respondent DNG's title and issued a new one in petitioner EPCIB's name; and that respondent Judge and theEx-Officio Sheriff should have abstained from issuing the writ of possession and the notice to vacate, respectively. The CA found no forum shopping committed by respondent DNG as Civil Case No. 4631 filed before Branch 28 sought to annul the foreclosure sale and the certificate of sale over respondent DNG's property, while Cadastral Case No. 2414-AF instituted by petitioner EPCIB, was an ex-parte petition to wrest possession of the same property from respondent DNG. On the other hand, the present petition sought only to stay all proceedings on respondent DNG's property after the Stay Order was issued. Thus, the causes of action and the reliefs sought in each of those proceedings were not identical.

The CA also found that, despite the Stay Order issued, petitioner EPCIB's over-zealousness in consolidating its title and taking possession of the respondent's property left the latter without any plain, speedy and adequate remedy but to file the petition. Dissatisfied, petitioner EPCIB filed the instant petition where it raises the errors committed by the CA as follows: THE COURT OF APPEALS COMMITTED GRAVE, PALPABLE, AND REVERSIBLE ERRORS IN TAKING COGNIZANCE OF AN ORIGINAL PETITION FOR CERTIORARI, PROHIBITION AND MANDAMUS, AND IN ISSUING A TEMPORARY RESTRAINING ORDER, AGAINST THE MINISTERIAL IMPLEMENTATION OF A WRIT OF POSSESSION. THE COURT OF APPEALS COMMITTED A GRAVE, PALPABLE AND REVERSIBLE ERROR IN HOLDING THAT THE 1994 CASE OF BPI VS. CA IS SQUARELY IN POINT IN THE PRESENT CONTROVERSY. THE COURT OF APPEALS GRAVELY AND SERIOUSLY ERRED IN HOLDING THAT SINCE THE CONSOLIDATION OF TITLE, THE APPLICATION FOR THE ISSUANCE OF A WRIT OF POSSESSION, THE CANCELLATION OF RESPONDENT'S TITLE AND THE ISSUANCE OF A NEW ONE UNDER EPCIBANKS'S NAME, THE ISSUANCE OF THE WRIT OF POSSESSION, AND THE SERVICE OF A NOTICE TO VACATE HAVE BEEN MADE AFTER THE ISSUANCE OF THE STAY ORDER, THE SAME WERE UNTIMELY AND PREMATURE. THE COURT OF APPEALS COMMITTED A GRAVE, PALPABLE AND REVERSIBLE ERROR IN HOLDING THAT THE RESPONDENT HAD NO OTHER PLAIN, SPEEDY AND ADEQUATE [6] REMEDY. Petitioner contends that upon failure to redeem the foreclosed property, consolidation of title becomes a matter of right on the part of the auction buyer, and the issuance of a certificate of title in favor of the purchaser becomes ministerial upon the Register of Deeds; that the issuance and implementation of a writ of possession are both ministerial in character, thus, a writ of certiorari, prohibition and mandamus which respondent DNG filed with the CA and which were all directed to address the abuse of discretion allegedly committed by the cadastral court and the sheriff will not lie; and that the CA erred in finding grave abuse of discretion or excess of jurisdiction upon the cadastral court which issued the writ of possession and the sheriff who implemented the same, as they acted in compliance with the express provision of Act 3135 as amended. Petitioner claims that the CA's reliance in BPI v. CA in ruling that all subsequent actions pertaining to respondent DNG's Cabanatuan property, i.e., consolidation of ownership, cancellation of respondent's title and the issuance of a new title in petitioner's name and the issuance of a writ of possession by Branch 23 of the RTC in Cadastral Case No. 2414-F, and the notice to vacate, which were all made after the issuance of the Stay Order by the rehabilitation court, should have been held in abeyance is erroneous. Petitioner EPCIB cites the case of Rizal Commercial Banking Corporation v. Intermediate Appellate Court (RCBC v. [7] IAC) as the applicable jurisprudence in this case. Petitioner argues that since the extrajudicial foreclosure sale of respondent DNG's property was conducted on September

4, 2003, or prior to the filing of the petition for rehabilitation on October 21, 2003 and the issuance of the Stay Order on October 27, 2003, the enforcement of a creditor claim via an extrajudicial foreclosure sale conducted on September 4, 2003 could no longer be stayed for having been fully consummated prior to the issuance of the Stay Order. Petitioner argues that the CA erred in its finding that there was no other plain, speedy and adequate remedy available to respondent but to file the petition forcertiorari, prohibition and mandamus with the CA, since Section 8 of Act 3135 provides for the proper remedy against an order granting the issuance of a writ of possession. In its Comment, respondent echoed the findings made by the CA. Petitioner filed its Reply. The issues for resolution are (1) whether respondent DNG's petition for certiorari, prohibition and mandamus filed in the CA was a proper remedy; (2) whether the CA correctly held that all subsequent actions pertaining to respondent DNG's Cabanatuan property should have been held in abeyance after the Stay Order was issued by the rehabilitation court. We answer both issues in the negative. Anent the first issue, respondent DNG filed before the CA a petition for certiorari, prohibition and mandamus with prayer for the issuance of a TRO and a writ of preliminary injunction seeking to annul the RTC Order dated September 6, 2004 issued in Cadastral Case No. 2414-AF, i.e., in re ex-parte petition filed by petitioner EPCIB for the issuance of a writ of possession, which ordered the issuance of the writ of possession in petitioner EPCIB's favor as the new registered owner of the property covered by TCT No. T109482. We find that the CA erred in acting on the petition. Act 3135, as amended by Act 4118, which regulates the methods of effecting an extrajudicial foreclosure of mortgage [8] explicitly authorizes the issuance of such writ of possession. Section 7 of Act 3135 as amended provides: Section 7. Possession during redemption period. - In any sale made under the provisions of this Act, the purchaser may petition the [Regional Trial Court] of the province or place where the property or any part thereof is situated, to give him possession thereof during the redemption period, furnishing bond in an amount equivalent to the use of the property for a period of twelve months, to indemnify the debtor in case it be shown that the sale was made without violating the mortgage or without complying with the requirements of this Act. Such petition shall be made under oath and filed in the form of an ex parte motion in the registration or cadastral proceedings if the property is registered, or in special proceedings in the case of property registered under the Mortgage Law or under section one hundred and ninety-four of the Administrative Code, or of any other real property encumbered with a mortgage duly registered in the office of any register of deeds in accordance with any existing law, and in each case the clerk of court shall, upon the filing of such petition, collect the fees specified in paragraph eleven of section one hundred and fourteen of Act Numbered Twenty-eight hundred and sixty-six, and the court shall, upon approval of the bond, order that a writ of possession issue, addressed to the sheriff of the province in which the property is situated, who shall execute said order immediately.

Section 7 of Act 3135, as amended, refers to a situation wherein the purchaser seeks possession of the foreclosed property during the redemption period. Upon the purchaser's filing of the ex parte petition and posting of the appropriate bond, the RTC shall, as a matter of course, order the issuance of the writ of possession in the purchaser's [9] favor. But equally well settled is the rule that a writ of possession will issue as a matter of course, even without the filing and approval of a bond, after consolidation of ownership [10] and the issuance of a new TCT in the name of the purchaser. Thus, if under Section 7 of Act 3135 as amended, the RTC has the power during the period of redemption to issue a writ of possession on the ex parte application of the purchaser, there is no reason why it should not also have the same power after the expiration of the redemption period, especially where a new title had already been issued in the name of the [11] purchaser. Thus, after the consolidation of title in the buyer's name for failure of the mortgagor to redeem, the writ of possession becomes a matter of right and the issuance of such writ of possession to a purchaser in an extrajudicial foreclosure is merely [12] a ministerial function. The basis of this right to possession is the purchaser's ownership [13] of the property. Respondent's petition for certiorari, prohibition and mandamus filed with the CA was not the proper remedy. A special civil action for certiorari and prohibition could be availed of only if a tribunal, board or officer exercising judicial or quasi-judicial functions has acted without or in excess of its or his jurisdiction, or with grave abuse of discretion amounting to lack or excess of jurisdiction; and if there is no appeal or other plain, speedy, and adequate [14] remedy in the ordinary course of law. In this case, respondent DNG failed to redeem the foreclosed property within the reglementary period; thus, petitioner EPCIB consolidated its ownership over the property in its favor and annotated the same in respondent's title. Thus, respondent DNG's title was cancelled and a new title was issued in petitioner EPCIB's name. The RTC's issuance of a writ of possession in favor of petitioner EPCIB as the new registered owner of the subject property was in compliance with the express provisions of Act 3135 as amended. It cannot, therefore, be charged with grave abuse of discretion as there is no showing that, in the exercise of its judgment, it acted in a capricious, whimsical, arbitrary or despotic manner [15] tantamount to lack of jurisdiction. In Santiago v. Merchants Rural Bank of Talavera, Inc., we said that: Case law has it that after the consolidation of title in the name of the respondent as the buyer of the property, upon failure of the mortgagor to redeem the property, the writ of possession becomes a matter of right. Its issuance to the purchaser is merely a ministerial function. As such, the court neither exercises its discretion nor judgment. Indeed, in an avuncular case, we held that: The right of the petitioner to the possession of the property is clearly unassailable. It is founded on its right of ownership. As the purchaser of the properties in the foreclosure sale, and to which the respective titles thereto have already been issued, petitioner's right over the property has become absolute, vesting upon him the right of possession over an enjoyment of the property which the Court must aid in effecting its delivery. After such
[16]

delivery, the purchaser becomes the absolute owner of the property. As We said in Tan Soo Huat vs. Ongwico, the deed of conveyance entitled the purchaser to have and to hold the purchased property. This means, that the purchaser is entitled to go immediately upon the real property, and that it is the Sheriff's inescapable duty to place him in such [17] possession. Thus, in Philippine National Bank v. Sanao Marketing Corporation, we ruled that: x x x The judge issuing the order following these express provisions of [Act 3135] cannot be charged with having acted without jurisdiction or with grave abuse of discretion. If only to stress the writ's ministerial character, we have, in previous cases, disallowed injunction to prohibit its issuance, just as we have held that the issuance of the same may not be stayed [19] by a pending action for annulment of mortgage or the foreclosure itself. Moreover, a writ of certiorari, prohibition and mandamus will only be issued if there is neither appeal nor any plain, speedy or adequate relief in the ordinary course of law. However, Section 8 of Act 3135 provides the plain, speedy, and adequate remedy in [20] opposing the issuance of a writ of possession. The provision reads: Section 8. Setting aside of sale and writ of possession. The debtor may, in the proceedings in which possession was requested, but not later than thirty days after the purchaser was given possession, petition that the sale be set aside and the writ of possession cancelled, specifying the damages suffered by him, because the mortgage was not violated or the sale was not made in accordance with the provisions hereof, and the court shall take cognizance of this petition in accordance with the summary procedure provided for in section one hundred and twelve of Act Numbered Four hundred and ninety-six; and if it finds the complaint of the debtor justified, it shall dispose in his favor of all or part of the bond furnished by the person who obtained possession. Either of the parties may appeal from the order of the judge in accordance with section fourteen of Act Numbered Four hundred and ninety-six; but the order of possession shall continue in effect during the pendency of the appeal. Clearly, a party may file a petition to set aside the foreclosure sale and to cancel the writ of [21] possession in the same proceedings where the writ of possession was requested. The [22] aggrieved party may thereafter appeal from any disposition by the court on the matter. In this case, respondent DNG had the right to file a petition to set aside the sale and writ of possession issued by the RTC and to file an appeal in case of an adverse ruling. However, respondent DNG did not file such petition and, instead, filed the petition for certiorari, prohibition and mandamus with the CA. Hence, they were barred from filing such petition [23] from the RTC Order and the writ of possession issued by it. Respondent's recourse to the CA via Rule 65 was inappropriate even though the Sheriff had demanded that they [24] vacate the property. Section 8 of Act No. 3135 mandates that even if an appeal is interposed from an order granting a petition for a writ of possession, such order shall [25] continue to be in effect during the pendency of an appeal. As to the second issue of whether the CA correctly held that after the issuance of the Stay Order by the rehabilitation court, all subsequent actions in this case pertaining to respondent's Cabanatuan property should have been held in abeyance is devoid of merit.
[18]

Respondent DNG's petition for rehabilitation filed in Branch 28 of the RTC of Cabanatuan City on October 21, 2003 was made pursuant to the 2000 Interim Rules of Procedure on Corporate Rehabilitation, which was the applicable law on rehabilitation petitions filed by corporations, partnerships or associations, including rehabilitation cases transferred from [26] the SEC to the RTCs pursuant to RA 8799 or the Securities Regulation Code. Section 6 of the Interim Rules of Procedure on Corporate Rehabilitation provides: SEC. 6.Stay Order. -- If the court finds the petition to be sufficient in form and substance, it shall, not later than five (5) days from the filing of the petition, issue an Order (a) appointing a Rehabilitation Receiver and fixing his bond; (b) staying enforcement of all claims, whether for money or otherwise and whether such enforcement is by court action or otherwise, against the debtor, its guarantors and sureties not solidarily liable with the debtor; (c) prohibiting the debtor from selling, encumbering, transferring, or disposing in any manner any of its properties except in the ordinary course of business; (d) prohibiting the debtor from making any payment of its liabilities outstanding as of the date of filing of the petition; (e) prohibiting the debtor's suppliers of goods or services from withholding supply of goods and services in the ordinary course of business for as long as the debtor makes payments for the services and goods supplied after the issuance of the stay order; (f) directing the payment in full of all administrative expenses incurred after the issuance of the stay order; (g) fixing the initial hearing on the petition not earlier than forty five (45) days but not later than sixty (60) days from the filing thereof; (h) directing the petitioner to publish the Order in a newspaper of general circulation in the Philippines once a week for two (2) consecutive weeks; (i) directing all creditors and all interested parties (including the Securities and Exchange Commission) to file and serve on the debtor a verified comment on or opposition to the petition, with supporting affidavits and documents, not later than ten (10) days before the date of the initial hearing and putting them on notice that their failure to do so will bar them from participating in the proceedings; and (j) directing the creditors and interested parties to secure from the court copies of the petition and its annexes within such time as to enable themselves to file their comment on or opposition to the petition and to prepare for the initial hearing of the petition. The suspension of the enforcement of all claims against the corporation is subject to the [28] rule that it shall commence only from the time the Rehabilitation Receiver is appointed. The CA annulled the RTC Order dated September 6, 2004 directing the issuance of a writ of possession, as well as the writ of possession issued pursuant thereto on October 4, 2004, and the notice to vacate issued by the Sheriff for being premature and untimely and ordered the cancellation of TCT No. T-109482 in the name of petitioner EPCIB as they were all done after the Stay Order was issued on October 27, 2003 by the rehabilitation court. In [29] so ruling, the CA relied on BPI v. CA. In BPI v. CA, BPI filed with the RTC a complaint for foreclosure of real estate mortgage against Ruby Industrial Corporation (RUBY). After RUBY filed its Answer with Counterclaim, it submitted a motion for suspension of proceedings, since the SEC had earlier issued an Order placing RUBY under a rehabilitation plan, pursuant to Section 6 par. (c) of PD 902-A which also declared that with the creation of the Management Committee,
[27]

all actions or claims against RUBY pending before any court, tribunal, branch or body were suspended. Thus, the RTC suspended the proceedings. BPI moved for the reopening of the proceedings; however, the RTC denied it, citing the case of Alemar's Sibal and Sons, Inc v. Elbinias where we held that suspension of payments applied to all creditors, whether secured or unsecured, in order to place them on equal footing. As BPI's motion for reconsideration was denied, it went to the CA in a petition for certiorari and mandamus alleging grave abuse of discretion on the RTC in refusing to reopen the case, which was dismissed by the CA. BPI filed its appeal with Us wherein the issue presented was whether BPI, a secured creditor of RUBY, may still judicially enforce its claim against RUBY which had already been placed by the SEC under Rehabilitation. We denied the petition and found that BPI"s action for foreclosure of real estate mortgage had been filed against RUBY and was pending with the RTC when RUBY was placed by the SEC under rehabilitation through the creation of a management committee. Thus, with the SEC order, which directed that all actions or claims against RUBY pending before any court, tribunal, branch or body be deemed suspended, the RTC's jurisdiction over the foreclosure case was also considered suspended; and that SEC had acquired jurisdiction with the appointment of a rehabilitation receiver for the distressed corporation and had directed all proceedings or claims against Ruby suspended. We then ruled that: x x x whenever a distressed corporation asks [the] SEC for rehabilitation and suspension of payments, preferred creditors may no longer assert such preference, but x x x stand on equal footing with other creditors. Foreclosure shall be disallowed so as not to prejudice other creditors, or cause discrimination among them. If foreclosure is undertaken despite the fact that a petition for rehabilitation has been filed, the certificate of sale shall not be delivered pending rehabilitation. If this has already been done, no transfer certificate of title shall likewise be effected within the period of rehabilitation. The rationale behind PD 902-A, as amended, is to effect a feasible and viable rehabilitation. This cannot be achieved [30] if one creditor is preferred over the others. BPI case is not in all fours with the instant case. Notably, in BPI, the action for judicial foreclosure of the real estate mortgage was still pending with the RTC when the stay order was issued; thus, there was no judgment on the foreclosure for payment and the sale of the mortgaged property at a public auction. In contrast to this case, herein respondent's mortgaged property had already been extrajudicially foreclosed and sold to petitioner as the highest bidder and a Certificate of Sale was issued on September 4, 2003, which was prior to the issuance of the Stay Order on October 27, 2003. We find merit in petitioner EPCIB's argument on the applicability of RCBC v. IAC, an en banc case decided in 1999, to the instant case. There, we ruled that RCBC can rightfully move for the extrajudicial foreclosure of the mortgage on the BF Home properties on October 16, 1984, because a management committee was not appointed by the SEC until March 18, 1985. Such ruling was a reversal of our earlier decision in the same case where we found that the prohibition against foreclosure attaches as soon as a petition for rehabilitation was filed. In RCBC v. IAC, BF Homes filed a petition for rehabilitation and for suspension of payments with the SEC on September 28, 1984. On October 26, 1984, RCBC requested the Provincial Sheriff to extrajudicially foreclose its real estate mortgage on some of BF Homes'
[31]

properties; thus, notices were sent to the parties. BF Homes filed a motion with the SEC for the issuance of a TRO to enjoin RCBC and the sheriff from proceeding with the auction sale, which the SEC granted by issuing a TRO for twenty days. The sale was rescheduled to January 29, 1985. On January 25, 1985, the SEC ordered the issuance of a writ of preliminary injunction conditioned upon BF Homes' filing of a bond which the latter failed to do not until January 29, the day of the auction sale. As the sheriff was not aware of the filing of the bond, he proceeded with the auction on January 29, wherein RCBC emerged as the highest bidder. On February 5, 1985, BF Homes filed with the SEC a consolidated motion to annul the auction sale and to cite RCBC and the sheriff for contempt. The sheriff then withheld the delivery of a certificate of sale to the RCBC due to the SEC proceedings. On March 13, 1985, RCBC filed with the RTC of Rizal, Branch 140, an action for mandamus against the Provincial Sheriff of Rizal and his deputy to compel them to execute in its favor a certificate of sale of the auctioned properties. The sheriffs filed their answer saying that they proceeded with the sale since no writ of preliminary injunction was issued as of the auction sale, but they informed the SEC that they would suspend the issuance of the certificate of sale. On March 18, 1985, the SEC appointed a management committee for BF Homes. On May 8, 1985, the RTC, Branch 140, rendered a judgment on the pleading in the mandamus case filed by RCBC which ordered the sheriff to execute and deliver to RCBC the certificate of sale of January 29, 1984. BF Homes filed with the IAC an original complaint for annulment of the RTC judgment. The IAC set aside the RTC decision by dismissing the mandamus case and ordered the suspension of the issuance to RCBC of new land [32] titles until the SEC had resolved the petition for rehabilitation. RCBC filed an appeal with us. During the pendency of the appeal, RCBC filed a manifestation informing us that the SEC issued an Order on October 16, 1986 denying the motion to annul the auction sale and to cite RCBC and the sheriff for contempt. Thus, by virtue of the said SEC Order, the Register of Deeds of Pasay effected transfer of titles over the auctioned properties to RCBC and the issuance of new titles in its name. Thereafter, RCBC presented with us a motion for the dismissal of its petition, since the issuance of new titles in its name rendered the petition moot and academic. In our original decision dated September 14, 1992, we denied petitioner's motion to dismiss, finding basis for nullifying and setting aside the TCTs in the name of RCBC. We dismissed the RCBC petition and upheld the IAC decision dismissing the mandamus case filed by RCBC. We ordered the nullification of the new titles already issued in RCBC's name and reinstated the old titles in the name of BF Homes. In setting aside RCBC's acquisition of title and nullifying the TCTs issued to it, we held that prohibition against foreclosure attaches as soon as a petition for rehabilitation was filed. However, as we have said earlier, upon RCBC's motion for reconsideration, we reversed our previous decision and granted reconsideration for the cogent reason that suspension of actions for claims commenced only from the time a management committee or receiver was appointed by the SEC. We said that 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. In RCBC, we upheld the extrajudicial foreclosure sale of the mortgage properties of BF Homes wherein RCBC emerged as the highest bidder as it was done before the appointment of the management committee. Noteworthy to mention was the fact that the issuance of the certificate of sale in RCBC's favor, the consolidation of title, and the issuance of the new titles in RCBC's name had also been upheld notwithstanding that the same were all done after the management committee had already been appointed and there was already a suspension of claims. Thus, applying RCBC v. IAC in this case, since the foreclosure of respondent DNG's mortgage and the issuance of the certificate of sale in petitioner EPCIB's favor were done prior to the appointment of a Rehabilitation Receiver and the Stay Order, all the actions taken with respect to the foreclosed mortgage property which were subsequent to the issuance of the Stay Order were not affected by the Stay Order. Thus, after the redemption period expired without respondent redeeming the foreclosed property, petitioner becomes the absolute owner of the property and it was within its right to ask for the consolidation of title and the issuance of new title in its name as a consequence of ownership; thus, it is entitled to the possession and enjoyment of the property. WHEREFORE, the petition is GRANTED. The Decision dated June 23, 2005 of the Court of Appeals in CA-G.R. SP No. 86950 is hereby REVERSED and SET ASIDE. Nov. 25, 2009 PACIFIC WIDE REALTY AND DEVELOPMENT CORPORATION, PETITIONER, VS. PUERTO AZUL LAND, INC., RESPONDENT. [G.R. No. 180893] PACIFIC WIDE REALTY AND DEVELOPMENT CORPORATION, PETITIONER, VS. PUERTO AZUL LAND, INC., RESPONDENT. DECISION NACHURA, J.: Before the Court are the consolidated petitions for review on certiorari under Rule 45 of [1] the Rules of Court: (1) G.R. No. 180893, assailing the Decision dated May 17, 2007 and [2] the Resolution dated October 30, 2007 of the Court of Appeals (CA) in CA-G.R. SP No. 92695, entitled "Export and Industry Bank v. Puerto Azul Land, Inc."; and (2) G.R. No. [3] [4] 178768, assailing the Decision dated March 16, 2007 and the Resolution dated June 29, 2007 of the CA in CA-G.R. SP No. 91996, entitled "Puerto Azul Land, Inc. v. The Regional Trial Court of Manila, Br. 24; Sheriff IV of Pasay City Virgilio F. Villar; and Pacific Wide Realty & Development Corporation (as substitute for Export and Industry Bank, Inc.)." The Facts In G.R. No. 180893 Puerto Azul Land, Inc. (PALI) is the owner and developer of the Puerto Azul Complex

situated in Ternate, Cavite. Its business involves the development of Puerto Azul into a satellite city with residential areas, resort, tourism and retail commercial centers with [5] recreational areas. In order to finance its operations, it obtained loans from various banks, the principal amount of which amounted to Six Hundred Forty Million Two Hundred Twenty-Five Thousand Three Hundred Twenty-Four Pesos (P640,225,324.00). PALI and its accommodation mortgagors, i.e., Ternate Development Corporation (TDC), Ternate [6] Utilities, Inc. (TUI), and Mrs. Trinidad Diaz-Enriquez, secured the loans. In the beginning, PALI's business did very well. However, it started encountering problems when the Philippine Stock Exchange rejected the listing of its shares in its initial public offering which sent a bad signal to the real estate market. This resulted in potential investors and real estate buyers shying away from the business venture. The situation was aggravated by the 1997 Asian financial crisis and the decline of the real estate market. Consequently, PALI was unable to keep up with the payment of its obligations, both current and those that were about to fall due. One of its creditors, the Export and Industry [7] Bank (EIB), later substituted by Pacific Wide Realty and Development Corporation (PWRDC), filed foreclosure proceedings on PALI's mortgaged properties. Thrust to a corner, [8] PALI filed a petition for suspension of payments and rehabilitation, accompanied by a proposed rehabilitation plan and three (3) nominees for the appointment of a [9] rehabilitation receiver. On September 17, 2004, after finding that the petition was sufficient in form and [10] substance, the Regional Trial Court (RTC) issued a Stay Order and appointed Patrick V. [11] Caoile as rehabilitation receiver. Dissatisfied, EIB filed a motion to replace the appointed [12] rehabilitation receiver. On January 25, 2005, the RTC denied the motion. On April, 20, 2005, the rehabilitation receiver filed his rehabilitation report and recommendation, wherein he proposed that PALI should be rehabilitated rather than be [13] dissolved and liquidated. On June 9, 2005, PALI filed a revised rehabilitation plan. EIB and the other creditors of PALI filed their respective comments/opposition to the report/recommendations of the rehabilitation receiver. On November 2, 2005, EIB, together with another creditor of PALI, Tranche I (SPV-MC), Inc., filed an urgent motion to disqualify the appointed rehabilitation receiver. The RTC denied the motion in an [14] [15] Order dated December 9, 2005. On December 13, 2005, the RTC rendered a Decision approving PALI's petition for suspension of payments and rehabilitation. The pertinent portions of the decision read: The rehabilitation of the petitioner, therefore, shall proceed as follows: 1. The creditors shall have, as first option, the right to be paid with real estate properties being offered by the petitioner in dacion en pago, which shall be implemented under the following terms and conditions: a. The properties offered by the petitioner shall be appraised by three appraisers, one to be chosen by the petitioner, a second to be chosen by the bank creditors and the third to be chosen by the Receiver. The average of the appraisals of the three (3) chosen appraisers
[16]

shall be the value to be applied in arriving at the dacion value of the properties. In case the dacion amount is less than the total of the secured creditor's principal obligation, the balance shall be restructured in accordance with the schedule of payments under option 2, paragraph (a). In case of excess, the same shall [be] applied in full or partial payment of the accrued interest on the obligations. The balance of the accrued interest, if any, together with the penalties shall [be] condoned. 2. Creditors who will not opt for dacion shall be paid in accordance with the restructuring of the obligations as recommended by the Receiver as follows: a) The obligations to secured creditors will be subject to a 50% haircut of the principal, and repayment shall be semi-annually over a period of 10 years, with 3-year grace period. Accrued interests and penalties shall be condoned. Interest shall be paid at the rate of 2% p.a. for the first 5 years and 5% p.a. thereafter until the obligations are fully paid. The petitioner shall allot 50% of its cash flow available for debt service for secured creditors. Upon completion of payments to government and employee accounts, the petitioner's cash flow available for debt service shall be used until the obligations are fully paid. b) One half (1/2) of the principal of the petitioner's unsecured loan obligations to other creditors shall be settled through non-cash offsetting arrangements, with the balance payable semi-annually over a period of 10 years, with 3-year grace period, with interest at th the rate of 2% p.a. for the first 5 years and 5% p.a. from the 6 year onwards until the obligations are settled in full. Accrued interest and penalties shall be condoned. c) Similarly, one half (1/2) of the petitioner's obligations to trade creditors shall be settled through non-cash offsetting arrangements. The cash payments shall be made semiannually over a period of 10 years on a pari passu basis with the bank creditors, without interest, penalties and other charges of similar kind. WHEREFORE, the rehabilitation of petitioner Puerto Azul Land, Inc. is hereby approved in accordance with the foregoing pronouncements by the Court. Subject to the following terms and conditions: 1. Immediately upon the implementation of the rehabilitation of the petitioner, the Rehabilitation Receiver shall inform the Court thereof; 2. The Rehabilitation Receiver, creditors, and the petitioner shall submit to the Court at the end of the first year of the petitioner's rehabilitation, and annually thereafter until the termination of the rehabilitation, their respective reports on the progress of the petitioner's rehabilitation, specially the petitioner's compliance with the provisions of the plan as modified by the Rehabilitation Receiver; 3. The Rehabilitation Receiver shall report to the Court any change in the assumptions used in the Rehabilitation Plan, its projections, and forecasts, that may be brought about by the settlement through dacion en pago of any of the obligations and to recommend corresponding changes, if any, in such assumptions, projections, and forecasts;

4. The rehabilitation of the petitioner is binding upon the creditors and all persons who may be affected by it, including the creditors, whether or not they have participated in the proceedings or opposed the plan or whether or not their claims have been scheduled. The petitioner is hereby strictly enjoined to abide by the terms and conditions set forth in this Order and the provisions of the Interim Rules on Corporate Rehabilitation. The Rehabilitation Receiver is hereby directed to perform his functions and responsibilities pursuant to Section 14 of the Interim Rules, with particular emphasis on the following: "u) To be notified of, and to attend all meetings of the board of directors and stockholders of the debtors"; "v) To recommend any modification of an approved rehabilitation plan as he may deem appropriate"; "w) To bring to the attention of the court any material change affecting the debtor's ability to meet the obligations under the rehabilitation plan"; [x x x x] "y) To recommend the termination of the proceedings and the dissolution of the debtor if he determines that the continuance in business of such entity is no longer feasible or profitable or no longer works to the best interest of the stockholders, parties- litigants, creditors, or the general public." SO ORDERED. Finding the terms of the rehabilitation plan and the qualifications of the appointed rehabilitation receiver unacceptable, EIB filed with the CA a petition for review under Rule 42 of the Rules of Court. The case was entitled, "Export and Industry Bank v. Puerto Azul Land, Inc." On May 17, 2007, the CA rendered a Decision, the fallo of which reads: WHEREFORE, in view of the forgoing, the petition for review is hereby DISMISSED. The [19] assailed December 13, 2005 decision of the court a quo is hereby AFFIRMED in toto. EIB filed a motion for reconsideration. However, the same was denied in a [20] Resolution dated October 30, 2007. In G.R. No. 178768 On September 21, 2004, EIB entered its appearance before the rehabilitation court and moved for the clarification of the stay order dated September 17, 2004 and/or leave to continue the extrajudicial foreclosure of the real estates owned by PALI's accommodation mortgagors. In opposition, PALI argued that the foreclosure sought would preempt the rehabilitation proceedings and would give EIB undue preference over PALI's other [21] [22] creditors. On November 10, 2004, the RTC issued an Order, denying EIB's motion. On March 3, 2005, EIB filed an urgent motion to order PALI and/or the mortgagor
[18] [17]

TUI/rehabilitation receiver to pay all the taxes due on Transfer Certificate of Title (TCT) No. 133164. EIB claimed that the property covered by TCT No. 133164, registered in the name of TUI, was one of the properties used to secure PALI's loan from EIB. The said property was subject to a public auction by the Treasurer's Office of Pasay City for non-payment of realty taxes. Hence, EIB prayed that PALI or TUI be ordered to pay the realty taxes due on [23] TCT No. 133164. PALI opposed the motion, arguing that the rehabilitation court's stay order stopped the enforcement of all claims, whether for money or otherwise, against a debtor, its guarantors, and its sureties not solidarily liable to the debtor; thus, TCT No. 133164 was [24] covered by the stay order. On March 31, 2005, the RTC issued an Order, the dispositive portion of which reads: Accordingly, and as being invoked by the creditor movant, this Court hereby modifies the Stay Order of September 17, 2004, in such a manner that TCT No. 133614 which is mortgaged with creditor movant Export and Industry Bank, Inc. is now excluded from the Stay Order. As such, Export and Industry Bank, Inc. may settle the above-stated realty taxes of third party mortgagor with the local 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. 133614. SO ORDERED. On April 12, 2005, PALI filed an urgent motion for a status quo order, praying that the stay order be maintained and that the enforcement of the claim of Pasay City be held in [27] abeyance pending the hearing of its motion. On April 13, 2005, the RTC, so as not to [28] render moot PALI's motion, issued an Order, directing EIB to refrain from taking any steps to implement the March 31, 2005 Order. The City Treasurer of Pasay City was, likewise, directed to respect the stay order dated September 17, 2004 insofar as TCT No. [29] 133164 was concerned, until further orders from the court. On August 16, 2005, the RTC issued an Order addressing the April 12, 2005 urgent motion of PALI. In the said order, the rehabilitation court maintained its March 31, 2005 Order. The court reiterated that TCT No. 133164, under the name of TUI, was excluded from the stay order. In order to protect the interest of EIB as creditor of PALI, it may foreclose TCT No. 133164 and settle the delinquency taxes of third-party mortgagor TUI with the local government of Pasay City. PALI filed an urgent motion to modify the Order dated August 16, 2005. The same was [31] denied by the RTC in an Order dated October 19, 2005. Aggrieved, PALI filed with the CA a petition for certiorari under Rule 65 of the Rules of Court, ascribing grave abuse of discretion on the part of the rehabilitation court in allowing the foreclosure of a mortgage constituted over the property of an accommodation mortgagor, to secure the loan obligations of a corporation seeking relief in a rehabilitation proceeding. The case was entitled, "Puerto Azul Land, Inc. v. The Regional Trial Court of Manila, Br. 24; Sheriff IV of Pasay City Virgilio F. Villar; and Export and Industry Bank, Inc." On March 16, 2007, the CA rendered a Decision,
[32] [30] [26] [25]

the fallo of which reads:

WHEREFORE, above premises considered, the instant Petition is GRANTED. The October 19, 2005 Order of the Regional Trial Court of Manila, Br. 24, in Civil Case No. 04-110914 is hereby declared NULL and VOID and the properties covered by TCT No. 133164 are hereby DECLARED subject to and covered by the September 17, 2004 stay order. Accordingly, Public Respondent Sheriff Virgilio F. Villar, or his substitute or equivalent, is ORDERED to immediately cease and desist from enforcing the Amended Notice of Sheriff's Sale, dated February 8, 2007, and from conducting the sale at public auction of the parcels of land covered by TCT No. 133164 on March 20, 2007 or at anytime thereafter. No costs. SO ORDERED. [34] EIB filed a motion for reconsideration. The CA denied the same in a Resolution dated June 29, 2007. Hence, this petition for review on certiorari under Rule 45 of the Rules of Court. On July 27, 2009, the Court ordered the consolidation of the two petitions. The Issues The issues for resolution are the following: (1) whether the terms of the rehabilitation plan are unreasonable and in violation of the non-impairment clause; and (2) whether the rehabilitation court erred when it allowed the foreclosure of the accommodation mortgagee's property and excluded the same from the coverage of the stay order. The Ruling of the Court I Rehabilitation contemplates a continuance of corporate life and activities in an effort to restore and reinstate the corporation to its former position of successful operation and solvency. The purpose of rehabilitation proceedings is to enable the company to gain a new lease on life and thereby allow creditors to be paid their claims from its earnings. The rehabilitation of a financially distressed corporation benefits its employees, creditors, [36] stockholders and, in a larger sense, the general public. Under the Rules of Procedure on Corporate Rehabilitation, "rehabilitation" is defined as the restoration of the debtor to a position 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 corporation continues as a going concern than if it is immediately liquidated. An indispensable requirement in the rehabilitation of a distressed corporation is the rehabilitation plan, and Section 5 of the Interim Rules of Procedure on Corporate Rehabilitation provides the requisites thereof: SEC. 5. Rehabilitation Plan. -- The rehabilitation plan shall include (a) the desired business targets or goals and the duration and coverage of the rehabilitation; (b) the terms and conditions of such rehabilitation which shall include the manner of its implementation, giving due regard to the interests of secured creditors; (c) the material financial
[37] [35] [33]

commitments to support the rehabilitation plan; (d) the means for the execution of the rehabilitation plan, which may include conversion of the debts or any portion thereof to equity, restructuring of the debts, dacion en pago, or sale of assets or of the controlling interest; (e) a liquidation analysis that estimates the proportion of the claims that the creditors and shareholders would receive if the debtor's properties were liquidated; and (f) such other relevant information to enable a reasonable investor to make an informed decision on the feasibility of the rehabilitation plan. In G.R. No. 180893, the rehabilitation plan is contested on the ground that the same is unreasonable and results in the impairment of the obligations of contract. PWRDC contests the following stipulations in PALI's rehabilitation plan: fifty percent (50%) reduction of the principal obligation; condonation of the accrued and substantial interests and penalty charges; repayment over a period of ten years, with minimal interest of two percent (2%) for the first five years and five percent (5%) for the next five years until fully paid, and only upon availability of cash flow for debt service. We find nothing onerous in the terms of PALI's rehabilitation plan. The Interim Rules on Corporate Rehabilitation provides for means of execution of the rehabilitation plan, which may include, among others, the conversion of the debts or any portion thereof to equity, restructuring of the debts, dacion en pago, or sale of assets or of the controlling interest. The restructuring of the debts of PALI is part and parcel of its rehabilitation. Moreover, per findings of fact of the RTC and as affirmed by the CA, the restructuring of the debts of PALI would not be prejudicial to the interest of PWRDC as a secured creditor. Enlightening is the observation of the CA in this regard, viz.: There is nothing unreasonable or onerous about the 50% reduction of the principal amount when, as found by the court a quo, a Special Purpose Vehicle (SPV) acquired the credits of PALI from its creditors at deep discounts of as much as 85%. Meaning, PALI's creditors accepted only 15% of their credit's value. Stated otherwise, if PALI's creditors are in a position to accept 15% of their credit's value, with more reason that they should be able to [38] accept 50% thereof as full settlement by their debtor. x x x. We also find no merit in PWRDC's contention that there is a violation of the impairment clause. Section 10, Article III of the Constitution mandates that no law impairing the obligations of contract shall be passed. This case does not involve a law or an executive issuance declaring the modification of the contract among debtor PALI, its creditors and its accommodation mortgagors. Thus, the non-impairment clause may not be invoked. [39] Furthermore, as held in Oposa v. Factoran, Jr. even assuming that the same may be invoked, the non-impairment clause must yield to the police power of the State. Property rights and contractual rights are not absolute. The constitutional guaranty of nonimpairment of obligations is limited by the exercise of the police power of the State for the common good of the general public. Successful rehabilitation of a distressed corporation will benefit its debtors, creditors, employees, and the economy in general. The court may approve a rehabilitation plan even 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 [40] is manifestly unreasonable. The rehabilitation plan, once approved, is 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 have opposed the plan or whether or [41] not their claims have been scheduled. II On the issue of whether the rehabilitation court erred when it allowed the foreclosure by PWRDC of the property of the accommodation mortgagor and excluded the same from the coverage of the stay order, we rule in the negative. The governing law concerning rehabilitation and suspension of actions for claims against corporations is Presidential Decree (P.D.) No. 902-A, as amended (P.D. No. 902-A). Section 6(c) of P.D. No. 902-A mandates that, upon appointment of a management committee, rehabilitation receiver, board, or body, all actions for claims against corporations, partnerships or associations under management or receivership pending before any court, tribunal, board, or body shall be suspended. Stated differently, all actions for claims against a corporation pending before any court, tribunal or board shall ipso jure be suspended in [42] whatever stage such actions may be found. The justification for the suspension of actions or claims pending rehabilitation proceedings is to enable the management committee or rehabilitation receiver to effectively exercise its/his powers free from any judicial or extrajudicial interference that might unduly hinder or prevent the "rescue" of the debtor company. To allow such other action to continue would only add to the burden of the management committee or rehabilitation receiver, whose time, effort and resources would be wasted in defending claims against the [43] corporation instead of being directed toward its restructuring and rehabilitation. In G.R. No. 178768, the rehabilitation court, in its Orders dated March 31, 2005 and August 16, 2005, removed TCT No. 133164 from the coverage of the stay order. The property covered by TCT No. 133164 is owned by TUI. TCT No. 133164 was mortgaged to PWRDC by TUI as an accommodation mortgagor of PALI by virtue of the Mortgage Trust Indenture (MTI) dated February 1995. The MTI was executed among TDC, TUI and Mrs. Trinidad Diaz- Enriquez, as mortgagors; PALI, as borrower; and Urban Bank, as trustee. Under Section 4.04 thereof, the mortgagors and the borrower guaranteed to pay and discharge on time all taxes, assessments and governmental charges levied or assessed on the collateral and immediately surrender to the trustee copies of the official receipts for such payments. It was also agreed therein that should the borrower fail to pay such uncontested taxes, assessments and charges within sixty (60) calendar days from due date thereof, the trustee, at its option, shall declare the mortgagors and the borrower in default under Section 6.01(d) of the MTI, or notify all the [44] lenders of such failure. In excluding the property from the coverage of the stay order and allow PWRDC to foreclose on the mortgage and settle the realty tax delinquency of the property with Pasay City, the rehabilitation court used as justification Section 12, Rule 4 of the Interim Rules on Corporate Rehabilitation. The said section provides: SEC. 12. Relief from, Modification, or Termination of Stay Order. -- The court may, on motion or motu proprio, terminate, modify, or set conditions for the continuance of the

stay order, or relieve a claim from the coverage thereof upon showing that (a) any of the allegations in the petition, or any of the contents of any attachment, or the verification thereof has ceased to be true; (b) a creditor does not have adequate protection over property securing its claim; or (c) the debtor's secured obligation is more than the fair market value of the property subject of the stay and such property is not necessary for the rehabilitation of the debtor. For purposes of this section, the creditor shall lack adequate protection if it can be shown that: a. the debtor fails or refusesto honor a pre-existing agreement with the creditor to keep the property insured; b. the debtor fails or refuses to take commercially reasonable steps to maintain the property; or c. the property has depreciated to an extent that the creditor is undersecured. Upon showing of a lack of adequate protection, the court shall order the rehabilitation receiver to (a) make arrangements to provide for the insurance or maintenance of the property, or (b) to make payments or otherwise provide additional or replacement security such that the obligation is fully secured. If such arrangements are not feasible, the court shall modify the stay order to allow the secured creditor lacking adequate protection to enforce its claim against the debtor; Provided, however, that the court may deny the creditor the remedies in this paragraph if such remedies would prevent the continuation of the debtor as a going concern or otherwise prevent the approval and implementation of a rehabilitation plan. In its March 31, 2005 Order, the rehabilitation court ratiocinated that PALI violated the terms of the MTI by failing to take reasonable steps to protect the security given to PWRDC, viz.: It is crystal clear that Ternate Utilities, Inc. being the owner of TCT No. 133614 is the one liable to pay the realty taxes to the local government of Pasay City. The petitioner [PALI], not being the owner of the subject land does not owe the local government of Pasay City in the same way [as] the local government of Pasay City is not a creditor of petitioner [PALI]. The local government of Pasay City is pursuing directly the tax obligation of Ternate Utilities, Inc. which company is not the petitioner [PALI] in this case. Hence, for all intents and purposes, the Stay Order does not cover the tax obligations of Ternate Utilities, Inc. to the local government of Pasay City. In [petitioner PALI's] Comment, it can be gleaned that neither Ternate Utilities, Inc. nor the petitioner [PALI] has the intention of paying the real property taxes on TCT No. 133614, which inaction will naturally result in the auctioning of [the] subject land to the prejudice and damage of creditor movant being the mortgagee thereof. Likewise, it is uncontested that the failure of the petitioner or Ternate Utilities, Inc. to pay the realty property taxes violate[d] the pre-existing agreement of the petitioner [PALI] and Ternate Utilities, Inc. to [45] the creditor movant.

In the August 16, 2005 Order, the rehabilitation court reaffirmed its decision to remove TCT No. 133164 from the coverage of the stay order in order to protect the secured claim of PWRDC, viz.: Considering that the auction sale of TCT No. 133614 by the local government of Pasay City without the Ternate Utilities, Inc., or the petitioner [PALI] redeeming or paying the corresponding due taxes and penalties totaling to P7,523,257.50 as indicated in the aforesaid Certificate of Sale of Delinquent Real Property, the interest of creditor EIB is greatly prejudiced. Lastly, even assuming that the value of the PALI property covered by the MTI [Mortgage Trust Indenture] is indeed P1.877 Billion, however, the total claim of EIB against the petitioner [PALI] is more than P1.4 Billion Pesos (By statement of Asset attached by EIB in its Comment/Opposition to the petition for rehabilitation dated November 10, 2004) as of October 31, 2004 which total obligation is still counting as to date. Hence, not redeeming the auctioned TCT No. 133614 from the Pasay City Government definitely renders creditor EIB not possessing adequate protection over [the] property securing its claim against [46] petitioner [PALI]. Accordingly, the rehabilitation court committed no reversible error when it removed TCT No. 133164 from the coverage of the stay order. The Interim Rules of Procedure on Corporate Rehabilitation is silent on the enforcement of claims specifically against the properties of accommodation mortgagors. It only covers the suspension, during the pendency of the rehabilitation, of the enforcement of all claims against the debtor, its guarantors and sureties not solidarily liable with the mortgagor. Furthermore, the newly adopted Rules of Procedure on Corporate Rehabilitation has a specific provision for this special arrangement among a debtor, its creditor and its accommodation mortgagor. Section 7(b), Rule 3 of the said Rules explicitly allows the foreclosure by a creditor of a property not belonging to a debtor under corporate rehabilitation, as it provides: SEC. 7. Stay Order.-- x x x (b) staying enforcement of all claims, whether for money or otherwise and whether such enforcement is by court action or otherwise, against the debtor, its guarantors and persons not solidarily liable with the debtor; provided, that the stay order shall not cover claims against letters of credit and similar security arrangements issued by a third party to secure the payment of the debtor's obligations; provided, further, that the stay order shall not cover foreclosure by a creditor of property not belonging to a debtor under corporate rehabilitation; provided, however, that where the owner of such property sought to be foreclosed is also a guarantor or one who is not solidarily liable, said [47] owner shall be entitled to the benefit of excussion as such guarantor[.] Thus, there is no question that the action of the rehabilitation court in G.R. No. 178768 was justified. WHEREFORE, in view of the foregoing, (1) the Decision dated May 17, 2007 and the Resolution dated October 30, 2007 of the Court of Appeals in CA-G.R. SP No. 92695 are hereby AFFIRMED; and (2) the Decision dated March 16, 2007 and the Resolution dated June 29, 2007 of the Court of Appeals in CA-G.R. SP No. 91996 are hereby SET ASIDE. The October 19, 2005 Order of the Regional Trial Court of Manila in Civil Case No. 04-110914 is hereby AFFIRMED. The property covered by TCT No. 133164 is hereby declared excluded

from the coverage of the September 17, 2004 Stay Order. No costs. SO ORDERED.

Sept. 25, 2007 LECA REALTY CORPORATION, PETITIONER, VS. MANUELA CORPORATION AND MS. MARILOU O. ADEA, AS REHABILITATION RECEIVER FOR MANUELA CORPORATION, RESPONDENTS. [G.R. NO. 168924] LECA REALTY CORPORATION, PETITIONER, VS. MANUELA CORPORATION AND MS. MARILOU O. ADEA, AS REHABILITATION RECEIVER FOR MANUELA CORPORATION, RESPONDENTS. DECISION SANDOVAL-GUTIERREZ, J.: These are consolidated petitions for review on certiorari filed by Leca Realty Corporation (LECA), petitioner, assailing the separate related Decisions of the Court of Appeals in CAG.R. SP No. 87185 and CA-G.R. SP No. 80861. G.R. No. 168924 In a petition for review on certiorari under Rule 45 of the 1997 Rules of Civil Procedure, as th amended, petitioner LECA assails the Decision of the Court of Appeals (Special 8 Division) dated April 28, 2005 and its Resolution of July 15, 2005 in CA-G.R. SP No. 87185. In its Decision, the Court of Appeals sustained the Rehabilitation Plan of Manuela Corporation (Manuela), respondent. Petitioner now contends that the Rehabilitation Plan has impaired its contract of lease with respondent over a tract of land consisting of almost three (3) hectares. Petitioner is the owner of the property situated on Shaw Boulevard, Mandaluyong City. G.R. No. 166800 This is a petition for review on certiorari under the same Rule questioning the Decision th dated September 30, 2004 of the Court of Appeals (17 Division) and its Resolution dated January 25, 2005 in CA-G.R. SP No. 80861. In its Decision, the Court of Appeals affirmed the trial court's Order denying petitioner's motion for extension of time to file its Record on Appeal in Civil Case No. LP-02-0028, entitled "In the Matter of the Petition for Rehabilitation of Manuela Corporation." As found by the Court of Appeals in CA-G.R. SP No. 87185, the antecedent facts, common to both petitions, are:

On January 31, 2002, respondent filed with the Regional Trial Court (RTC), Branch 253, Las Pias City, a Petition for Rehabilitation, docketed as Civil Case No. LP-02-0028. The petition alleges inter alia that respondent is a corporation duly organized and existing under the laws of the Republic of the Philippines, primarily engaged in the business of leasing to retailers commercial spaces in shopping malls. Its principal office address is Alabang-Zapote Road, Pamplona, Las Pias City. Respondent is the owner and operator of the following malls strategically located in Metro Manila: a) M Star One b) c) d) M Star Starmall Metropolis Star

between 18% to 30% which added to respondent's liquidity problems. Nonetheless, respondent has been acting in good faith and has exerted earnest efforts to avert its worsening financial problems. It closed down non-income generating businesses, concentrated on its business of leasing commercial spaces, intensified collection efforts, reduced personnel, negotiated for restructuring of loans with creditors, and worked out a viable payment scheme without giving undue preference to any creditor. Despite its efforts, respondent could no longer pay its suppliers and the maturing interests on its loans. The petition further alleges that respondent can only be brought back to its financial viability if its proposed Rehabilitation Plan is approved and that it is given a respite from its creditors' demands through the issuance of a Stay Order. The successful implementation of the proposed Rehabilitation Plan will enable it to settle its remaining obligations in an orderly manner, restore its financial viability, and allow it to resume its normal operations. On February 5, 2002, the trial court issued a Stay Order, thus: xxx a) a stay in the enforcement of all claims, whether for money or otherwise and whether such enforcement is by court action or otherwise, against petitioner MANUELA, its guarantors and sureties not solidarily liable with it; b) prohibiting MANUELA from selling, encumbering, transferring or disposing in any manner any of its properties except in the ordinary course of business; c) prohibiting MANUELA from making any payment of its liabilities outstanding as of the filing of the instant petition; d) prohibiting MANUELA's suppliers of goods and services from withholding supply of goods and services in the ordinary course of business as long as MANUELA makes payments for the goods and services supplied after the issuance of this Stay Order; and e) directing the payment in full of all administrative expenses incurred after the [2] issuance of this Stay Order. In the same Stay Order, the trial court appointed Marilou Adea, also a respondent, as Rehabilitation Receiver. On February 12, 2002, respondent Adea accepted her appointment. In its Order dated May 21, 2002, the trial court referred the petition to respondent Adea for evaluation and recommendation. On September 28, 2002, she submitted to the trial court her Report and Recommendation finding respondent Manuela's Rehabilitation Plan viable and feasible and recommending its approval. Respondent Adea then held several consultative meetings with respondent Manuela's creditors to discuss their respective concerns and suggestions relative to its rehabilitation. For their part, the creditors filed their various comments/oppositions to
[1]

e) Pacific Mall Respondent has assets valued at P12.43 billion and total liabilities of P4.87 billion as of December 31, 2001. However, due to reasons that shall be discussed below, respondent is now having severe cash flow problems which prevent it from paying its debts as they fall due. In order to finance the costs of building the Metropolis Star and the Pacific Mall, respondent obtained several loans from two syndicates of lenders. The firstsyndicate is composed of Bank of Philippine Islands, BPI Family Bank, Metropolitan Bank and Trust Company, Allied Bank, and Bank of Commerce; the secondsyndicate is composed of Allied Bank, Bank of Commerce, Philippine National Bank, and Equitable PCI Bank. Respondent's loans are governed by the Loan Agreement dated July 5, 1995 and the Syndicated Loan Agreement dated December 16, 1996. Respondent's total outstanding loan from the syndicates (e.g., principal plus interest) is P2.174 billion as of December 31, 2001. These loans are secured by a mortgage over M Star One and M Star, both located in Las Pias City. Respondent also has liabilities to the Hero Holdings, Inc. and its trade suppliers and other parties in the sum of P1.476 billion as of December 31, 2001. At the onset of the Asian financial crisis in 1997, the banks stopped their lending activities to borrowers, including respondent. This event took its toll upon respondent since its malls failed to operate sufficiently resulting in heavy losses. Matters finally came to a head in 1997 when respondent could no longer pay its trade suppliers for maturing obligations. Neither could it pay its creditor banks. The adjusted interest rates on its outstanding loans, as a result of the Asian financial crisis, were

respondent Manuela's Petition for Rehabilitation and Rehabilitation Plan. On July 31, 2002, petitioner filed with the trial court its Comment and/or Formal Claim with Leave of Court against respondent Manuela amounting to P193,724,262.34 as of February 28, 2002, representing unpaid rentals, security deposits, interests, and penalty charges. On September 30, 2002, respondent Adea issued a Notice informing all creditors, claimants, suppliers, lot and/or house buyers, counsels, oppositors, and other parties that copies of her Report and Recommendation on respondent Manuela's Petition for Rehabilitation are available and on file with the trial court for distribution to all parties concerned. On October 22, 2002, petitioner filed its comment on respondent Adea's Report and Recommendation. Petitioner opposed her recommendation to reduce respondent Manuela's liability, considering its contractual nature which cannot be impaired during the process of rehabilitation. On July 28, 2003, the trial court issued an Order approving the Rehabilitation Plan, the dispositive portion of which reads: WHEREFORE, the Rehabilitation Plan submitted by the Rehabilitation Receiver, pp. 120 to 165 of the Report and Recommendation on Manuela Corporation (Manuela)'s Petition for Rehabilitation revised June 9, 2003, is APPROVED. Petitioner is strictly enjoined to abide by its terms and conditions and the Rehabilitation Receiver shall, unless directed otherwise, submit a quarterly report on the progress of the implementation of the Rehabilitation [3] Plan. Aggrieved, petitioner filed with the trial court its Notice of Appeal with Motion for [4] Extension of Time to File Record on Appeal. However, the trial court issued an Order denying the Motion for Extension of Time to File Record on Appeal, thus: Before the Court is a Notice of Appeal with Motion forExtension of Time filed by creditor Leca Realty Corporation praying for a period of thirty (30) days from August 21, 2003 to September 20, 2003 to file its intended record on appeal. However, under Rule 3, Section 1 of the Interim Rules of Procedure on Corporate Rehabilitation, a motion for extension is a prohibited pleading. WHEREFORE, the subject motion is DENIED. SO ORDERED. Petitioner then elevated the case to the Court of Appeals through a Petition for Certiorari and Mandamus, docketed as CA-G.R. SP No. 80861 and assigned to the th 17 Division. On September 30, 2004, the Court of Appeals rendered a Decision dismissing the petition [5] for lack of merit.

Petitioner then filed a motion for reconsideration but it was denied by the appellate court [6] in its Resolution dated January 25, 2005. Hence, the instant petition for review on certiorari, docketed as G.R. No. 166800. G.R. No. 168924 In the meantime, petitioner seasonably filed with the Court of Appeals a petition for review under Rule 43 of the 1997 Rules of Civil Procedure, as amended, alleging that the RTC erred in approving respondent Manuela's Rehabilitation Plan as it violates its (petitioner's) constitutional right to non-impairment of contract and the Interim Rules of Procedure on Corporate Rehabilitation. On April 28, 2005, the Court of Appeals (Special 8 Division) promulgated its Decision denying the petition, holding that: x x x The pendency of the rehabilitation proceedings cannot be interpreted to impair the contractual obligations previously entered into by the contracting parties because the automatic stay of all actions is sanctioned by P.D. 902-A which provides that "all actions for claims against corporations, partnerships or associations under management or receivership pending before any court, tribunal, board or body shall be suspended accordingly [Rubberworld (Phils.), Inc. v. NLRC, 391 Phil. 318 (2000)]. On May 20, 2005, petitioner filed with the Court of Appeals a motion for reconsideration but it was denied in its Resolution dated July 15, 2005. Hence, petitioner filed with this Court a Petition for Review on Certiorari, docketed as G.R. No. 168924. In view of the identity of parties and the inter-relationship of the issues involved in G.R. No. 166800 and G.R. No. 168924, we resolved to consolidate the two petitions. The issue posed before us in G.R. No. 166800 for certiorari and mandamus is whether the trial court erred in ruling that a motion for extension of time to file record on appeal is a prohibited pleading under Section 1 of the Interim Rules of Procedure on Corporate Rehabilitation which provides: Section 1. Nature of Proceedings. - Any proceeding initiated under these Rules shall be considered in rem. Jurisdiction over all those affected by the proceedings shall be considered as acquired upon publication of the notice of the commencement of the proceedings in any newspaper of general circulation in the Philippines in the manner prescribed by these Rules. The proceedings shall also be summary and non-adversarial in nature. The following pleadings are prohibited: a. Motion to Dismiss; b. c. Motion for Bill of Particulars; Motion for New Trial or For Reconsideration;
th

d. e. f. g. h. i. j.

Petition for Relief; Motion for Extension; Memorandum; Motion for Postponement; Reply or Rejoinder; Third Party Complaint; Intervention;

2.

THE COURT OF APPEALS ERRED IN SUSTAINING THE LOWER COURT'S APPROVAL OF RESPONDENT MANUELA'S REHABILITATION PLAN EVEN IF SUCH PLAN IS NOT VIABLE OR FEASIBLE BECAUSE RESPONDENT MANUELA CORPORATION COULD NOT EVEN COMPLY WITH THE TERMS AND PROVISIONS OF THE COURTAPPROVED REHABILITATION PLAN.

THE COURT OF APPEALS ALSO ERRED IN NOT ADDRESSING THE ISSUE OF THE LOWER COURT'S FAILURE TO ACT, THAT IS, APPROVE OR DISAPPROVE, THE REHABILITATION PLAN OF MANUELA CORPORATION WITHIN EIGHTEEN MONTHS AFTER THE FILING OF THE PETITION FOR REHABILITATION. Petitioner contends that the approved Rehabilitation Plan drastically altered the terms of its lease contract with respondent Manuela, hence, should be declared void. The contract of lease between petitioner and respondent Manuela for twenty-five years, from August 1, 1995 to July 31, 2020, stipulates that the rates of rental on the leased parcel of land are as follows: Year Rent/Sq. M. Monthly Rent Yearly Rent 1 60.00 1,607,400.00 19,288,800.00 2 64.20 1,719,918.00 20,639,016.00 3 68.40 1,832,436.00 21,989,232.00 4 72.60 1.944,954.00 23,339,448.00 5 76.80 2,057,472.00 24,689,664.00 6 82.94 2,221,962.00 26,663,551.20 7 89.08 2,386,453.20 28,637,438.40 8 95.23 2,552,211.70 30,614,540.40 9 101.37 2,715,702.30 32,588,427.60 10 107.52 2,880,460.80 34,565,529.60 11 117.19 3,139,520.10 37,674,241.20 12 126.87 3,398,847.30 40,786,167.60 13 136.54 3,657,906.60 43,894,879.20 14 146.22 3,917,233.80 47,006,805.60 15 155.90 4,176,561.00 50,118,732.00 16 174.60 4,677,534.00 56,130,408.00 17 193.30 5,178,507.00 62,142,084.00 18 212.00 5,679,480.00 68,153,760.00 19 230.70 6,180,453.00 74,165,436.00 20 260.69 6,983,885.10 83,806,621.20 21 290.68 7,787,317.20 93,447,806.40 22 320.67 8,590,749.30 103,088,991.60 23 365.56 9,793,352.40 117,520,288.80 24 410.45 10,995,955.50 131,951,466.00 25 455.34 12,198,558.60 146,382,703.20 On the other hand, the Rehabilitation Plan prescribes the following rental rates: Year Yearly Rent
[7]

3.

xxx xxx xxx The prohibited pleadings enumerated above are those filed in the rehabilitation proceedings. Once the trial court decides the case and an aggrieved party appeals, the procedure to be followed is that prescribed by the Rules of Court as mandated by Section 5, Rule 3, of the same Interim Rules, thus: The review of any order or decision of the court or on appeal therefrom shall be in accordance with the Rules of Court. In this connection, Section 11, Rule 11, of the Rules of Court (now the 1997 Rules of Civil Procedure, as amended), states: Extension of time to plead. - Upon motion and on such terms as may be just, the court may extend the time to plead provided in these Rules. The court may also, upon like terms, allow an answer or other pleading to be filed after the time fixed by these Rules. Verily, the trial court erred in denying petitioner's motion for extension of time to file record on appeal. At any rate, this petition has become moot considering that the Court of Appeals gave due course to LECA's petition for review (CA-G.R. SP No. 80861) which eventually reached this Court via a petition for review oncertiorari, docketed as G.R. No. 168924. In G.R. No. 168924, petitioner ascribes to the Court of Appeals the following assignment of errors: 1. THE COURT OF APPEALS GRIEVOUSLY ERRED IN RULING THAT THE "PENDENCY OF THE REHABILITATION PROCEEDINGS CANNOT BE INTERPRETED TO IMPAIR THE CONTRACTUAL OBLIGATIONS PREVIOUSLY ENTERED INTO BY THE CONTRACTING PARTIES BECAUSE THE AUTOMATIC STAY OF ALL ACTIONS IS SANCTIONED BY P.D. 902-A WHICH PROVIDES THAT "ALL ACTIONS FOR CLAIMS AGAINST CORPORATIONS, PARTNERSHIPS OR ASSOCIATIONS UNDER MANAGEMENT OR RECEIVERSHIP PENDING BEFORE ANY COURT, TRIBUNAL, BOARD OR BODY SHALL BE SUSPENDED ACCORDINGLY," CITING RUBBERWORLD (PHILS.), INC. V. NLRC, G.R. NO. 128003, JULY 26, 2000, 336 SCRA 433.

1 year nd 2 year rd 3 year th 4 year th 5 year th 6 year th 7 year th 8 year th 9 year th 10 year

st

2003-2004 2004-2005 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010 2010-2011 2011-2012 2012-2013

RENT FREE P 5,000,000.00 5,000,000.00 5,000,000.00 19,288,800.00 20,639,016.00 21,639,016.00 23,339,445.00 24,689,664.00 26,663,544.00

new contracts for the parties or ignore those already made by them, simply to avoid seeming hardships. Neither abstract justice nor the rule of liberal construction justifies the creation of a contract for the parties which they did not make themselves or the imposition [10] upon one party to a contract of an obligation not assumed.' The amount of rental is an essential condition of any lease contract. Needless to state, the change of its rate in the Rehabilitation Plan is not justified as it impairs the stipulation between the parties. We thus rule that the Rehabilitation Plan is void insofar as it amends the rental rates agreed upon by the parties. It must be emphasized that there is nothing in Section 5 (c) of P.D. No. 902-A authorizing the change or modification of contracts entered into by the distressed corporation and its creditors. Moreover, the Stay Order issued by the trial court directed respondent Manuela to pay in full, after the issuance of such Order, all administrative expenses incurred. Administrative expenses are costs associated with the general administration of an organization and include such items as utilities, rents, salaries, postages, furniture, and housekeeping [11] charges. Inasmuch as rents are considered administrative expenses and considering that the Stay Order directed respondent Manuela to pay the rents in full, then it must comply at the rates agreed upon. Respondent Manuela, therefore, must update its payment of rental arrears and continue to pay current rentals at the rate stipulated in the lease contract. The rentals shall incur interest at the legal rate of 6% per annum. Upon finality of this Decision, the legal rate shall be 12% per annum, pursuant to the following rulings of this Court: 1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or forbearance of money, the interest due should be that which may have been stipulated in writing. Furthermore, the interest due shall itself earn legal interest from the time it is judicially demanded. In the absence of stipulation, the rate of interest shall be 12% per annum to be computed from default, i.e., from judicial or extrajudicial demand under and subject to the provisions of Article 1169 of the Civil Code. 2. When an obligation, not constituting a loan or forbearance of money, is breached, an interest on the amount of damages awarded may be imposed at the discretion of the court at the rate of 6% per annum. No interest, however, shall be adjudged on unliquidated claims or damages except when or until the demand can be established with reasonable certainty. Accordingly, where the demand is established with reasonable certainty, the interest shall begin to run from the time the claim is made judicially or extrajudicially (Art. 1169, Civil Code) but when such certainty cannot be so reasonably established at the time the demand is made, the interest shall begin to run only from the date the judgment of the court is made (at which time the quantification of damages may be deemed to have been reasonably ascertained). The actual base for the

Clearly, there is a gross discrepancy between the amounts of rent agreed upon by the parties and those provided in the Rehabilitation Plan. In its Decision, the Court of Appeals rejected petitioner's contention that the approved Rehabilitation Plan impairs the obligation of contract, ratiocinating that theautomatic stay of all actions is sanctioned by Section 5 (c) of Presidential Decree (P.D.) No. 902-A which provides that "all actions for claims against corporations, partnerships or associations under management or receivership pending before any court, tribunal, board or body shall be suspended accordingly." Petitioner, in support of its contention, cites in its Memorandum the treatises of Ateneo Law Dean Cesar L. Villanueva and former SEC Commissioner Danilo L. Concepcion, both known authorities on Corporation Law. In his Article which appeared in the Ateneo Law Journal, Dean Villanueva said: The nature and extent of the power of the SEC to approve and enforce a rehabilitation plan is certainly an important issue. Often, a rehabilitation plan would require a diminution, if not destruction, of contractual and property rights of some, if not most of the various stakeholders in the petitioning corporation. In the absence of clear coercive legal provisions, the courts of justice and much less the SEC would have no power to amend or destroy the property and contractual rights of private parties, much less relieve a [8] petitioning corporation from its contractual commitments. On the other hand, Professor Concepcion stated that what is allowed in rehabilitation proceedings is only the suspension of payments, or the stay of all actions for claims of distressed corporations, and upon its successful rehabilitation, the claims must be settled [9] in full. We agree with petitioner. In The Insular Life Assurance Company, Ltd., v. Court of Appeals, et al., we held: When the language of the contract is explicit leaving no doubt as to the intention of the drafters thereof, the courts may not read into it any other intention that would contradict its plain import. The Court would be rewriting the contract of lease between Insular and Sun Brothers under the guise of construction were we to interpret the `option to renew' clause as Sun Brothers propounds it, despite the express provision in the original contract of lease and the contracting parties' subsequent acts. As the Court has held in Riviera Filipina, Inc. vs. Court of Appeals, `a court, even the Supreme Court, has no right to make

computation of legal interest shall, in any case, be on the amount finally adjudged. When the judgment of the court awarding a sum of money becomes final and executory, the rate of legal interest, whether the case falls under paragraph 1 or paragraph 2, above, shall be 12% per annum from such finality until its satisfaction, this interim period being deemed to be by then an equivalent to a [12] forbearance of credit. WHEREFORE, we GRANT the Petition for Review in G.R. No. 168924. The assailed Decision of the Court of Appeals in CA-G.R. SP No. 87185 is AFFIRMED withMODIFICATION. The Rehabilitation Plan, insofar as it modifies the rental rates agreed upon by petitioner LECA and respondent Manuela, is declared VOID. Respondent Manuela is ordered to pay the rentals and all arrearages at the rates stipulated in the lease contract with interest at 6% per annum. Upon the finality of this Decision, the interest shall be 12% per annum until fully paid. The Petition for Review on Certiorari in G.R. No. 166800 is DENIED for being moot. It has been overtaken by events. No costs. 3.

Inc. (Dylanco and SLGT, respectively, hereinafter) as the unit buyers. Petitioners Metropolitan Bank and Trust Company, Inc. (Metrobank) and United Coconut Planters Bank (UCPB) are the lending-mortgagee banks. And now to the case: Before the Court are these separate petitions for review under Rule 45 of the Rules of Court separately interposed by Metrobank and UCPB to nullify and set aside the [1] [2] consolidated Decision and Resolution dated June 29, 2006, and October 31, 2006, respectively, of the Court of Appeals (CA) in CA-G.R. SP No. 92807, CA-G.R. SP No. 92808 and CA-G.R. SP No. 92882. The first assailed issuance affirmed the earlier Decision dated October 10, 2005 of the [4] Office of the President (OP, hereinafter), as modified in its Order of December 22, 2005, in consolidated OP Case No. 05-F-212 and OP Case No. 05-G-215. The second assailed issuance, on the other hand, denied reconsideration of the first. Per its Resolution of March 26, 2007, the Court ordered the consolidation of these petitions. From the petitions and the comments thereon, with their respective annexes, and other pleadings, the Court gathers the following facts: On October 25, 1995, Dylanco and SLGT each entered into a contract to sell with ASB for the purchase of a unit (Unit 1106 for Dylanco and Unit 1211 for SLGT) at BSA Towers then being developed by the latter. As stipulated, ASB will deliver the units thus sold upon completion of the construction or before December 1999. Relying on this and other undertakings, Dylanco and SLGT each paid in full the contract price of their respective units. The promised completion date came and went, but ASB failed to deliver, as the Project remained unfinished at that time. To make matters worse, they learned that the [6] lots on which the BSA Towers were to be erected had been mortgaged to Metrobank, as [7] the lead bank, and UCPB without the prior written approval of the Housing and Land Use Regulatory Board (HLURB). Alarmed by this foregoing turn of events, Dylanco, on August 10, 2004, filed with the [8] HLURB a complaint for delivery of property and title and for the declaration of nullity of [9] mortgage. A similar complaint filed by SLGT followed three (3) days later. At this time, it appears that the ASB Group of Companies, which included ASB, had already filed with the Securities and Exchange Commission a petition for rehabilitation and a rehabilitation receiver had in fact been appointed. What happened next are laid out in the OP decision adverted to above, thus: In response to the above complaints, ASB alleged that it encountered liquidity problems sometime in 2000 after its creditors *UCPB and Metrobank+ simultaneously demanded payments of their loans; that on May 4, 2000, the Commission (SEC) granted its petition for rehabilitation; that it negotiated with UCPB and Metrobank but nothing came out positive from their negotiation . On the other hand, Metrobank claims that complainants [Dylanco and SLGT] have no
[5] [3]

Sept. 14, 2007 METROPOLITAN BANK AND TRUST COMPANY, INC., PETITIONER, VS. SLGT HOLDINGS, INC., DANILO A. DYLANCO AND ASB DEVELOPMENT CORPORATION, RESPONDENTS. G.R. NOS. 175354 & 175387-88 UNITED COCONUT PLANTERS BANK, PETITIONER, VS. SLGT HOLDINGS, INC. AND ASB DEVELOPMENT CORPORATION, RESPONDENTS. DECISION GARCIA, J.: It happened before; it will likely happen again. A developer embarks on an aggressive marketing campaign and succeeds in selling units in a yet to-be completed condominium project. Short of funds, the developer borrows money from a bank and, without apprising the latter of the pre-selling transactions, mortgages the condominium complex, but also without informing the buyers of the mortgage constitution. Saddled with debts, the developer fails to meet its part of the bargain. The defaulting developer is soon sued by the fully-paid unit buyers for specific performance or refund and is threatened at the same time with a foreclosure of mortgage. Having his hands full parrying legal blows from different directions, the developer seeks a declaration of suspension of payment, followed by a petition for rehabilitation with suspension of action. With a slight variation, the scenario thus depicted describes the instant case which features respondent ASB Development Corporation (ASB, for short), as the defaulting developer of the BSA Twin Towers Condominium Project (BSA Towers or Project, for short) situated at Ortigas Center, Mandaluyong City, and respondents Danilo A. Dylanco and SLGT Holdings,

personality to ask for the nullification of the mortgage because they are not parties to the mortgage transaction ; that the complaints must be dismissed because of the ongoing rehabilitation of ASB; xxx that its claim against ASB, including the mortgage to the [Project] have already been transferred to Asia Recovery Corporation; xxx. UCPB, for its part, denies its liability to SLGT *for lack of privity of contract+ *and+ questioned the personality of SLGT to challenge the validity of the mortgage reasoning that the latter is not party to the mortgage contract *and+ maintains that the mortgage transaction was done in good faith. Finally, it prays for the suspension of the proceedings because of the on-going rehabilitation of ASB. In resolving the complaint in favor of Dylanco and SLGT, the Housing Arbiter ruled that the mortgage constituted over the lots is invalid for lack of mortgage clearance from the HLURB. He also rebuffed the banks' request to suspend the proceedings under Section 5 of Presidential Decree (PD) No. 902-A as the banks are parties under receivership. xxx The HLURB Board of Commissioners, [per its separate Decision both dated April 21, 2005] affirmed the above rulings with the modification that ASB should cause the subdivision of the mother titles into condominium certificates of title of Dylanco and SLGT free from all liens and encumbrances. [On June 28, 2005 the HLURB denied the separate motions of Metrobank and UCPB for reconsideration. (Words in brackets and emphasis added). [10] For perspective, the decretal portion of the HLURB's underlying decision with respect to the Dylanco case, docketed thereat as REM-A-050208-0021, reads as follows: WHEREFORE, the appeals are dismissed for lack of merit and the decision of the office below is modified as follows: 1. Declaring the mortgage over the subject condominium unit in favor of respondent [Metrobank] as null and void for violation of Section 18 of [PD] No. 957; 2. Directing respondent bank to cancel/release the mortgage on the subject condominium unit [Unit 1106]; and accordingly, surrender/release the title thereof to the complainant; 3. Directing respondent Bank to release to respondent ASB the transfer certificate of title of the lots covering the BSA Twin Towers Project; directing ASB to cause the subdivision of the mother titles into condominium certificates of tile within 90 days and to thereafter deliver title to complainant [Dylanco] free from all liens and encumbrances; [and] 4. Ordering respondent ASB to complete the subject condominium project as per SEC Order dated 03 November 2004. (Words in brackets added) [11] On the other hand, the HLURB decision on the SLGT case, docketed as REM-A-0502080020, was, on all material points, of the same tenor as in the Dylancocase, albeit the unit involved is different and the banks referred to in SLGT are UCPB and Metrobank. From the HLURB resolutions in REM-A-050208-0020 and REM-A-050208-0021, Metrobank appealed to the OP, followed by UCPB's own appeal from the resolution in REM-A050208-0020. Owing to the obvious similarities in both cases, the OP had them consolidated, the Dylanco case docketed as O.P. Case No. 05-F-212 and the SLGT case as O.P. Case No. 05-F-215.

On October 10, 2005, the OP rendered a decision disposing as follows:

[12]

against Metrobank and UCPB,

WHEREFORE, premises considered, the appeals filed by Metropolitan Bank and Trust Company and the United Coconut Planters Bank are hereby DISMISSED for lack of merit. SO ORDERED. From the October 10, 2005 OP Decision, petitioner banks and SLGT interposed their respective motions for reconsideration, SLGT excepting to that portion of the decision declaring the mortgage contract as void only insofar as it and Dylanco are concerned. To SLGT, the indivisibility of a mortgage contract requires that a declaration of nullity or a validity for that matter - should cover the entire mortgage. On December 22, 2005, the OP issued an Order acting favorably on SLGT's motion, but denying those of Metrobank and UCPB. The fallo of the OP's Order reads: "WHEREFORE, the Motions for Reconsideration of [Metrobank] and [UCPB] are hereby DENIED. With respect to the partial motion for reconsideration of SLGT , the same is hereby GRANTED. Accordingly, the mortgage contract executed between ASB Development Corporation and respondent banks (Metrobank and UCPB) is hereby declared null and void in its entirety. Respondents-appellants are hereby ordered to release to ASBDC [TCT] Nos. 9834 and 9835, and for ASBDC to cause the subdivision of the mother titles into condominium certificates of title, and thereafter deliver to complainants [SLGT and Dylanco] their respective condominium certificates of title free of lien and encumbrances. The records of the instant cases are hereby remanded to [HLURB] for its appropriate disposition. SO ORDERED. (Emphasis and words in brackets added) In time, petitioner banks went to the CA on a petition for review under Rule 43 of the Rules of Court whereat the appellate recourses were likewise consolidated and docketed as CAG.R. SP No. 92807, CA-G.R. SP No. 92808 and CA-G.R. SP No. 92882. As stated at the threshold hereof, the appellate court, in its assailed Decision of June 29, 2006, affirmed the OP's October 10, 2005 Decision as modified in its December 22, 2005 Order, the affirmance being predicated, in gist, on the following main premises: 1. A mortgage constituted on a condominium project without the approval of the HLURB in violation of the prescription of Presidential Decree (PD) 957, like the ASB-Metrobank-Trust Division mortgage contract, is void; a mortgage is indivisible and cannot be divided into a valid and invalid parts. 2. The complaints of Dylanco and SLGT are not covered by the order issued by the SEC suspending all actions and proceedings against ASB. Petitioner banks' separate motions for reconsideration were later denied in the CA's [15] equally assailed resolution dated October 31, 2006. Hence, these separate petitions.
[14] [13]

Although formulated a bit differently, the grounds and arguments advanced in support of the petitions converge and focus on two issues, to wit: 1. The declaration of nullity of the entire mortgage constituted on the project land site and the improvements thereon; and 2. The applicability to this case of the suspension order granted by SEC to ASB. We DENY. As to the first issue, it is the petitioners' posture that the CA, and, before it, the OP, erred when it declared the subject mortgage contract void in its entirety and then directed both petitioner banks to release the mortgage on the Project. We are not persuaded. Both petitioners do not dispute executing the mortgage in question without the HLURB's prior written approval and notice to both individual respondents. Section 18 of Presidential Decree No. (PD) 957 The Subdivision and Condominium Buyers' Protective Decree provides: SEC. 18. Mortgages. - No mortgage of any unit or lot shall be made by the owner or developer without prior written approval of the [HLURB]. Such approval shall not be granted unless it is shown that the proceeds of the mortgage loan shall be used for the development of the condominium or subdivision project . The loan value of each lot or unit covered by the mortgage shall be determined and the buyer thereof, if any, shall be notified before the release of the loan. The buyer may, at his option, pay his installment for the lot or unit directly to the mortgagee who shall apply the payments to the corresponding mortgage indebtedness secured by the particular lot or unit being paid for . (Emphasis and word in bracket added) There can thus be no quibbling that the project lot/s and the improvements introduced or be introduced thereon were mortgaged in clear violation of the aforequoted provision of PD 957. And to be sure, Dylanco and SLGT, as Project unit buyers, were not notified of the mortgage before the release of the loan proceeds by petitioner banks. As it were, PD 957 aims to protect innocent subdivision lot and condominium unit buyers against fraudulent real estate practices. Its preambulatory clauses say so and the Court need not belabor the matter presently. Section 18, supra, of the decree directly addresses the problem of fraud and other manipulative practices perpetrated against buyers when the lot or unit they have contracted to acquire, and which they religiously paid for, is mortgaged without their knowledge, let alone their consent. The avowed purpose of PD 957 compels, as the OP correctly stated, the reading of Section 18 as prohibitory and acts [16] committed contrary to it are void. Any less stringent construal would only accord unscrupulous developers and their financiers unbridled discretion to follow or not to follow PD 957 and thus defeat the very lofty purpose of that decree. It thus stands to reason that a mortgage contract executed in breach of Section 18 of the decree is null and void. In Philippine National Bank v. Office of the President, involving a defaulting mortgagorsubdivision developer, a mortgagee-bank and a lot buyer, the Court expounded on the rationale behind PD 957, as a tool to protect subdivision lot and/or condominium unit buyers against developers and mortgaging banks, in the following wise:
[17]

xxx [T]he unmistakable intent of the law [is] to protect innocent lot buyers from scheming subdivision developers. As between these small lot buyers and the gigantic financial institutions which the developers deal with, it is obvious that the law as an instrument of social justice must favor the weak. Indeed, the petitioner bank had at its disposal vast resources with which it could adequately protect its loan activities, and therefore is presumed to have conducted the usual "due diligence" checking and ascertaining the actual status, condition, utilization and occupancy of the property offered as collateral. xxx On the other hand, private respondents obviously were powerless to discover the attempt of the land developer to hypothecate the property being sold to them. It was precisely in order to deal with this kind of situation that P.D. 957 was enacted, its very essence and intendment being to provide a protective mantle over helpless citizens who may fall prey to the razzmatazz of what P.D. 957 termed "unscrupulous subdivision and condominium sellers." The Court then quoted with approval the following instructive comments of the Solicitor General: Verily, if P.D. 957 were to exclude from its coverage the aforecited mortgage contract, the vigorous regulation which P.D. 957 seeks to impose on unconscientious subdivision sellers will be translated into a feeble exercise of police power just because the iron hand of the state cannot particularly touch mortgage contracts badged with the unfortunate accident of having been constituted prior to the enactment of P.D. 957. Indeed, it would be illogical in the extreme if P.D. 957 is to be given full force and effect and yet, the fraudulent practices and manipulations it seeks to curb. xxx Given the foregoing perspective, the next question to be addressed turns on whether or not the nullity extends to the entire mortgage contract. The poser should be resolved, as the CA and OP did resolve it, in the affirmative. This disposition stems from the basic postulate that a mortgage contract is, by nature, [18] indivisible. Consequent to this feature, a debtor cannot ask for the release of any portion of the mortgaged property or of one or some of the several properties mortgaged unless and until the loan thus secured has been fully paid, notwithstanding the fact that there has been partial fulfillment of the obligation. Hence, it is provided that the debtor who has paid a part of the debt cannot ask for the proportionate extinguishments of the mortgage as long as the debt is not completely satisfied. The situation obtaining in the case at bench is within the purview of the aforesaid rule on the indivisibility of mortgage. It may be that Section 18 of PD 957 allows partial redemption of the mortgage in the sense that the buyer is entitled to pay his installment for the lot or unit directly to the mortgagee so as to enable him -the said buyer - to obtain title over the lot or unit after full payment thereof. Such accommodation statutorily given to a unit/lot buyer does not, however, render the mortgage contract also divisible. Generally, the divisibility of the principal obligation is not affected by the indivisibility of the mortgage. The real estate mortgage voluntarily constituted by the debtor (ASB) on the lots or units is one and indivisible. In this case, the mortgage contract executed between ASB and the petitioner banks is considered indivisible, that is, it cannot be divided among the different buildings or units of the Project. Necessarily, partial extinguishment of the mortgage cannot be allowed. In the same token, the annulment of the mortgage is an all or nothing proposition. It cannot be divided into valid or invalid

parts. The mortgage is either valid in its entirety or not valid at all. In the present case, there is doubtless only one mortgage to speak of. Ergo, a declaration of nullity for violation of Section 18 of PD 957 should result to the mortgage being nullified wholly. It will not avail the petitioners any to feign ignorance of PD 957 requiring prior written approval of the HLURB, they being charged with knowledge of such requirement since granting loans secured by a real estate mortgage is an ordinary part of their business. Neither could they rightly claim to be mortgagees in good faith. We shall explain. The unyielding rule is that persons dealing with property brought under the Torrens system of land registration have the right to rely on what appears on the certificate of title without [19] inquiring further; that in the absence of anything to excite or arouse suspicion that should impel a reasonably cautious person to make such further inquiry, a would-be mortgagee is without obligation to look beyond the certificate and investigate the title of [20] the mortgagor. Such rule, however, does not apply to mortgagee-banks, their business being one affected with public interest, holding as they do and keeping, in trust, money pertaining to the depositing public which they should guard with earnest. Unlike private individuals, it behooves banks to exercise greater care and prudence in their dealings, [21] including those involving registered lands. As we wrote in Cruz v. Bancom Finance [22] Corporation, "a banking institution is expected to exercise due diligence before entering into a mortgage contract. The ascertainment of the status or condition of a property offered to it as a security must be standard and indispensable part of its operations." A bank that failed to observe due diligence cannot be accorded the status of a bona [23] fide mortgagee. Surely, petitioner banks cannot plausibly assert compliance with the due diligence requirement exacted contextually by the situation. For, have they done so, they could have easily discovered that there is an on-going condominium project on the lots offered as mortgage collateral and, as such, could have aroused their suspicion that the developer may have engaged in pre-selling, or, with like effect, that there may be unit buyers therein, as was the case here. Having been short in care and prudence, petitioners cannot be deemed to be mortgagees in good faith entitled to the benefits arising from such status. This thus brings us to the next issue of whether or not the HLURB, OP and, necessarily, the CA reversibly erred in continuing with the resolution of this case notwithstanding the rehabilitation proceedings before, and the appointment by, the SEC of a receiver for ASB [24] [25] which, under Section 6 (c) of PD 902-A, as amended, necessarily suspended "all actions for claims" against distressed corporations. Petitioners maintain that individual respondents' demands initially filed with the HLURB partake of the nature of "claim" within the contemplation of the aforesaid suspensive [26] section of PD 902-A. They cite Sobrejuanite v. ASB Development Corporation to drive home the idea of the encompassing reach of the word "claim" which they deem to include any and all claims or demands of whatever nature and character.

The Court is unable to accommodate the petitioners. As we articulated in Arranza v. B.F. Homes, Inc., the fact that respondent B.F. Homes is under receivership does not preclude the continuance before the HLURB of the case for specific performance of a real estate developer's obligation under PD 957. For, "[E]"ven if respondent is under receivership, its obligations as a real estate developer under P.D. 957 are not suspended. Section 6 (C) of P.D. No. 902-A, as amended , on 'suspension of all [28] actions for claims against corporations' refers solely to monetary claims." Says the Court further: xxx The appointment of a receiver does not dissolve the corporation, nor does it interfere with the exercise of corporate rights. In this case where there appears to be no restraints imposed upon respondent as it undergoes rehabilitation receivership, respondent continues or should continue to perform its contractual and statutory responsibilities to petitioners as homeowners. xxx xxx xxx
[27]

No violation of the SEC order suspending payments to creditors would result as far as petitioners' complaint before the HLURB is concerned. To reiterate, what petitioners seek to enforce are respondent's obligation as subdivision developer [for which the HLURB, not the SEC, is equipped with the expertise to deal with the matter]. Such claims are basically [29] not pecuniary in nature. Arranza actually complemented the earlier case of Finasia Investments and Finance [30] Corporation v. CA where the Court defined and explained the term "claim" in the following wise: We agree that the word "claim" as used in Sec. 6 (c) of P.D. 902-A, as amended, refers to debts or demands of a pecuniary nature. It means "the assertion of a right to have money paid. It is used in special proceedings like those before administrative court, on insolvency. Consequently, the word "claim" Petitioners' citation and undue reliance on Sobrejuanite is quite misplaced in view of differing set of facts. In that case, the Court held that the HLURB is bereft of jurisdiction to proceed with the case during the pendency of the rehabilitation proceedings since the spouses Sobrejuanite's claim involves pecuniary consideration, or a claim for refund of the purchase price paid, with interest, to be precise. Unlike the spouses Sobrejuanite in Sobrejuanite, SLGT's and Dylanco's complaints in the instant case did not seek monetary recovery or to touch the corporate coffers of ASB ahead of others. They did not even consider themselves as money claimants. All they ask was for the enforcement of ASB's statutory and contractual obligations as a condominium developer. In the concrete, they pressed for the delivery of their units free from all liens and encumbrances and the declaration of nullity of the mortgage in question arising from the breach of Section 18 of PD 957. Significantly, in Sobrejuanite, the Court stated the observation, in reference to the Arranza case, that "the proceedings before the HLURB [may] be suspended during the [31] rehabilitation [of the ailing corporation]" "if the claim was for monetary awards." The Court is very much aware of A.M. No. 00-8-10-SC or the Interim Rules on Corporate

Rehabilitation which defines the term "claim" as including all claims or demands of whatever character against a debtor or its property, whether for money or otherwise. But [33] as aptly explained by the CA, Section 24 of the interim rules limits the coverage of the Rules on rehabilitation and consequently the rule of suspension of action to those who stand in the category or debtors and creditors. The relationship between the petitioner banks, as mortgagor of the ASB property, on one hand, and respondents SLGT and Dylanco, as unit buyers, on the other, cannot be that of a debtor-creditor as to bring the case within the purview of the rules on corporate recovery, let alone the Sobrejuanite case. Then, too, the vinculum that binds SLGT/Dylanco, as unit buyers and as suitors before the HLURB, and ASB is far from being akin to that of debtor-creditor. As it were, SLGT/Dylanco sued ASB for having constituted, in breach of PD 957, a mortgage on the condominium project without prior HLURB approval and so much as notifying them of the loan release for which reason they prayed for the delivery of their units free from all liens and encumbrances. With the view we take of the case, the complaint of individual respondents is not in the nature of "claims" that should be covered by the suspensive effect of a rehabilitation proceeding. Looking beyond the strictly legal issues involved in this case, however, the pendency of the [34] rehabilitation proceedings ought not, as stressed in the Order of the OP, be invoked to defeat or deny the claim of individual respondents. Suspending the proceedings would only perpetuate and compound the injustice committed by ASB on SLGT and Dylanco. It would reduce to pure jargon the beneficent provisions and render illusory the purpose of PD 957 which, to repeat, is to protect innocent unit and lot buyers from scheming subdivision/condominium owners/developers. As a matter of good conscience, the Court cannot allow it under the factual and legal premises surrounding this case. WHEREFORE, the instant petitions are DENIED and the assailed CA Decision and Resolution are AFFIRMED. Cost against the petitioners. SO ORDERED.

[32]

Sobrejuanite alleged that they entered into a Contract to Sell with ASBDC over a condominium unit and a parking space in the BSA Twin Tower-B Condominum located at Bank Drive, Ortigas Center, Mandaluyong City. They averred that despite full payment and demands, ASBDC failed to deliver the property on or before December 1999 as agreed. They prayed for the rescission of the contract; refund of payments amounting to P2,674,637.10; payment of moral and exemplary damages, attorney's fees, litigation expenses, appearance fee and costs of the suit. ASBDC filed a motion to dismiss or suspend proceedings in view of the approval by the Securities and Exchange Commission (SEC) on April 26, 2001 of the rehabilitation plan of ASB Group of Companies, which includes ASBDC, and the appointment of a rehabilitation receiver. The HLURB arbiter however denied the motion and ordered the continuation of the proceedings. The arbiter found that under the Contract to Sell, ASBDC should have delivered the property to Sobrejuanite in December 1999; that the latter had fully paid their obligations except the P50,000.00 which should be paid upon completion of the construction; and that rescission of the contract with damages is proper. The dispositive portion of the Decision reads: WHEREFORE, in view of the foregoing judgment is rendered ordering the rescission of the contracts to sell between the parties, and further ordering the respondent [ASBDC] to pay the complainants [Sobrejuanite] the following: a) all amortization payments by the complainants amounting to P2,674,637.10 plus 12% interest from the date of actual payment of each amortization; b) moral damages amounting to P200,000.00; c) exemplary damages amounting to P100,000.00; d) attorney's fees amounting to P100,000.00; e) litigation expenses amounting to P50,000.00. All other claims and all counter-claims are hereby dismissed. IT IS SO ORDERED. [3] The HLURB Board of Commissioners affirmed the ruling of the arbiter that the approval of the rehabilitation plan and the appointment of a rehabilitation receiver by the SEC did not have the effect of suspending the proceedings before the HLURB. The board held that the HLURB could properly take cognizance of the case since whatever monetary award that may be granted by it will be ultimately filed as a claim before the rehabilitation receiver. The board also found that ASBDC failed to deliver the property to Sobrejuanite within the prescribed period. The dispositive portion of the Decision reads: Wherefore the petition for review is denied and the decision of the office below is affirmed. It shall be understood that all monetary awards shall still be filed as claims [4] before the rehabilitation receiver. [5] [6] ASBDC filed an appeal before the Office of the President which was dismissed for lack [7] of merit. Hence, ASBDC filed a petition under Section 1, Rule 43 of the Rules of Court before the Court of Appeals, docketed as CA-G.R. SP No. 79420.
[2]

Sept. 30, 2005 SPOUSES EDUARDO SOBREJUANITE AND FIDELA SOBREJUANITE, PETITIONERS, VS. ASB DEVELOPMENT CORPORATION, RESPONDENT. DECISION YNARES-SANTIAGO, J.: This petition for review on certiorari assails the June 29, 2004 Decision of the Court of Appeals in CA-G.R. SP No. 79420 which reversed and set aside the Decision of the Office of the President; and its October 18, 2004 Resolution denying reconsideration thereof. The antecedent facts show that on March 7, 2001, spouses Eduardo and Fidela [1] Sobrejuanite (Sobrejuanite) filed a Complaint for rescission of contract, refund of payments and damages, against ASB Development Corporation (ASBDC) before the Housing and Land Use Regulatory Board (HLURB).

On June 29, 2004, the Court of Appeals rendered its assailed Decision, the dispositive portion of which reads: WHEREFORE, premises considered, the instant petition is GRANTED. The impugned decision dated June 27, 2003 of the Office of the President is hereby REVERSED AND SET ASIDE. No pronouncement as to costs. SO ORDERED. The Court of Appeals held that the approval by the SEC of the rehabilitation plan and the appointment of the receiver caused the suspension of the HLURB proceedings. The appellate court noted that Sobrejuanite's complaint for rescission and damages is a claim under the contemplation of Presidential Decree (PD) No. 902-A or the SEC Reorganization Act and A.M. No. 00-8-10-SC or the Interim Rules of Procedure on Corporate Rehabilitation, because it sought to enforce a pecuniary demand. Therefore, jurisdiction lies with the SEC and not HLURB. It also ruled that ASBDC was obliged to deliver the property in December 1999 but its financial reverses warranted the extension of the period. Sobrejuanite's motion for reconsideration was denied hence the instant petition which raises the following issues: 1. THE COURT OF APPEALS COMMITTED REVERSIBLE ERROR AND GRAVELY ABUSED ITS DISCRETION IN RULING THAT THE SEC, NOT THE HLURB, HAS JURISDICTION OVER PETITIONER'S COMPLAINT, IN CONTRAVENTION TO LAW AND THE RULING OF THIS HONORABLE COURT IN THE ARRANZA CASE. 2. THE COURT OF APPEALS COMMITTED REVERSIBLE ERROR AND GRAVELY ABUSED ITS DISCRETION WHEN IT RULED THAT THE APPROVAL OF THE CORPORATE REHABILITATION PLAN AND THE APPOINTMENT OF A RECEIVER HAD THE EFFECT OF SUSPENDING THE PROCEEDING IN THE HLURB, AND THAT THE MONETARY AWARD GIVEN BY THE HLURB COULD NOT [BE] FILED IN THE SEC FOR PROPER DISPOSITION, NOT BEING IN ACCORDANCE WITH LAW AND JURISPRUDENCE. 3. THE COURT OF APPEALS COMMITTED REVERSIBLE ERROR AND GRAVELY ABUSED ITS DISCRETION IN RULING THAT RESPONDENT "IS JUSTIFIED IN EXTENDING THE AGREED DATE OF DELIVERY BY INVOKING AS GROUND THE FINANCIAL CONSTRAINTS IT EXPERIENCED," BEING CONTRARY TO LAW AND IN EEFECT AN UNLAWFUL NOVATION OF THE AGREEMENT OF THE DATE OF DELIVERY ENTERED [11] INTO BY PETITIONERS AND RESPONDENT. The petition lacks merit. Section 6(c) of PD No. 902-A empowers the SEC: c) To appoint one or more receivers of the property, real and personal, which is the subject of the action pending before the Commission ... whenever necessary in order to preserve the rights of the parties-litigants and/or protect the interest of the investing public and creditors: ... Provided, finally, That upon appointment of a management committee, rehabilitation receiver, board or body, pursuant to this Decree, all actions for claims against corporations, partnerships or associations under management or receivership pending before any court, tribunal, board or body shall be suspended accordingly . [Emphasis added]
[10] [9]

[8]

The purpose for the suspension of the proceedings is to prevent a creditor from obtaining an advantage or preference over another and to protect and preserve the rights of party [12] litigants as well as the interest of the investing public or creditors. Such suspension is intended to give enough breathing space for the management committee or rehabilitation receiver to make the business viable again, without having to divert attention and [13] 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 add to the burden of the management committee or rehabilitation receiver, whose time, effort and resources would be wasted in defending claims against the corporation instead of being directed [14] toward its restructuring and rehabilitation. Thus, in order to resolve whether the proceedings before the HLURB should be suspended, it is necessary to determine whether the complaint for rescission of contract with damages is a claim within the contemplation of PD No. 902-A. In Finasia Investments and Finance Corp. v. Court of Appeals, we construed claim to refer only to debts or demands pecuniary in nature. Thus: [T]he word 'claim' as used in Sec. 6(c) of P.D. 902-A refers to debts or demands of a pecuniary nature. It means "the assertion of a right to have money paid. It is used in special proceedings like those before administrative court, on insolvency." The word "claim" is also defined as: Right to payment, whether or not such right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured, or unsecured; or right to an equitable remedy for breach of performance if such breach gives rise to a right to payment, whether or not such right to an equitable remedy is reduced to judgment, fixed, contingent, matured, unmatured, disputed, undisputed, secured, unsecured. In conflicts of law, a receiver may be appointed in any state which has jurisdiction over the defendant who owes a claim. As used in statutes requiring the presentation of claims against a decedent's estate, "claim" is generally construed to mean debts or demands of a pecuniary nature which could have been enforced against the deceased in his lifetime and could have been reduced to simple money judgments; and among these are those founded upon contract. [16] In Arranza v. B.F. Homes, Inc., claim is defined as referring to actions involving monetary considerations. Finasia Investments and Finance Corp. v. Court of Appeals and Arranza v. B.F. Homes, Inc. were promulgated prior to the effectivity of the Interim Rules of Procedure on Corporate Rehabilitation on December 15, 2000. The interim rules define a claim as referring to all claims or demands, of whatever nature or character against a debtor or its property, whether for money or otherwise. The definition is all-encompassing as it refers to all actions whether for money or otherwise. There are no distinctions or exemptions.
[15]

Incidentally, although the petition for rehabilitation with prayer for suspension of actions [17] and proceedings was filed before the SEC on May 2, 2000, or prior to the effectivity of the interim rules, the same would still apply pursuant to Section 1, Rule 1 thereof which provides: Section 1. Scope These Rules shall apply to petitions for rehabilitation filed by corporations, partnerships, and associations pursuant to Presidential Decree No. 902-A, as amended. Clearly then, the complaint filed by Sobrejuanite is a claim as defined under the Interim Rules of Procedure on Corporate Rehabilitation. Even under our rulings inFinasia Investments and Finance Corp. v. Court of Appeals and Arranza v. B.F. Homes, Inc., the complaint for rescission with damages would fall under the category of claim considering that it is for pecuniary considerations. In their complaint, Sobrejuanite pray for the rescission of the contract and the refund of P2,674,637.10 representing their total payments to ASBDC; P200,000.00 as moral damages; P100,000.00 as exemplary damages; P100,000.00 as attorney's fees; P50,000.00 as litigation expenses; P1,500.00 per hearing as appearance fees; and costs of the suit. In the decision of the HLURB arbiter, ASBDC was ordered to pay P2,674,637.10 plus 12% interest from the date of actual payment of each amortization, representing the refund of all the amortization payments made by Sobrejuanite; P200,000.00 as moral damages; P100,000.00 as exemplary damages; P100,000.00 as attorney's fees; and P50,000.00 as litigation expenses. As such, the HLURB arbiter should have suspended the proceedings upon the approval by the SEC of the ASB Group of Companies' rehabilitation plan and the appointment of its rehabilitation receiver. By the suspension of the proceedings, the receiver is allowed to fully devote his time and efforts to the rehabilitation and restructuring of the distressed corporation. It is well to note that even the execution of final judgments may be held in abeyance when [18] a corporation is under rehabilitation. Hence, there is more reason in the instant case for the HLURB arbiter to order the suspension of the proceedings as the motion to suspend was filed soon after the institution of the complaint. By allowing the proceedings to proceed, the HLURB arbiter unwittingly gave undue preference to Sobrejuanite over the other creditors and claimants of ASBDC, which is precisely the vice sought to be prevented by Section 6(c) of PD 902-A. Thus: As between creditors, the key phrase is "equality is equity." When a corporation threatened by bankruptcy is taken over by a receiver, all the creditors should stand on equal footing. Not anyone of them should be given any preference by paying one or some of them ahead of the others. This is precisely the reason for the suspension of all pending claims against the corporation under receivership. Instead of creditors vexing the courts with suits against the distressed firm, they are directed to file their claims with the receiver [19] who is a duly appointed officer of the SEC. [20] Petitioners' reliance on Arranza v. B.F. Homes, Inc. is misplaced. In that case, we held that the HLURB retained its jurisdiction despite the rehabilitation proceedings since the claim filed by the homeowners did not involve pecuniary considerations. The claim therein

was for specific performance to enforce the homeowners' rights as regards right of way, open spaces, road and perimeter wall repairs, and security. However, it can also be deduced therefrom that if the claim was for monetary awards, the proceedings before the HLURB should be suspended during the rehabilitation. Thus: No violation of the SEC order suspending payments to creditors would result as far as petitioners' complaint before the HLURB is concerned. To reiterate, what petitioners seek to enforce are respondent's obligations as a subdivision developer. Such claims are basically not pecuniary in nature although it could incidentally involve monetary considerations. All that petitioners' claims entail is the exercise of proper subdivision management on the part of the SEC-appointed Board of Receivers towards the end that homeowners shall enjoy the ideal community living that respondent portrayed they would have when they bought real estate from it. Neither may petitioners be considered as having "claims" against respondent within the context of the following proviso of Section 6 (c) of P.D. No. 902-A, to warrant suspension of the HLURB proceedings. .... In this case, under the complaint for specific performance before the HLURB, petitioners do not aim to enforce a pecuniary demand. Their claim for reimbursement should be viewed in the light of respondent's alleged failure to observe its statutory and contractual obligations to provide petitioners a "decent human settlement" and "ample opportunities for improving their quality of life." The HLURB, not the SEC, is equipped with the expertise [21] to deal with that matter. Finally, we agree with the Court of Appeals that under the Contract to Sell, ASBDC was obliged to deliver the property to Sobrejuanite on or before December 1999. Nonetheless, the same was deemed extended due to the financial reverses experienced by the company. Section 7 of the Contract to Sell allows the developer to extend the period of delivery on account of causes beyond its control, such as financial reverses. WHEREFORE, the petition is DENIED. The assailed Decision of the Court of Appeals dated June 29, 2004 in CA-G.R. SP No. 79420 and its Resolution dated October 18, 2004, are AFFIRMED. Jan. 17, 2005 SPOUSES ALFREDO AND SUSANA ONG, PETITIONERS, VS. PHILIPPINE COMMERCIAL INTERNATIONAL BANK, RESPONDENT. DECISION PUNO, J.: This is a petition for review on certiorari under Rule 45 of the Rules of Court to set aside the Decision of the Court of Appeals in CA-G.R. SP No. 39255, dated February 17, 2003, affirming the decision of the trial court denying petitioners motion to dismiss. The facts: Baliwag Mahogany Corporation (BMC) is a domestic corporation engaged in the manufacture and export of finished wood products. Petitioners-spouses Alfredo and Susana Ong are its President and Treasurer, respectively.

On April 20, 1992, respondent Philippine Commercial International Bank (now EquitablePhilippine Commercial International Bank or E-PCIB) filed a case for collection of a sum of [1] money against petitioners-spouses. Respondent bank sought to hold petitionersspouses liable as sureties on the three (3) promissory notes they issued to secure some of BMCs loans, totalling five million pesos (P5,000,000.00). The complaint alleged that in 1991, BMC needed additional capital for its business and applied for various loans, amounting to a total of five million pesos, with the respondent bank. Petitioners-spouses acted as sureties for these loans and issued three (3) promissory notes for the purpose. Under the terms of the notes, it was stipulated that respondent bank may consider debtor BMC in default and demand payment of the remaining balance of the loan upon the levy, attachment or garnishment of any of its properties, or upon BMCs insolvency, or if it is declared to be in a state of suspension of payments. Respondent bank granted BMCs loan applications. On November 22, 1991, BMC filed a petition for rehabilitation and suspension of payments with the Securities and Exchange Commission (SEC) after its properties were attached by creditors. Respondent bank considered debtor BMC in default of its obligations and sought to collect payment thereof from petitioners-spouses as sureties. In due time, petitionersspouses filed their Answer. On October 13, 1992, a Memorandum of Agreement (MOA) was executed by debtor BMC, the petitioners-spouses as President and Treasurer of BMC, and the consortium of creditor banks of BMC (of which respondent bank is included). The MOA took effect upon [3] its approval by the SEC on November 27, 1992. Thereafter, petitioners-spouses moved to dismiss the complaint. They argued that as the SEC declared the principal debtor BMC in a state of suspension of payments and, under the MOA, the creditor banks, including respondent bank, agreed to temporarily suspend any pending civil action against the debtor BMC, the benefits of the MOA should be extended to petitioners-spouses who acted as BMCs sureties in their contracts of loan with respondent bank. Petitioners-spouses averred that respondent bank is barred from pursuing its collection case filed against them. The trial court denied the motion to dismiss. Petitioners-spouses appealed to the Court of Appeals which affirmed the trial courts ruling that a creditor can proceed against petitioners-spouses as surety independently of its right to proceed against the principal debtor BMC. Hence this appeal. Petitioners-spouses claim that the collection case filed against them by respondent bank should be dismissed for three (3) reasons: First, the MOA provided that during its effectivity, there shall be a suspension of filing or pursuing of collection cases against the BMC and this provision should benefit petitioners as sureties. Second, principal debtor BMC has been placed under suspension of payment of debts by the SEC; petitioners
[4] [2]

contend that it would prejudice them if the principal debtor BMC would enjoy the suspension of payment of its debts while petitioners, who acted only as sureties for some of BMCs debts, would be compelled to make the payment; petitioners add that compelling them to pay is contrary to Article 2063 of the Civil Code which provides that a compromise between the creditor and principal debtor benefits the guarantor and should not prejudice the latter. Lastly, petitioners rely on Article 2081 of the Civil Code which provides that: theguarantor may set up against the creditor all the defenses which pertain to the principal debtor and are inherent in the debt; but not those which are purely personal to the debtor. Petitioners aver that if the principal debtor BMC can set up the defense of suspension of payment of debts and filing of collection suits against respondent bank, petitioners as sureties should likewise be allowed to avail of these defenses. We find no merit in petitioners contentions. Reliance of petitioners-spouses on Articles 2063 and 2081 of the Civil Code is misplaced as these provisions refer to contracts of guaranty. They do not apply to suretyship contracts. Petitioners-spouses are not guarantors but sureties of BMCs debts. There is a sea of difference in the rights and liabilities of a guarantor and a surety. A guarantor insures the solvency of the debtor while a surety is an insurer of the debt itself. A contract of guaranty gives rise to a subsidiary obligation on the part of the guarantor. It is only after the creditor has proceeded against the properties of the principal debtor and the debt remains unsatisfied that a guarantor can be held liable to answer for any unpaid amount. This is the principle of excussion. In a suretyship contract, however,the benefit of excussion is not available to the surety as he is principally liable for the payment of the debt. As the surety insures the debt itself, he obligates himself to pay the debt if the principal debtor will not pay, regardless of whether or not the latter is financially capable to fulfill his obligation. Thus, a creditor can go directly against the surety although the principal debtor is solvent and is able to pay or no prior demand is made on the principal debtor. A surety is directly, equally and absolutely bound with the principal debtor for the payment of the debt and is deemed as an original promissor and debtor from the [5] beginning. Under the suretyship contract entered into by petitioners-spouses with respondent bank, the former obligated themselves to be solidarily bound with the principal debtor BMC for the payment of its debts to respondent bank amounting to five million pesos [6] (P5,000,000.00). Under Article 1216 of the Civil Code, respondent bank as creditor may proceed against petitioners-spouses as sureties despite the execution of the MOA which provided for the suspension of payment and filing of collection suits against BMC. Respondent banks right to collect payment from the surety exists independently of its right to proceed directly against the principal debtor. In fact, the creditor bank may go [7] against the surety alone without prior demand for payment on the principal debtor. The provisions of the MOA regarding the suspension of payments by BMC and the nonfiling of collection suits by the creditor banks pertain only to the property of the principal debtor BMC. Firstly, in the rehabilitation receivership filed by BMC, only the properties of [8] BMC were mentioned in the petition with the SEC. Secondly, there is nothing in the MOA that involves the liabilities of the sureties whose properties are separate and distinct from

that of the debtor BMC. Lastly, it bears to stress that the MOA executed by BMC and signed by the creditor-banks was approved by the SEC whose jurisdiction is limited only to corporations and corporate assets. It has no jurisdiction over the properties of BMCs officers or sureties. Clearly, the collection suit filed by respondent bank against petitioners-spouses as sureties can prosper. The trial courts denial of petitioners motion to dismiss was proper. IN VIEW WHEREOF, the petition is DISMISSED for lack of merit. No pronouncement as to costs.

out at SCPs plant damaging its machineries. Invoking its right under the MTI, BPI demanded and received from the insurers $450,000 insurance proceeds. On 13 October 2009, SCP filed with the RTC a motion to direct BPI to turn over the $450,000 insurance proceeds in order for SCP to repair and replace the damaged machineries. On 5 January 2010, the RTC issued an Order directing BPI to release the insurance proceeds directly to the contractors and suppliers who will undertake the repairs and replacements of the damaged machineries. BPI filed with the Court of Appeals a petition for certiorari under Rule 65 of the Rules of Court and, in its 28 September 2010 [5] Decision, the Court of Appeals affirmed the RTCs 5 January 2010 Order. However, in its 3 [6] October 2012 Amended Decision, the Court of Appeals reversed itself and set aside the RTCs 5 January 2010 Order. SCP filed with the Court a petition for review on certiorari [7] under Rule 45 and, in its 16 September 2013 Resolution, the Court denied the petition. The Court held that: After a judicious review of the records, the Court resolves to DENY the instant petition and AFFIRM the October 3, 2012 Amended Decision and July 2, 2013 Resolution of the Court of Appeals (CA) in CA-G.R. SP No. 113078 for failure of Steel Corporation of the Philippines (petitioner) to show that the CA committed any reversible error in holding Bank of the Philippine Islands (respondent) entitled to receive and hold in trust the subject insurance proceeds. Section 4.04, sub-paragraph (f) of the Mortgage Trust Indenture Agreement between the parties expressly stipulated that respondent shall receive the insurance proceeds in case the risk or risks covered by the said policy occur and it may be released, applied, and/or paid to petitioner to procure replacement equipment and/or machinery only upon written notice to the creditors, who shall issue a Deed of Undertaking. No such compliance was shown. It is hornbook that a contract is the law between the parties and the obligation arising therefrom should be complied with in good faith. Moreover, the rehabilitation proceedings were already terminated by the CA (which decisions are immediately executory), hence, petitioners justification for release of the insurance proceeds in its favor, i.e., to replace the burnt machineries, is not feasible at this time. Besides, the petition suffers from procedural defect in that it lacked copy of the Regional Trial Court Order as well as relevant pleadings thereto, as required under Section 4(d), Rule 45 of the Rules of Court. SO ORDERED. Under Industrial All Risks Insurance Policy No. F-369430, SCP insured with respondents Mapfre Insular Insurance Corporation, New India Assurance Company Limited, Philippine Charter Insurance Corporation, Malayan Insurance Co., Inc., and Asia Insurance Phil. Corp. (respondent insurers) against material damage and business interruption its assets located in Barangay Munting Tubig for the period 19 August 2009 to 19 August 2010. On 7 December 2009, a fire again broke out at SCPs plant damaging its cold rolling mill and other machineries. On 17 December 2010, SCP filed with the RTC a motion to direct respondent insurers to pay insurance proceeds in the amounts of $28,000,000 property damage and $8,000,000 business interruption.
[8]

Oct. 16, 2013 STEEL CORPORATION OF THE PHILIPPINES, PETITIONER, VS. MAPFRE INSULAR INSURANCE CORPORATION, NEW INDIA ASSURANCE COMPANY LIMITED, PHILIPPINE CHARTER INSURANCE CORPORATION, MALAYAN INSURANCE CO., INC., AND ASIA INSURANCE PHIL. CORP., RESPONDENTS. DECISION CARPIO, J.: The Case This is a petition for review on certiorari under Rule 45 of the Rules of Court. Petitioner [2] Steel Corporation of the Philippines (SCP) challenges the 8 February 2012 Decision and 27 [3] March 2012 Resolution of the Court of Appeals in CA-G.R. SP No. 1 19760. The Court of [4] Appeals declared void the 1 June 2011 Order of the Regional Trial Court (RTC), acting as rehabilitation court, Fourth Judicial Region, Branch 3, Batangas City, in SP. PROC. No. 067993. The Facts SCP is a domestic corporation engaged in the manufacture and distribution of cold-rolled and galvanized steel sheets and coils. It obtained loans from several creditors and, as security, mortgaged its assets in their favor. The creditors appointed Bank of the Philippine Islands (BPI) as their trustee. On 17 December 1997, SCP and BPI entered into a Mortgage Trust Indenture (MTI) requiring SCP to insure all of its assets until the loans are fully paid. Under the MTI, the insurance policies were to be made payable to BPI. During the course of its business, SCP suffered financial difficulties. On 11 September 2006, one of the creditors, Equitable PCI Bank, Inc., now known as Banco de Oro-EPCI, Inc., filed with the RTC a petition to have SCP placed under corporate rehabilitation. On 12 September 2006, the RTC issued a stay order to defer all claims against SCP and appointed Atty. Santiago T. Gabionza, Jr. as rehabilitation receiver. On 3 December 2007, the RTC rendered a Decision approving the modified rehabilitation plan. Under Collective Master Policy No. UCPB Gem HOF075089, SCP insured against material damage and business interruption its assets located in Barangay Munting Tubig, Balayan, Batangas, for the period 19 August 2007 to 19 August 2008. On 8 June 2008, a fire broke
[1]

During the 21 January 2011 hearing of SCPs 17 December 2010 motion, respondent insurers entered a special appearance solely for the purpose of questioning the RTCs jurisdiction over the insurance claim. On 7 February 2011, respondent insurers filed with the RTC an opposition ad cautelam praying that SCPs 17 December 2010 motion be denied. In a letter dated 22 March 2011, respondent insurers denied liability on SCPs insurance claim because (1) SCP failed to comply with the terms of the policies; (2) SCP defrauded the respondent insurers; (3) the gross over-insurance of the cold rolling mill constitutes prima facie proof of arson; (4) SCP failed to show the actual damage sustained by its machineries; (5) SCP failed to commence the repair and replacement of the damaged machineries within 12 months; (6) SCPs negligence caused the fire; and (7) since SCPs claim for property damage is non-compensable, its claim for business interruption is also non-compensable. In their ad cautelam opposition dated 24 March 2011, respondent insurers prayed that SCPs 17 December 2010 motion be denied because (1) the amount of the claim for property damage was increased from $28,000,000 to $30,000,000; (2) the RTC lacked jurisdiction; (3) the RTCs 5 January 2010 Order directing BPI to release the insurance proceeds directly to the contractors and suppliers who will undertake the repairs and replacements of SCPs damaged machineries did not apply; and (4) respondent insurers already denied SCPs insurance claim. On 25 March and 8 April 2011, the RTC issued an Order directing (1) SCP to formally manifest its amenability to the repair and replacement of the damaged machineries instead of payment of insurance proceeds; (2) SCP and respondent insurers to file their memoranda; and (3) the creditors to file their respective comments. The RTCs Ruling In its 1 June 2011 Order, the RTC granted SCPs 17 December 2010 motion and directed respondent insurers to pay SCP $33,882,393 property damage and $8,000,000 business interruption. The RTC held that: At the outset, this Court notes that SCPs manufacturing operations have suffered from two separate fire incidents: one which damaged the ABB roll on June 8, 2008, and the other which damaged the entire Cold Rolling Mill (CRM) on December 7, 2009. The claim for the first fire incident was partially paid by the insurers but the proceeds were withheld by BPI as MTI Trustee. Thus, feeling aggrieved, SCP was forced to file a Motion to Direct Trustee to Release Insurance Proceeds to SCP which was granted by the previous judge, (over and above the objections of BPI which argued that this Court had no jurisdiction over the matter) through his Order dated January 5, 2010 x x x. This Court, in resolving the instant motion, is inclined to agree with the previous judges order and so upholds that it has jurisdiction over the insurance claims filed by SCP in these rehabilitation proceedings. x x x. In a resolution dated September 28, 2010, the Court of Appeals (BPI vs. Hon. Albert A. Kalalo, C.A.-G.R. SP No. 113078) confirmed this Courts authority and jurisdiction to take cognizance of the insurance matter in the same rehabilitation proceedings. The appellate court made it very clear that this courts jurisdiction includes the necessary and usual

incidental powers that are essential to effectuate SCPs rehabilitation. x x x. The argument that this Court cannot possibly pass upon the insurance claim of SCP because it is only acting as a rehabilitation court cannot hold water. The mere fact that this Court by raffle has been designated as a rehabilitation court in view of the inhibition of RTC Branches 2 and 4 does not mean that it has lost its powers or authority as a court of general jurisdiction. x x x. xxxx It is not true that the second panel of insurers are not affected parties and therefore cannot be deemed covered by the in rem nature of the rehabilitation proceedings. It is apt to note that the second panel of insurers unequivocably admitted, in par. 21 of their Opposition, that the panel of insurers are aware that any proceeding initiated under the Rules on [C]orporate Rehabilitation shall be considered in rem and that jurisdiction over all persons affected by the proceedings shall be considered acquired upon publication of the notice of the commencement of the proceedings in any newspaper of general circulation in the Philippines as required by the Rules. The panel of insurers argument that they are not affected parties in the rehabilitation proceedings because they do not hold any asset belonging to SCP *+which should be reflected in its audited financial statements was sufficiently rebutted by SCP when the latter argued that the insurers, holding as they do, sums of money, recovery of which is sought by SCP, as the insured, are parts of the assets of its estate (Bank of the Philippine Islands vs. Posadas, 56 Phil. 215, 230). They are sums of money redounding to the benefit of its estate (i.e. assets) as an insured (Heirs of Loreto Maramag vs. Heirs of Maramag, et al., 586 SCRA 774, 787). Thus, the fact that SCP, as insured, is claiming the proceeds of insurance policies issued to it, makes the insurers affected parties covered by the instant rehabilitation proceedings. The panel of insurers further contend, that the claim may not be resolved summarily as the same requires a full-blown trial such that it may be considered a complaint and therefore this Court did not acquire jurisdiction over the res because of the non-payment of docket fees. Contrary to this line of reasoning however, it should be pointed out that the Interim Rules of Procedure on Corporate Rehabilitation clearly recognizes the right of the parties affected by the proceedings to file their opposition (Rule 3, Secs. 6, 10 and 20). The rehabilitation judge can hold clarificatory hearings if there is a need to clarify certain questions arising from such opposition. In short, the right to oppose (together with the corresponding right to be heard on the opposition) does not necessarily mean that a fullblown trial should be conducted. The instant proceedings does *sic+ not automatically become adversarial (as compared to summary proceedings) necessitating full-blown trial just because the insurers have conveyed their intent to oppose (which they did) the claim. As the insurers themselves admit in par. 37 of their Opposition adversarial proceedings simply means that it is one having opposing parties, contested as distinguished from an ex-parte application, one of which the party seeking relief has given legal warning to the

other party and afforded the latter an opportunity to contest it (Republic of the Philippines vs. Valencia, 141 SCRA 462[,] 1986). It is very clear that the insurers have all the opportunity in these proceedings to oppose even without the necessity of a full-blown hearing. And since the subject motion for payment of the insurance claim does not necessarily entail full-blown hearings despite it being an adversarial motion (i.e. contested), the argument of the insurers that it is a complaint that must be resolved in an original, separate, full-blown proceedings, independently of the instant case which is summary in nature, and necessarily must comply with Sec. 141 of the Revised Rules of Court regarding the payment of filing fees *+upon filing of the pleading or other application which initiates an action or proceeding does not hold water and is fallacious. xxxx As to the corollary issue of the rightful payee of the insurance proceeds, this Court hereby rules that contrary to the creditors argument that the proceeds of the insurance claims should be given to the MTI Trustee pursuant to the MTI, it is appropriate for this Court to emphasize what the appellate court in BPI vs. Hon. Kalalo, has said that although it is beyond dispute that the provisions of the MTI continue to bind the parties, the MTIs binding effect should be qualified. Pursuant to the provision of the Interim Rules and in deference to the purpose of rehabilitation proceedings, the Mortgage Trust Indenture would be binding only insofar as it does not conflict with the provisions of the rehabilitation plan undertaken by the private respondent as well as if it does not hinder the corporate rehabilitation of private respondent itself. In deciding who has the better right to receive the disputed insurance proceeds, the Court of Appeals said that utmost regard must be had to the restoration of herein private respondent to a position of successful operation and solvency. xxxx It is not true as contended by the second panel of insurers that there are distinctions between the instant motion (for the second fire) from the first motion (for the first fire) which had already been ruled in favor of SCP by the previous judge. The factual circumstances under the first motion and the present one are similar or analogous even if not entirely identical. Both motions refer to disputed insurance claims arising from losses covered by existing policies issued to SCP. Both have been disputed or opposed either by the MTI Trustee or by the insurers themselves. Thus, both motions should be resolved in the same manner in order to maintain consistency and stability in this Courts judicial pronouncements. This Court agrees with SCP when it argues that the creditors should realize that if they insist on being paid the cash proceeds of the claim or if the proceeds are to be given to the MTI trustee, the said act may not only constitute a violation of the Stay Order (since it is virtually a satisfaction/enforcement/collection of their money claims) but it would also result in SCP not being able to restart normal operations which would adversely affect its rehabilitation. Hence, this Court mandates the second panel of insurers to pay the

insurance claims of SCP or in lieu thereof, replace or reinstate the CRM. WHEREFORE, premised and predicated on the foregoing, the Court hereby orders the following: 1. Grant SCPs unopposed Urgent Motion (to Withdraw Motion to Admit Supplemental Motion dated December 2, 2009) dated September 9, 2010; 2. Order the second panel of insurers to already pay the additional business interruption claim of US$8 million plus interest at the rate provided by Sec. 243 of the Insurance Code (for the second fire); and 3. Order the second panel of insurers to pay to SCP the total sum of US$33,882,393.00, plus interest at the rate provided by Sec. 243 of the Insurance Code inclusive of the value of its CRM or in lieu thereof, replace or reinstate the CRM. [9] SO ORDERED. [10] Respondent insurers filed with the Court of Appeals a petition for certiorari under Rule 65 of the Rules of Court raising mainly as issue that the RTC lacked jurisdiction over SCPs insurance claim and over respondent insurers. The Court of Appeals Ruling In its 8 February 2012 Decision, the Court of Appeals declared void the RTCs 1 June 2011 Order. The Court of Appeals held that: x x x [T]he present petition for certiorari under Rule 65, 1997 Rules of Civil Procedure is an appropriate remedy, as it assails the very jurisdiction of the trial court in granting private respondents insurance claims which were raised through a mere Motion to Pay in the rehabilitation proceedings. It is basic that a special civil action for certiorari is intended for the correction of errors of jurisdiction or grave abuse of discretion amounting to lack or excess of jurisdiction. Its principal office is to keep the inferior court within the parameters of its jurisdiction or to prevent it from committing such a grave abuse of discretion amounting to lack or excess of jurisdiction. xxxx Notably, even in the proceedings below, petitioners questioned the trial courts jurisdiction to resolve private respondents Motion to Pay. As the trial court noted in its Order dated June 1, 2011, during the hearing on private respondents Motion to Pay on January 21, 2011, petitioners entered a very special appearance solely for the purpose of questioning the trial courts jurisdiction. Record also bears that petitioners assailed the trial courts jurisdiction during the hearing on private respondents Motion to Resolve Critical Pending Incidents, dated March 25, 2011, and in pleadings filed before the trial court, to wit: (i) Insurers Opposition Ad Cautelam (To: Motion to Direct Insurers to Pay Insurance Proceeds to Insured Steel Corporation of the Philippines dated December 17, 2010); (ii) Comment Ad Cautelam (On Steel Corporation of the Philippines Comment on the Opposition Ad Cautelam dated January 20, 2011); (iii) Insurers Ad Cautelam Opposition versus Honorable Courts Assumption of Jurisdiction and/or Summary Resolution of Motion in Movants Favor; and (iv) Insurers Memorandum (on Issue of Jurisdiction).

There is no denying that the subject matter of private respondents Motion to Pay comprised of its insurance claims for (i) business interruption in the amount of US$8 million, and (ii) property loss in the amount of US$28 million. Said insurance claims cannot be considered as claims within the jurisdiction of the trial court functioning as a rehabilitation court. Rehabilitation courts only have limited jurisdiction over the claims by creditors against the distressed company, not on the claims of said distressed company against its debtors. The interim rules define claim as referring to all claims or demands, of whatever nature or character against a debtor or its property, whether for money or otherwise. Even under the new Rules of Procedure on Corporate Rehabilitation, claim is defined under Section 1, Rule 2 as all claims or demands of whatever nature or character against a debtor or its property, whether for money or otherwise. This is also the definition of a claim under Republic Act No. 10142. Section 4(c) thereof reads: (c) 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 the 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. Contrary to the trial courts finding, petitioners cannot be considered as affected parties within the purview of Section 1, Rule 3 of the Interim Rules o[n] Corporate Rehabilitation. As explained in Metropolitan Waterworks and Sewerage System vs. Daway, the provision, being merely a logical consequence of filing an in rem petition for rehabilitation, shall only cover the distressed companys creditors and those other persons holding the assets belonging to the debtor under rehabilitation that would be material to the rehabilitation proceedings. As the Supreme Court explained in said case: The public respondent relied on Sec. 1, Rule 3 of the Interim Rules on Corporate Rehabilitation to support its jurisdiction over the Irrevocable Standby Letter of Credit and the banks that issued it. The section reads in part *+that jurisdiction over those affected by the proceedings is considered acquired upon the publication of the notice of commencement of proceedings in a newspaper of general circulation*+ and goes further to define rehabilitation as an in rem proceeding. This provision is a logical consequence of the in rem nature of the proceedings, where jurisdiction is acquired by publication and where it is necessary that the assets of the debtor come within the courts jurisdiction to secure the same for the benefit of creditors. The reference to *+all those affected by the proceedings*+ covers creditors or such other persons or entities holding assets belonging to the debtor under rehabilitation which should be reflected in its audited financial statements. The banks do not hold any assets of respondent Maynilad that would be material to the rehabilitation proceedings nor is Maynilad liable to the banks at this point. In essence, private respondents Motion to Pay is a collection suit; hence, it must be filed in a separate proceeding and the corresponding docket fees must be paid. Too basic to require further elucidation is the settled doctrine that a court acquires jurisdiction over a case only upon the payment of the prescribed fees. Here, the filing of the Motion to Pay in the rehabilitation court was a circumvention of the basic and indispensable requirement

of payment of docket fees. xxxx There is also no gainsaying that the trial court had not validly acquired jurisdiction over the persons of petitioners. Jurisdiction over the person of a party defendant is acquired upon the service of summons in the manner required by law or, otherwise, by his voluntary appearance. Petitioners were not served with summons. Their appearance before the trial court cannot be considered as voluntary appearance since the same was done precisely to question the jurisdiction of the trial court. It is well-settled that a party who makes a special appearance in court challenging the jurisdiction of said court based on the ground of invalidity of summons, among others, cannot be considered to have submitted himself to the jurisdiction of the court. In fine, the Court finds that the trial court committed grave abuse of discretion amounting to lack or excess of jurisdiction in issuing the Order dated June 1, 2011. Grave abuse of discretion implies such capricious and whimsical exercise of judgment as is equivalent to lack of jurisdiction or, in other words, where the power is exercised in an arbitrary manner by reason of passion, prejudice, or personal hostility, and it must be so patent or gross as to amount to an evasion of a positive duty or to a virtual refusal to perform the duty enjoined or to act at all in contemplation of law. WHEREFORE, the trial courts Order dated June 1, 2011 is declared NULL and VOID. Respondents and all persons acting on their behalf are PERMANENTLY ENJOINED from implementing the said Order dated June 1, 2011 and all related issuances, if any, in SP Proc. No. 06-7993. SO ORDERED. SCP filed a motion for reconsideration, which the Court of Appeals denied in its 27 March 2012 Resolution. Hence, the present petition. The Issues SCP raises mainly as issues that the Court of Appeals erred when it entertained respondent insurers petition for certiorari filed under Rule 65 of the Rules of Court, and when it held that the RTC acted with grave abuse of discretion amounting to lack or excess of jurisdiction: FIRST REASON THE COURT OF APPEALS ERRED WHEN, AFTER EXPRESSLY SAYING THAT IT IS THE MANDATE OF THE COURT TO APPLY RELEVANT DECISIONS MATERIAL TO THE RESOLUTION OF QUESTIONS BEFORE IT, NEVERTHELESS REFUSED TO FOLLOW AND APPLY CHINA BANKING CORPORATION VS. CEBU PRINTING AND PACKAGING CORPORATION x x x UPON THE RESPONDENTS AND, INSTEAD, SUSTAINED A REMEDY WHICH WAS NOT ONLY WRONG BUT ALSO COULD NOT HAVE BEEN VALIDLY AVAILED OF BY THE RESPONDENTS FOR THE REVERSAL AND NULLIFICATION OF THE ORDER OF THE REHABILITATION COURT OF BATANGAS DIRECTING THE RESPONDENTS TO PAY TO THE PETITIONER THE PROCEEDS OF
[11]

INSURANCE POLICIES ISSUED BY THEM AND/OR TO REPLACE THE COLD ROLLING MILL OF THE PETITIONER WHICH WAS LOST AS A CONSEQUENCE OF THE RISK INSURED AGAINST. SECOND REASON THE COURT OF APPEALS ERRED WHEN IT DID NOT CONSIDER THE STATUS OF THE PROCEEDINGS UNDER WHICH THE REHABILITATION COURT EXERCISED ITS JURISDICTION AND, INSTEAD, FOUND THE SAID COURT AS WITHOUT JURISDICTION TO DIRECT THE RESPONDENTS AS INSURERS TO PAY THE INSURANCE PROCEEDS DUE FROM THEM AND/OR REPLACE THE COLD ROLLING MILL OF THE PETITIONER SO THAT IT COULD CONTINUE TO REHABILITATE ITSELF IN A MANNER AS WOULD SERVE THE POLICIES ON CORPORATE REHABILITATION AS MANDATED BY P.D. NO. 902-A AND THE INTERIM RULES OF [12] PROCEDURE ON CORPORATE REHABILITATION. The Courts Ruling The petition is unmeritorious. SCP claims that respondent insurers availed of the improper remedy when they filed with the Court of Appeals a petition for certiorari under Rule 65 of the Rules of Court, instead of a petition for review under Rule 43. Thus, the Court of Appeals erred when it did not dismiss respondent insurers petition, applying China Banking Corporation v. Cebu Printing [13] and Packaging Corporation. The Court disagrees. A petition for certiorari under Rule 65 is the proper remedy when the issue raised involves errors of jurisdiction. On the other hand, a petition for review under Rule 43 is the proper remedy when the issue raised involves errors of judgment. In ABS[14] CBN Broadcasting Corp. v. World Interactive Network Systems Japan Co., Ltd., the Court held that: Proper issues that may be raised in a petition for review under Rule 43 pertain to errors of fact, law or mixed questions of fact and law. While a petition for certiorari under Rule 65 should only limit itself to errors of jurisdiction, that is, grave abuse of discretion amounting [15] to a lack or excess of jurisdiction. [16] In Suyat, Jr. v. Torres, the Court held that: In a petition for certiorari, the jurisdiction of the court is narrow in scope. It is limited to resolving only errors of jurisdiction. x x x Certiorari will issue only to correct errors of jurisdiction. It is not a remedy to correct errors of judgment. An error of judgment is one in which the court may commit in the exercise of its jurisdiction, and which error is reversible only by appeal. Error of jurisdiction is one where the act complained was issued by the court without or in excess of jurisdiction and which error is correctible only by the extraordinary writ of certiorari. Certiorari will not be issued to cure errors by the trial court or quasi-judicial body in its appreciation of the evidence of the parties, and its conclusions anchored on the said findings, and its conclusions of law. As long as the court acts within its jurisdiction, any alleged errors committed in the exercise of its discretion will amount to nothing more than mere errors of judgment, correctible by an appeal or a petition for [17] review under Rule 43 of the Rules of Court. China Banking Corporation is inapplicable because the issue in that case is different from the issue raised by respondent insurers in CA-G.R. SP No. 119760. InChina Banking Corporation, the issue involved errors of judgment. In particular, Cebu Printing and

Packaging Corporation (CPPC) questioned the rehabilitation courts findings of fact and law in its 30 April 2002 Order denying due course to the petition for corporate rehabilitation. CPPC never questioned the rehabilitation courts jurisdiction. Since the issue involved errors of judgment, the proper remedy, as held in China Banking Corporation, was to file a petition for review under Rule 43. In the present case, the issue raised by respondent insurers in CA-G.R. SP No. 119760 involved errors of jurisdiction. Respondent insurers questioned the RTCs jurisdiction over the subject matter of SCPs insurance claim and over the persons of respondent insurers. Since the issue involved errors of jurisdiction, the proper remedy was to file a petition for certiorari under Rule 65. SCP claims that the RTC has jurisdiction over the subject matter of the insurance claim. Thus, the Court of Appeals erred when it held that the RTC acted with grave abuse of discretion amounting to lack or excess of jurisdiction in issuing the 1 June 2011 Order. The Court disagrees. The RTC, acting as rehabilitation court, has no jurisdiction over the subject matter of the insurance claim of SCP against respondent insurers. SCP must file a separate action for collection where respondent insurers can properly thresh out their defenses. SCP cannot simply file with the RTC a motion to direct respondent insurers to pay [18] insurance proceeds. Section 3 of Republic Act No. 10142 states that rehabilitation proceedings are summary and non-adversarial in nature. They do not include adjudication of claims that require full trial on the merits, like SCPs insurance claim against [19] respondent insurers. InAdvent Capital and Finance Corporation v. Alcantara, the Court held that: Ultimately, the issue is what court has jurisdiction to hear and adjudicate the conflicting claims of the parties over the dividends that Belson held in trust for their owners. Certainly, not the rehabilitation court which has not been given the power to resolve ownership disputes between Advent Capital and third parties. x x x. Advent Capital must file a separate action for collection to recover the trust fees that it allegedly earned and, with the trial courts authorization if warranted, put the money i n escrow for payment to whoever it belongs. Having failed to collect the trust fees at the end of each calendar quarter as stated in the contract, all it had against the Alcantaras was a claim for payment which is proper subject for an ordinary action for collection. It cannot enforce its money claim by simply filing a motion in the rehabilitation case for delivery of money belonging to the Alcantaras but in the possession of a third party. Rehabilitation proceedings are summary and non-adversarial in nature, and do not contemplate adjudication of claims that must be threshed out in ordinary court proceedings. Adversarial proceedings similar to that in ordinary courts are inconsistent with the commercial nature of a rehabilitation case. The latter must be resolved quickly and expeditiously for the sake of the corporate debtor, its creditors and other interested parties. Thus, the Interim Rules incorporate the concept of prohibited pleadings, affidavit evidence in lieu of oral testimony, clarificatory hearings instead of the traditional approach of receiving evidence, and the grant of authority to the court to decide the case, or any incident, on the basis of affidavits and documentary evidence. Here, Advent Capitals claim is disputed and requires a full trial on the merits. It must be

resolved in a separate action where the Alcantaras claim and defenses may also be [20] presented and heard. (Emphases supplied) The Court agrees with the ruling of the Court of Appeals that the jurisdiction of the rehabilitation courts is over claims against the debtor that is under rehabilitation, not over claims by the debtor against its own debtors or against third parties. In its 8 February 2012 Decision, the Court of Appeals held that: x x x Said insurance claims cannot be considered as claims within the jurisdiction of the trial court functioning as a rehabilitation court. Rehabilitation courts only have limited jurisdiction over the claims by creditors against the distressed company, not on the claims of said distressed company against its debtors. The interim rules define claim as referring to all claims or demands, of whatever nature or character against a debtor or its property, whether for money or otherwise. Even under the new Rules of Procedure on Corporate Rehabilitation, claim is defined under Section 1, Rule 2 as all claims or demands of whatever nature or character against a debtor or its property, whether for money or otherwise. This is also the definition of a claim under Republic Act No. 10142. Section 4(c) thereof reads: (c) 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 the 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 [21] cases against the directors and officers acting in their personal capacities. (Emphasis supplied) Respondent insurers are not claiming or demanding any money or property from SCP. In other words, respondent insurers are not creditors of SCP. Respondent insurers are contingent debtors of SCP because they may possibly be, subject to proof during trial, liable to SCP. Thus, the RTC has no jurisdiction over the insurance claim of SCP against respondent insurers. SCP must file a separate action against respondent insurers to recover whatever claim it may have against them. WHEREFORE, the petition is DENIED. The Court AFFIRMS the 8 February 2012 Decision and 27 March 2012 Resolution of the Court of Appeals in CA-G.R. SP No. 119760.