1.

NEW FRONTIER SUGAR

CORPORATION,
Petitioner,

G.R. NO. 165001

Present:

- versus -

YNARES-SANTIAGO, J.,
(Chairperson)
AUSTRIA-MARTINEZ,
CALLEJO, SR., and
CHICO-NAZARIO, JJ.

REGIONAL TRIAL COURT,

BRANCH 39, ILOILO CITY
and EQUITABLE PCI
BANK,
Promulgated:
Respondents.
January 31, 2007
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - x
DECISION
AUSTRIA-MARTINEZ, J.:
In the present petition for review under Rule 45 of the Rules of Court,
petitioner assails the decision of the Court of Appeals (CA)[1] in CA-G.R. SP
No. 78673, dismissing its special civil action for certiorari and affirming the
dismissal orders dated January 13, 2003 and April 14, 2003 issued by the
Regional Trial Court (RTC) of Iloilo City, Branch 39, acting as a special
commercial court, in Civil Case No. 02-27278.
As borne by the records, New Frontier Sugar Corporation (petitioner) is
a domestic corporation engaged in the business of raw sugar milling.
Foreseeing that it cannot meet its obligations with its creditors as they fell
due, petitioner filed a Petition for the Declaration of State of Suspension of
Payments with Approval of Proposed Rehabilitation Plan under the Interim
Rules of Procedure on Corporate Rehabilitation (2000) some time in August
2002.[2] Finding the petition to be sufficient in form and substance, the RTC
issued a Stay Order dated August 20, 2002, appointing Manuel B. Clemente
as rehabilitation receiver, ordering the latter to put up a bond, and setting the
initial hearing on the petition.[3]
One of petitioners creditors, the Equitable PCI Bank (respondent bank),
filed a Comment/Opposition with Motion to Exclude Property, alleging that
petitioner is not qualified for corporate rehabilitation, as it can no longer
operate because it has no assets left. Respondent bank also alleged that the
financial statements, schedule of debts and liabilities, inventory of assets,
affidavit of general financial condition, and rehabilitation plan submitted by
petitioner are misleading and inaccurate since its properties have already

been foreclosed and transferred to respondent bank before the petition for
rehabilitation was filed, and petitioner, in fact, still owes respondent bank
deficiency liability.[4]
On January 13, 2003, the RTC issued an Omnibus Order terminating the
proceedings and dismissing the case.[5] Petitioner filed an Omnibus Motion
but this was denied by the RTC in its Order dated April 14, 2003.[6]
Petitioner then filed with the CA a special civil action for certiorari,
which was denied by the CA per assailed Decision dated July 19, 2004, the
dispositive portion of which reads:
WHEREFORE, in view of the foregoing premises, judgment is hereby
rendered by us DISMISSING the petition filed in this case and AFFIRMING the
orders assailed by the petitioner.
SO ORDERED.[7]
In dismissing the petition, the CA sustained the findings of the RTC that
since petitioner no longer has sufficient assets and properties to continue
with its operations and answer its corresponding liabilities, it is no longer
eligible for rehabilitation. The CA also ruled that even if the RTC erred in
dismissing the petition, the same could not be corrected anymore because
what petitioner filed before the CA was a special civil action for certiorari
under Rule 65 of the Rules of Court instead of an ordinary appeal.[8]
Hence, herein petition based on the following reasons:
(a)
THE COURT OF APPEALS ERRED AND GRAVELY ABUSED ITS DISCRETION IN
UPHOLDING THE FINDINGS OF THE SPECIAL COMMERCIAL COURT (RTC BR. 39,
ILOILO CITY), PREMATURELY EXCLUDING THE FORECLOSED PROPERTY OF
PETITIONER AND DECLARING THAT PETITIONER HAS NO SUBSTANTIAL
PROPERTY LEFT TO MAKE CORPORATE REHABILITATION FEASIBLE AS THERE IS
AN ONGOING LITIGATION FOR THE ANNULMENT OF SUCH FORECLOSURE IN
ANOTHER PROCEEDING.
(b)
THE COURT OF APPEALS ERRED IN DISMISSING THE PETITION FOR
CERTIORARI FILED BEFORE IT AS IMPROPER, APPEAL BEING AN AVAILABLE
REMEDY.[9]
The Court denies the petition.
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.[10] Presently, the applicable
law on rehabilitation petitions filed by corporations, partnerships or
associations,[11] including rehabilitation cases transferred from the Securities

and Exchange Commission to the RTCs pursuant to Republic Act No. 8799 or
the Securities Regulation Code,[12] is the Interim Rules of Procedure on
Corporate Rehabilitation (2000).
Under the Interim Rules, the RTC, within five (5) days from the filing of
the petition for rehabilitation and after finding that the petition is sufficient in
form and substance, shall issue a Stay Order appointing a Rehabilitation
Receiver, suspending enforcement of all claims, prohibiting transfers or
encumbrances of the debtors properties, prohibiting payment of outstanding
liabilities, and prohibiting the withholding of supply of goods and services
from the debtor.[13] Any transfer of property or any other conveyance, sale,
payment, or agreement made in violation of the Stay Order or in violation of
the Rules may be declared void by the court upon motion or motu proprio.
[14]
Further, the Stay Order is effective both against secure and unsecured
creditors. This is in harmony with the principle of "equality is equity" first
enunciated in Alemars Sibal & Sons, Inc. v. Elbinias,[15] thus:
During rehabilitation receivership, the assets are held in trust for the equal
benefit of all creditors to preclude one from obtaining an advantage or
preference over another by the expediency of an attachment, execution or
otherwise. For what would prevent an alert creditor, upon learning of the
receivership, from rushing posthaste to the courts to secure judgments for
the satisfaction of its claims to the prejudice of the less alert creditors.
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 an 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 who is a duly appointed officer of the SEC. (Emphasis supplied)
Nevertheless, the suspension of the enforcement of all claims against
the corporation is subject to the rule that it shall commence only from the
time the Rehabilitation Receiver is appointed. Thus, in Rizal Commercial
Banking Corporation v. Intermediate Appellate Court,[16] the Court upheld
the right of RCBC to extrajudicially foreclose the mortgage on some of BF
Homes properties, and reinstated the trial courts judgment ordering the
sheriff to execute and deliver to RCBC the certificate of auction sale involving
the properties.
The Court vacated its previous Decision rendered on
September 14, 1992 in the same case, finding that RCBC can rightfully move
for the extrajudicial foreclosure of the mortgage since it was done on October
16, 1984, while the management committee was appointed only on March
18, 1985. The Court also took note of the SECs denial of the petitioners
consolidated motion to cite the sheriff and RCBC for contempt and to annul
the auction proceedings and sale.

In this case, respondent bank instituted the foreclosure proceedings

against petitioners properties on March 13, 2002 and a Certificate of Sale at
Public Auction was issued on May 6, 2002, with respondent bank as the
highest bidder. The mortgage on petitioners chattels was likewise foreclosed
and the Certificate of Sale was issued on May 14, 2002. It also appears that
titles over the properties have already been transferred to respondent bank.
[17]
On the other hand, the petition for corporate rehabilitation was filed only on
August 14, 2002 and the Rehabilitation Receiver appointed on August 20,
2002. Respondent bank, therefore, acted within its prerogatives when it
foreclosed and bought the property, and had title transferred to it since it was
made prior to the appointment of a rehabilitation receiver.
The fact that there is a pending case for the annulment of the foreclosure
proceedings and auction sales[18] is of no moment.
Until a court of
competent jurisdiction, which in this case is the RTC of Dumangas, Iloilo,
Branch 68, annuls the foreclosure sale of the properties involved, petitioner is
bereft of a valid title over the properties.[19] In fact, it is the trial courts
ministerial duty to grant a possessory writ over the properties.[20]
Consequently, the CA was correct in upholding the RTCs dismissal of the
petition for rehabilitation in view of the fact that the titles to petitioners
properties have already passed on to respondent bank and petitioner has no
more assets to speak of, specially since petitioner does not dispute the fact
that the properties which were foreclosed by respondent bank comprise the
bulk, if not the entirety, of its assets.
It should be stressed that the Interim Rules was enacted to provide for a
summary and non-adversarial rehabilitation proceedings.[21] This is in
consonance with the commercial nature of a rehabilitation case, which is
aimed to be resolved expeditiously for the benefit of all the parties concerned
and the economy in general.
As provided in the Interim Rules, the basic procedure is as follows:
(1) The petition is filed with the appropriate Regional Trial Court;[22]
(2) If the petition is found to be sufficient in form and substance, the trial
court shall issue a Stay Order, which shall provide, among others, for the
appointment of a Rehabilitation Receiver; the fixing of the initial hearing on
the petition; a directive to the petitioner to publish the Order in a newspaper
of general circulation in the Philippines once a week for two (2) consecutive
weeks; and a directive to 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. [23]
3) Publication of the Stay Order;
4) Initial hearing on any matter relating to the petition or on any comment

and/or opposition filed in connection therewith. If the trial court is satisfied

that there is merit in the petition, it shall give due course to the petition;[24]
5) Referral for evaluation of the rehabilitation plan to the rehabilitation
receiver who shall submit his recommendations to the court;[25]
6) Modifications or revisions of the rehabilitation plan as necessary;[26]
7) Submission of final rehabilitation plan to the trial court for approval;[27]
8) Approval/disapproval of rehabilitation plan by the trial court;[28]
In the present case, the petition for rehabilitation did not run its full course
but was dismissed by the RTC after due consideration of the pleadings filed
before it. On this score, the RTC cannot be faulted for its summary dismissal,
as it is tantamount to a finding that there is no merit to the petition. This is
in accord with the trial courts authority to give due course to the petition or
not under Rule 4, Section 9 of the Interim Rules. Letting the petition go
through the process only to be dismissed later on because there are no
assets to be conserved will not only defeat the reason for the rules but will
also be a waste of the trial courts time and resources.
The CA also correctly ruled that petitioner availed of the wrong remedy when
it filed a special civil action for certiorari with the CA under Rule 65 of the
Rules of Court.
Certiorari is a remedy for the correction of errors of jurisdiction, not errors of
judgment. It is an original and independent action that was not part of the
trial that had resulted in the rendition of the judgment or order complained of.
More importantly, since the issue is jurisdiction, an original action for
certiorari may be directed against an interlocutory order of the lower court
prior to an appeal from the judgment; or where there is no appeal or any
plain, speedy or adequate remedy. A petition for certiorari should be filed not
later than sixty days from the notice of judgment, order, or resolution, and a
motion for reconsideration is generally required prior to the filing of a petition
for certiorari, in order to afford the tribunal an opportunity to correct the
alleged errors.[29]
The Omnibus Order dated January 13, 2003 issued by the RTC is a final order
since it terminated the proceedings and dismissed the case before the trial
court; it leaves nothing more to be done. As such, petitioners recourse is to
file an appeal from the Omnibus Order.
In this regard, A.M. No. 00-8-10-SC promulgated by the Court on September
4, 2001 provides that a petition for rehabilitation is considered a special
proceeding given that it seeks to establish the status of a party or a particular
fact. Accordingly, the period of appeal provided in paragraph 19 (b) of the
Interim Rules Relative to the Implementation of Batas Pambansa Blg. 129 for
special proceedings shall apply. Under said paragraph 19 (b), the period of
appeal shall be thirty (30) days, a record of appeal being required.

However, it should be noted that the Court issued A.M. No. 04-9-07-SC on
September 14, 2004, clarifying the proper mode of appeal in cases involving
corporate rehabilitation and intra-corporate controversies. It is provided
therein that all decisions and final orders in cases falling under the Interim
Rules of Corporate Rehabilitation and the Interim Rules of Procedure
Governing Intra-Corporate Controversies under Republic Act No. 8799 shall be
appealed to the CA through a petition for review under Rule 43 of the Rules of
Court to be filed within fifteen (15) days from notice of the decision or final
order of the RTC.
In any event, as previously stated, since what petitioner filed was a petition
for certiorari under Rule 65 of the Rules, the CA rightly dismissed the petition
and affirmed the assailed Orders.
WHEREFORE, the petition is DENIED for lack of merit.
2. LEONARDO S. UMALE, [deceased] represented by CLARISSA VICTORIA,
JOHN LEO, GEORGE LEONARD, KRISTINE, MARGUERITA ISABEL, AND
MICHELLE ANGELIQUE, ALL SURNAMED UMALE,
Petitioners,
G.R. No. 181126
Present:
VELASCO, JR.,
Acting Chairperson,
LEONARDO-DE CASTRO,
BERSAMIN,,
DEL CASTILLO, and
- versus PEREZ, JJ.
ASB REALTY CORPORATION,
Respondent.
Promulgated:
June 15, 2011
x-------------------------------------------------------x
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[1] assailing the
October 15, 2007 Decision[2] of the Court of Appeals (CA) in CA-G.R. SP No.
91096, as well as its January 2, 2008 Resolution.[3] 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.[4]
Factual Antecedents
This case involves a parcel
Amethyst Street, Ortigas Center, Pasig
Amethyst Pearl Corporation (Amethyst
wholly-owned by respondent ASB Realty

of land identified as Lot 7, Block 5,

City which was originally owned by
Pearl), a company that is, in turn,
Corporation (ASB Realty).

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 Pearls outstanding capital stock from ASB Realty.[5]
Thus, ASB Realty became the owner of the subject premises and obtained in
its name Transfer Certificate of Title No. PT-105797,[6] 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) of Pasig City for unlawful detainer[7] of the
subject premises against petitioner Leonardo S. Umale (Umale). ASB Realty
alleged that it entered into a lease contract[8] 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 contracts 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 evidenced by the Official
Receipt No. 56511[9] dated November 19, 2001.
On June 23, 2003, ASB Realty served on Umale a Notice of
Termination of Lease and Demand to Vacate and Pay.[10] 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
Realtys 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 period of time.[11] He then allegedly paid P1.2
million in 1999 as one year advance rentals to Amethyst Pearl.[12]
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 them.[13] 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 Realty.[14]
Umale also challenged ASB Realtys 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 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
debtors assets. Since ASB Realty claims that it owns the subject premises,
it is its duly-appointed receiver that should sue to recover possession of the
same.[15]
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,[16] the MTC dismissed ASB Realtys
complaint against Umale without prejudice. It held that ASB Realty had no
cause to seek Umales ouster from the subject property because it was not
Umales 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
Umales lessor; but its signatory page contained Eden C. Lins name under
the heading Amethyst Pearl.
The MTC then concluded from such
inconsistency that Amethyst Pearl was the real lessor, who can seek Umales

ejectment from the subject property.[17]

Likewise, the MTC agreed with Umale that only the rehabilitation
receiver could file suit to recover ASB Realtys property.[18] 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),[19] which then reversed[20] the MTC ruling.
The RTC held that the MTC erred in dismissing ASB Realtys 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 Umales ouster from the leased premises for violations of the lease
terms. In addition to the written lease contract, the official receipt evidencing
Umales 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 Realtys positive assertions, supported as they are by credible
evidence, are more compelling than Umales bare negative assertions. The
RTC found Umales 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.
With the lease contract between Umale and ASB Realty duly
established and Umales 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 refusal to vacate the same constituted sufficient cause of action for
his ejectment.[21]
With respect to ASB Realtys 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 the corporation.[22]
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 from Umale
could only benefit ASB Realty.[23]
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 plaintiff-appellant;
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 attorneys fees; and the costs of suit.
SO ORDERED.[24]
Umale filed a Motion for Reconsideration[25] while ASB Realty moved
for the issuance of a writ of execution pursuant to Section 21 of the 1991
Revised Rules on Summary Procedure.[26]
In its July 26, 2005 Order, the RTC denied reconsideration of its
Decision and granted ASB Realtys Motion for Issuance of a Writ of Execution.
[27]
Umale then filed his appeal[28] with the CA insisting that the parties
did not enter into a lease contract.[29] 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
month, as it did in its Notice of Termination of Lease.[30] Lastly, Umale
insisted that it was the rehabilitation receiver, not ASB Realty, that was the
real party-in-interest.[31]
Pending the resolution thereof, Umale died and was substituted
by his
widow and legal heirs, per CA Resolution dated August 14, 2006.[32]
Ruling of the Court of Appeals

The CA affirmed the RTC Decision in toto.[33]

According to the appellate court, ASB Realty fully discharged its
burden to prove the existence of a lease contract between ASB Realty and
Umale,[34] as well as the grounds for eviction.[35] The veracity of the terms
of the lease contract presented by ASB Realty was further bolstered, instead
of demolished, by Umales admission that he paid monthly rents in
accordance therewith.[36]
The CA found no merit in Umales 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,
Umales failure to pay the monthly rent gave ASB Realty the corresponding
right to terminate the lease at the end of the month.[37]
The CA then upheld ASB Realtys, 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 officers.[38]
Petitioners filed a Motion for Reconsideration,[39] which was denied
in the
assailed January 2, 2008 Resolution.[40]
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
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 it was not brought by the real party-in-interest.[42]
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 acquire jurisdiction over the subject
property.[43]
Petitioners cite Villanueva v. Court of Appeals,[44] Yam v.
Court of
Appeals,[45] and Abacus Real Estate Development Center, Inc. v. The Manila
Banking Corporation,[46] as authorities for the rule that the appointment of a
receiver suspends the authority of the corporation and its officers over its
property and effects.[47]
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 appointment of a rehabilitation receiver.[48] In
fact, Section 14 , Rule 4 of the Interim Rules expressly limits the receivers
power by providing that the rehabilitation receiver does not take over the
management and control of the corporation but shall closely oversee and
monitor the operations of the debtor.[49] Further, the SEC Rules of Procedure
on Corporate Recovery (SEC Rules), the rules applicable to the instant case,
do not include among the receivers powers the exclusive right to file suits for
the corporation.[50]
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-in-interest in the unlawful detainer suit.[51] 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 the avails of the
suit.[52]
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.[53] 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 power to sue in its own
name.[54] This power is granted to a duly-organized corporation, unless
specifically revoked by another law. The question becomes: Do the laws on
corporate rehabilitation particularly PD 902-A, as amended,[55] 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 if it is immediately
liquidated.[56] It was first introduced in the Philippine legal system through
PD 902-A, as amended.[57] 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 liquidated.[58] This concept of
preserving the corporations 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 properties, subject only to the monitoring of the
appointed rehabilitation receiver.[59] The concept of debtor-in-possession, is
carried out more particularly in the SEC Rules, the rule that is relevant to the
instant case.[60] It states therein that the interim rehabilitation receiver of
the debtor corporation does not take over the control and management of
the debtor corporation.[61] Likewise, the rehabilitation receiver that will
replace the interim receiver is tasked only to monitor the successful
implementation of the rehabilitation plan.[62] There is nothing in the concept
of corporate rehabilitation that would ipso facto deprive[63] 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. The rules enumerate the prohibited corporate actions and
transactions[64] (most of which involve some kind of disposition or
encumbrance of the corporations assets) during the pendency of the
rehabilitation proceedings but none of which touch on the debtor
corporations 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 kinds of situations.
While the SEC has the discretion[65] to authorize the rehabilitation receiver,
as the case may warrant, to exercise the powers in Rule 59, the SECs
exercise of such discretion cannot simply be assumed. There is no allegation

whatsoever in this case that the SEC gave ASB Realtys rehabilitation receiver
the exclusive right to sue.
Petitioners cite Villanueva,[66] Yam,[67] and Abacus Real Estate[68]
as authorities for their theory that the corporate officers of a corporation
under rehabilitation is incapacitated to act. In Villanueva,[69] the Court
nullified the sale contract entered into by the Philippine Veterans Bank on the
ground that the banks insolvency restricted its capacity to act. Yam,[70] on
the other hand, nullified the compromise agreement that Manphil Investment
Corporation entered into while it was under receivership by the Central Bank.
In Abacus Real Estate,[71] it was held that Manila Banks 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.[72] In
the cited cases, the applicable banking law was Section 29[73] of the Central
Bank Act.[74] 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 claims, which are prohibited transactions even for
corporate rehabilitation[75] 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 thereon, sans protest from Amethyst
Pearl or ASB Realty.[76]
Petitioners concede that they may have raised questions of fact but
insist nevertheless on their review as the appellate courts ruling is allegedly
grounded entirely on speculations, surmises, and conjectures and its
conclusions regarding the termination of the lease contract are manifestly

absurd, mistaken, and impossible.[77]

Petitioners arguments have no merit. Ineluctably, the errors they
raised involve factual findings,[78] the review of which is not within the
purview of the Courts functions under Rule 45, particularly when there is
adequate evidentiary support on record.
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 Umales 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 Umales 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 12-month period from June 2001
to May 2002, the lease period should be annual because of the annual rent
payments.[79] 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 annual period, meaning until May 2004, in accordance
with the annual rent payments.[80]
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 of the periods
established in Article 1687.[81]
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]

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 owner.[83]
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 Rehabilitation Receiver and to
INFORM the Court of its compliance therewith within 10 days.
3. MALAYAN INSURANCE COMPANY, INC.,
Petitioners,

- versus -

VICTORIAS MILLING COMPANY, INC.,

Respondents.
G.R. No. 167768
Present:
YNARES-SANTIAGO, J.,
Chairperson,
AUSTRIA-MARTINEZ,
CORONA*
CHICO-NAZARIO, and
NACHURA, JJ.
Promulgated:
April 17, 2009
x-----------------------------------------------------------------------------------------x
DECISION
NACHURA, J.:
Petitioner Malayan Insurance Company, Inc. assails the Court of Appeals
Decision[1] dated May 21, 2004 and Resolution[2] dated April 11, 2005,
which affirmed the suspension of the proceedings on its claim for
reimbursement against the respondent Victorias Milling Company, Inc.
The case arose from the following antecedents:

On July 8, 1997, acting on the verified petition for declaration of a state of

suspension of payments, for the approval of a rehabilitation plan and the
appointment of a management committee, the Securities and Exchange
Commission (SEC) issued an order suspending all pending actions for claims
against respondent, thus:
As a consequence of the filing of the instant petition for suspension of
payments, all actions for claims against VICTORIAS MILLING COMPANY, INC.,
pending before any court, [t]ribunal, [o]ffice, [b]oard, body, and/or
[c]ommission are deemed SUSPENDED immediately until further order from
this Hearing Panel. (RCBC v. IAC, et al., 213 [SCRA] 830; BPI vs. CA, 229 SCRA
223))
Likewise, petitioner [herein respondent] is hereby enjoined from disposing of
any and all of its properties in any manner whatsoever, except in the ordinary
course of its business and from making any payment outside of the legitimate
expenses of its business during the pendency of the proceedings.[3]
A month later, SEC constituted a Management Committee.
On May 31, 1999, the Labor Arbiter rendered a decision in RAB Case No. 0608-10553-98 entitled Dominador P. Abelido v. Victorias Milling Co., Inc.,
ordering respondent to pay P6,605,275.24 to Abelido.
To comply with the requisite bond for an appeal to the National Labor
Relations Commission (NLRC), respondent procured from the petitioner a
surety bond (MICO Bond No. 070117) on July 16, 1999, to secure the
satisfaction of the judgment rendered against it. Under the said surety bond,
petitioner bound itself to be jointly and severally liable with respondent for
the sum of P6,605,275.24 in the event judgment in the labor case is affirmed
in whole or in part.[4]
In consideration of the execution of the surety bond, respondent, through its
Chief Financial Officer Romeo Hermoso, executed in favor of petitioner an
Indemnity Agreement[5] dated July 16, 1999. In said agreement, respondent
bound itself to indemnify petitioner and to keep it harmless from all damages,
costs, penalties, taxes and other expenses that petitioner may, at any time,
incur as a consequence of having become surety.
As security for its obligation under the Indemnity Agreement, respondent
executed a Deed of Assignment[6] dated July 15, 1999 wherein respondent
assigned in favor of the petitioner all of its funds on deposit with the Bank of
the Philippine Islands (BPI), equivalent to the amount of the supersedes bond.
On September 7, 2000, the NLRC rendered a decision affirming the May 31,
1999 Decision of the Labor Arbiter. Consequently, a writ of execution was
issued on April 4, 2001.[7]
On April 10, 2001, Executive Labor Arbiter Oscar Uy issued an order, directing
petitioner to immediately turn over to the NLRC the amount of P6,605,275.24

on account of the writ of execution.[8] On April 17, 2001, the Labor Arbiter
issued another order requiring petitioner to explain why it should not be cited
for contempt for failure to comply with its previous order.[9] When petitioner
failed to comply, the Labor Arbiter issued a third order dated May 7, 2001,
which ordered petitioner to immediately turn over to the NLRC the garnished
amount equivalent to the amount covered by the surety bond.[10]
On May 11, 2001, petitioner served a demand upon BPI for the release of the
bank deposits that respondent had assigned in its favor.[11] BPI rejected the
demand because respondent was still challenging the validity of the
execution award [in the CA]; and the validity of the Deed of Assignment may
be questioned on the ground that it was executed without the requisite
authority of the Management Committee.[12]
In a Letter[13] dated May 16, 2001, respondent advised petitioner that the
issuance and enforcement of the writ of execution is premature, void and
illegal, for which reason, respondent disavowed any liability liable for
whatever consequences resulting from the premature execution of the
decision.
Petitioner replied that it had raised before the NLRC the issues cited in the
May 16, 2001 Letter, but the latter was bent on enforcing the writ of
execution. Thus, petitioner requested from respondent a copy of the
temporary restraining order (TRO) that it allegedly procured from the Court of
Appeals (CA), with a reminder that, without a TRO, it would be compelled to
comply with the writ of execution to avoid being held in contempt.[14]
On May 18, 2001, petitioner released P6,605,275.24 to the NLRC.[15]
Thereafter, petitioner made a series of demands for reimbursement against
respondent and BPI but to no avail.[16]
On January 15, 2003, petitioner filed a complaint for sum of money and
damages against respondent and BPI. BPI filed a motion to dismiss the
complaint. Respondent also filed a motion to dismiss on the ground that it is
the SEC that has jurisdiction over the claim considering that it is under a
state of suspension of payments.
Meanwhile, with the approval of the rehabilitation plan, SEC issued an order
appointing a rehabilitation receiver on January 27, 2003.[17]
Thus, on July 2, 2003, the Regional Trial Court (RTC) issued an order denying
BPIs motion to dismiss while suspending the proceedings as against
respondent, thus:
WHEREFORE, co-defendant BPIs motion to dismiss dated March 4, 2003 is
denied for lack of merit.
Insofar as co-defendant VMC [Victorias Milling Company, Inc.] is concerned,
the herein proceeding is suspended.

SO ORDERED.[18]
Petitioner moved for the partial reconsideration of the order insofar as it
suspended the proceedings against respondent. On October 7, 2004, the RTC
denied the motion.[19]
Subsequently, petitioner filed a petition for certiorari with the CA assailing the
said orders. On May 21, 2004, the CA agreed with the RTC that petitioners
claim is covered by the Stay Order; consequently, it dismissed the petition. It
stressed that, as held in Rubberworld (Phils.), Inc. v. NLRC,[20] Sec.6(c) of P.D.
902-A does not make any distinction as to what claims are covered. The
appellate court noted that the law provides that actions for claims shall be
suspended upon appointment of a management committee or a
rehabilitation receiver. It then concluded that, even if the claim were not
covered by the said stay order, the suspension of petitioners claim would still
be inevitable considering that at the time the rehabilitation receiver was
appointed by the SEC on January 27, 2003, petitioners complaint was already
pending before the trial court. According to the CA, to rule otherwise would
defeat the very purpose of suspension of payments and render inutile the
rescue functions of the management committee.
On April 11, 2005, the CA denied the petitioners motion for reconsideration.
Dissatisfied with the CAs ruling, petitioner now comes to this Court raising
the following issues:
I
WITH ALL DUE RESPECT, THE HONORABLE COURT ERRED IN RULING THAT BY
VIRTUE OF SECTION 6 (C) OF P.D. 902-A, ALL ACTIONS FOR CLAIMS AGAINST
RESPONDENT VICTORIAS MILLING, CO., INC. (VMC), WITHOUT ANY
DISTINCTION, ARE SUSPENDED UPON THE APPOINTMENT BY THE SECURITIES
AND EXCHANGE COMMISSION (SEC) OF A MANAGEMENT COMMITTEE FOR
RESPONDENT VMC.
II
WITH DUE RESPECT, THE HONORABLE COURT ERRED IN RULING THAT SINCE
THE ACTION OF PETITIONER MICI AGAINST RESPONDENT VMC IN THE CASE
BELOW WAS ALREADY PENDING WHEN THE SEC APPOINTED A
REHABILITATION RECEIVER FOR RESPONDENT VMC, ITS SUSPENSION WOULD
STILL BE INEVITABLE AS THE LAW PROVIDES THAT SUSPENSION OF
ACTIONS COMMENCES UPON APPOINTMENT OF A MANAGEMENT COMMITTEE
OR A REHABILITATION RECEIVER.
III
WITH DUE RESPECT, THE HONORABLE COURT ERRED IN FINDING THAT THE
PAYMENT OF THE INSTANT CLAIM OF PETITIONER MICI WOULD DEFEAT THE
VERY PURPOSE OF THE STAY ORDER ISSUED BY THE SEC FOLLOWING THE
APPOINTMENT OF THE MANAGEMENT COMMITTEE FOR RESPONDENT VMC.
[21]
Petitioner maintains that the Stay Order applies only to claims existing prior

to or at the time of the issuance of the said order. It avers that Sec. 6(c) of
P.D. No. 902-A is clear and categorical that the suspension covers actions for
claims which are pending before any court at the time of the appointment of
the management committee or rehabilitation receiver.[22] And, not being a
pre-existing claim, payment of petitioners claim will not result in undue
preference which is the mischief sought to be prevented by a stay order.
The CA allegedly erred in citing Rubberworld which declared that the
suspension is deemed to cover all claims since the law made no distinction
or exemption. Petitioner posits that such pronouncement referred to claims in
general, as opposed to labor claims.[23]
Petitioner further contends that the suspension of actions commences either
upon the appointment of a management receiver or rehabilitation receiver,
not successively as interpreted by the CA. It argues that the use of the
disjunctive word or in Sec. 6(c) signifies that suspension of actions
commences either upon appointment of a management committee or a
rehabilitation receiver.
Citing Philippine Blooming Mills, Inc. v. Court of Appeals,[24] petitioner
submits that, as surety, it is separately liable for the satisfaction of the
judgment award rendered against the respondent in the labor case. Petitioner
lays the blame on the respondent for its failure to avert the execution of the
NLRC Decision.
For its part, respondent posits that it is immaterial when the actions were
commenced as Sec. 6(c) of P.D. 902-A is clear that all actions standing before
a court against a corporation under a management committee must be
stayed; hence, even actions for claims instituted after the appointment of the
management committee are covered by the stay.[25] It avers that the stay
order is not limited to the claims stated in the Schedule of Debts and
Liabilities.
Respondent counters that, in Rubberworld, this Court applied Sec. 6(c) of P.D.
902-A and suspended the proceedings in the labor case even if the complaint
for illegal dismissal was filed after the issuance of the stay order.[26]
Respondent also cited Arranza v. B.F. Homes, Inc.[27] wherein the class suit
was filed 10 years after the management committee was appointed.
Respondent avers that in said case, this Court did not consider the time of
the filing of the claim or when the cause of action accrued. It points out that,
in a later case,[28] the Court even concluded that had the claim in Arranza
been for monetary awards, the proceedings to enforce such claim would have
been suspended.
Respondent emphasizes that the petitioners claim is for reimbursement of
the monetary award it paid to Abelido in the labor case, which was later
ordered suspended by the CA in CA-GR SP No. 64467. Having originated from
an action for a claim that has been suspended, petitioners claim should also
be deemed suspended. The suspension of the labor proceedings by the CA
rendered moot the petitioners cause of action; its remedy is now to go

against the bond posted by Abelido in the NLRC.

Finally, respondent contends that claims not arising from the operation of the
corporations business, whether filed before or after the petition for
suspension of payments, are covered by the SEC Stay Order.[29]
The petition is bereft of merit.
For our resolution of the instant case, we briefly revisit the following
undisputed facts:
On July 8, 1997, the SEC issued a Stay Order, suspending all actions for
claims against respondent pending before any court, tribunal, office, board,
body or commission. On August 8, 1997, the SEC constituted a Management
Committee. On May 31, 1999, the Labor Arbiter rendered a decision in
Abelido v. Victorias Milling, ordering respondent to pay Abelido the sum of
P6,605,275.24. On July 16, 1999, respondent procured from the petitioner a
surety bond as a requisite to the filing of an appeal with the NLRC from the
Labor Arbiters decision. On September 7, 2000, the NLRC affirmed the
decision of the Labor Arbiter, and a writ of execution was issued on April 4,
2001.
The Executive Labor Arbiter issued three orders (dated April 10, 2001,
April 17, 2001, and May 7, 2001, respectively) directing the petitioner to turn
over to the NLRC the amount of P6.605,275.24, on pain of contempt. On May
11, 2001, petitioner served a demand upon BPI for the release of the bank
deposits that respondent had assigned in its favor, but BPI refused. On May
16, 2001, respondent advised petitioner that the enforcement of the writ of
execution was premature and without legal basis. The following day,
petitioner replied that the NLRC was bent on enforcing the writ, and sought
from the respondent a copy of a TRO, if any, issued by the Court of Appeals.
On May 18, 2001, petitioner released the amount to the NLRC.
Failing to obtain reimbursement from the respondent despite a series
of demands, petitioner, on January 15, 2003, filed a complaint for sum of
money with the RTC. On January 27, 2003, SEC issued an order appointing a
rehabilitation receiver for respondent. On July 2, 2003, the RTC suspended the
proceedings against respondent, and subsequently denied the petitioners
motion for reconsideration.
Petitioner then went to the CA on a petition for certiorari which the CA
dismissed on May 21, 2004, concurring with the RTC that the SEC Stay Order
covered petitioners claim. On April 11, 2005, the CA denied the petitioners
motion for reconsideration.
Meanwhile, on June 5, 2003, the CA resolved the petition for certiorari
filed by the respondent assailing the NLRC decision. The appellate court,
while affirming the NLRC decision, set aside the latters resolution on the
respondents motion for reconsideration, and remanded the case to the NLRC
for suspension of the proceedings, ruling that the NLRC decision cannot be

enforced while [the respondent] is under a management committee.[30]

Petitioner now comes to us, insisting that since its claim (for
reimbursement of the amount it released to NLRC to satisfy the judgment on
the labor claims of Abelido) arose after the respondent was placed under a
management committee, such claim should not be suspended nor covered by
the SEC Stay Order.
The argument must fall.
It must be noted that petitioners claim is for reimbursement of
whatever it may have paid to the NLRC as full and final settlement of the
award rendered against respondent in the Abelido case, secured by Security
Bond No. 070117.[31] In order to resolve whether said proceedings should be
suspended, it is necessary to determine whether the complaint for sum of
money with damages is a claim within the contemplation of P.D. No. 902-A.
In Finasia Investments and Finance Corp. v. Court of Appeals,[32] we
construed claim to refer to debts or demands of a pecuniary nature. It
means the assertion of a right to have money paid. Also in Arranza v. B.F.
Homes, Inc.,[33] we referred to it as an action involving monetary
considerations. And in Philippine Airlines v. Kurangking,[34] we said it is a
right to payment, whether or not it is reduced to judgment, liquidated or
unliquidated, fixed or contingent, matured or unmatured, disputed or
undisputed, legal or equitable, and secured or unsecured. More importantly,
the Interim Rules of Procedure on Corporate Rehabilitation provides an allencompassing definition of the term and thus includes all claims or demands
of whatever nature or character against a debtor or its property, whether for
money or otherwise.
Clearly then, the complaint filed by petitioner against respondent falls under
the category of claim whether under our rulings in Finasia, Arranza or
Kurangking, or as defined in the Interim Rules, considering that it is for
pecuniary considerations.[35]
We have consistently held in Rubberworld (Phils.) Inc. v. NLRC,[36] in
Sobrejuanite v. ASB Development Corporation,[37] and in Garcia v. Philippine
Airlines,[38] that the suspension of proceedings referred to in Section 6 (c) of
Presidential Decree No. 902-A, which pertinently provides
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 before any court, tribunal, board or
body, shall be suspended accordingly.[39]
uniformly applies to all actions for claims filed against a corporation,
partnership or association under management or receivership, without
distinction.[40]

Aptly cited in the assailed Court of Appeals decision is our

pronouncement in Rubberworld, viz:
x x x The law is clear: upon the creation of a management committee
or the appointment of a rehabilitation receiver, all claims for actions shall be
suspended accordingly. x x x Since the law makes no distinction or
exemptions, neither should this Court. Ubi lex non distinguit nec nos
distinguere debemos.
Along the same vein, in Sobrejuanite, we enunciated:
x x x 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.
Similarly, in Garcia v. Philippine Airlines, we said:
Since petitioners claim against PAL is a money claim for their
wages during the pendency of PALs appeal to the NLRC, the same should
have been suspended pending the rehabilitation proceedings. The Labor
Arbiter, the NLRC, as well as the Court of Appeals should have abstained from
resolving petitioners case for illegal dismissal and should instead have
directed them to lodge their claims before PALs receiver.
and, very recently, in this Courts en banc Decision in the same Garcia v.
Philippine Airlines,[41] we had the occasion to restate this oft-repeated
verdict, thus:
It is settled that upon appointment by the SEC of a rehabilitation
receiver, all actions for claims before any court, tribunal or board against the
corporation shall ipso jure be suspended. As stated early on, during the
pendency of petitioners complaint before the Labor Arbiter, the SEC placed
respondent under an Interim Rehabilitation Receiver. After the Labor Arbiter
rendered his decision, the SEC replaced the Interim Rehabilitation Receiver
with a Permanent Rehabilitation Receiver.
The suspension of action for claims against a corporation under rehabilitation
receiver or management committee embraces all phases of the suit, be it
before the trial court or any tribunal or before this Court. Otherwise stated,
what are automatically stayed or suspended are the proceedings of an action
or suit and not just the payment of claims. Furthermore, the actions that are
suspended cover all claims against a distressed corporation whether for
damages founded on a breach of contract of carriage, labor cases, collection
suits or any other claims of a pecuniary nature.[42]
The indiscriminate suspension of actions for claims is intended to expedite
the rehabilitation of the distressed corporation. As this Court held in
Rubberworld,[43] the automatic stay of actions is designed to enable the

management committee or the 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 actions 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 toward its restructuring and rehabilitation. Thus, in Section 6 (d) of
P.D. 902-A, the management committee or rehabilitation receiver is given the
following powers:
(d) To create and appoint a management committee, board, or body upon
petition or motu proprio to undertake the management of corporations,
partnerships or other associations not supervised or regulated by other
government agencies in appropriate cases when there is imminent danger of
dissipation, loss, wastage or destruction of assets or other properties or
paralyzation of business operations of such corporations or entities which
may be prejudicial to the interest of minority stockholders, parties-litigants or
the general public: Provided, further, That the Commission may create or
appoint a management committee, board or body to undertake the
management of corporations, partnerships or other associations supervised
or regulated by other government agencies, such as banks and insurance
companies, upon request of the government agency concerned.
The management committee or rehabilitation receiver, board or body shall
have the power to take custody of, and control over, all the existing assets
and property of such entities under management; to evaluate the existing
assets and liabilities, earnings and operations of such corporations,
partnerships, or other associations, to determine the best way to salvage and
protect the interest of the investors and creditors; to study, review and
evaluate the feasibility of continuing operations and restructure and
rehabilitate such entities if determined to be feasible by the Commission. It
shall report and be responsible to the Commission until dissolved by order of
the Commission: Provided, however, That the Commission may, on the basis
of the findings and recommendation of the management committee, or
rehabilitation receiver, board or body, or on its own findings, determine that
the continuance in business of such corporation or entity would not be
feasible or profitable nor work to the best interest of the stockholders,
parties-litigants, creditors, or the general public, order the dissolution of such
corporation entity and its remaining assets liquidated accordingly. The
management committee or rehabilitation receiver, board or body may
overrule or revoke the actions of the previous management and board of
directors of the entity or entities under management notwithstanding any
provision of law, articles of incorporation or by-laws to the contrary.
xxxx
Given these premises, it is not difficult to understand why actions for
claims against the ailing enterprise have to be suspended. It then becomes
easy to accept the hypothesis that the date when the claim arose, or when
the action is filed, is of no moment. As long as the corporation is under a

management committee or a rehabilitation receiver, all actions for claims

against it --- for money or otherwise --- must yield to the greater imperative
of corporate rehabilitation, excepting only, as already mentioned, claims for
payment of obligations incurred by the corporation in the ordinary course of
business. Enforcement of writs of execution issued by judicial or quasi-judicial
tribunals, since such writs emanate from actions for claims, must, likewise,
be suspended.
If we allow the reimbursement action to proceed, and if petitioners claim is
granted, it would be in a position to assert a preference over other creditors.
Worse, respondent would be compelled to dispose of its properties in order to
satisfy the claim of petitioner. It would in effect be a clear defiance of the
proscription set forth in the Interim Rules on selling, encumbering,
transferring, or disposing in any manner any of its (respondents) properties
except in the ordinary course of business.[44] Certainly, petitioners claim
for reimbursement did not arise from the usual operations of respondents
business. Neither can we consider it as an ordinary expense for the conduct
of its operations.
All told, the suspension of the proceedings before the trial court is
therefore imperative.
WHEREFORE, premises considered, the petition is hereby DENIED. The
Decision of the Court of Appeals dated May 21, 2004 and its Resolution dated
April 11, 2005, are AFFIRMED.
4. PHILIPPINE AIRLINES, INC.,
Petitioner,

- versus -

COURT OF APPEALS and SABINE KOSCHINGER,*

Respondents.
G.R. No. 150592
Present:
YNARES-SANTIAGO, J.,
Chairperson,
AUSTRIA-MARTINEZ,
CHICO-NAZARIO,
NACHURA, and
LEONARDO-DE CASTRO,** JJ.

Promulgated:
January 20, 2009
x------------------------------------------------------------------------------------x
DECISION
NACHURA, J.:

Before this Court is a Petition for Certiorari[1] under Rule 65 of the Revised
Rules on Civil Procedure assailing the Resolution[2] of the Court of Appeals
(CA) dated September 4, 2001 in CA-G.R. CV No. 65778.
Respondent Sabine Koschinger (Koschinger) filed a complaint[3] for design
infringement and damages against petitioner Philippine Airlines, Inc. (PAL)
before the Regional Trial Court (RTC) of Makati City. Koschinger claimed PAL
used table linens and placemats bearing designs substantially identical to her
patented designs in its commercial flights without her consent or authority.
The trial court rendered its Decision[4] on July 15, 1998 in favor of
Koschinger. PAL appealed the same to the CA.
Meanwhile, on June 23, 1998, the Securities and Exchange Commission (SEC)
gave due course to PALs petition for the appointment of a rehabilitation
receiver due to its being a distressed company, pursuant to Presidential
Decree No. 902-A. On July 1, 1998, the SEC directed that [i]n light of the
Order of the Commission appointing an Interim Receiver all claims for
payment against PAL are deemed suspended.[5]
On August 3, 1998, PAL filed before the RTC a Motion for Suspension of
Proceedings.[6] However, when the RTC failed to act upon the motion, PAL
filed before the CA a Reiteration of Motion to Suspend Proceedings[7] on May
29, 2000.
On September 4, 2001, the CA issued its assailed Resolution, which reads in
part:
[R]ecords show that as early as July 15, 1998, Regional Trial Court, Branch
137, Makati City, rendered its decision in said Civil Case No. 92-186, which is
the subject of the instant appeal before this Court, and is now on the
completion stage. As a matter of fact, appellant itself has filed its brief. This
Court is awaiting for (sic) the appellees brief. Hence, proceedings below
could no longer be stopped because it had terminated.
If it is the proceedings before this Court that appellant wanted to be
suspended, the same could not be given due course, as the issue in the

instant appeal is:

WHETHER OR NOT APPELLANT VIOLATED THE PROVISIONS OF THE PATENT
LAW.
xxxx
The appeal before this Court is not as yet a claim against PAL, it shall
determine the issue whether or not there was violation of the Patent Law and
the determination of the possible awards, thus, the motion is DENIED.
Appellee is given a new period of thirty (30) days from receipt hereof
within which to file her brief, otherwise, this case shall be submitted for
decision without appellees brief.
SO ORDERED.[8]
Aggrieved, PAL filed the instant Petition to nullify and set aside the said
Resolution. PAL alleges that the CA acted with grave abuse of discretion
amounting to lack or excess of jurisdiction in issuing the disputed resolution,
holding that the proceedings below could no longer be stopped because it
had been terminated and ordering Koschinger to file her appellees brief.
The Petition is impressed with merit.
Initially, we resolve the procedural issues raised by respondent.
Respondent, in her Comment, argues that a Petition for Certiorari under Rule
65 is not the proper remedy because petitioner had already filed an appeal
before the CA. Further, even assuming that the petition was proper, the same
should not be granted because the CA did not commit grave abuse of
discretion amounting to lack or excess of jurisdiction in issuing the assailed
Resolution.
Respondents arguments are incorrect. While it is true that petitioners appeal
before the CA questions the RTCs July 15, 1998 Decision, the present Petition
for Certiorari only challenges the CAs September 4, 2001 Resolution. Said
Resolution is not a final disposition of the case and, therefore, not appealable.
Petitioner, therefore, had no plain, speedy and adequate remedy in the
ordinary course of law.[9] Petitioner filed the present petition to stop the CA
from hearing the appeal in violation of the SECs stay order.
Furthermore, we find that the CA indeed committed grave abuse of discretion
for the reasons cited below.
Of paramount importance to the resolution of this case is the effect of the
order for suspension of payments on the proceedings before the trial court
and on PALs appeal before the CA.

The CA ruled that, first, the proceedings before the trial court could no longer
be suspended because these had been terminated and, second, that the
appeal before it could not likewise be suspended because the issue before it
was not yet a claim.
The CA was partially correct in stating that the issue to be resolved before it
was whether or not PAL violated the provisions of the Patent Law.[10]
However, it failed to consider the fact that the same also carried a prayer for
damages. It also incorrectly ruled that the same is not a claim such that the
proceedings shall be suspended in accordance with the SECs directive.
Under the Interim Rules of Procedure on Corporate Rehabilitation,[11] a claim
shall include all claims or demands of whatever nature or character against a
debtor or its property, whether for money or otherwise.[12]
The definition is all-encompassing as it refers to all actions whether for
money or otherwise. There are no distinctions or exemptions.[13]
Prior to the promulgation of the Interim Rules of Procedure on Corporate
Rehabilitation, this Court construed claim as referring only to debts or
demands pecuniary in nature:
[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
decedents 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. [14]
In subsequent cases, the Court pronounced that [it] is not prepared to
depart from the well-established doctrines essentially maintaining that all
actions for claims against a corporation pending before any court, tribunal or

board shall ipso jure be suspended in whatever stage such actions may be
found upon the appointment by the SEC of a management committee or a
rehabilitation receiver.[15]
Further, this was taken to embrace all phases of the suit, be it before the trial
court or any tribunal or before this Court[16] such that no other action may
be taken in, including the rendition of judgment during the state of
suspension what are automatically stayed or suspended are the
proceedings of an action or suit and not just the payment of claims during the
execution stage after the case had become final and executory.[17]
Moreover, a perusal of the Complaint filed before the RTC reveals that the
same was for Design Infringement and Damages with a Prayer for a
Temporary Restraining Order and Writ of Preliminary Injunction[18] and
prayed for actual damages amounting to P2 million, exemplary damages
amounting to P250,000.00 and attorneys fees amounting to P250,000.00.
Thus, whether under the Interim Rules of Procedure on Corporate
Rehabilitation or under the Courts rulings prior to the promulgation of the
Rules, the subject of the case would fall under the term claim, considering
that it involves monetary consideration.
The reason for the suspension of claims while the corporation undergoes
rehabilitation proceedings has been explained by the Court, thus:
In light of these powers, the reason for suspending actions for claims against
the corporation should not be difficult to discover. It is not really to enable
the management committee or the rehabilitation receiver to substitute the
defendant in any pending action against it before any court, tribunal, board
or body. Obviously, the real justification is to 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 toward its
restructuring and rehabilitation.[19]
This underlying reason applies with equal force to the appeal before the CA.
The continuation of the appeal proceedings would have unduly hindered the
management committees task of rehabilitating the ailing corporation, giving
rise precisely to the situation that the stay order sought to avoid.
It was likewise error for the CA to have ruled that the proceedings before the
RTC could not be stopped because they had been terminated.
This Court has repeatedly held that execution is the final stage of litigation,
[20] the fruit and end of the suit.[21] Thus, the proceedings before the RTC
were not terminated by the filing of the appeal to the CA. The same could not
be executed hence, not yet terminated until the appeal is decided with

finality. Consequently, the proceedings before the RTC could be suspended in

accordance with the SECs stay order.
Under the Interim Rules of Procedure on Corporate Rehabilitation, a stay
order defers all actions or claims against the corporation seeking
rehabilitation from the date of its issuance until the dismissal of the petition
or termination of the rehabilitation proceedings.[22]
Accordingly, the CA committed grave abuse of discretion in denying
petitioners Motion to Suspend Proceedings and ordering respondent to file
her appellees brief. Upon petitioners motion informing it of the SECs stay
order, the CA should have immediately suspended the appeal therein.
Be that as it may, this Court notes that petitioner filed a Manifestation[23] on
October 17, 2007 informing this Court that the SEC has approved petitioners
exit from corporate rehabilitation through an Order[24] dated September 28,
2007. Thus, there is now no bar to the continuation of the appeal proceedings
before the CA.
WHEREFORE, the foregoing premises considered, the petition is GRANTED.
The Court of Appeals is ORDERED to forthwith resolve CA-G.R. CV No. 65778
with dispatch.
5. JOSE MARCEL PANLILIO, ERLINDA PANLILIO, NICOLE MORRIS and MARIO T.
CRISTOBAL,
Petitioners,
-versusREGIONAL 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.
G.R. No. 173846
Present:
CORONA,* C.J.,
CARPIO, J., Chairperson,
PERALTA,
PEREZ,** and
MENDOZA, JJ.
Promulgated:
February 2, 2011
x -------------------------------------------------------------------------------x

DECISION
PERALTA, J.:
Before this Court is a petition for review on certiorari[1] under Rule 45 of the
Rules of Court, seeking to set aside the April 27, 2006 Decision[2] and August
2, 2006 Resolution[3] 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 Payments and Rehabilitation[4] in SEC Corp.
Case No. 04-111180.
On October 18, 2004, the RTC of Manila, Branch 24, issued an Order[5]
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 not solidarily liable with the debtor.[6]
At the time, however, of the filing of the petition for rehabilitation, there were
a number of criminal charges[7] pending against petitioners in Branch 51 of
the RTC of Manila. These criminal charges were initiated by respondent
Social Security System (SSS) and involved charges of violations of Section 28
(h)[8] of Republic Act 8282, or the Social Security Act of 1997 (SSS law), in
relation to Article 315 (1) (b)[9] of the Revised Penal Code, or Estafa.
Consequently, petitioners filed with the RTC of Manila, Branch 51, a
Manifestation and Motion to Suspend Proceedings.[10] 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.
On December 13, 2004, Branch 51 issued an Order[11] 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 24 does not include the above-captioned cases which are
criminal in nature.[12]
Branch 51 denied the motion for reconsideration filed by petitioners.
On August 19, 2005, petitioners filed a petition for certiorari[13] with the CA
assailing the Order of Branch 51.
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 DISMISSED. No costs.[14]
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,[15] which was, however,
denied by the CA in a Resolution dated August 2, 2006.
Hence, herein petition, with petitioners raising a lone issue for this Courts
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 NON-REMITTANCE OF PREMIUMS AND VIOLATION
OF [ARTICLE] [3] 515 OF THE REVISED PENAL CODE.[16]
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 payments projected in the rehabilitation
plan, if the corporation continues as a going concern than if it is immediately
liquidated.[17] 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 new lease on life and allow its creditors to be paid their claims out
of its earnings.[18]
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 before any court, tribunal, board or body, shall be
suspended accordingly.[19]
In November 21, 2000, this Court En Banc promulgated the Interim Rules of
Procedure on Corporate Rehabilitation,[20] 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 not solidarily liable
with the debtor; x x x[21]
In Finasia Investments and Finance Corporation v. Court of Appeals,[22] 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 interference that
might unduly hinder or prevent the rescue of the debtor company.[23]
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[24] (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 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
and the accused is intended solely to indemnify the former.[25]
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 rehabilitate
him or, in general, to maintain social order.[26] As correctly observed in
Rosario,[27] 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 the stay order issued by
the rehabilitation court.[28] 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 claims against the distressed
corporation.[29]
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 2010.[30] 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 CAG.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.
6. G.R. Nos. 175181-82
September 14, 2007
METROPOLITAN BANK and TRUST COMPANY, INC., petitioner,
vs.
SLGT HOLDINGS, INC., DANILO A. DYLANCO and ASB DEVELOPMENT
CORPORATION, respondents.
x - - - - - - - - - - - - - - - - - - - - - - - -x
G.R. Nos. 175354 & 175387-88

September 14, 2007

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, 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 consolidated Decision1 and Resolution2 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 Decision3 dated October 10,
2005 of the Office of the President (OP, hereinafter), as modified in its Order4
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 Resolution5 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 lots on which the BSA Towers were to be erected had been mortgaged6 to
Metrobank, as the lead bank, and UCPB7 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 HLURB a complaint8 for delivery of property and title and for the
declaration of nullity of mortgage. A similar complaint9 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 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 ongoing 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).
For perspective, the decretal portion of the HLURBs underlying decision10
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)
On the other hand, the HLURB decision11 on the SLGT case, docketed as
REM-A-050208-0020, was, on all material points, of the same tenor as in the
Dylanco case, 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 UCPBs own appeal from the
resolution in REM-A-050208-0020. 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 decision12 against Metrobank and
UCPB, disposing as follows:
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 Order13 acting favorably on SLGTs
motion, but denying those of Metrobank and UCPB. The fallo of the OPs
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 CA-G.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
Decision14 of June 29, 2006, affirmed the OPs 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 CAs equally assailed resolution15 dated October 31, 2006.
Hence, these separate petitions.
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 HLURBs 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 committed contrary to it are void.16 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,17 involving a defaulting
mortgagor-subdivision 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:
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, indivisible.18 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 inquiring further;19 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
the mortgagor. Such rule, however, does not apply to mortgagee-banks,20
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, including those involving
registered lands.21 As we wrote in Cruz v. Bancom Finance Corporation,22 "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 fide mortgagee.23
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 which, under Section 6 (c)24 of
PD 902-A, as amended,25 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 section of PD 902-A. They cite Sobrejuanite v. ASB
Development Corporation26 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.,27 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 developers
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 actions
for claims against corporations refers solely to monetary claims."28 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
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 respondents 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 not pecuniary in nature.29
Arranza actually complemented the earlier case of Finasia Investments and
Finance Corporation v. CA30 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 Sobrejuanites 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,
SLGTs and Dylancos 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 ASBs 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 rehabilitation [of the ailing corporation]" "if the claim
was for monetary awards."31
The Court is very much aware of A.M. No. 00-8-10-SC or the Interim Rules on
Corporate Rehabilitation32 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 as aptly explained by the CA, Section
2433 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 debtorcreditor 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 rehabilitation proceedings ought not, as stressed in the
Order34 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.
7. SPOUSES EDUARDO
SOBREJUANITE and
FIDELA SOBREJUANITE,
Petitioners,

G.R. No. 165675

Present:
Davide, Jr., C.J. (Chairman),
Quisumbing,
Ynares-Santiago,

- versus Carpio, and

Azcuna, JJ.
ASB DEVELOPMENT
CORPORATION,
Respondent.

Promulgated:

September 30, 2005

x ---------------------------------------------------------------------------------------- x
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 Sobrejuanite (Sobrejuanite) filed a Complaint[1] for rescission of
contract, refund of payments and damages, against ASB Development
Corporation (ASBDC) before the Housing and Land Use Regulatory Board
(HLURB).
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, attorneys 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)
attorneys 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.[2]
The HLURB Board of Commissioners[3] 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 before the rehabilitation receiver.[4]
ASBDC filed an appeal[5] before the Office of the President which was
dismissed[6] for lack of merit. Hence, ASBDC filed a petition[7] under Section
1, Rule 43 of the Rules of Court before the Court of Appeals, docketed as CAG.R. SP No. 79420.
On June 29, 2004, the Court of Appeals rendered its assailed Decision,
[8] 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.[9]
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 Sobrejuanites 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.
Sobrejuanites motion for reconsideration was denied[10] 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 PETITIONERS 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,

ACCORDANCE WITH LAW AND JURISPRUDENCE.

NOT

BEING

IN

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 INTO BY PETITIONERS AND RESPONDENT.
[11]
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]
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 litigants as well as the interest of the investing
public or creditors.[12]
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
resources to litigations in various fora.[13] 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 toward its restructuring and rehabilitation.[14]
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,[15] 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
decedents 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.
In Arranza v. B.F. Homes, Inc.,[16] 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.
Incidentally, although the petition for rehabilitation with prayer for
suspension of actions and proceedings was filed before the SEC on May 2,
2000,[17] 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 in Finasia 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 attorneys 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 attorneys 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 a corporation is under rehabilitation.[18] 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 who is a duly appointed officer of the SEC.[19]
Petitioners reliance on Arranza v. B.F. Homes, Inc.[20] 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 respondents 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 respondents 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 to
deal with that matter.[21]
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.