METROPOLITAN BANK & TRUST COMPANY VS ASB HOLDINGS, INC.

CASE
DIGEST
G.R. NO. 166197, FEBRUARY 27, 2007
METROPOLITAN BANK & TRUST COMPANY, PETITIONER
VS
ASB HOLDINGS, INC., RESPONDENTS

FACTS:

Metropolitan Bank and Trust company is a creditor bank of respondents corporation collectively
known as the ASB Group of Companies. ASB group of companies is owner and developer of
condominium and real estate projects which contracted loans to the petitioner which were secured
by real estate mortgages.

Later, ASB group of companies filed with the Securities and Exchange Commission a petition for
rehabilitation with prayer for suspension of actions and proceedings against petitioners. However,
despite the objection of Metropolitan bank and trust company for the rehabilitation plan, SEC
granted the same.

Meanwhile, the contention of the petitioner in their objection was that, the approval on the
rehabilitation plan will impair the contract entered into by the ASB group of companies with the
petitioner.

ISSUE:

Whether or not the approval of rehabilitation plan impairs contract entered into and prejudiced
creditors.

HELD:

The Supreme Court were not convinced that the approval of the rehabilitation plan impair
petitioner bank's lien over the mortgaged properties. Section 6 (c) of P.D. no. 902-A provides that
"upon appointment of a management committee, rehabilitation receiver, board or body, pursuant
to this Decree, all actions for claims against corporations, partnership or associations under
management or receivership pending before any curt, tribunal, board or body shall be suspended."
By that statutory provision, it is clear that the approval of the rehabilitation plan and the
appointment of a rehabilitation reciever merely suspend the action for claims against respondent
corporations. Petitioners banks preferred status over the unsecured creditors relative to the
mortgage liens is retained, but the enforcement of such preference is suspended. the loan agreement
between the parties have not been set aside and petitioner bank may still enforce its preference
when the assets of ASB Group of companies will be liquidated. considering that the provisions of
the loan agreements and merely suspends, there is no impairment of contracts, specifically its lien
on the mortgaged properties.
The court also emphasized that the purpose of rehabilitating proceedings is to enable the company
to gain new lease on life thereby allows creditors to be paid their claims from its earnings.
rehabilitation contemplates a continuance of corporate life and activities in an effort to restore ad
reinstate the financially distressed corporation to its former position of successful operation and
solvency. this is in consonance with the state's equitable distribution of wealth to protect
investments and the public. The approval of the rehabilitation plan by the SEC hearing panel,
affirmed by both the SEC en banc and the court of appeals, is precisely in furtherance if the
rationale behind P.D. No. 902-A, as amended which is "to effect a feasible and viable
rehabilitation" of ailing corporations which affect the public welfare.
PRYCE CORPORATION VS. CHINA BANKING CORPORATION

G.R. NO. 172302, 18 FEBRUARY 2014, EN BANC (LEONEN, J.)

Facts:

A petition for corporate rehabilitation filed by petitioner Pryce Corporation on July 9, 2004 with
the Regional Trial Court of Makati. The rehabilitation court found the petition sufficient in form
and substance and issued a stay order on July 13, 2004 appointing Gener T. Mendoza as
rehabilitation receiver.

Mendoza as receiver, he was directed to evaluate and give recommendations on Pryce

Corporation’s proposed rehabilitation plan. Having denied the same, he submitted an amended
rehabilitation plan which the Court approved.

China Banking Corporation and Bank of the Philippine Islands, both creditors of Pryce
Corporation, opposed the approval of the said rehabilitation plan. They cited that such plan violates
the non-impairment clause and mutuality of contracts. However, the Rehabilitation Court still
confirmed the rehabilitation plan.

China Bank and BPI filed their separate appeals. In China Bank’s case, the decision of the
rehabilitation court was reversed and set aside. However, in BPI’s case, the decision of the
rehabilitation court was sustained and affirmed.

Pryce Corporation also appealed to this court assailing the granting respondent China Banking
Corporation’s petition. Pryce Corporation argues that the issue on the validity of the rehabilitation
court orders is now res judicata. Petitioner Pryce Corporation submits that the ruling in BPI v.
Pryce Corporation contradicts the present case, and it has rendered the issue on the validity and
regularity of the rehabilitation court orders as res judicata.

Second, petitioner Pryce Corporation contends that Rule 4, Section 6 of the Interim Rules of
Procedure on Corporate Rehabilitation does not require the rehabilitation court to hold a hearing
before issuing a stay order.

Issue:

Whether or not a hearing is needed prior to the issuance of a stay order in corporate rehabilitation
proceedings

Ruling:

Petition GRANTED.

Nowhere in the Interim Rules does it require a comprehensive discussion in the stay order on the
court’s findings of sufficiency in form and substance.
The stay order and appointment of a rehabilitation receiver dated July 13, 2004 is an
"extraordinary, preliminary, ex parte remed[y]."The effectivity period of a stay order is only "from
the date of its issuance until dismissal of the petition or termination of the rehabilitation
proceedings." It is not a final disposition of the case. It is an interlocutory order defined as one that
"does not finally dispose of the case, and does not end the Court’s task of adjudicating the parties’
contentions and determining their rights and liabilities as regards each other, but obviously
indicates that other things remain to be done by the Court."

Thus, it is not covered by the requirement under the Constitution that a decision must include a
discussion of the facts and laws on which it is based.

Neither does the Interim Rules require a hearing before the issuance of a stay order. What it
requires is an initial hearing before it can give due course to or dismiss a petition.

Nevertheless, while the Interim Rules does not require the holding of a hearing before the issuance
of a stay order, neither does it prohibit the holding of one. Thus, the trial court has ample discretion
to call a hearing when it is not confident that the allegations in the petition are sufficient in form
and substance, for so long as this hearing is held within the five (5)-day period from the filing of
the petition — the period within which a stay order may issue as provided in the Interim Rules.

One of the important objectives of the Interim Rules is "to promote a speedy disposition of
corporate rehabilitation cases[,] x x x apparent from the strict time frames, the non-adversarial
nature of the proceedings, and the prohibition of certain kinds of pleadings."

It is in light of this objective that a court with basis to issue a stay order must do so not later than
five (5) days from the date the petition was filed
G.R. NO. 169190 FEBRUARY 11, 2010

CUA LAI CHU, CLARO G. CASTRO, AND JUANITA CASTRO, PETITIONERS,

VS.
HON. HILARIO L. LAQUI, PRESIDING JUDGE, REGIONAL TRIAL COURT,
BRANCH 218, QUEZON CITY AND PHILIPPINE BANK OF
COMMUNICATION, RESPONDENTS.

 Cua Lai Chu (Petitioner) obtained a loan of 3.2 M and to secure such they executed a deal
of Real Estate Mortgage in favor of Laqui (Respondent)
 Upon failure to pay Laqui applied for extra judicial foreclosure and in turn Cua Lai Chu
filed to annul said foreclosure and TRO.

RTC – Ruled in favor of petitioner granting annulment of foreclosure and TRO then subsequently
reversed its own decision. Respondent emerged as the highest bidder and sale was executed in
favor of respondent with 1 year redemption period.
 After 1 year redemption period respondent filed for consolidation and an issuance for the
writ of possession while petitioners filed for opposition which was denied and granted
respondent’s motion for declaration of general default and allowed him to present evidence
ex parte.

CA – Dismissed on both procedural and substantive grounds since petitioners failed to indicate
PTR number.
ISSUE: W/N Writ of Possession was issued properly despite the pending case questioning the
validity of sale on said property
RULING: Yes. The right to possession of a purchaser at an extrajudicial foreclosure sale is not
affected by a pending case questioning the validity of the foreclosure proceeding. Furthermore,
since the foreclosed property was not redeemed within the mentioned period respondent acquired
an absolute right as a purchaser.
DOCTRINE: Art. 433 Actual possessions under claim of ownership raise disputable presumption
of ownership. The true owner must resort to judicial process for the recovery of property.
MANUEL D. YNGSON V. PHILIPPINE NATIONAL BANK
GR NO. 171132, 2012-08-15

Facts:
ARCAM & Company, Inc. (ARCAM) is engaged in the operation of a sugar mill in Pampanga.
To secure the loan, ARCAM... executed a Real Estate Mortgage over a 350,004square meter parcel
of land covered by TCT No. 340592-R and a Chattel Mortgage over various personal properties
consisting of machinery, generators, field transportation and heavy equipment.
ARCAM, however, defaulted on its obligations to PNB.
PNB initiated extrajudicial foreclosure proceedings
On December 7, 1993, ARCAM filed before the SEC a Petition for Suspension of Payments,
Appointment of a Management or Rehabilitation Committee, and Approval of Rehabilitation Plan,
with application for issuance of a temporary restraining order (TRO) and writ of preliminary...
injunction.
On February 9, 2000, the SEC ruled that ARCAM can no longer be rehabilitated. The SEC noted
that the petition for suspension of payment was filed in December 1993 and six years had passed
but the potential "white knight" investor had not infused the much needed capital to bail... out
ARCAM from its financial difficulties.[9] Thus, the SEC decreed that ARCAM be dissolved and
placed under liquidation.
on July 28, 2000, PNB resumed the proceedings for the extrajudicial foreclosure sale of the
mortgaged properties.[12]
PNB emerged as the highest winning bidder in the auction sale, and certificates of sale were issued
in its favor.
November 16, 2000, petitioner filed with the SEC a motion to nullify the auction sale.
etitioner posited that all actions against companies which are under liquidation, like ARCAM, are
suspended because liquidation is a continuation of the petition... for suspension proceedings.
Petitioner argued that the prohibition against foreclosure subsisted during liquidation because
payment of all of ARCAM's obligations was proscribed except those authorized by the
Commission.
petitioner asserted that the mortgaged assets... should be included in the liquidation and the
proceeds shared with the unsecured creditors.
anuary 4, 2005, the SEC issued a Resolution[15] denying petitioner's motion to nullify the auction
sale. It held that PNB was not legally barred from foreclosing on the mortgages.
the CA dismissed the petition
Issues:
hether PNB, as a secured creditor, can foreclose on the mortgaged properties of a corporation under
liquidation... without the knowledge and prior approval of the liquidator or the SEC.
Ruling:
We answer in the negative.
In the case of Consuelo Metal Corporation v. Planters Development Bank,[26] which involved
factual antecedents similar to the present case, the court has already settled the above question and
upheld the right of the secured creditor to foreclose the... mortgages in its favor during the
liquidation of a debtor corporation.
if rehabilitation is no longer feasible and the assets of the corporation are finally liquidated, secured
creditors shall enjoy preference over unsecured creditors, subject... only to the provisions of the
Civil Code on concurrence and preference of credits. Creditors of secured obligations may pursue
their security interest or lien, or they may choose to abandon the preference and prove their credits
as ordinary claims.
The creditor-mortgagee has the right to foreclose the mortgage over a specific real... property
whether or not the debtor-mortgagor is under insolvency or liquidation proceedings. The right to
foreclose such mortgage is merely suspended upon the appointment of a management committee
or rehabilitation receiver or upon the issuance of a stay order by the trial... court. However, the
creditor-mortgagee may exercise his right to foreclose the mortgage upon the termination of the
rehabilitation proceedings or upon the lifting of the stay order.
under Republic Act No. 10142... the right of a secured creditor to enforce his lien during liquidation
proceedings is retained
SEC. 114. Rights of Secured Creditors. The Liquidation Order shall not affect the right of a secured
creditor to enforce his lien in accordance with the applicable contract or law. A secured creditor
may:
(b) maintain his rights under his security or lien;
In this case, PNB elected to maintain its rights under the security or lien; hence, its right to
foreclose the mortgaged properties should be respected, in line with our pronouncement in
Consuelo Metal Corporation.
As to petitioner's argument on the right of first preference as regards unpaid wages... a distinction
should be made between a preference of credit and a lien.
A preference applies only to claims which do not attach to specific properties. A lien creates a
charge on a particular property. The right of first preference as regards unpaid wages recognized
by Article 110 of the Labor Code, does not constitute a lien on the property... of the insolvent
debtor in favor of workers. It is but a preference of credit in their favor, a preference in application.
Consequently, the right of first preference for unpaid wages may not be invoked in this case to
nullify the foreclosure sales conducted pursuant to PNB 's right as a secured... creditor to enforce
its lien on specific properties of its debtor, ARCAM.
petition for review on certiorari is DENIED.
MWSS VS. DAWAY AND MAYNILAD
G.R. NO. 160732.
JUNE 21, 2004

Facts: Maynilad obtained a 20-year concession to manage, repair, refurbish, and upgrade existing
Metropolitan Waterworks and Sewerage System (MWSS) water delivery and sewerage services
in Metro Manila’s west zone. Maynilad, under the concession agreement undertook to pay
concession fees and itsforeign loans. To secure its obligations, Maynilad was required under
Section 9 of the concession contract to put up a bond, bank guarantee or other security acceptable
to MWSS. Pursuant to this requirement, Maynilad arranged on for a three-year facility with a
number of foreign banks led by Citicorp Intl for the issuance of an irrevocable standby letter of
credit (SLC) in the amount of $ 120 million in favor of MWSS for the full and prompt payment of
Maynilad’s obligations to MWSS. Due to devaluation of the peso and other business reversals of
Maynilad, MWSS filed a notice of early termination of the concession contract. Upon certification
of the non performance of Maynilad obligation, the MWSS moved to collect from Citicorp on the
standby letters of credit issued. Maynilad filed for corporate rehabilitation. Judge Daway stayed
the payment of the letter of credit by Citicorp pursuant to Sec 6 (b) of Rule 4 of the Interim Rules
on Corporate Rehabilitation.

Issue: Whether or not the payment of the standby of letter of credit can be stayed by filing of a
petition for rehabilitation

Held: No. The prohibition under Sec 6 (b) of Rule 4 of the Interim Rules does not apply to the the
standby letter of credit issued by the bank as the former prohibition is on the enforcement of claims
against guarantors or sureties of the debtors whose obligations are not solidary with the debtor.

The participating bank’s obligation under the letter of credit are solidary with respondent Maynilad
in that it is a primary, direct, definite and an absolute undertaking to pay and is not conditioned on
the prior exhaustion of the debtors assets. These are the same characteristics of a surety or solidary
obligor. And being solidary, the claims against them can be pursued separately from and
independently of the rehabilitation case.

Issuing banks under the letters of credit are not equivalent to guarantors. The concept of guarantee
vis-à-vis the concept of an irrevocable letter of credit are inconsistent with each other. The
guarantee theory destroys the independence of the bank’s responsibility from the contract upon
which it was opened and the nature of both contracts is mutually in conflict with each other. In
contracts of guarantee, the guarantor’s obligation is merely collateral and it arises only upon the
default of the person primarily liable. On the other hand, in an irrevocable letter of credit, the bank
undertakes a primary obligation. We have also defined a letter of credit as an engagement by a
bank or other person made at the request of a customer that the issuer shall honor drafts or other
demands of payment upon compliance with the conditions specified in the credit.
A Standby Letter of Credit is not a guaranty because under a Standby Letter of Credit, the bank
undertakes a primary obligation. On the other hand, a guarantor undertakes a collateral obligation
which arises only upon the debtor’s default. A Standby Letter of Credit is a primary obligation
and not an accessory contract.
COLINARES V CA
G.R. NO. 90828
SEPTEMBER 5, 2000

Facts: Melvin Colinares and Lordino Veloso (hereafter Petitioners) were contracted for a
consideration of P40,000 by the Carmelite Sisters of Cagayan de Oro City to renovate the latter’s
convent at Camaman-an, Cagayan de Oro City. Colinares applied for a commercial letter of
credit with the Philippine Banking Corporation, Cagayan de Oro City branch (hereafter PBC) in
favor of CM Builders Centre. PBC approved the letter of credit for P22,389.80 to cover the full
invoice value of the goods. Petitioners signed a pro-forma trust receipt as security.
PBC debited P6,720 from Petitioners’ marginal deposit as partial payment of the loan. After the
initial payment, the spouses defaulted. PBC wrote to Petitioners demanding that the amount be
paid within seven days from notice. Instead of complying with PBC’s demand, Veloso confessed
that they lost P19,195.83 in the Carmelite Monastery Project and requested for a grace period of
until 15 June 1980 to settle the account. Colinares proposed that the terms of payment of the loan
be modified P2,000 on or before 3 December 1980, and P1,000 per month . Pending approval of
the proposal, Petitioners paid P1,000 to PBC on 4 December 1980, and thereafter P500 on 11
February 1981, 16 March 1981, and 20 April 1981. Concurrently with the separate demand for
attorney’s fees by PBC’s legal counsel, PBC continued to demand payment of the balance. On 14
January 1983, Petitioners were charged with the violation of P.D. No. 115 (Trust Receipts Law)
in relation to Article 315 of the Revised Penal Code
During trial, petitioner Veloso insisted that the transaction was a “clean loan” as per verbal
guarantee of Cayo Garcia Tuiza, PBC’s former manager. He and petitioner Colinares signed the
documents without reading the fine print, only learning of the trust receipt implication much later.
When he brought this to the attention of PBC, Mr. Tuiza assured him that the trust receipt was a
mere formality. The Trust Receipts Law does not seek to enforce payment of the loan, rather it
punishes the dishonesty and abuse of confidence in the handling of money or goods to the prejudice
of another regardless of whether the latter is the owner. Here, it is crystal clear that on the part of
Petitioners there was neither dishonesty nor abuse of confidence in the handling of money to the
prejudice of PBC. Petitioners continually endeavored to meet their obligations, as shown by
several receipts issued by PBC acknowledging payment of the loan.

Issue: Whether or not the transaction of Colinares falls within the ambit of the Law on Trust
Receipt

Held: Colinares received the merchandise from CM Builders Centre on 30 October 1979. On that
day, ownership over the merchandise was already transferred to Petitioners who were to use the
materials for their construction project. It was only a day later, 31 October 1979, that they went to
the bank to apply for a loan to pay for the merchandise. This situation belies what normally obtains
in a pure trust receipt transaction where goods are owned by the bank and only released to the
importer in trust subsequent to the grant of the loan.

The bank acquires a “security interest” in the goods as holder of a security title for the advances it
had made to the entrustee. The ownership of the merchandise continues to be vested in the person
who had advanced payment until he has been paid in full, or if the merchandise has already been
sold, the proceeds of the sale should be turned over to him by the importer or by his representative
or successor in interest. To secure that the bank shall be paid, it takes full title to the goods at the
very beginning and continues to hold that title as his indispensable security until the goods are sold
and the vendee is called upon to pay for them; hence, the importer has never owned the goods and
is not able to deliver possession. In a certain manner, trust receipts partake of the nature of a
conditional sale where the importer becomes absolute owner of the imported merchandise as soon
as he has paid its price. There are two possible situations in a trust receipt transaction. The first is
covered by the provision which refers to money received under the obligation involving the duty
to deliver it (entregarla) to the owner of the merchandise sold. The second is covered by the
provision which refers to merchandise received under the obligation to “return” it (devolvera) to
the owner. Failure of the entrustee to turn over the proceeds of the sale of the goods, covered by
the trust receipt to the entruster or to return said goods if they were not disposed of in accordance
with the terms of the trust receipt shall be punishable as estafa under Article 315 (1) of the Revised
Penal Code, without need of proving intent to defraud.