COMMERCIAL REVIEW: FRIA

FRIA: Situs Dev. Corp. vs. Asiatrust Bank

G.R. No. 180036 January 16, 2013

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

RESOLUTION

SERENO, CJ.:

For resolution is the Motion for Reconsideration1 of our 25 July 2012 Decision2 in the case involving petitioners
herein, Situs Development Corporation, Daily Supermarket, Inc. and Color Lithographic Press, Inc.

Most of the arguments raised by petitioners are too insubstantial to merit our consideration or are merely rehashed
from their previous pleadings and have already been passed upon by this Court. However, certain issues merit a brief
discussion, to wit:

1. That the properties belonging to petitioner corporations’ majority stockholders may be included in the
rehabilitation plan pursuant to Metropolitan Bank and Trust Company v. ASB Holdings, Inc. 3 (the Metrobank
Case);

2. That the subject properties should be included in the ambit of the Stay Order by virtue of the provisions of
the Financial Rehabilitation and Insolvency Act of 2010 (FRIA), which should be given a retroactive effect;
and

3. That Allied Bank and Metro Bank were not the owners of the mortgaged properties when the Stay Order
was issued by the rehabilitation court.

On the first issue, petitioners incorrectly argue that the properties belonging to their majority stockholders may be
included in the rehabilitation plan, because these properties were mortgaged to secure petitioners’ loans. In support
of their argument, they cite a footnote appearing in the Metrobank Case, which states: 4

In their petition for rehabilitation, the corporations comprising the ASB Group of Companies alleged that their allied
companies … have joined in the said petition ‘because they executed mortgages and/or pledges over their real and
personal properties to secure the obligations of petitioner ASB Group of Companies. Further, (they) agreed to
contribute, to the extent allowed by law, some of their specified properties and assets to help rehabilitate petitioner
ASB Group of Companies.’ (Rollo, pp. 119-120)

A reading of the footnote shows that it is not a ruling on the propriety of the joinder of parties; rather, it is a statement
of the fact that the afore-quoted allegation was made in the petition for rehabilitation in that case.

On the second issue, petitioners argue that the trial court was correct in including the subject properties in the ambit
of the Stay Order. Under the FRIA, the Stay Order may now cover third-party or accommodation mortgages, in which
the "mortgage is necessary for the rehabilitation of the debtor as determined by the court upon recommendation by
the rehabilitation receiver."5 The FRIA likewise provides that its provisions may be applicable to further proceedings in
pending cases, except to the extent that, in the opinion of the court, their application would not be feasible or would
work injustice.6

Sec. 146 of the FRIA, which makes it applicable to "all further proceedings in insolvency, suspension of payments
and rehabilitation cases x x x except to the extent that in the opinion of the court their application would not be
feasible or would work injustice," still presupposes a prospective application. The wording of the law clearly shows
that it is applicable to all further proceedings. In no way could it be made retrospectively applicable to the Stay Order
issued by the rehabilitation court back in 2002.

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At the time of the issuance of the Stay Order, the rules in force were the 2000 Interim Rules of Procedure on
Corporate Rehabilitation (the "Interim Rules"). Under those rules, one of the effects of a Stay Order is the stay of the
"enforcement of all claims, whether for money or otherwise and whether such enforcement is by court action or
otherwise, against the debtor, its guarantors and sureties not solidarily liable with the debtor." 7 Nowhere in the Interim
Rules is the rehabilitation court authorized to suspend foreclosure proceedings against properties of third-party
mortgagors. In fact, we have expressly ruled in Pacific Wide Realty and Development Corp. v. Puerto Azul Land,
Inc.8 that the issuance of a Stay Order cannot suspend the foreclosure of accommodation mortgages. Whether or not
the properties subject of the third-party mortgage are used by the debtor corporation or are necessary for its
operation is of no moment, as the Interim Rules do not make a distinction. To repeat, when the Stay Order was
issued, the rehabilitation court was only empowered to suspend claims against the debtor, its guarantors, and
sureties not solidarily liable with the debtor. Thus, it was beyond the jurisdiction of the rehabilitation court to suspend
foreclosure proceedings against properties of third-party mortgagors.

The third issue, therefore, is immaterial.1âwphi1 Whether or not respondent banks had acquired ownership of the
subject properties at the time of the issuance of the Stay Order, the same conclusion will still be reached. The subject
properties will still fall outside the ambit of the Stay Order issued by the rehabilitation court.

Since the subject properties are beyond the reach of the Stay Order, and since foreclosure and consolidation of title
may no longer be stalled, petitioners’ rehabilitation plan is no longer feasible. We therefore affirm our earlier finding
that the dismissal of the Petition for the Declaration of State of Suspension of Payments with Approval of Proposed
Rehabilitation Plan is in order.

WHEREFORE, the Court resolves to DENY WITH FINALITY the instant Motion for Reconsideration for lack of merit.
No further pleadings shall be entertained. Let entry of judgment be made in due course.

SO ORDERED.

MARIA LOURDES P. A. SERENO

Chief Justice

WE CONCUR:

ANTONIO T. CARPIO
Associate Justice
Chairperson

ARTURO D. BRION JOSE PORTUGAL PEREZ

Associate Justice Associate Justice

BIENVENIDO L. REYES
Associate Justice

CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution, I certify that the conclusions in the above Resolution had been
reached in consultation before the case was assigned to the writer of the opinion of the Court’s Division.

MARIA LOURDES P. A. SERENO

Chief Justice

Footnotes
1 Rollo, pp. 1299-1322.
2 Id. at 1273-1293.
3 G.R. No. 166197, 27 February 2007, 517 SCRA 1.
4 Id. at 4.

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FRIA, Sec. 18. Exceptions to the Stay or Suspension Order. – The Stay or Suspension Order shall not
apply:
(c) to the enforcement of claims against sureties and other persons solidarily liable with the debtor,
and third party or accommodation mortgagors as well as issuers of letters of credit, unless the
property subject of the third party or accommodation mortgage is necessary for the rehabilitation of
the debtor as determined by the court upon recommendation by the rehabilitation receiver;
6 Sec. 146. Application to Pending Insolvency, Suspension of Payments and Rehabilitation Cases. – This

Act shall govern all petitions filed after it has taken effect. All further proceedings in insolvency, suspension
of payments and rehabilitation cases then pending, except to the extent that in the opinion of the court their
application would not be feasible or would work injustice, in which event the procedures set forth in prior
laws and regulations shall apply.
7 Interim Rules, Rule 4, Sec. 6.
8 G.R. Nos. 178768 & 180893, 25 November 2009, 605 SCRA 503, 521-522.

General Concepts

G.R. NO. 180036, (2012)

· The Rules provide that "the petition (Petition for Rehabilitation) shall be dismissed if no rehabilitation plan is approved
by the court upon the lapse of 180 days from the date of the initial hearing." While the Rules expressly provide that the
180-day period may be extended, such extension may be granted only "if it appears by convincing and compelling
evidence that the debtor may successfully be rehabilitated."

· It is a fundamental principle in corporate law that a corporation is a juridical entity with a legal personality separate
and distinct from the people comprising it. Hence, the rule is that assets of stockholders may not be considered as
assets of the corporation, and vice-versa. The mere fact that one is a majority stockholder of a corporation does not
make one s property that of the corporation, since the stockholder and the corporation are separate entities.

· The Stay Order does not suspend the foreclosure of a mortgage constituted over the property of a third-party
mortgagor.
Petitioners insist that the Stay Order covers the mortgaged properties, citing the Interim Rules on Corporate
Rehabilitation (the Rules). Under the Rules, one of the effects of a Stay Order is the stay of the "enforcement of all
claims, whether for money or otherwise and whether such enforcement is by court action or otherwise, against the
debtor, its guarantors and sureties not solidarily liable with the debtor."
Based on a reading of the Rules, we rule that the Stay Order cannot suspend foreclosure proceedings already
commenced over properties belonging to spouses Chua. The Stay Order can only cover those claims directed against
petitioner corporations or their properties, against petitioners guarantors, or against petitioners sureties who are not
solidarily liable with them.

· Spouses Chua may not be considered as "debtors." The Interim Rules on Corporate Rehabilitation (the Rules) define
the term "debtor" as follows:ςrαlαω
"Debtor" shall mean any corporation, partnership, or association, whether supervised or regulated by the Securities
and Exchange Commission or other government agencies, on whose behalf a petition for rehabilitation has been filed
under these Rules.

The issuance of a Stay Order cannot suspend the foreclosure of accommodation mortgages, because the Stay Order
may only cover the suspension of the enforcement of all claims against the debtor, its guarantors, and sureties not
solidarily liable with the debtor. Thus, the suspension of enforcement of claims does not extend to the foreclosure of
accommodation mortgages.

Moreover, the intent of the Rules is to exclude from the scope of the Stay Order the foreclosure of properties owned by
accommodation mortgagors. The newly adopted Rules of Procedure on Corporate Rehabilitation provides for one of
the effects of a Stay Order:
SEC. 7. Stay Order.
(b) staying enforcement of all claims, whether for money or otherwise and whether such enforcement is by court action
or otherwise, against the debtor, its guarantors and persons not solidarily liable with the debtor; provided, that the stay
order shall not cover claims against letters of credit and similar security arrangements issued by a third party to secure
the payment of the debtor's obligations; provided, further, that the stay order shall not cover foreclosure by a creditor
of property not belonging to a debtor under corporate rehabilitation; provided, however, that where the owner of such
property sought to be foreclosed is also a guarantor or one who is not solidarily liable, said owner shall be entitled to
the benefit of excussion as such guarantor.

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From the foregoing, we therefore hold that foreclosure proceedings over the properties in question are not suspended
by the trial court s issuance of the Stay Order.