CASE DIGESTS

in

Negotiable
Instruments Law

Submitted by:

Steve R. Arcilla
L-160421

November 26, 2019

 TABLE OF CONTENTS

I. FORGERY

a. Banco de Oro vs. Equitable Banking Corporation

b. Gempesaw vs. Court of Appeals
c. Ramon Rosario vs. Court of Appeals
d. Samsung Construction Co. Phils., Inc. vs. FEBTC and Court of Appeals

II. MATERIAL ALTERATION

a. Philippine National Bank vs. Court of Appeals

b. Montinola vs. Philippine National Bank

III. HOLDERS IN DUE COURSE

a. De Ocampo vs. Gatchalian

b. Mesina vs. IAC

IV. CHECKS

a. State Investment House vs. Court of Appeals

b. Bataan Cigar vs. Court of Appeals
c. Citytrust Banking Corporation vs. IAC
d. Tan vs. Court of Appeals
e. Papa vs. A.U. Valencia and Co. Inc.
f. PNB vs. Spouses Cheah
g. RCBC vs. Hi Tri Development Corp
h. PNB vs. Amelio Tria
i. Emilia Lim vs. Mindanao Wines & Liquor Galleria

V. NATURE OF FRIA PROCEEDINGS

a. Advent Capital vs. Alcantara

b. Express Investment III vs. Dayan Telecoms
c. Steel Corp vs. Mapfre

VI. COURT SUPERVISED REHABILITATION

a. Rubberworld vs. NLRC

b. Wonder Book Corp vs. PBCom
c. Phil. Islands Corp. vs. Victoria Milling Tourism Dev.
BANCO DE ORO VS. EQUITABLE BANKING CORPORATION
G.R. NO. 74917; JANUARY 20, 1988

FACTS:

Equitable Banking Corp. drew 6 crossed Manager’s Check payable to certain member of
its establishment. Subsequently, the Checks were deposited with Banco de Oro to the
credit of its depositor. Following the normal procedures, and after stamping at the back
of the of the Checks the usual endorsements: “All prior and/or lack of endorsement
guaranteed,” Banco de Oro sent the checks for clearing through PCHC. Accordingly,
Equitable Banking Corp. paid the Checks. Its clearing account was debited for the value
of the Checks and Banco de Oro’s clearing account was credited for the same
amount. Thereafter, Equitable Banking Corp. discovered that the endorsements at the
back of the Checks were forged or otherwise belong to the persons other than the payees.
Pursuant to the PCHC Clearing Rules and Regulations, Equitable Bank presented the
checks directly to the Banco de Oro to claim reimbursement. However, the latter refused.

ISSUE:

Whether or not the subject checks are non-negotiable.

RULING:

Banco de Oro by its own acts, stamped its guarantee is now estopped from claiming that
the checks under consideration are not negotiable instruments. The Checks were accepted
for deposit by Banco de Oro stamping thereon its guarantee, in order that it can clear said
Checks with Equitable Banking Corp. By such deliberate and positive attitude of Banco de
Oro, it has for all legal intents and purposes treated the said Checks as negotiable
instruments and accordingly assumed the warranty of the endorser when it stamped its
guarantee of prior endorsement at the back.
GEMPESAW VS. COURT OF APPEALS
G.R. NO. 92244; FEBRUARY 9, 1993

FACTS:

To facilitate payment of debts to her suppliers, petitioner draws checks against

her checking account with respondent bank as drawee. The checks are prepared and filled
up by her trusted bookkeeper of eight years and submitted to petitioner for signature
together with corresponding invoice receipts. Petitioner did not make any verification as
to the correctness of the returned checks or to the payees’ actual receipt of the checks in
payment. She later discovered that in the course of two years her bookkeeper had brought
eighty-two checks with forged signatures of the payees to respondent bank which
accepted them for deposit in the accounts of Alfredo Romero and Benito Lam.

ISSUE:

Who shall bear the loss resulting from the forged indorsements.

RULING:

As a rule, a drawee bank who has paid a check on which an indorsement has been forged
cannot charge the drawer’s account for the amount of said check. An exception to the rule
is where the drawer is guilty of such negligence which causes the bank to honor such
checks. Gempesaw did not exercise prudence in taking steps that a careful and prudent
businessman would take in circumstances to discover discrepancies in her account. Her
negligence was the proximate cause of her loss, and under Section 23 of the Negotiable
Instruments Law, is precluded from using forgery as a defense. The drawee bank, in its
failure to discover the fraud committed by its employee and in contravention banking
rules in allowing a chief accountant to deposit the checks bearing second indorsements,
was adjudged liable to share the loss with Gempesaw on a 50:50 ratio.
RAMON ILUSORIO VS. COURT OF APPEALS
G.R. NO. 139130; NOVEMBER 27, 2002

FACTS:

Ramon Ilusorio entrusted his credit cards and checkbooks and blank checks to his
secretary. Apparently, his secretary was able to encash and deposit to her personal
account 17 checks drawn against his account. Ilusorio requested to restore to his account
the value of the checks that were wrongfully encashed but the bank refused, hence the
case. In court, the bank testified that they make sure that the sign on the check is verified.
When asked by the NBI to submit standard signs to compare, Ilusorio failed to comply.
The lower held held in favor of defendant.

ISSUE:

Whether the bank was negligent in receiving the checks.

RULING:

The SC affirmed the lower court's decision. Ilusorio failed to prove that the bank was
negligent on their part as he has the burden of proof. The bank's employees did not know
the secretary's modus operandi as she was always transacting in behalf of Ilusorio. The
SC even held that it was Ilusorio who was negligent as he trusted his secretary of unusual.
Ilusorio also cites Sec. 23 of the NIL that a forged check is inoperative and that he bank
has no authority to pay. While true, the case at bar falls under the exception stated in the
section. The SC held that Ilusorio is precluded from setting up the forgery, assuming there
is forgery, due to his own negligence in entrusting his secretary.
SAMSUNG CONSTRUCTION CO. PHILS., INC. VS. FEBTC AND COURT OF APPEALS
G.R. NO. 129015; AUGUST 13, 2004

FACTS:

FACTS:

A check drawn against petitioner was presented for payment to respondent Bank.
Satisfied with the authenticity of the signature appearing thereon, the check was
encashed. The following day, petitioner’s accountant who had custody of the
company checks discovered that a check was missing and reported the petitioner’s project
manager who is also the sole signatory to its checking account. Petitioner demanded that
it be reimbursed for the proceeds of the check.

ISSUE:

Whether or not respondent bank is liable to reimburse for the payment of the forged
check.

RULING:

Banks are engaged in a business impressed with public interest, and it is their duty to
protect in return their many clients and depositors who transact business with them. They
have the obligation to treat their client’s account meticulously and with the highest degree
of care, considering the fiduciary nature of their relationship. The diligence required of
banks, therefore, is more than that of a good father of a family. Given the circumstances,
extraordinary diligence dictates that FEBTC should have ascertained from Jong
personally that the signature in the questionable check was his. Since the drawer,
Samsung Construction, is not precluded by negligence from setting up the forgery, the
general rule should apply. Consequently, if a bank pays a forged check, it must be
considered as paying out of its funds and cannot charge the amount so paid to the account
of the depositor. A bank is liable, irrespective of its good faith, in paying a forged check.
PHILIPPINE NATIONAL BANK VS. COURT OF APPEALS
G.R. NO. 107508; APRIL 25, 1996

FACTS:

The Ministry of Education issued a check drawn against petitioner bank. The
payee deposited the questioned check in its savings account with Capitol
City Development Bank (Capitol) which in turn deposited the same in its account with
respondent bank. After petitioner cleared the check, respondent bank credited Capitol for
the amount. However, petitioner returned the check to PBCom and debited the latter’s
account for the amount covered by the check because the check number was materially
altered.

ISSUE:

Whether or not the alteration of the check number was material to its negotiability.

RULING:

What was altered is the serial number of the check in question, an item which, it can
readily be observed, is not an essential requisite for negotiability under Section 1 of the
Negotiable Instruments Law. The aforementioned alteration did not change the relations
between the parties. The name of the drawer and the drawee were not altered. The
intended payee was the same. The sum of money due to the payee remained the same.
Moreover, the check’s serial number is not the sole indication of its origin. The name of
the government agency which issued the subject check was prominently printed therein.
The check’s issuer was therefore sufficiently identified, rendering the referral to the serial
number redundant and inconsequential.
MONTINOLA VS. PHILIPPINE NATIONAL BANK
G.R. NO. L-2861; FEBRUARY 26, 1951

FACTS:

Ubaldo Laya, as provincial treasurer of Misamis Oriental issued a P100,000.00

Philippine National Bank (PNB) check to Mariano Ramos. On the back of the check,
Ramos wrote: Pay to the order of Enrique P. Montinola P30,000 only. The balance to be
deposited in the Philippine National Bank to the credit of M. V. Ramos. Before Ramos can
encash the check, he was made a prisoner of war by the invading Japanese forces. In
consideration thereof, Montinola promised to pay 85,000 in Japanese notes. However,
he was only able to pay 45k in Japanese notes to Ramos. Later, Montinola sought to have
the check encashed but PNB dishonored the check. It appears that there was an insertion
made. Under the signature of Laya, the words “Agent, Philippine National Bank” was
inserted, thus making it appear that Laya disbursed the check as an agent of PNB and not
as provincial treasurer of Misamis Oriental

ISSUE:

Whether or not the material alteration discharges the instrument?

RULING:

First, the Court pointed out: “It was not negotiated according to the Negotiable
Instruments Law (NIL) hence it is not a negotiable instrument. There was only a partial
indorsement and not a negotiation contemplated under the NIL. Only P30k of the P100k
amount of the check was indorsed. This merely make Montinola a mere assignee – and
this is the clear intent of Ramos. Ramos was merely assigning P30k to Montinola.
Montinola may therefore not be regarded as an indorsee and PNB has all the right to
dishonor the check. As mere assignee, he is subject to all defenses available to the drawer
Provincial Treasurer of Misamis Oriental and against Ramos.
DE OCAMPO VS. GATCHALIAN
G.R. NO. L-15126; NOVEMBER 30, 1961

FACTS:

Anita Gatchalian was interested in buying a car. Manuel Gonzales offered to her a car
owned by plaintiff. Gonzales claimed that he was authorized by the plaintiff to sell the car.
Gonzales order defendant to issue a cross-check to comply on showing interest in buying
the car. Gonzales promised to return the check the next day. When Gonzales never
appeared after, defendant issue a stop payment order on the check. She found out that
Gonzales used the check as payment to plaintiff's clinic for his wife's fees. Plaintiff now
demands defendant for payment of the check, in which defendant refused citing that
plaintiff is a not a holder in due course. The lower court held that defendant should pay
plaintiff.

ISSUE:

Whether or not De Ocampo is a holder in due course.

RULING:

The SC held that plaintiff is a not a holder in due course. There were obvious instances to
show that the check was negligently acquired like plaintiff having no liability with
defendant and that the check was crossed. Plaintiff failed to exercise prudence and
caution. Plaintiff should have asked questions to further inquire upon suspicion. The
presumption of good faith did not apply to plaintiff because the defect was apparent on
the instruments face – it was not payable to defendant or bearer.
MESINA VS. IAC
G.R. NO. 70145; NOVEMBER 13, 1986

FACTS:

Jose Go purchased from Associated Bank a cashier's check for P800,000.00.

Unfortunately, he left said check on the top of the desk of the bank manager when he left
the bank. The bank manager entrusted the check for safekeeping to a bank official, a
certain Albert Uy. While Uy went to the men's room, the check was stolen by his visitor
in the person of Alexander Lim. Upon discovering that the check was lost, Jose Go
accomplished a "STOP PAYMENT" order. Two days later, Associated Bank received the
lost check for clearing from Prudential Bank. After dishonoring the same check twice,
Associated Bank received summons and copy of a complaint for damages of Marcelo
Mesina who was in possession of the lost check and is demanding payment.

ISSUE:

Whether or not petitioner can collect on the stolen check on the ground that he is a holder
in due course.

RULING:

Petitioner failed to substantiate his claim that he is a holder in due course and for
consideration or value as shown by the established facts of the case. Admittedly, petitioner
became the holder of the cashier's check as endorsed by Alexander Lim who stole the
check. He refused to say how and why it was passed to him. He had therefore notice of the
defect of his title over the check from the start. The holder of a cashier's check who is not
a holder in due course cannot enforce such check against the issuing bank which
dishonors the same.
STATE INVESTMENT HOUSE VS. COURT OF APPEALS
G.R. NO. 101163; JANUARY 11, 1993

FACTS:

Nora Moulic issued to Corazon Victoriano, as security for pieces of jewellery to be sold on
commission, two postdated checks in the amount of fifty thousand each. Thereafter,
Victoriano negotiated the checks to State Investment House, Inc. When Moulic failed to
sell the jewellry, she returned it to Victoriano before the maturity of the checks. However,
the checks cannot be retrieved as they have been negotiated. Before the maturity date
Moulic withdrew her funds from the bank contesting that she incurred no obligation on
the checks because the jewellery was never sold and the checks are negotiated without her
knowledge and consent. Upon presentment of for payment, the checks were dishonoured
for insufficiency of funds.

ISSUE:

Whether or not State Investment House inc. was a holder of the check in due course

RULING:

Section 52 of the NIL provides what constitutes a holder in due course. The evidence
shows that: on the faces of the post dated checks were complete and regular; that State
Investment House Inc. bought the checks from Victoriano before the due dates; that it
was taken in good faith and for value; and there was no knowledge with regard that the
checks were issued as security and not for value. A prima facie presumption exists that a
holder of a negotiable instrument is a holder in due course. Moulic failed to prove the
contrary.
BATAAN CIGAR VS. COURT OF APPEALS
G.R. NO. 93048; MARCH 3, 1994

FACTS:

Bataan Cigar & Cigarette Factory, Inc. (BCCFI), engaged with King Tim Pua George, to
deliver 2,000 bales of tobacco leaf. BCCFI issued post dated crossed checks in exchange.
Trusting King's words, BCCFI issued another post-dated cross check for another purchase
of tobacco leaves. During these time, King was dealing with State Investment House Inc..
On two separate occasions King sold the post-dated cross checks to SIHI, that was drawn
by BCCFI in favor of King. Because King failed to deliver the leaves, BCFI issued a stop
payment to all the checks, including those sold to SIHI.

ISSUE:

Whether SIHI is a holder in due course.

RULING:

The SC held that SIHI is not a holder in due course thus granting the petition of BCCFI.
The purpose of cross checks is to avoid those bouncing or encashing of forged checks.
Cross checks have the following effects: it cannot be encashed but only deposited in a
bank; it can only be negotiated on its respective bank once; it serves as a warning to the
hiolder that it has been issued for a defienite purpose thus making SIHI not a holder in
due course. Still, SIHI can collect from the immediate indorser, in this case, George King.
CITYTRUST BANKING CORPORATION VS. IAC
G.R. NO. 84281; MAY 27, 1994

FACTS:

Emme Herrero, businesswoman, made regular deposits with Citytrust Banking Corp. at
its Burgoa branch in Calamba, Laguna. She deposited the amount of P31, 500 in order to
amply cover 6 postdated checks she issued. All checks were dishonored due to
insufficiency of funds upon the presentment for encashment. Citytrust banking Corp.
asserted that it was due to Herrero’s fault that her checks were dishonored, for he
inaccurately wrote his account number in the deposit slip. RTC dismissed the complaint
for lack of merit. CA reversed the decision of RTC.

ISSUE:

Whether or not Citytrust Banking Corp. has the duty to honor checks issued by Emme
Herrero despite the failure to accurately stating the account number resulting to
insufficiency of funds for the check.

RULING:

Yes, even it is true that there was error on the account number stated in the deposit slip,
its is, however, indicated the name of “Emme Herrero.” This is controlling in determining
in whose account the deposit is made or should be posted. This is so because it is not likely
to commit an error in one’s name than merely relying on numbers which are difficult to
remember. Numbers are for the convenience of the bank but was never intended to
disregard the real name of its depositors. The bank is engaged in business impressed with
public trust, and it is its duty to protect in return its clients and depositors who transact
business with it.
TAN VS. COURT OF APPEALS
GR. NO. 108555; December 20, 1994

FACTS:

Ramon Tan, a businessman from Puerto Princesa, secured a Cashier’s Check from
Philippine Commercial Industrial Bank (PCIBank) to P30,000 payable to his order to
avoid carrying cash while enroute to Manila. He deposited the check in his account in
Rizal Commercial Banking Corporation (RCBC) in its Binondo Branch. RCBC sent the
check for clearing to the Central Bank which was returned for having been
“missent” or “misrouted.” Both checks bounced due to “insufficiency of funds.” Tan filed
a suit for damages against RCBC.

ISSUE:

Whether a cashier’s check is as good as cash, so as to have funded the two checks
subsequently drawn.

RULING:

An ordinary check is not a mere undertaking to pay an amount of money. There is an

element of certainty or assurance that it will be paid upon presentation; that is why it is
perceived as a convenient substitute for currency in commercial and financial
transactions. Herein, what is involved is more than an ordinary check, but a cashier’s
check. Herein, PCIB by issuing the check created an unconditional credit in favor any
collecting bank. Reliance on the layman’s perception that a cashier’s check is as good as
cash is not entirely misplaced, as it is rooted in practice, tradition and principle.
PAPA VS. A.U. VALENCIA AND CO. INC.
G.R. NO. 105188; JANUARY 23, 1998

FACTS:

Myron Papa is the administrator of the estate of Angela Butte. In 1973, he sold a portion
of said estate to Felix Peñarroyo through A.U. Valencia and Co., Inc. Peñarroyo gave Papa
P5,000.00 plus a check worth P40,000.00. However, Papa was not able to deliver the
certificate of title to Peñarroyo. A litigation ensued and ten years after, Papa argued that
the sale between him and Peñarroyo was never consummated because he did not encash
the P40,000.00 check and that the P5,000.00 cash was merely earnest money.

ISSUE:

Whether or not the delivery of a check produces the effect of payment only when it is
cashed.

RULING:

After more than ten (10) years from the payment in part by cash and in part by check, the
presumption is that the check had been encashed. Granting that Papa had never encashed
the check, his failure to do so for more than ten (10) years undoubtedly resulted in the
impairment of the check through his unreasonable and unexplained delay. While it is true
that the delivery of a check produces the effect of payment only when it is cashed,
pursuant to Article 1249 of the Civil Code, the rule is otherwise if the debtor (Peñarroyo)
is prejudiced by the creditor’s (Papa’s) unreasonable delay in presentment.
PNB VS. SPOUSES CHEAH
G.R. NO. 170865; APRIL 25, 2013

FACTS:

Filipina Tuazon gave Ofelia Cheah a foreign check with a face value of $300,000.00
drawn against Bank of America Alhambra Branch in California to be encashed. She went
to PNB Buendia Branch to deposit the check, and PNB Division Chief Garin discussed
with them that the clearing process of foreign checks normally takes 15 days. After 5 days,
PNB received a credit advice from Philadelphia National Bank that the proceeds of the
subject check had been temporarily credited to PNB’s account. Thereafter, Philadelphia
National Bank informed PNB with a SWIFT message that the subject check was drawn
against an account with insufficient funds. PNB seeks to recover the amount from Sps
Cheah.

ISSUE:

Whether or not PNB should be liable for the loss?

RULING:

PNB and the spouses Cheah are equally negligent and should therefore equally suffer the
loss. PNB’s act of releasing the proceeds of the check prior to the lapse of the 15-day
clearing period was the proximate cause of the loss. While PNB highlights Ofelia’s fault in
accommodating a stranger’s check and depositing it to the bank, it remains mum in its
release of the proceeds thereof without exhausting the 15-day clearing period, an act
which contravened established banking rules and practice. The spouses Cheah are guilty
of contributory negligence and are bound to share the loss with the bank.
RCBC VS. HI TRI DEVELOPMENT CORP
G.R. NO 192413; JUNE 13, 2012

FACTS:

Luz Bakunawa and her husband Manuel, now deceased (Spouses Bakunawa) are
registered owners of 6 parcels of land in Quezon City. These lots were sequestered by the
Presidential Commission on Good Government (PCGG). Sometime in 1990, a certain
Teresita Millan (Millan), through her representative, Jerry Montemayor, offered to buy
said lots for ₱6,724,085.71, with the promise that she will take care of clearing whatever
preliminary obstacles there may be to effect a completion of the sale. The Spouses
Bakunawa gave to Millan the Owners Copies of said TCTs and in turn, Millan made a
downpayment of ₱1,019,514.29 for the intended purchase.

ISSUE:

Whether or not the escheat (the reversion of property to the state on the owner’s dying
without legal heirs) of the account in RCBC is proper.

RULING:

No. There are checks of a special type called managers or cashiers checks. These are bills
of exchange drawn by the banks manager or cashier, in the name of the bank, against the
bank itself. Typically, a managers or a cashiers check is procured from the bank by
allocating a particular amount of funds to be debited from the depositors account or by
directly paying or depositing to the bank the value of the check to be drawn. Since the
bank issues the check in its name, with itself as the drawee, the check is deemed accepted
in advance. Ordinarily, the check becomes the primary obligation of the issuing bank and
constitutes its written promise to pay upon demand.
PNB VS. AMELIO TRIA
G.R. NO. 193250; APRIL 25, 2012

FACTS:

PNB-MWSS Branch filed a complaint for qualified theft against Tria, its bank manager,
before the Prosecutor’s Office. PNB contended that Tria connived with a fictitious payee
named Atty. Reyes in encashing a manager’s check issued by Tria himself. PNB narrated
that Tria, as bank manager, instructed his employees to process and evaluate a request
letter from Atty. Reyes instructing the deduction of 5 Million Pesos from the MWSS
account and its withdrawal, without consent from the account holder and PNB. Tria also
accompanied Atty. Reyes in PNB-QC where said manager’s check was encashed, despite
the availability of fund in PNB-MWSS, and successfully encashed the check.

ISSUE:

Who should be liable for the amount?

RULING:

In this case, Tria is the bank’s manager and the wheels of the felony started turning days
before the misrepresentations made by Tria at PNB-Circle – the encashment merely a
culmination of the crime that was commenced at his branch. As such, it was his
responsibility to process and approve the check as it was his to verify from the bank’s
client any supposed authority given for the issuance of the manager’s check. Tria’s failure
as bank manager to verify the legitimacy of the requested withdrawal lends credence to
the accusation that he colluded with Atty. Reyes to feloniously take money from PNB, and
his complicity includes depriving the bank of its opportunity.
EMILIA LIM VS. MINDANAO WINES & LIQUOR GALLERIA
G.R. NO. 175851; JULY 4, 2012

FACTS:

Sales Invoice as well as Statement of Accounts indicate that respondent Mindanao Wines
and Liquor Galleria delivered several cases of liquors to H & E Commercial owned by
Emilia, for which the latter issued four PNB postdated checks worth P25,000 each. When
2 of these checks bounced for the reasons ‘ACCOUNT CLOSED’ and ‘DRAWN AGAINST
INSUFFICIENT FUNDS’, Mindanao Wines, thru its proprietress, demanded from H & E
Commercial the payment of their value through two separate letters. When the demands
went unheeded, Mindanao Wines filed before the MTCC of Davao City a Criminal Case
against Emilia for violations of BP 22.

ISSUE:

Whether or not Emilia is civilly liable.

RULING:

Yes, Emilia is civilly liable. Emilia avers that a court’s determination of preponderance of
evidence necessarily entails the presentation of evidence of both parties. She thus believes
that she should have been first required to present evidence to dispute her civil liability
before the lower courts could determine preponderance of evidence.
ADVENT CAPITAL VS. ALCANTARA
G.R. NO. 183050; JANUARY 25, 2012

FACTS:

Petitioner filed a petition for rehabilitation. The RTC named Atty. Concepcion as
rehabilitation receiver. Upon audit of Advent Capital’s books, Atty. Concepcion found that
respondents Nicasio and Editha Alcantara owed Advent Capital ₱27,398,026.59,
representing trust fees that it supposedly earned for managing their several trust
accounts. Atty. Concepcion requested Belson Securities, Inc. to deliver to him in cash
dividends that Belson held under the Alcantaras’ Trust Account, claiming that the
dividends formed part of Advent Capital’s assets. Belson refused, however, citing the
Alcantaras’ objections as well as the absence of an appropriate order from the
rehabilitation court.

ISSUE:

Whether or not the rehabilitation court has jurisdiction to hear and adjudicate the
conflicting claims of the parties over the dividends that Belson held in trust for their
owners.

RULING:

Certainly, the rehabilitation court has not been given the power to resolve ownership
disputes between Advent Capital and third parties. Advent Capital must file a separate
action for collection to recover the trust fees that it allegedly earned and, with the trial
court’s authorization if warranted, put the money in escrow for payment to whoever it
rightly belongs. Rehabilitation proceedings are summary and non-adversarial in nature,
and do not contemplate adjudication of claims that must be threshed out in ordinary court
proceedings.
EXPRESS INVESTMENT III VS. BAYAN TELECOMS
G.R. NO. 174457-59; DECEMBER 5, 2012

FACTS:

Bayantel entered into several credit agreements. To secure said loans, Bayantel executed
an Omnibus Agreement and an EVTELCO Mortgage Trust Indenture. Pursuant to the
Omnibus Agreement, Bayantel executed an Assignment Agreement in favor of the lenders
under the Omnibus Agreement (hereinafter, Omnibus Creditors, Bank Creditors, or
secured creditors). In the Assignment Agreement, Bayantel bound itself to assign, convey
and transfer to the Collateral Agent, certain properties as collateral security for the
prompt and complete payment of its obligations to the Omnibus Creditors.

ISSUE:

Whether the pari passu treatment of creditors during rehabilitation impairs the
Assignment Agreement between respondent and petitioners.

RULING:

The law governing rehabilitation and suspension of actions for claims against
corporations is PD 902-A, as amended. On December 15, 2000, the Court promulgated
A.M. No. 00-8-10-SC or the Interim Rules of Procedure on Corporate Rehabilitation,
which applies to petitions for rehabilitation filed by corporations, partnerships and
associations pursuant to PD 902-A. 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.
STEEL CORP VS. MAPFRE
G.R. NO. 201199; OCTOBER 16, 2013

FACTS:

Fires broke out at 2 SCP-plants damaging its machineries. Invoking its right under the
MTI, BPI demanded and received from the insurers the insurance proceeds. SCP sought
to collect the insurance proceeds claiming that it shall be used to rehabilitate the
corporation by having the machineries repaired and to buy replacements for the heavily
damaged machines and that the assignment of the RTC as rehabilitation court did not
divest it from being a court of general jurisdiction.

ISSUE:

Whether or not the rehabilitation court has jurisdiction over the issue of payment of the
insurance proceeds to a corporation under rehabilitation.

RULING:

The RTC, acting as rehabilitation court, has no jurisdiction over the subject matter of the
insurance claim of SCP against respondent insurers. SCP must file a separate action for
collection where respondent insurers can properly thresh out their defenses. SCP cannot
simply file with the RTC a motion to direct respondent insurers to pay insurance proceeds.
Section 3 of Republic Act No. 10142states that rehabilitation proceedings are "summary
and non- adversarial" in nature.
RUBBERWORLD VS. NLRC
G.R. NO. 128003; JULY 26, 2000

FACTS:

Petitioner Rubberworld, Inc filed with the DOLE a notice of temporary shutdown of
operation; but even before the effectivity of such, was forced to prematurely shutdown its
operation. Private Respondents filed with the NLRC a petition for illegal dismissal and
non- payment of separation pay. Rubberworld then filed the SEC a petition for declaration
of suspension of payments with a proposed rehabilitation plan. SEC then ordered an
order, stating that “all action for claims against Rubberworld Philippines, Inc. pending
before any court, tribunal, office, board, body, Commission or sheriff are hereby deemed
SUSPENDED.’’

ISSUE:

Whether or not the DOLE, Labor arbiter, or NLRC may legally act on claims despite an
order of the SEC suspending all actions against a company under rehabilitation by a
management committee.

RULING:

PD 902-A is clear that “ all action for claims against corporation, partnerships or
association under management or receivership pending before any court,
tribunal, board or body shall be suspended accordingly.’’ The law did not make any
exception in favor of labor claims. The justification for such to enable the
management committee to exercise its powers free from interference that might hinder
or prevent the “rescue’’ of the debtor company. To allow the labor case to proceed would
open the defeat the rescue effort of the management committee. Even if an award is given,
the ruling could not enforce as long as petitioner is under management committee.
WONDER BOOK CORP VS. PBCOM
G.R. NO. 187316; JULY 16, 2012

FACTS:

Petitioner Wonder Book and eight other corporations, collectively known as the LGC, filed
a joint petition for rehabilitation with the RTC. The RTC approved the petition for
rehabilitation. The Order was questioned by EPCI Bank and PBCOM, creditors of LGC.
EPCI Bank’s petition was granted. The CA reversed the Order of the RTC and dismissed
LGC’s petition for rehabilitation. While PBCOM’s petition was denied by the CA.
Meantime, Wonder Book filed a petition for rehabilitation with the RTC. The RTC issued
a Stay Order.

ISSUE:

Whether or not Wonder Book’s petition for rehabilitation is impressed with merit.

RULING:

This Court rules in the negative. Rehabilitation contemplates a continuance of corporate

life and activities in an effort to restore and reinstate the corporation to its former position
of successful operation and solvency. The purpose of rehabilitation proceedings is to
enable the company to gain a new lease on life and thereby allow creditors to be paid their
claims from its earnings. Under Section 23, Rule 4 of the Interim Rules, a rehabilitation
plan may be approved if there is a showing that rehabilitation is feasible and the
opposition entered by the creditors holding a majority of the total liabilities is
unreasonable.
PHIL. ISLANDS CORP. VS. VICTORIA MILLING TOURISM DEV.
G.R. NO. 167674; JUNE 17. 2008

FACTS:

On March 7, 1997, petitioner Philippine Islands Corporation for Tourism Development,

Inc. (PICTD) filed a complaint for collection of a sum of money with prayer for the
issuance of a writ of preliminary attachment against VMC before the RTC of Makati City,
Branch 148. The complaint was docketed as Civil Case No. 97-483. In its complaint,
PICTD alleged that VMC obtained loans from the CICM Missionaries, Inc. in the amount
of P3,259,988.08 and from the Congregation of the Most Holy Redeemer in the amount
of P1,211,596.00 Both loans were assigned to PICTD by way of a deed of assignment.

ISSUE:

Whether or not the proceedings of the complaint for collection of a sum of money filed by
PICTD against VMC before the RTC of Makati City should be excluded from the SEC
Order suspending all actions or claims against VMC pending before any court, tribunal,
office, board, body and/or commission.

RULING:

The Supreme Court is not persuaded by PICTD's argument that it should be exempt from
the suspension order because it is a secured creditor. Unlike the provisions in the
Insolvency Law which exempts secured creditors from the suspensive effect of the order
issued by the court in an ordinary suspension of payments proceedings, the provisions of
P.D. No. 902-A, when it comes to the appointment of a management committee or a
rehabilitation receiver, do not contain an exemption for secured creditors.