G.R. No.

L-14938 December 29, 1962

MAGDALENA C. DE BARRETTO and JOSE G. BARRETTO, plaintiffs-appellants, vs. JOSE G. VILLANUEVA, ET AL., defendants-appellees.
REYES, J.B.L., J.:
Appellants, spouses Barretto, have filed a motion vigorously urging, for reason to be discussed in the courts of this resolution, that our decision of 28
January 1961 be reconsidered and set aside, and a new one entered declaring that their right as mortgagees remain superior to the unrecorded claim
of herein appellee for the balance of the purchase price of her rights, title, and interest in the mortgaged property.
It will be recalled that, with Court authority, Rosario Cruzado sold all her right, title, and interest and that of her children in the house and lot herein
involved to Pura L. Villanueva for P19,000.00. The purchaser paid P1,500 in advance, and executed a promissory note for the balance of P17,500.00.
However, the buyer could only pay P5,500 on account of the note, for which reason the vendor obtained judgment for the unpaid balance. In the
meantime, the buyer Villanueva was able to secure a clean certificate of title (No. 32526), and mortgaged the property to appellant Magdalena C.
Barretto, married to Jose G. Barretto, to secure a loan of P30,000.03, said mortgage having been duly recorded.
Pura Villanueva defaulted on the mortgage loan in favor of Barretto. The latter foreclosed the mortgage in her favor, obtained judgment, and upon its
becoming final asked for execution on 31 July 1958. On 14 August 1958, Cruzado filed a motion for recognition for her "vendor's lien" in the amount of
P12,000.00 plus legal interest, invoking Articles 2242, 2243, and 2249 of the new Civil Code. After hearing, the court below ordered the "lien"
annotated on the back of Certificate of Title No. 32526, with the proviso that in case of sale under the foreclosure decree the vendor's lien and the
mortgage credit of appellant Barretto should be paid pro rata from the proceeds. Our original decision affirmed this order of the Court of First Instance
of Manila.
Appellants insist that:
(1) The vendor's lien, under Articles 2242 and 2243 of the new Civil Code of the Philippines, can only become effective in the event of insolvency of the
vendee, which has not been proved to exist in the instant case; and
(2) That the appellee Cruzado is not a true vendor of the foreclosed property.
We have given protracted and mature consideration to the facts and law of this case and have reached the conclusion that our original decision must
be reconsidered and set aside, for the following reasons:
A. The previous decision failed to take fully into account the radical changes introduced by the Civil Code the Philippines into the system of priorities
among creditors ordained by the Civil Code of 1889.
Pursuant to the former Code, conflicts among creditors entitled to preference as to specific real property under Article 1923 were to be resolved
according to an order of priorities established by Article 1927, whereby one class of creditors could exclude the creditors of lower order until the claims
of the former were fully satisfied out of the proceeds of the sale of the real property subject of the preference, and could even exhaust such proceeds if
necessary.
Under the system of the Civil Code of the Philippine however, only taxes enjoy a similar absolute preference. All the remaining thirteen classes of
preferred creditors under Article 2242 enjoy no priority among themselves but must be paid pro rata, i.e., in proportion to the amount of the respective
credits. Thus, Article 2249 provides:
if there are two or more credits with respect to specific real property or real rights, they shall be satisfied pro rata, after the payment of the
taxes and assessments upon the immovable property or real right.
But in order to make this prorating fully effective, the preferred creditors enumerated in Nos. 2 to 14 of Article 2242 (or such of them as have credits
outstanding) must necessarily be convened, and the import of their claims ascertained. It is thus apparent that the full application of Articles 2249 and
2242 demands that there must first some proceeding where the claims of all the preferred creditors may be bindingly adjudicated, such as insolvency,
the settlement of a decedent's estate under Rule 87 of the Rules of Court, or other liquidation proceedings of similar import.
This explains the rule of Article 2243 of the new Civil Code that —
The claims or credits enumerated in the two preceding articles1 shall be considered as mortgages or pledges of real or personal property or
liens within the purview of legal provision governing insolvency . . . . (Emphasis supplied).
and the rule is further clarified in the Report of the Code Commission, as follows:
The question as to whether the Civil Code and the Insolvency Law can be harmonized is settled by this Article (2243). The preferences
named in Articles 2261 and 2262 (now 2241 and 2242) are to be enforced in accordance with the Involvency Law. (Emphasis supplied.)
Thus, it becomes evident that one preferred creditor's third-party claim to the proceeds of a foreclosure sale (as in the case now before us) is not the
proceeding contemplated by law for the enforcement of preferences under Article 2242, unless the claimant were enforcing a credit for taxes that enjoy
absolute priority. If none of the claims is for taxes, a dispute between two creditors will not enable the Court to ascertain the pro rata dividend
corresponding to each, because the rights of the other creditors likewise enjoying preference under Article 2242 can not be ascertained. Wherefore,
the order of the Court of First Instance of Manila now appealed from decreeing that the proceeds of the foreclosure sale be apportioned only between
appellant and appellee, is incorrect and must be reversed.
In the absence of insolvency proceedings (or other equivalent general liquidation of the debtor's estate), the conflict between the parties now before us
must be decided pursuant to the well established principle concerning register lands; that a purchaser in good faith and for value (as the appellant
concededly is) takes registered property free from liens and encumbrances other than statutory liens and those recorded in the certificate of title. There
being no insolvency or liquidation, the claim of the appellee, as unpaid vendor, did not acquire the character and rank of a statutory lien co-equal to the
mortgagee's recorded encumbrance, and must remain subordinate to the latter.
We are understandably loath (absent a clear precept of law so commanding) to adopt a rule that would undermine the faith and credit to be accorded
to registered Torrens titles and nullify the beneficient objectives sought to be obtained by the Land Registration Act. No argument is needed to stress
that if a person dealing with registered land were to be held to take it in every instance subject to all the fourteen preferred claims enumerate in Article
2242 of the new Civil Code, even if the existence and import thereof can not be ascertained from the records, all confidence in Torrens titles would be
destroyed, and credit transactions on the faith of such titles would be hampered, if not prevented, with incalculable results. Loans on real estate
security would become aleatory and risky transactions, for no prospective lender could accurately estimate the hidden liens on the property offered as
security, unless he indulged in complicated, tedious investigations. The logical result might well be contraction of credit to unforeseable proportions that
could lead to economic disaster.
Upon the other hand, it does not appear excessively burdensome to require the privileged creditors to cause their claims to be recorded in the books of
the Register of Deeds should they desire to protect their rights even outside of insolvency or liquidation proceedings.
B. The close study of the facts disclosed by the records casts strong doubt on the proposition that appelle Cruzados should be regarded as unpaid
vendors of the property (land, buildings, and improvements) involved in the case at bar so as to be entitled to preference under Article 2242. The
record on appeal, specially the final decision of the Court of First Instance of Manila in the suit of the Cruzados against Villanueva, clearly establishes
that after her husband's death, and with due court authority, Rosario Cruzado, for herself and as administratrix of her husband's estate, mortgaged the
property to the Rehabilitation Finance Corporation (RFC) to secure repayment of a loan of P11,000, in installments, but that the debtor failed to pay
some of the installment wherefore the RFC, on 24 August 1949, foreclosed the mortgage, and acquired the property, subject to the debtors right to
redeem or repurchase the said property; and that on 25 September 1950, the RFC consolidated its ownership, and the certificate of title of the
Cruzados was cancelled and a new certificate issued in the name of the RFC.
While on 26 July 1951 the RFC did execute a deed selling back the property to the erstwhile mortgagors and former owners Cruzados in installments,
subject to the condition (among others) that the title to the property and its improvements "shall remain in the name of the Corporation (RFC) until after
said purchase price, advances and interest shall have been fully paid", as of 27 September 1952, Cruzado had only paid a total of P1,360, and had
defaulted on six monthly amortizations; for which reason the RFC rescinded the sale, and forfeited the payments made, in accordance with the terms
of the contract of 26 July 1951.
It was only on 10 March 1953 that the Cruzados sold to Pura L. Villanueva all "their rights, title, interest and dominion on and over" the property, lot,
house, and improvements for P19,000.00, the buyer undertaking to assume payment of the obligation to the RFC, and by resolution of 30 April 1953,
the RFC approved "the transfer of the rights and interests of Rosario P. Cruzado and her children in their property herein above-described in favor of
Pura L. Villanueva"; and on 7 May 1953 the RFC executed a deed of absolute sale of the property to said party, who had fully paid the price of
P14,269.03. Thereupon, the spouses Villanueva obtained a new Transfer Certificate of Title No. 32526 in their name.
On 10 July 1953, the Villanuevas mortgaged the property to the spouses Barretto, appellants herein.
It is clear from the facts above-stated that ownership of the property had passed to the Rehabilitation Finance Corporation since 1950, when it
consolidated its purchase at the foreclosure sale and obtained a certificate of title in its corporate name. The subsequent contract of resale in favor of

1
the Cruzados did not revest ownership in them, since they failed to comply with its terms and conditions, and the contract itself provided that the title
should remain in the name of the RFC until the price was fully paid.
Therefore, when after defaulting in their payments due under the resale contract with the RFC the appellant Cruzados sold to Villanueva "their rights,
title, interest and dominion" to the property, they merely assign whatever rights or claims they might still have thereto; the ownership of the property
rested with the RFC. The sale from Cruzado to Villanueva, therefore, was not much a sale of the land and its improvements as it was a quitclaim deed
in favor of Villanueva. In law, operative sale was that from the RFC to the latter, and it was the RFC that should be regarded as the true vendor of the
property. At the most, the Cruzados transferred to Villanueva an option to acquire the property, but not the property itself, and their credit, therefore,
can not legally constitute a vendor's lien on the corpus of the property that should stand on an equal footing with mortgaged credit held by appellants
Barretto.
IN VIEW OF THE FOREGOING, the previous decision of this Court, promulgated on 28 January 1961, is hereby reconsidered and set aside, and a
new one entered reverse the judgment appealed from and declaring the appellant Barrettos entitled to full satisfaction of their mortgage credit out of
the proceeds of the foreclosure sale in the hands of the Sheriff of the City of Manila. No costs.

J.L. BERNARDO CONSTRUCTION, represented by attorneys-in-fact Santiago R. Sugay, Edwin A. Sugay and Fernando S.A. Erana,
SANTIAGO R. SUGAY, EDWIN A. SUGAY and FERNANDO S. A. ERANA, petitioners, vs. COURT OF APPEALS and MAYOR JOSE L.
SALONGA, respondents. [G.R. No. 105827. January 31, 2000]
GONZAGA-REYES, J.:
This petition for certiorari under Rule 65 seeks to annul and set aside the following:
1. Decision dated February 6, 1992 issued by the Eleventh Division of the Court of Appeals in CA-G.R. No. 26336 which nullified the order of the
Regional Trial Court of Cabanatuan City in Civil Case No. 1016-AF granting plaintiffs (petitioners herein) a writ of attachment and a contractors lien
upon the San Antonio Public Market; and
2. Resolution dated June 10, 1992 issued by the former Eleventh Division of the Court of Appeals in CA-G.R. No. 26336 denying the motions for
reconsideration filed by both parties.
The factual antecedents of this case, as culled from the pleadings, are as follows:
Sometime in 1990, the municipal government of San Antonio, Nueva Ecija approved the construction of the San Antonio Public Market. The
construction of the market was to be funded by the Economic Support Fund Secretariat (ESFS), a government agency working with the USAID. Under
ESFS "grant-loan-equity" financing program, the funding for the market would be composed of a (a) grant from ESFS, (b) loan extended by ESFS to
the Municipality of San Antonio, and (c) equity or counterpart funds from the Municipality.
It is claimed by petitioners Santiago R. Sugay, Edwin A. Sugay, Fernando S.A. Erana and J.L. Bernardo Construction, a single proprietorship owned by
Juanito L. Bernardo, that they entered into a business venture for the purpose of participating in the bidding for the public market. It was agreed by
petitioners that Santiago Sugay would take the lead role and be responsible for the preparation and submission of the bid documents, financing the
entire project, providing and utilizing his own equipment, providing the necessary labor, supplies and materials and making the necessary
representations and doing the liaison work with the concerned government agencies.
On April 20, 1990, J.L. Bernardo Construction, thru petitioner Santiago Sugay, submitted its bid together with other qualified bidders. After evaluating
the bids, the municipal pre-qualification bids and awards committee, headed by respondent Jose L. Salonga (then incumbent municipal mayor of San
Antonio) as Chairman, awarded the contract to petitioners. On June 8, 1990, a Construction Agreement was entered into by the Municipality of San
Antonio thru respondent Salonga and petitioner J.L. Bernardo Construction.
It is claimed by petitioners that under this Construction Agreement, the Municipality agreed to assume the expenses for the demolition, clearing and
site filling of the construction site in the amount of P1,150,000 and, in addition, to provide cash equity of P767,305.99 to be remitted directly to
petitioners.
Petitioners allege that, although the whole amount of the cash equity became due, the Municipality refused to pay the same, despite repeated
demands and notwithstanding that the public market was more than ninety-eight percent (98%) complete as of July 20, 1991. Furthermore, petitioners
maintain that Salonga induced them to advance the expenses for the demolition, clearing and site filling work by making representations that the
Municipality had the financial capability to reimburse them later on. However, petitioners claim that they have not been reimbursed for their expenses.[1]
On July 31, 1991, J.L. Bernardo Construction, Santiago Sugay, Edwin Sugay and Fernando Erana, with the latter three bringing the case in their own
personal capacities and also in representation of J.L. Bernardo Construction, filed a complaint for breach of contract, specific performance, and
collection of a sum of money, with prayer for preliminary attachment and enforcement of contractors lien against the Municipality of San Antonio,
Nueva Ecija and Salonga, in his personal and official capacity as municipal mayor. After defendants filed their answer, the Regional Trial Court held
hearings on the ancillary remedies prayed for by plaintiffs.[2]
On September 5, 1991, the Regional Trial Court issued the writ of preliminary attachment prayed for by plaintiffs. It also granted J.L. Bernardo
Construction the right to maintain possession of the public market and to operate the same. The dispositive portion of the decision provides:
IN VIEW OF THE FOREGOING DISQUISITION, the Court finds the auxiliary reliefs of attachment prayed for by the plaintiffs to be well-taken and
the same is hereby GRANTED. Conformably thereto, let a writ of preliminary attachment be issued upon the filing by the plaintiffs of a bond in the
amount of P2,653,576.84 to answer for costs and damages which the defendants may suffer should the Court finally adjudged (sic) that the
plaintiffs are not entitled to the said attachment, and thereafter, the Deputy Sheriff of this court is hereby ordered to attach the properties of the
defendants JOSE LAPUZ SALONGA and the MUNICIPALITY OF SAN ANTONIO, NUEVA ECIJA which are not exempt from execution.
CORROLARILY, the Court grants the plaintiffs J.L. BERNARDO CONSTRUCTION, represented by SANTIAGO R. SUGAY, EDWIN A. SUGAY
and FERNANDO S.A. ERANA, the authority to hold on to the possession of the public market in question and to open and operate the same
based on fair and reasonable guidelines and other mechanics of operation to be submitted by plaintiffs within fifteen (15) days from their receipt
of this Order which shall be subject to Courts approval and to deposit the income they may derive therefrom to the Provincial Treasurer of Nueva
Ecija after deducting the necessary expenses for the operation and management of said market, subject to further orders from this Court.
SO ORDERED.
The trial court gave credence to plaintiffs claims that defendants were guilty of fraud in incurring their contractual obligations as evidenced by the
complaint and the affidavits of plaintiffs Santiago Sugay and Erana. The court ruled that defendants acts of "obtaining property, credit or services by
false representations as to material facts made by the defendant to the plaintiff with intent to deceive constitutes fraud warranting attachment" and that
" a debt is considered fradulently contracted if at the time of contracting it, the debtor entertained an intention not to pay."
With regards to the contractors lien, the trial court held that since plaintiffs have not been reimbursed for the cash equity and for the demolition, clearing
and site filling expenses, they stand in the position of an unpaid contractor and as such are entitled, pursuant to articles 2242 and 2243 of the Civil
Code, to a lien in the amount of P2,653,576.84 (as of August 1, 1991), excluding the other claimed damages, attorneys fees and litigation expenses,
upon the public market which they constructed. It was explained that, although the usual way of enforcing a lien is by a decree for the sale of the
property and the application of the proceeds to the payment of the debt secured by it, it is more practical and reasonable to permit plaintiffs to operate
the public market and to apply to their claims the income derived therefrom, in the form of rentals and goodwill from the prospective stallholders of the
market, as prayed for by plaintiffs.
The trial court made short shrift of defendants argument that the case was not instituted in the name of the real parties-in-interest. It explained that the
plaintiff in the cause of action for money claims for unpaid cash equity and demolition and site filling expenses is J.L. Bernardo Construction, while the
plaintiffs in the claim for damages for violation of their rights under the Civil Code provisions on human relations are plaintiffs Santiago Sugay, Edwin
Sugay and Erana.[3]
The defendants moved for reconsideration of the trial courts order, to which the plaintiffs filed an opposition. On October 10, 1991 the motion was
denied. The following day, the trial court approved the guidelines for the operation of the San Antonio Public Market filed by plaintiffs.
Respondent Salonga filed a motion for the approval of his counterbond which was treated by the trial court in its October 29, 1991 order as a motion to
fix counterbond and for which it scheduled a hearing on November 19, 1991.
On October 21, 1991, during the pendency of his motion, respondent Salonga filed with the Court of Appeals a petition for certiorari under Rule 65 with
prayer for a writ of preliminary injunction and temporary restraining order which case was docketed as CA-G.R. SP No. 26336.[4] Petitioners opposed
the petition, claming that respondent had in fact a plain, speedy and adequate remedy as evidenced by the filing of a motion to approve counter-bond
with the trial court.[5]
On February 6, 1992, the Court of Appeals reversed the trial courts decision and ruled in favor of Salonga. The dispositive portion of its decision states
FOR ALL THE FOREGOING, the petition is hereby granted as follows:

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 1. The respondent judges ORDER dated September 5, 1991 for the issuance of a writ of attachment and for the enforcement of a
contractors lien, is hereby NULLIFIED and SET ASIDE; the writ of attachment issued pursuant thereto and the proceedings conducted by
the Sheriffs assigned to implement the same are, as a consequence, also hereby NULLIFIED and SET ASIDE;
2. The respondent judges ORDER dated October 11, 1991 further enforcing the contractors lien and approving the guidelines for the
operation of the San Antonio Public Market is also NULLIFIED and SET ASIDE.
Petitioners prayers for the dismissal of Civil Case No. 1016 (now pending before respondent judge) and for his deletion from said case as
defendant in his private capacity are, however, DENIED.
The respondent judge may now proceed to hearing of Civil Case No. 1016 on the merits.
SO ORDERED.
The appellate court reasoned that since the Construction Agreement was only between Juanito Bernardo and the Municipality of San Antonio, and
since there is no sworn statement by Juanito Bernardo alleging that he had been deceived or misled by Mayor Salonga or the Municipality of San
Antonio, it is apparent that the applicant has not proven that the defendants are guilty of inceptive fraud in contracting the debt or incurring the
obligation, pursuant to Rule 57 of the Rules of Court, and therefore, the writ of attachment should be struck down for having been improvidently and
irregularly issued.
The filing of a motion for the approval of counter-bond by defendants did not, according to the Court of Appeals, render the petition
for certiorari premature. The appellate court held that such motion could not cure the defect in the issuance of the writ of attachment and that,
moreover, the defendants motion was filed by them "without prejudice to the petition for certiorari."
As to the contractors lien, the appellate court ruled that Articles 2242 of the Civil Code finds application only in the context of insolvency proceedings,
as expressly stated in Article 2243. Even if it is conceded that plaintiffs are entitled to retain possession of the market under its contractors lien, the
appellate court held that the same right cannot be expanded to include the right to use the building. Therefore, the trial courts grant of authority to
plaintiffs to operate the San Antonio Public Market amounts to a grave abuse of discretion.
With regard to the allegations of defendants that plaintiffs are not the proper parties, the Court of Appeals ruled that such issue should be assigned as
an error by defendants later on should the outcome of the case be adverse to the latter.[6]
Petitioners are now before this Court assailing the appellate courts decision. In their petition, they make the following assignment of errors:
1. THE DECISION IS CONTRARY TO LAW IN THAT THE COURT OF APPEALS OVERLOOKED AND/OR DISREGARDED THE FUNDAMENTAL
REQUIREMENT AND ESTABLISHED SUPREME COURT DECISIONS IN ACTIONS FOR CERTIORARI CONSIDERING THAT THE FILING OF THE
PETITION BY RESPONDENT SALONGA WITH THE COURT OF APPEALS IS OBVIOUSLY PREMATURE AND IMPROPER SINCE THERE
ADMITTEDLY EXISTS A PLAIN, SPEEDY AND ADEQUATE REMEDY AVAILABLE TO RESPONDENT SALONGA WHICH IS HIS UNRESOLVED
"MOTION TO APPROVE COUNTERBOND" PENDING WITH THE TRIAL COURT.
2. IN COMPLETE DISREGARD OF ESTABLISHED JURISPRUDENCE, THE COURT OF APPEALS HAS SKIRTED AND/OR FAILED TO
CONSIDER/DISREGARDED THE EQUALLY CRUCIAL ISSUE THAT THE QUESTIONED ORDERS ARE CLEARLY AND ADMITTEDLY
INTERLOCUTORY IN NATURE AND THEREFORE THEY CANNOT BE THE PROPER SUBJECT OF AN ACTION FOR CERTIORARI; PROOF
THAT THE ORDERS ASSAILED BY RESPONDENT SALONGA ARE INTERLOCUTORY IN CHARACTER IS THE DISPOSITIVE PORTION OF THE
DECISION WHEN THE COURT OF APPEALS SAID "THE RESPONDENT JUDGE MAY NOW PROCEED TO HEARING OF SAID CIVIL CASE NO.
1016 ON THE MERITS"; PETITION FILED BY RESPONDENT SALONGA WITH THE COURT OF APPEALS SHOULD HAVE BEEN DISMISSED
OUTRIGHTLY AS SOUGHT BY HEREIN PETITIONERS IN THEIR VARIOUS UNACTED PLEADINGS.
3. THE DECISION IS BASED ON FINDINGS OF FACTS AND CONCLUSIONS WHICH ARE NOT ONLY GROSSLY ERRONEOUS BUT ARE
SQUARELY CONTRADICTED BY THE EVIDENCE ON RECORD.
4. THE COURT OF APPEALS HAS CLEARLY MISAPPRECIATED, MISREAD AND DISREGARDED HEREIN PETITIONERS CAUSES OF ACTION
AGAINST RESPONDENT SALONGA AND HIS CO-RESPONDENT MUNICIPALITY OF SAN ANTONIO, NUEVA ECIJA.
5. THE COURT OF APPEALS HAS MADE ERRONEOUS AND CONTRADICTORY CONCLUSIONS AND FINDINGS ON THE ISSUE OF "REAL
PARTY IN INTEREST" IN COMPLETE DISREGARD OF THE POWERS AND AUTHORITY GRANTED BY JUANITO L. BERNARDO
CONSTRUCTION TO HEREIN PETITIONERS.
6. THE COURT OF APPEALS HAS SKIRTED THE IMPORTANT ISSUE OF "AGENCY COUPLED WITH AN INTEREST."
7. THE COURT OF APPEALS WENT BEYOND THE ISSUES OF THE CERTIORARI CASE AND ITS FINDINGS AND CONCLUSIONS ON ISSUES
NOT RELATED TO THE CASE FOR CERTIORARI ARE CONTRARY TO THE PLEADINGS AND DO NOT CONFORM TO THE EVIDENCE ON
RECORD.
8. THE COURT OF APPEALS HAS LIKEWISE DISREGARDED THE PRECEPT THAT CONCLUSIONS AND FINDINGS OF FACT OF THE TRIAL
COURT ARE ENTITLED TO GREAT WEIGHT ON APPEAL AND SHOULD NOT BE DISTURBED SINCE THERE IS NO STRONG AND COGENT
REASON WHATSOVER TO OVERCOME THE WELL-WRITTEN AND DETAILED AND ESTABLISHED FACTUAL FINDINGS OF THE TRIAL
COURT.
9. PETITIONERS HAVE STRONG REASONS TO BELIEVE THAT THE DECISION OF THE COURT OF APPEALS WAS ISSUED WITH SERIOUS
INJUSTICE AND AGAINST THE TENETS OF FAIR PLAY SINCE THE DECISION HAD BEEN KNOWN TO AS IT WAS OPENLY AND PUBLICLY
ANNOUNCED BY RESPONDENT SALONGA LONG BEFORE IT WAS "PROMULGATED" BY THE COURT OF APPEALS.
The various issues raised by petitioners may be restated in a more summary manner as -
1. Whether or not the Court of Appeals correctly assumed jurisdiction over the petition for certiorari filed by respondents herein assailing the trial courts
interlocutory orders granting the writ of attachment and the contractors lien?
2. Whether or not the Court of Appeals committed reversible errors of law in its decision?
A petition for certiorari may be filed in case a tribunal, board or officer exercising judicial or quasi-judicial functions has acted without or in excess of
jurisdiction, or with grave abuse of discretion amounting to lack or excess of jurisdiction, and there is no appeal, or any plain, speedy, and adequate
remedy in the ordinary course of law.[7]
The office of a writ of certiorari is restricted to truly extraordinary cases wherein the act of the lower court or quasi-judicial body is wholly void.[8] We
held in a recent case that certiorari may be issued "only where it is clearly shown that there is a patent and gross abuse of discretion as to amount to
an evasion of positive duty or to virtual refusal to perform a duty enjoined by law, or to act at all in contemplation of law, as where the power is
exercised in an arbitrary and despotic manner by reason of passion or personal hostility."[9]
As a general rule, an interlocutory order is not appealable until after the rendition of the judgment on the merits for a contrary rule would delay the
administration of justice and unduly burden the courts.[10]However, we have held that certiorari is an appropriate remedy to assail an interlocutory order
(1) when the tribunal issued such order without or in excess of jurisdiction or with grave abuse of discretion and (2) when the assailed interlocutory
order is patently erroneous and the remedy of appeal would not afford adequate and expeditious relief.[11]
We hold that the petition for certiorari filed by Salonga and the Municipality with the Court of Appeals questioning the writ of attachment issued by the
trial court should not have been given due course for they still had recourse to a plain, speedy and adequate remedy - the filing of a motion to fix the
counter-bond, which they in fact filed with the trial court, the grant of which would effectively prevent the issuance of the writ of attachment. Moreover,
they could also have filed a motion to discharge the attachment for having been improperly or irregularly issued or enforced, or that the bond is
insufficient, or that the attachment is excessive.[12] With such remedies still available to the Municipality and Salonga, the filing of a petition
for certiorari with the Court of Appeals insofar as it questions the order of attachment was clearly premature.
However, with regards to the contractors lien, we uphold the appellate courts ruling reversing the trial courts grant of a contractors lien in favor of
petitioners.
Articles 2241 and 2242 of the Civil Code enumerates certain credits which enjoy preference with respect to specific personal or real property of the
debtor. Specifically, the contractors lien claimed by petitioners is granted under the third paragraph of Article 2242 which provides that the claims of
contractors engaged in the construction, reconstruction or repair of buildings or other works shall be preferred with respect to the specific building or
other immovable property constructed.[13]
However, Article 2242 only finds application when there is a concurrence of credits, i.e. when the same specific property of the debtor is subjected to
the claims of several creditors and the value of such property of the debtor is insufficient to pay in full all the creditors. In such a situation, the question
of preference will arise, that is, there will be a need to determine which of the creditors will be paid ahead of the others. [14] Fundamental tenets of due
process will dictate that this statutory lien should then only be enforced in the context of some kind of a proceeding where the claims of all the preferred
creditors may be bindingly adjudicated, such as insolvency proceedings.[15]

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This is made explicit by Article 2243 which states that the claims and liens enumerated in articles 2241 and 2242 shall be considered as mortgages or
pledges of real or personal property, or liens within the purview of legal provisions governing insolvency.[16]
The action filed by petitioners in the trial court does not partake of the nature of an insolvency proceeding. It is basically for specific performance and
damages.[17] Thus, even if it is finally adjudicated that petitioners herein actually stand in the position of unpaid contractors and are entitled to invoke
the contractors lien granted under Article 2242, such lien cannot be enforced in the present action for there is no way of determining whether or not
there exist other preferred creditors with claims over the San Antonio Public Market. The records do not contain any allegation that petitioners are the
only creditors with respect to such property. The fact that no third party claims have been filed in the trial court will not bar other creditors from
subsequently bringing actions and claiming that they also have preferred liens against the property involved.[18]
Our decision herein is consistent with our ruling in Philippine Savings Bank v. Lantin,[19] wherein we also disallowed the contractor from enforcing his
lien pursuant to Article 2242 of the Civil Code in an action filed by him for the collection of unpaid construction costs.
It not having been alleged in their pleadings that they have any rights as a mortgagee under the contracts, petitioners may only obtain possession and
use of the public market by means of a preliminary attachment upon such property, in the event that they obtain a favorable judgment in the trial court.
Under our rules of procedure, a writ of attachment over registered real property is enforced by the sheriff by filing with the registry of deeds a copy of
the order of attachment, together with a description of the property attached, and a notice that it is attached, and by leaving a copy of such order,
description, and notice with the occupant of the property, if any.[20] If judgment be recovered by the attaching party and execution issue thereon, the
sheriff may cause the judgment to be satisfied by selling so much of the property as may be necessary to satisfy the judgment.[21] Only in the event that
petitioners are able to purchase the property will they then acquire possession and use of the same.
Clearly, the trial courts order of September 5, 1991 granting possession and use of the public market to petitioners does not adhere to the procedure
for attachment laid out in the Rules of Court. In issuing such an order, the trial court gravely abused its discretion and the appellate courts nullification
of the same should be sustained.
At this stage of the case, there is no need to pass upon the question of whether or not petitioners herein are the real parties-in-interest. In the event
that judgment is rendered against Salonga and the Municipality, this issue may be assigned as an error in their appeal from such judgment.
WHEREFORE, we UPHOLD the Court of Appeals Decision dated February 6, 1992 in CA-G.R. SP No. 26336 insofar as it nullifies the contractors lien
granted by the trial court in favor of petitioners in its September 5, 1991 Order. Consequently, we also UPHOLD the appellate courts nullification of the
trial courts October 11, 1991 Order approving the guidelines for the operation of the San Antonio Public Market. However, we REVERSE the appellate
courts order nullifying the writ of attachment granted by the trial court. No pronouncement as to costs. SO ORDERED.

DEVELOPMENT BANK OF THE PHILIPPINES, petitioner, vs. HONORABLE COURT OF APPEALS and REMINGTON INDUSTRIAL SALES
CORPORATION, respondents. [G.R. No. 126200. August 16, 2001]
KAPUNAN, J.:
Before the Court is a petition for review on certiorari under Rule 45 of the Rules of Court, seeking a review of the Decision of the Court of Appeals
dated October 6, 1995 and the Resolution of the same court dated August 29, 1996.
The facts are as follows:
Marinduque Mining Industrial Corporation (Marinduque Mining), a corporation engaged in the manufacture of pure and refined nickel, nickel and
cobalt in mixed sulfides, copper ore/concentrates, cement and pyrite conc., obtained from the Philippine National Bank (PNB) various loan
accommodations. To secure the loans, Marinduque Mining executed on October 9, 1978 a Deed of Real Estate Mortgage and Chattel Mortgage in favor
of PNB. The mortgage covered all of Marinduque Minings real properties, located at Surigao del Norte, Sipalay, Negros Occidental, and at Antipolo,
Rizal, including the improvements thereon. As of November 20, 1980, the loans extended by PNB amounted to P4 Billion, exclusive of interest and
charges.[1]
On July 13, 1981, Marinduque Mining executed in favor of PNB and the Development Bank of the Philippines (DBP) a second Mortgage Trust
Agreement. In said agreement, Marinduque Mining mortgaged to PNB and DBP all its real properties located at Surigao del Norte, Sipalay, Negros
Occidental, and Antipolo, Rizal, including the improvements thereon. The mortgage also covered all of Marinduque Minings chattels, as well as assets
of whatever kind, nature and description which Marinduque Mining may subsequently acquire in substitution or replenishment or in addition to the
properties covered by the previous Deed of Real and Chattel Mortgage dated October 7, 1978. Apparently, Marinduque Mining had also obtained loans
totaling P2 Billion from DBP, exclusive of interest and charges.[2]
On April 27, 1984, Marinduque Mining executed in favor of PNB and DBP an Amendment to Mortgage Trust Agreement by virtue of which
Marinduque Mining mortgaged in favor of PNB and DBP all other real and personal properties and other real rights subsequently acquired by Marinduque
Mining.[3]
For failure of Marinduque Mining to settle its loan obligations, PNB and DBP instituted sometime on July and August 1984 extrajudicial foreclosure
proceedings over the mortgaged properties.
The events following the foreclosure are narrated by DBP in its petition, as follows:
In the ensuing public auction sale conducted on August 31, 1984, PNB and DBP emerged and were declared the highest bidders over the foreclosed
real properties, buildings, mining claims, leasehold rights together with the improvements thereon as well as machineries [sic] and equipments [sic] of
MMIC located at Nonoc Nickel Refinery Plant at Surigao del Norte for a bid price of P14,238,048,150.00 [and][o]ver the foreclosed chattels of MMIC
located at Nonoc Refinery Plant at Surigao del Norte, PNB and DBP as highest bidders, bidded for P170,577,610.00 (Exhs. 5 to 5-A, 6, 7 to 7-AA-
PNB/DBP). For the foreclosed real properties together with all the buildings, major machineries & equipment and other improvements of MMIC located
at Antipolo, Rizal, likewise held on August 31, 1984, were sold to PNB and DBP as highest bidders in the sum of P1,107,167,950.00 (Exhs. 10 to 10-X-
PNB/ DBP).
At the auction sale conducted on September 7, 1984[,] over the foreclosed real properties, buildings, & machineries/equipment of MMIC located at
Sipalay, Negros Occidental were sold to PNB and DBP, as highest bidders, in the amount of P2,383,534,000.00 and P543,040,000.00 respectively
(Exhs. 8 to 8-BB, 9 to 90-GGGGGGPNB/DBP).
Finally, at the public auction sale conducted on September 18, 1984 on the foreclosed personal properties of MMIC, the same were sold to PNB and
DBP as the highest bidder in the sum of P678,772,000.00 (Exhs. 11 and12-QQQQQPNB).
PNB and DBP thereafter thru a Deed of Transfer dated August 31, 1984, purposely, in order to ensure the continued operation of the Nickel refinery
plant and to prevent the deterioration of the assets foreclosed, assigned and transferred to Nonoc Mining and Industrial Corporation all their rights,
interest and participation over the foreclosed properties of MMIC located at Nonoc Island, Surigao del Norte for an initial consideration of
P14,361,000,000.00 (Exh. 13-PNB).
Likewise, thru [sic] a Deed of Transfer dated June 6, 1984, PNB and DBP assigned and transferred in favor of Maricalum Mining Corp. all its rights,
interest and participation over the foreclosed properties of MMIC at Sipalay, Negros Occidental for an initial consideration of P325,800,000.00 (Exh.
14PNB/DBP).
On February 27, 1987, PNB and DBP, pursuant to Proclamation No. 50 as amended, again assigned, transferred and conveyed to the National
Government thru [sic] the Asset Privatization Trust (APT) all its existing rights and interest over the assets of MMIC, earlier assigned to Nonoc Mining
and Industrial Corporation, Maricalum Mining Corporation and Island Cement Corporation (Exh. 15 & 15-APNB/DBP).[4]
In the meantime, between July 16, 1982 to October 4, 1983, Marinduque Mining purchased and caused to be delivered construction materials
and other merchandise from Remington Industrial Sales Corporation (Remington) worth P921,755.95. The purchases remained unpaid as of August 1,
1984 when Remington filed a complaint for a sum of money and damages against Marinduque Mining for the value of the unpaid construction materials
and other merchandise purchased by Marinduque Mining, as well as interest, attorneys fees and the costs of suit.
On September 7, 1984, Remingtons original complaint was amended to include PNB and DBP as co-defendants in view of the foreclosure by the
latter of the real and chattel mortgages on the real and personal properties, chattels, mining claims, machinery, equipment and other assets of Marinduque
Mining.[5]
On September 13, 1984, Remington filed a second amended complaint to include as additional defendant, the Nonoc Mining and Industrial
Corporation (Nonoc Mining). Nonoc Mining is the assignee of all real and personal properties, chattels, machinery, equipment and all other assets of
Marinduque Mining at its Nonoc Nickel Factory in Surigao del Norte.[6]
On March 26, 1986, Remington filed a third amended complaint including the Maricalum Mining Corporation (Maricalum Mining) and Island
Cement Corporation (Island Cement) as co-defendants.Remington asserted that Marinduque Mining, PNB, DBP, Nonoc Mining, Maricalum Mining and
Island Cement must be treated in law as one and the same entity by disregarding the veil of corporate fiction since:
1. Co-defendants NMIC, Maricalum and Island Cement which are newly created entities are practically owned wholly by defendants PNB and DBP,
and managed by their officers, aside from the fact that the aforesaid co-defendants NMIC, Maricalum and Island Cement were organized in such a

4
hurry and in such suspicious circumstances by co-defendants PNB and DBP after the supposed extra-judicial foreclosure of MMICs assets as to make
their supposed projects assets, machineries and equipment which were originally owned by co-defendant MMIC beyond the reach of creditors of the
latter.
2. The personnel, key officers and rank-and-file workers and employees of co-defendants NMIC, Maricalum and Island Cement creations of co-
defendants PNB and DBP were the personnel of co-defendant MMIC such that x x x practically there has only been a change of name for all legal
purpose and intents.
3. The places of business not to mention the mining claims and project premises of co-defendants NMIC, Maricalum and Island Cement likewise used
to be the places of business, mining claims and project premises of co-defendant MMIC as to make the aforesaid co-defendants NMIC, Maricalum and
Island Cement mere adjuncts and subsidiaries of co-defendants PNB and DBP, and subject to their control and management.
On top of everything, co-defendants PNB, DBP NMIC, Maricalum and Island Cement being all corporations created by the government in the pursuit of
business ventures should not be allowed to ignore, x x x or obliterate with impunity nay illegally, the financial obligations of x x x MMIC whose
operations co-defendants PNB and DBP had highly financed before the alleged extrajudicial foreclosure of defendant MMICs assets, machineries and
equipment to the extent that major policies of co-defendant MMIC were being decided upon by co-defendants PNB and DBP as major financiers who
were represented in its board of directors forming part of the majority thereof which through the alleged extrajudicial foreclosure culminated in a
complete take-over by co-defendants PNB and DBP bringing about the organization of their co-defendants NMIC, Maricalum and Island Cement to
which were transferred all the assets, machineries and pieces of equipment of co-defendant MMIC used in its nickel mining project in Surigao del
Norte, copper mining operation in Sipalay, Negros Occidental and cement factory in Antipolo, Rizal to the prejudice of creditors of co-defendant MMIC
such as plaintiff Remington Industrial Sales Corporation whose stockholders, officers and rank-and-file workers in the legitimate pursuit of its business
activities, invested considerable time, sweat and private money to supply, among others, co-defendant MMIC with some of its vital needs for its
operation, which co-defendant MMIC during the time of the transactions material to this case became x x x co-defendants PNB and DBPs
instrumentality, business conduit, alter ego, agency (sic), subsidiary or auxiliary corporation, by virtue of which it becomes doubly necessary to
disregard the corporation fiction that co-defendants PNB, DBP, MMIC, NMIC, Maricalum and Island Cement, six (6) distinct and separate entities,
when in fact and in law, they should be treated as one and the same at least as far as plaintiffs transactions with co-defendant MMIC are concerned, so
as not to defeat public convenience, justify wrong, subvert justice, protect fraud or confuse legitimate issues involving creditors such as plaintiff, a fact
which all defendants were as (sic) still are aware of during all the time material to the transactions subject of this case.[7]
On April 3, 1989, Remington filed a motion for leave to file a fourth amended complaint impleading the Asset Privatization Trust (APT) as co-
defendant. Said fourth amended complaint was admitted by the lower court in its Order dated April 29, 1989.
On April 10, 1990, the Regional Trial Court (RTC) rendered a decision in favor of Remington, the dispositive portion of which reads:
WHEREFORE, judgment is hereby rendered in favor of the plaintiff, ordering the defendants Marinduque Mining & Industrial Corporation, Philippine
National Bank, Development Bank of the Philippines, Nonoc Mining and Industrial Corporation, Maricalum Mining Corporation, Island Cement
Corporation and Asset Privatization Trust to pay, jointly and severally, the sum of P920,755.95, representing the principal obligation, including the
stipulated interest as of June 22, 1984, plus ten percent (10%) surcharge per annum by way of penalty, until the amount is fully paid; the sum
equivalent to 10% of the amount due as and for attorneys fees; and to pay the costs.[8]
Upon appeal by PNB, DBP, Nonoc Mining, Maricalum Mining, Island Cement and APT, the Court of Appeals, in its Decision dated October 6,
1995, affirmed the decision of the RTC. Petitioner filed a Motion for Reconsideration, which was denied in the Resolution dated August 29, 1996.
Hence, this petition, DBP maintaining that Remington has no cause of action against it or PNB, nor against their transferees, Nonoc Mining, Island
Cement, Maricalum Mining, and the APT.
On the other hand, private respondent Remington submits that the transfer of the properties was made in fraud of creditors. The presence of
fraud, according to Remington, warrants the piercing of the corporate veil such that Marinduque Mining and its transferees could be considered as one
and the same corporation. The transferees, therefore, are also liable for the value of Marinduque Minings purchases.
In Yutivo Sons Hardware vs. Court of Tax Appeals,[9] cited by the Court of Appeals in its decision,[10] this Court declared:
It is an elementary and fundamental principle of corporation law that a corporation is an entity separate and distinct from its stockholders and from
other corporations to which it may be connected. However, when the notion of legal entity is used to defeat public convenience, justify wrong, protect
fraud, or defend crime, the law will regard the corporation as an association of persons or in case of two corporations, merge them into one. (Koppel
[Phils.], Inc., vs. Yatco, 71 Phil. 496, citing 1 Fletcher Encyclopedia of Corporation, Permanent Ed., pp. 135-136; U.S. vs. Milwaukee Refrigeration
Transit Co., 142 Fed., 247, 255 per Sanborn, J.) xxx
In accordance with the foregoing rule, this Court has disregarded the separate personality of the corporation where the corporate entity was used
to escape liability to third parties.[11] In this case, however, we do not find any fraud on the part of Marinduque Mining and its transferees to warrant the
piercing of the corporate veil.
It bears stressing that PNB and DBP are mandated to foreclose on the mortgage when the past due account had incurred arrearages of more
than 20% of the total outstanding obligation. Section 1 of Presidential Decree No. 385 (The Law on Mandatory Foreclosure) provides:
It shall be mandatory for government financial institutions, after the lapse of sixty (60) days from the issuance of this decree, to foreclose the collateral
and/or securities for any loan, credit accommodation, and/or guarantees granted by them whenever the arrearages on such account, including accrued
interest and other charges, amount to at least twenty percent (20%) of the total outstanding obligations, including interest and other charges, as
appearing in the books of account and/or related records of the financial institution concerned. This shall be without prejudice to the exercise by the
government financial institution of such rights and/or remedies available to them under their respective contracts with their debtors, including the right
to foreclose on loans, credits, accomodations and/or guarantees on which the arrearages are less than twenty (20%) percent.
Thus, PNB and DBP did not only have a right, but the duty under said law, to foreclose upon the subject properties. The banks had no choice but
to obey the statutory command.
The import of this mandate was lost on the Court of Appeals, which reasoned that under Article 19 of the Civil Code, Every person must, in the
exercise of his rights and in the performance of his duties, act with justice, give everyone his due, and observe honesty and good faith. The appellate
court, however, did not point to any fact evidencing bad faith on the part of the Marinduque Mining and its transferees. Indeed, it skirted the issue entirely
by holding that the question of actual fraudulent intent on the part of the interlocking directors of DBP and Marinduque Mining was irrelevant because:
As aptly stated by the appellee in its brief, x x x where the corporations have directors and officers in common, there may be circumstances under
which their interest as officers in one company may disqualify them in equity from representing both corporations in transactions between the
two. Thus, where one corporation was insolvent and indebted to another, it has been held that the directors of the creditor corporation were
disqualified, by reason of self-interest, from acting as directors of the debtor corporation in the authorization of a mortgage or deed of trust to the former
to secure such indebtedness x x x (page 105 of the Appellees Brief). In the same manner that x x x when the corporation is insolvent, its directors who
are its creditors can not secure to themselves any advantage or preference over other creditors. They can not thus take advantage of their fiduciary
relation and deal directly with themselves, to the injury of others in equal right. If they do, equity will set aside the transaction at the suit of creditors of
the corporation or their representatives, without reference to the question of any actual fraudulent intent on the part of the directors, for the right of the
creditors does not depend upon fraud in fact, but upon the violation of the fiduciary relation to the directors. xxx. (page 106 of the Appellees Brief.)
We also concede that x x x directors of insolvent corporation, who are creditors of the company, can not secure to themselves any preference or
advantage over other creditors in the payment of their claims. It is not good morals or good law. The governing body of officers thereof are charged
with the duty of conducting its affairs strictly in the interest of its existing creditors, and it would be a breach of such trust for them to undertake to give
any one of its members any advantage over any other creditors in securing the payment of his debts in preference to all others. When validity of these
mortgages, to secure debts upon which the directors were indorsers, was questioned by other creditors of the corporation, they should have been
classed as instruments rendered void by the legal principle which prevents directors of an insolvent corporation from giving themselves a preference
over outside creditors. x x x (page 106-107 of the Appellees Brief.)[12]
The Court of Appeals made reference to two principles in corporation law. The first pertains to transactions between corporations with interlocking
directors resulting in the prejudice to one of the corporations. This rule does not apply in this case, however, since the corporation allegedly prejudiced
(Remington) is a third party, not one of the corporations with interlocking directors (Marinduque Mining and DBP).
The second principle invoked by respondent court involves directors who are creditors which is also inapplicable herein. Here, the creditor of
Marinduque Mining is DBP, not the directors of Marinduque Mining.
Neither do we discern any bad faith on the part of DBP by its creation of Nonoc Mining, Maricalum and Island Cement. As Remington itself
concedes, DBP is not authorized by its charter to engage in the mining business.[13] The creation of the three corporations was necessary to manage
and operate the assets acquired in the foreclosure sale lest they deteriorate from non-use and lose their value. In the absence of any entity willing to
purchase these assets from the bank, what else would it do with these properties in the meantime? Sound business practice required that they be utilized
for the purposes for which they were intended.

5
 Remington also asserted in its third amended complaint that the use of Nonoc Mining, Maricalum and Island Cement of the premises of Marinduque
Mining and the hiring of the latters officers and personnel also constitute badges of bad faith.
Assuming that the premises of Marinduque Mining were not among those acquired by DBP in the foreclosure sale, convenience and practicality
dictated that the corporations so created occupy the premises where these assets were found instead of relocating them. No doubt, many of these assets
are heavy equipment and it may have been impossible to move them. The same reasons of convenience and practicality, not to mention efficiency,
justified the hiring by Nonoc Mining, Maricalum and Island Cement of Marinduque Minings personnel to manage and operate the properties and to
maintain the continuity of the mining operations.
To reiterate, the doctrine of piercing the veil of corporate fiction applies only when such corporate fiction is used to defeat public convenience,
justify wrong, protect fraud or defend crime.[14] To disregard the separate juridical personality of a corporation, the wrongdoing must be clearly and
convincingly established. It cannot be presumed.[15] In this case, the Court finds that Remington failed to discharge its burden of proving bad faith on the
part of Marinduque Mining and its transferees in the mortgage and foreclosure of the subject properties to justify the piercing of the corporate veil.
The Court of Appeals also held that there exists in Remingtons favor a lien on the unpaid purchases of Marinduque Mining, and as transferee of
these purchases, DBP should be held liable for the value thereof.
In the absence of liquidation proceedings, however, the claim of Remington cannot be enforced against DBP. Article 2241 of the Civil Code
provides:
Article 2241. With reference to specific movable property of the debtor, the following claims or liens shall be preferred:
xxx
(3) Claims for the unpaid price of movables sold, on said movables, so long as they are in the possession of the debtor, up to the value of the same;
and if the movable has been resold by the debtor and the price is still unpaid, the lien may be enforced on the price; this right is not lost by the
immobilization of the thing by destination, provided it has not lost its form, substance and identity, neither is the right lost by the sale of the thing
together with other property for a lump sum, when the price thereof can be determined proportionally;
(4) Credits guaranteed with a pledge so long as the things pledged are in the hands of the creditor, or those guaranteed by a chattel mortgage, upon
the things pledged or mortgaged, up to the value thereof;
xxx
In Barretto vs. Villanueva,[16] the Court had occasion to construe Article 2242, governing claims or liens over specific immovable property. The
facts that gave rise to the case were summarized by this Court in its resolution as follows:
x x x Rosario Cruzado sold all her right, title, and interest and that of her children in the house and lot herein involved to Pura L. Villanueva for
P19,000.00. The purchaser paid P1,500 in advance, and executed a promissory note for the balance of P17,500.00. However, the buyer could only
pay P5,500 on account of the note, for which reason the vendor obtained judgment for the unpaid balance. In the meantime, the buyer Villanueva was
able to secure a clean certificate of title (No. 32626), and mortgaged the property to appellant Magdalena C. Barretto, married to Jose C. Baretto, to
secure a loan of P30,000.03, said mortgage having been duly recorded.
Pura Villanueva defaulted on the mortgage loan in favor of Barretto. The latter foreclosed the mortgage in her favor, obtained judgment, and upon its
becoming final asked for execution on 31 July 1958. On 14 August 1958, Cruzado filed a motion for recognition for her "vendor's lien" in the amount of
P12,000.00, plus legal interest, invoking Articles 2242, 2243, and 2249 of the new Civil Code. After hearing, the court below ordered the "lien"
annotated on the back of Certificate of Title No. 32526, with the proviso that in case of sale under the foreclousre decree the vendor's lien and the
mortgage credit of appellant Barretto should be paid pro rata from the proceeds. Our original decision affirmed this order of the Court of First Instance
of Manila.
In its decision upholding the order of the lower court, the Court ratiocinated thus:
Article 2242 of the new Civil Code enumerates the claims, mortgages and liens that constitute an encumbrance on specific immovable property, and
among them are:
"(2) For the unpaid price of real property sold, upon the immovable sold"; and
"(5) Mortgage credits recorded in the Registry of Property."
Article 2249 of the same Code provides that "if there are two or more credits with respect to the same specific real property or real rights, they shall be
satisfied pro-rata, after the payment of the taxes and assessments upon the immovable property or real rights."
Application of the above-quoted provisions to the case at bar would mean that the herein appellee Rosario Cruzado as an unpaid vendor of the
property in question has the right to share pro-rata with the appellants the proceeds of the foreclosure sale.
xxx
As to the point made that the articles of the Civil Code on concurrence and preference of credits are applicable only to the insolvent debtor, suffice it to
say that nothing in the law shows any such limitation. If we are to interpret this portion of the Code as intended only for insolvency cases, then other
creditor-debtor relationships where there are concurrence of credits would be left without any rules to govern them, and it would render purposeless the
special laws on insolvency.[17]
Upon motion by appellants, however, the Court reconsidered its decision. Justice J.B.L. Reyes, speaking for the Court, explained the reasons for
the reversal:
A. The previous decision failed to take fully into account the radical changes introduced by the Civil Code of the Philippines into the system of priorities
among creditors ordained by the Civil Code of 1889.
Pursuant to the former Code, conflicts among creditors entitled to preference as to specific real property under Article 1923 were to be resolved
according to an order of priorities established by Article 1927, whereby one class of creditors could exclude the creditors of lower order until the claims
of the former were fully satisfied out of the proceeds of the sale of the real property subject of the preference, and could even exhaust proceeds if
necessary.
Under the system of the Civil Code of the Philippines, however, only taxes enjoy a similar absolute preference. All the remaining thirteen classes of
preferred creditors under Article 2242 enjoy no priority among themselves, but must be paid pro rata, i.e., in proportion to the amount of the respective
credits. Thus, Article 2249 provides:
"If there are two or more credits with respect to the same specific real property or real rights, they shall be satisfied pro rata, after the payment of the
taxes and assessments upon the immovable property or real rights."
But in order to make this prorating fully effective, the preferred creditors enumerated in Nos. 2 to 14 of Article 2242 (or such of them as have credits
outstanding) must necessarily be convened, and the import of their claims ascertained. It is thus apparent that the full application of Articles 2249 and
2242 demands that there must be first some proceeding where the claims of all the preferred creditors may be bindingly adjudicated, such as
insolvency, the settlement of decedent's estate under Rule 87 of the Rules of Court, or other liquidation proceedings of similar import.
This explains the rule of Article 2243 of the new Civil Code that -
"The claims or credits enumerated in the two preceding articles shall be considered as mortgages or pledges of real or personal property, or
liens within the purview of legal provisions governing insolvencyxxx (Italics supplied).
And the rule is further clarified in the Report of the Code Commission, as follows:
"The question as to whether the Civil Code and the Insolvency Law can be harmonized is settled by this Article (2243). The preferences named in
Articles 2261 and 2262 (now 2241 and 2242) are to be enforced in accordance with the Insolvency Law." (Italics supplied)
Thus, it becomes evident that one preferred creditor's third-party claim to the proceeds of a foreclosure sale (as in the case now before us) is not the
proceeding contemplated by law for the enforcement of preferences under Article 2242, unless the claimant were enforcing a credit for taxes that enjoy
absolute priority. If none of the claims is for taxes, a dispute between two creditors will not enable the Court to ascertain the pro rata dividend
corresponding to each, because the rights of the other creditors likewise enjoying preference under Article 2242 can not be ascertained. Wherefore,
the order of the Court of First Instance of Manila now appealed from, decreeing that the proceeds of the foreclosure sale be apportioned only between
appellant and appellee, is incorrect, and must be reversed. [Underscoring supplied]
The ruling in Barretto was reiterated in Phil. Savings Bank vs. Hon. Lantin, Jr., etc., et al.,[18] and in two cases both entitled Development Bank of
the Philippines vs. NLRC.[19]
Although Barretto involved specific immovable property, the ruling therein should apply equally in this case where specific movable property is
involved. As the extra-judicial foreclosure instituted by PNB and DBP is not the liquidation proceeding contemplated by the Civil Code, Remington cannot
claim its pro rata share from DBP.

6
 WHEREFORE, the petition is GRANTED. The decision of the Court of Appeals dated October 6, 1995 and its Resolution promulgated on August
29, 1996 is REVERSED and SET ASIDE. The original complaint filed in the Regional Trial Court in CV Case No. 84-25858 is hereby DISMISSED.
SO ORDERED.

PHILIPPINE SAVINGS BANK, Petitioner, v. HON. GREGORIO T. LANTIN, Presiding Judge, Court of First Instance of Manila, Branch VII, and
CANDIDO RAMOS, Respondents. [G.R. No. L-33929. September 2, 1983.]
1. CIVIL LAW; CREDIT TRANSACTION; CONCURRENCE AND PREFERENCE OF CREDITS; INSUFFICIENT ASSETS OF DEBTOR RAISES
QUESTION OF PREFERENCE AS WELL AS QUESTION OF CONSEQUENCE IN CONCURRENCE OF CREDITS. — Concurrence of credits occurs
when the same specific property of the debtor or all of his property is subjected to the claims of several creditors. The concurrence of credits raises no
questions of consequence were the value of the property or the value of all assets of the debtor is sufficient to pay in fall all the creditors. However, it
becomes material when said assets are insufficient for then some creditors of necessity will not be paid or some creditors will not obtain the full
satisfaction of their claims. In this situation, the question of preference will then arise, that is to say who of the creditors will be paid the all of the others
(Caguioa, Comments and Cases on Civil Law, 1970 ed., Vol. VI, p. 472).

2. ID.; ID.; PREFERENCE OF CREDITS; ARTICLES 2249 AND 2242 OF THE NEW CIVIL CODE OF THE PHILIPPINES; CONSTRUED. — Under the
system established by Article 2249 of the civil Code of the Philippines, only taxes and assessments upon immovable property enjoy absolute
preference. All the remaining specified classes of preferred creditors under Article 2242 enjoy no priority among themselves. Their credits shall be
satisfied pro-rata, i.e., in proportion to the amount of the respective credits.

3. ID.; ID.; ARTICLE 2249 AND 2242 OF THE NEW CIVIL CODE; PAIL REQUISITE TO THEIR FULL APPLICATION UNDER THE DE BARRETO
CASE. — Under the De Barreto decision, the full application of Articles 2242 and 2249 demands that there must first be some proceeding where the
class of all the preferred creditors may be bindingly adjudicated, such as insolvency, the settlement of a decedent’s estate under Rule 87 of the Rules
of Court, or other liquidation proceedings of similar import.

4. REMEDIAL LAW; INSOLVENCY PROCEEDINGS AND SETTLEMENT OF A DECEDENT’S ESTATE; BOTH PROCEEDINGS IN REM, OTHER
EQUIVALENT GENERAL LIQUIDATION OF SIMILAR NATURE. — Insolvency proceedings end settlement of a decedent’s estate are both
proceedings in rem which are binding the whole world. All persons having interest in the subject matter involved, whether they were notified or not, are
equally bound. Consequently, a liquidation of similar import or other equivalent general liquidation must also necessarily be a proceeding in rem so that
all interested persons whether known to the parties or not may be bound by such proceeding.

3. ID.; ACTION FOR COLLECTION OF UNPAID CONTRACTOR’S FEE; NOT AN ACTION IN REM. — The proceedings in the court below do not
partake of the insure of insolvency proceedings or settlement of a decedent’s estate. The action filed by Ramos was only to collect the unpaid cost of
the construction of the duplex apartment. It is far from being a general liquidation of the estate of the Tabligan spouses.

6. CIVIL LAW; CREDIT TRANSACTION; ANNOTATION OF CLAIMS AND CREDITS AS STATUTORY LIENS; RELEVANCE TO THE STABILITY OF
THE TORRENS SYSTEM. — In the case at bar, although the lower court found that "there were no known creditors other than the plaintiff and the
defendant herein," this cannot be conclusive. It will not bar other creditors in the event they show up and present their claims State petitioner bank,
claiming that they also have preferred liens against the property involved. Consequently, Transfer Certificate of Title No. 101864 issued in favor of the
bank which is supposed to be indefeasible would remain constantly unstable and questionable. Such could not have been the intention of Article 2243
of the Civil Code although it considers claims and credits under Article 2242 as statutory liens. Neither does the De Barreto case sanction such
instability. In fact, an annotation, as suggested above, would insure to the benefit of the public, particularly those who may subsequently wish to buy
the property in question or who have a business transaction in connection therewith. It would facilitate the enforcement of a legal statutory right which
cannot be barred by laches (See Manila Railroad Co. v. Luzon Stevedoring Co., 100 Phil. 135).

7. ID.; SALE; BUYER IN GOOD FAITH OF REALTY; TAKES IT FEE FROM LIENS AND ENCUMBRANCES OTHER THAN STATUTORY LIENS AND
THOSE ANNOTATED IN THE TITLE; CASE AT BAR. — Since the action filed by the private respondent is not one which can be considered as
"equivalent general liquidation" having the same import as an insolvency or settlement of the decedent’s estate proceeding, the well established
principle must be applied that a purchaser in good faith and for value takes register land free from liens and encumbrances other than statutory liens
and those recorded in the Certificate of Title. It Is an limited fact that at the time the deeds of real estate mortgage in favor of the petitioner bank were
constituted, the transfer certificate of title of the spouses Tabligan was free from any recorded lien and encumbrances, so that the only registered liens
in the title were deeds in favor of the petitioner.
GUTIERREZ, JR., J.:
This is a petition for review of the decision of the Court of First Instance of Manila, Branch VII, presided over by respondent Judge Gregorio T. Lantin,
in Civil Case No. 79914 entitled Candido Ramos v. Philippine Savings Bank and of the order denying a motion for its reconsideration. The dispositive
portion of the decision reads:jgc:chanrobles.com.ph

"WHEREFORE, judgment is hereby rendered in favor of the plaintiff and against the defendant ordering the defendant to pay the plaintiff the sum of
P15,000.00 as his pro-rata share in the value of the duplex-apartment house which was built by the plaintiff for the spouses likewise Filomeno Tabligan
and Socorro Espiritu, which is now registered in the name of the defendant under Transfer Certificate of Title No. 101864 issued by the Register of
Deeds of the City of Manila, on August 6, 1970, with legal interest from the date of the filing of the complaint until fully paid; to pay the sum of P500.00
as attorney’s fees; and to pay the costs.

"The counterclaim interposed by the defendant is hereby dismissed."cralaw virtua1aw library

Involved in this case is a duplex-apartment house on a lot covered by TCT No. 86195 situated at San Diego Street, Sampaloc, Manila, and owned by
the spouses Filomeno and Socorro Tabligan.

The duplex-apartment house was built for the spouses by private respondent Candido Ramos, a duly licensed architect and building contractor, at a
total cost of P32,927.00. The spouses paid private respondent the sum of P7,139.00 only. Hence, the latter used his own money, P25,788.50 in all, to
finish the construction of the duplex-apartment.chanrobles.com:cralaw:red

Meanwhile, on December 16, 1966, February 1, 1967, and February 28, 1967, the spouses Tabligan obtained from petitioner Philippine Savings Bank
three (3) loans in the total amount of P35,000.00, the purpose of which was to complete the construction of the duplex-apartment. To secure payment
of the l2oans, the spouses executed in favor of the petitioner three (3) promissory notes and three (3) deeds of real estate mortgages over the property
subject matter of this litigation.

On December 19, 1966, the petitioner registered the December 16, 1966 deed of real estate mortgage with the Register of Deeds of Manila. The
subsequent mortgages of February 1, 1967, and February 28, 1967, were registered with the Register of Deeds of Manila on February 2, 1967 and
March 1, 1967, respectively. At the time of the registration of these mortgages, Transfer Certificate of Title No. 86195 was free from all liens and
encumbrances.

The spouses failed to pay their monthly amortizations. As a result thereof, the petitioner bank foreclosed the mortgages, and at the public auction held
on July 23, 1969, was the highest bidder.

On August 5, 1969, the petitioner bank registered the certificate of sale issued in its favor. On August 9, 1970, the bank consolidated its ownership over
the property in question, and Transfer Certificate of Title No. 101864 was issued by the Register of Deeds of Manila in the name of the petitioner bank.

Upon the other hand, the private respondent filed an action against the spouses to collect the unpaid cost of the construction of the duplex-apartment
before the Court of First Instance of Manila, Branch I, which case was docketed therein as Civil Case No. 69228. During its pendency, the private
respondent succeeded in obtaining the issuance of a writ of preliminary attachment, and pursuant thereto, had the property in question attached.
Consequently, a notice of adverse claim was annotated at the back of Transfer Certificate of Title No. 86195.

On August 26, 1968, a decision was rendered in Civil Case No. 69228 in favor of the private respondent and against the spouses. A writ of execution
was accordingly issued but was returned unsatisfied.

7
As the spouses did not have any properties to satisfy the judgment in Civil Case No. 69228, the private respondent addressed a letter to the petitioner
for the delivery to him (private respondent) of his pro-rata share in the value of the duplex-apartment in accordance with Article 2242 of the Civil Code.
The petitioner refused to pay the pro-rata value prompting the private respondent to file the instant action. As earlier stated, a decision was rendered in
favor of the private Respondent.

The parties are agreed that the only issue is whether or not the private respondent is entitled to claim a pro-rata share in the value of the property in
question. The applicable provision, Article 2242 of the Civil Code, reads as follows:

"ART. 2242. With reference to specific immovable property and real rights of the debtor, the following claims, mortgages and liens shall be preferred,
and shall constitute an encumbrance on the immovable or real right:

"(1) Taxes due upon the land or building;

"(2) For the unpaid price of real property sold, upon the immovable sold;
"(3) Claims of laborers, masons, mechanics and other workmen, as well as of architects, engineers and contractors, engaged in the construction,
reconstruction or repair of buildings, canals or other works, upon said buildings, canals or other works;
"(4) Claims of furnishers of materials used in the construction reconstruction, or repair of buildings, canals or other works upon said buildings, canals or
other works;
"(5) Mortgage credits recorded in the Registry of Property, upon the real estate mortgaged;
"(6) Expenses for the preservation or improvement of real property when the law authorizes reimbursement, upon the immovable preserved or
improved;
"(7) Credits annotated in the Registry of Property, in virtue of a judicial order, by attachments or executions, upon the property affected, and only as to
later credits;
"(8) Claims of co-heirs for warranty in the partition of an immovable among them, upon the real property thus divided;
"(9) Claims of donors of real property for pecuniary charges or other conditions imposed upon the donee, upon the immovable donated;
"(10) Credits of insurers upon the property insured, for the insurance premium for two years."

Both the petitioner bank and private respondent Ramos rely on the case of De Barreto v. Villanueva (6 SCRA 928).

The petitioner bank would impress upon this Court that the proceedings had before the court below is not one of the proceedings contemplated in the
De Barreto case that will sustain the authority of the respondent court to adjudicate the claims of all preferred creditors under Article 2242 of the Civil
Code. Petitioner argues that for Article 2242 of the Civil Code to apply, there must have been an insolvency proceeding or other liquidation
proceedings of similar import. And under the facts then obtaining, there could have been no insolvency proceeding as there were only two known
creditors. ** Consequently, it is argued that private respondent’s unpaid contractor’s claim did not acquire the character of a statutory lien equal to the
petitioner’s registered mortgage.

Upon the other hand, private respondent Ramos maintains that the proceedings had before the court below can qualify as a general liquidation of the
estate of the spouses Tabligan because the only existing property of said spouses is the property subject matter of this litigation.

Concurrence of credits occurs when the same specific property of the debtor or all of his property is subjected to the claims of several creditors. The
concurrence of credits raises no questions of consequence where the value of the property or the value of all assets of the debtor is sufficient to pay in
full all the creditors. However, it becomes material when said assets are insufficient for then some creditors of necessity will not be paid or some
creditors will not obtain the full satisfaction of their claims. In this situation, the question of preference will then arise, that is to say who of the creditors
will be paid ahead of the others. (Caguioa, Comments and Cases on Civil Law, 1970 ed., Vol. VI, p. 472.)

Under the system established by Article 2249 of the Civil Code of the Philippines, only taxes and assessments upon immovable property enjoy
absolute preference. All the remaining specified classes of preferred creditors under Article 2242 enjoy no priority among themselves. Their credits
shall be satisfied pro-rata, i.e., in proportion to the amount of the respective credits.

Under the De Barreto decision, the full application of Articles 2242 and 2249 demands that there must first be some proceeding where the claims of all
the preferred creditors may be bindingly adjudicated, such as insolvency, the settlement of a decedent’s estate under Rule 87 of the Rules of Court, or
other liquidation proceedings of similar import.

The pertinent ruling reads:

"Thus, it becomes evident that one preferred creditor’s third-party claim to the proceeds of a foreclosure sale (as in the case now before us) is not the
proceeding contemplated by law for the enforcement of preferences under Article 2242, unless the claimant were enforcing a credit for taxes that enjoy
absolute priority. If none of the claims is for taxes, a dispute between two creditors will not enable the Court to ascertain the pro rata dividend
corresponding to each because the rights of the other creditors likewise enjoying preference under Article 2242 can not be ascertained. Wherefore, the
order of the Court of First Instance of Manila now appealed from, decreeing that the proceeds of the foreclosure sale be apportioned only between
appellant and appellee, is incorrect and must be reversed.

"In the absence of insolvency proceedings (or other equivalent general liquidation of the debtor’s estate), the conflict between the parties now before us
must be decided pursuant to the well established principle concerning registered lands; that a purchaser in good faith and for value (as the appellant
concededly is) takes registered property free from liens and encumbrances other then statutory liens and those recorded in the certificate of title. There
being no insolvency or liquidation, the claim of the appellee, as unpaid vendor, did not acquire the character and rank of a statutory lien co-equal to the
mortgagee’s recorded encumbrance, and must remain subordinate to the latter."

The resolution of this petition, therefore, hinges on the determination of whether an insolvency proceeding or other liquidation proceeding of similar
import may be considered to have been conducted in the court below.

The respondent court ruled in the affirmative holding that:

"There were no known creditors, other than the plaintiff and defendant herein, and the proceedings in the present case may ascertain and bindingly
adjudicate the respective claims of the plaintiff and the defendant, serving as a substantial compliance with what the Supreme Court stated:

"‘. . . it is thus apparent that the full application of Articles 2242 and 2249 demands that there must be first some proceeding where the claims of all the
preferred creditors may be bindingly adjudicated, such as insolvency, the settlement of a decedent’s estate under Rule 87 of the Rules of Court, or
other liquidation proceedings of similar import. (de Barretto v. Villanueva, Et Al., G.R. No. L-14938, December 29, 1962).’"

A careful considering of this petition leads us to agree with the petitioner. The conclusions of the lower court are not supported by the law and the facts.

The proceedings in the court below do not partake of the nature of the insolvency proceedings or settlement of a decedent’s estate. The action filed by
Ramos was only to collect the unpaid cost of the construction of the duplex apartment. It is far from being a general liquidation of the estate of the
Tabligan spouses.

Insolvency proceedings and settlement of a decedent’s estate are both proceedings in rem which are binding against the whole world. All persons
having interest in the subject matter involved, whether they were notified or not, are equally bound. Consequently, a liquidation of similar import or
"other equivalent general liquidation’ must also necessarily be a proceeding in rem so that all interested persons whether known to the parties or not
may be bound by such proceeding.

In the case at bar, although the lower court found that "there were no known creditors other than the plaintiff and the defendant herein", this can not be
conclusive. It will not bar other creditors in the event they show up and present their claims against the petitioner bank, claiming that they also have
preferred liens against the property involved. Consequently, Transfer Certificate of Title No. 101864 issued in favor of the bank which is supposed to be
indefeasible would remain constantly unstable and questionable. Such could not have been the intention of Article 2243 of the Civil Code although it
considers claims and credits under Article 2242 as statutory liens. Neither does the De Barretto case sanction such instability. It emphasized the
following:

"We are understandably loath (absent a clear precept of law so commanding) to adopt a rule that would undermine the faith and credit to be accorded

8
to registered Torrens titles and nullify the beneficient objectives sought to be obtained by the Land Registration Act. No argument is needed to stress
that if a person dealing with registered land were to be held to take it in every instance subject to all the fourteen preferred claims enumerated in Article
2242 of the new Civil Code, even if the existence and import thereof can not be ascertained from the records, all confidence in Torrens titles would be
destroyed, and credit transactions on the faith of such titles would be hampered, if not prevented, with incalculable results. Loans on real estate
security would become aleatory and risky transactions, for no prospective lender could accurately estimate the hidden liens on the property offered as
security, unless he indulged in complicated, tedious investigations. The logical result might well be a contraction of credit to unforeseable proportions
that could lead to economic disaster.

"Upon the other hand, it does not appear excessively burdensome to require the privileged creditors to cause their claims to be recorded in the books
of the Register of Deeds should they desire to protect their rights even outside of insolvency or liquidation proceedings.

In fact, an annotation, as suggested above, would inure to the benefit of the public, particularly those who may subsequently wish to buy the property in
question or who have a business transaction in connection therewith. It would facilitate the enforcement of a legal statutory right which cannot be
barred by laches. (See Manila Railroad Co. v. Luzon Stevedoring Co., 100 Phil. 135).chanrobles law library

Respondent Ramos admitted in the partial stipulation of facts submitted by both parties that at the time of the loans to the spouses, the petitioner’s
bank had no actual or constructive knowledge of any lien against the property in question. The duplex apartment house was built for P32,927.00. The
spouses Tabligan borrowed P35,000.00 for the construction of the apartment house. The bank could not have known of any contractor’s lien because,
as far as it was concerned, it financed the entire construction even if the stated purpose of the loans was only to "complete" the construction.

Since the action filed by the private respondent is not one which can be considered as "equivalent general liquidation" having the same import as an
insolvency or settlement of the decedent’s estate proceeding, the well established principle must be applied that a purchaser in good faith and for value
takes registered land free from liens and encumbrances other than statutory liens and those recorded in the Certificate of Title. It is an admitted fact
that at the time the deeds of real estate mortgage in favor of the petitioner bank were constituted, the transfer certificate of title of the spouses Tabligan
was free from any recorded lien and encumbrances, so that the only registered liens in the title were deeds in favor of the petitioner.

Prescinding from the foregoing, the private respondent’s claim must remain subordinate to the petitioner bank’s title over the property evidenced by
TCT No. 101864.

WHEREFORE, the petition is granted. The decision of the Court of First Instance of Manila, Branch VII is, hereby, reversed and set aside. The
complaint and the counterclaim are dismissed. SO ORDERED.

REPUBLIC OF THE PHILIPPINES, represented by the Bureau of Customs and the Bureau of Internal Revenue, petitioner, vs. HONORABLE
E.L. PERALTA, PRESIDING JUDGE OF THE COURT OF FIRST INSTANCE OF MANILA, BRANCH XVII, QUALITY TABACCO CORPORATION,
FRANCISCO, FEDERACION OBRERO DE LA INDUSTRIA TABAQUERA Y OTROS TRABAJADORES DE FILIPINAS (FOITAF) USTC
EMPLOYEES ASSOCIATION WORKERS UNION-PTGWO, respondents. G.R. No. L-56568 May 20, 1987
FELICIANO, J.:
The Republic of the Philippines seeks the review on certiorari of the Order dated 17 November 1980 of the Court of First Instance of Manila in its Civil
Case No. 108395 entitled "In the Matter of Voluntary Insolvency of Quality Tobacco Corporation, Quality Tobacco Corporation, Petitioner," and of the
Order dated 19 January 1981 of the same court denying the motion for reconsideration of the earlier Order filed by the Bureau of Internal Revenue and
the Bureau of Customs for the Republic.
In the voluntary insolvency proceedings commenced in May 1977 by private respondent Quality Tobacco Corporation (the "Insolvent"), the following
claims of creditors were filed:
(i) P2,806,729.92, by the USTC Association of Employees and workers Union-PTGWO USTC as separation pay for their members. This amount plus
an additional sum of P280,672.99 as attorney's fees had been awarded by the National Labor Relations Commission in NLRC Case No. RB-IV-9775-
77. 1
(ii) P53,805.05 by the Federacion de la Industria Tabaquera y Otros Trabajadores de Filipinas ("FOITAF), as separation pay for their members, an
amount similarly awarded by the NLRC in the same NLRC Case.
(iii) P1,085,188.22 by the Bureau of Internal Revenue for tobacco inspection fees covering the period 1 October 1967 to 28 February 1973;
(iv) P276,161.00 by the Bureau of Customs for customs duties and taxes payable on various importations by the Insolvent. These obligations appear to
be secured by surety bonds. 2 Some of these imported items are apparently still in customs custody so far as the record before this Court goes.
In its questioned Order of 17 November 1980, the trial court held that the above-enumerated claims of USTC and FOITAF (hereafter collectively
referred to as the "Unions") for separation pay of their respective members embodied in final awards of the National Labor Relations Commission were
to be preferred over the claims of the Bureau of Customs and the Bureau of Internal Revenue. The trial court, in so ruling, relied primarily upon Article
110 of the Labor Code which reads thus:
Article 110. Worker preference in case of bankruptcy — In the event of bankruptcy or liquidation of an employer's business, his workers shall
enjoy first preference as regards wages due them for services rendered during the period prior to the bankruptcy or liquidation, any provision
of law to the contrary notwithstanding. Union paid wages shall be paid in full before other creditors may establish any claim to a share in the
assets of the employer.
The Solicitor General, in seeking the reversal of the questioned Orders, argues that Article 110 of the Labor Code is not applicable as it speaks of
"wages," a term which he asserts does not include the separation pay claimed by the Unions. "Separation pay," the Solicitor General contends,
is given to a laborer for a separation from employment computed on the basis of the number of years the laborer was employed by the employer; it is a
form of penalty or damage against the employer in favor of the employee for the latter's dismissal or separation from service. 3
Article 97 (f) of the Labor Code defines "wages" in the following terms:
Wage' paid to any employee shall mean the remuneration or earnings, however designated, capable of being expressed in terms of money,
whether fixed or ascertained on a time, task, piece, or commission basis, or other method of calculating the same, which is payable by an
employer to an employee under a written or unwritten contract of employment for work done or to be done, or for services rendered or to be
rendered, and includes the fair and reasonable value, as determined by the Secretary of Labor, of board, lodging, or other facilities
customarily furnished by the employer to the employee. 'Fair and reasonable value' shall not include any profit to the employer or to any
person affiliated with the employer.(emphasis supplied)
We are unable to subscribe to the view urged by the Solicitor General. We note, in this connection, that in Philippine Commercial and Industrial Bank
(PCIB) us. National Mines and Allied Workers Union, 4 the Solicitor General took a different view and there urged that the term "wages" under Article
110 of the Labor Code may be regarded as embracing within its scope severance pay or termination or separation pay. In PCIB, this Court agreed with
the position advanced by the Solicitor General.5 We see no reason for overturning this particular position. We continue to believe that, for the specific
purposes of Article 110 and in the context of insolvency termination or separation pay is reasonably regarded as forming part of the remuneration or
other money benefits accruing to employees or workers by reason of their having previously rendered services to their employer; as such, they fall
within the scope of "remuneration or earnings — for services rendered or to be rendered — ." Liability for separation pay might indeed have the effect
of a penalty, so far as the employer is concerned. So far as concerns the employees, however, separation pay is additional remuneration to which they
become entitled because, having previously rendered services, they are separated from the employer's service. The relationship between separation
pay and services rendered is underscored by the fact that separation pay is measured by the amount (i.e., length) of the services rendered. This
construction is sustained both by the specific terms of Article 110 and by the major purposes and basic policy embodied in the Labor Code. 6 It is also
the construction that is suggested by Article 4 of the Labor Code which directs that doubts — assuming that any substantial rather than merely frivolous
doubts remain-in the interpretation of the provisions of the labor Code and its implementing rules and regulations shall be "resolved in favor of labor."
The resolution of the issue of priority among the several claims filed in the insolvency proceedings instituted by the Insolvent cannot, however, rest on
a reading of Article 110 of the labor Code alone.
Article 110 of the Labor Code, in determining the reach of its terms, cannot be viewed in isolation. Rather, Article 110 must be read in relation to the
provisions of the Civil Code concerning the classification, concurrence and preference of credits, which provisions find particular application in
insolvency proceedings where the claims of all creditors, preferred or non-preferred, may be adjudicated in a binding manner. 7 It is thus important to
begin by outlining the scheme constituted by the provisions of the Civil Code on this subject.
Those provisions may be seen to classify credits against a particular insolvent into three general categories, namely:
(a) special preferred credits listed in Articles 2241 and 2242,

9
 (b) ordinary preferred credits listed in Article 2244; and
(c) common credits under Article 2245.
Turning first to special preferred credits under Articles 2241 and 2242, it should be noted at once that these credits constitute liens or encumbrances
on the specific movable or immovable property to which they relate. Article 2243 makes clear that these credits "shall be considered as mortgages or
pledges of real or personal property, or liens within the purview of legal provisions governing insolvency." It should be emphasized in this connection
that "duties, taxes and fees due [on specific movable property of the insolvent] to the State or any subdivision thereof" (Article 2241 [1]) and "taxes due
upon the [insolvent's] land or building (2242 [1])"stand first in preference in respect of the particular movable or immovable property to which the tax
liens have attached. Article 2243 is quite explicit: "[T]axes mentioned in number 1, Article 2241 and number 1, Article 2242 shall first be satisfied. " The
claims listed in numbers 2 to 13 in Article 2241 and in numbers 2 to 10 in Articles 2242, all come after taxes in order of precedence; such claims enjoy
their privileged character as liens and may be paid only to the extent that taxes have been paid from the proceeds of the specific property involved (or
from any other sources) and only in respect of the remaining balance of such proceeds. What is more, these other (non-tax) credits, although
constituting liens attaching to particular property, are not preferred one over another inter se. Provided tax liens shall have been satisfied, non-tax liens
or special preferred credits which subsist in respect of specific movable or immovable property are to be treated on an equal basis and to be satisfied
concurrently and proportionately. 8 Put succintly, Articles 2241 and 2242 jointly with Articles 2246 to 2249 establish a two-tier order of preference.
The first tier includes only taxes, duties and fees due on specific movable or immovable property. All other special preferred credits stand on the
same second tier to be satisfied, pari passu and pro rata, out of any residual value of the specific property to which such other credits relate.
Credits which are specially preferred because they constitute liens (tax or non-tax) in turn, take precedence over ordinary preferred credits so far as
concerns the property to which the liens have attached. The specially preferred credits must be discharged first out of the proceeds of the property to
which they relate, before ordinary preferred creditors may lay claim to any part of such proceeds. 9
If the value of the specific property involved is greater than the sum total of the tax liens and other specially preferred credits, the residual value will
form part of the "free property" of the insolvent — i.e., property not impressed with liens by operation of Articles 2241 and 2242. If, on the other hand,
the value of the specific movable or immovable is less than the aggregate of the tax liens and other specially preferred credits, the unsatisfied balance
of the tax liens and other such credits are to the treated as ordinary credits under Article 2244 and to be paid in the order of preference there set up. 10
In contrast with Articles 2241 and 2242, Article 2244 creates no liens on determinate property which follow such property. What Article 2244 creates
are simply rights in favor of certain creditors to have the cash and other assets of the insolvent applied in a certain sequence or order of priority. 11
Only in respect of the insolvent's "free property" is an order of priority established by Article 2244. In this sequence, certain taxes and assessments
also figure but these do not have the same kind of overriding preference that Articles 2241 No. 1 and 2242 No. I create for taxes which constituted liens
on the taxpayer's property. Under Article 2244,
(a) taxes and assessments due to the national government, excluding those which result in tax liens under Articles 2241 No. 1 and 2242 No. 1
but including the balance thereof not satisfied out of the movable or immovable property to which such liens attached, are ninth in priority;
(b) taxes and assessments due any province, excluding those impressed as tax liens under Articles 2241 No. 1 and 2242 No. 1,
but including the balance thereof not satisfied out of the movable or immovable property to which such liens attached, are tenth in priority; and
(c) taxes and assessments due any city or municipality, excluding those impressed as tax liens under Articles 2241 No. I and 2242 No. 2
but including the balance thereof not satisfied out of the movable or immovable property to which such liens attached, are eleventh in priority.
It is within the framework of the foregoing rules of the Civil Code that the question of the relative priority of the claims of the Bureau of Customs and the
Bureau of Internal Revenue, on the one hand, and of the claims of the Unions for separation pay of their members, on the other hand, is to be
resolved. A related vital issue is what impact Article 110 of the labor Code has had on those provisions of the Civil Code.
A. Claim of the Bureau of Customs for Unpaid Customs Duties and Taxes-
Under Section 1204 of the Tariff and Customs Code, 12 the liability of an importer
for duties, taxes and fees and other charges attaching on importation constitute a personal debt due from the importer to the government which can be
discharged only by payment in full of all duties, taxes, fees and other charges legally accruing It also constitutes a lien upon the articles imported which
may be enforced while such articles are in the custody or subject to the control of the government. (emphasis supplied)
Clearly, the claim of the Bureau of Customs for unpaid customs duties and taxes enjoys the status of a specially preferred credit under Article 2241,
No. 1, of the Civil Code. only in respect of the articles importation of which by the Insolvent resulted in the assessment of the unpaid taxes and duties,
and which are still in the custody or subject to the control of the Bureau of Customs. The goods imported on one occasion are not subject to a lien for
customs duties and taxes assessed upon other importations though also effected by the Insolvent. Customs duties and taxes which remain unsatisfied
after levy upon the imported articles on which such duties and taxes are due, would have to be paid out of the Insolvent's "free property" in accordance
with the order of preference embodied in Article 2244 of the Civil Code. Such unsatisfied customs duties and taxes would fall within Article 2244, No. 9,
of the Civil Code and hence would be ninth in priority.
B. Claims of the Bureau of Internal Revenue for Tabacco Inspection Fees —
Under Section 315 of the National Internal Revenue Code ("old Tax Code"), 13 later reenacted in Identical terms as Section 301 of the Tax Code of
1977, 14 an unpaid "internal revenue tax," together with related interest, penalties and costs, constitutes a lien in favor of the Government from the
time an assessment therefor is made and until paid, "upon all property and rights to property belonging to the taxpayer."
Tobacco inspection fees are specifically mentioned as one of the miscellaneous taxes imposed under the National Internal Revenue Code, specifically
Title VIII, Chapter IX of the old Tax Code and little VIII, Chapter VII of the Tax Code of 1977. 15 Tobacco inspection fees are collected both for
purposes of regulation and control and for purposes of revenue generation: half of the said fees accrues to the Tobacco Inspection Fund created by
Section 12 of Act No. 2613, as amended by Act No. 3179, while the other half accrues to the Cultural Center of the Philippines. Tobacco inspection
fees, in other words, are imposed both as a regulatory measure and as a revenue-raising measure. In Commissioner of Internal Revenue us. Guerrero,
et al 16 this Court held, through Mr. Chief Justice Concepcion, that the term "tax" is used in Section 315 of the old Tax Code:
not in the limited sense [of burdens imposed upon persons and/or properties, by way of contributions to the support of the
Government, in consideration of general benefits derived from its operation], but, in a broad sense, encompassing all
government revenues collectible by the Commissioner of Internal Revenue under said Code, whether involving taxes, in the
strict technical sense thereof, or not. x x x As used in Title IX of said Code, the term 'tax' includes 'any national internal revenue
tax, fee or charge imposed by the Code. 17
It follows that the claim of the Bureau of Internal Revenue for unpaid tobacco inspection fees constitutes a claim for unpaid internal revenue
taxes 18 which gives rise to a tax lien upon all the properties and assets, movable and immovable, of the Insolvent as taxpayer. Clearly, under Articles
2241 No. 1, 2242 No. 1, and 2246-2249 of the Civil Code, this tax claim must be given preference over any other claim of any other creditor, in respect
of any and all properties of the Insolvent. 19
C. Claims of the Unions for Separation Pay of Their Members —
Article 110 of the Labor Code does not purport to create a lien in favor of workers or employees for unpaid wages either upon all of the properties or
upon any particular property owned by their employer. Claims for unpaid wages do not therefore fall at all within the category of specially preferred
claims established under Articles 2241 and 2242 of the Civil Code, except to the extent that such claims for unpaid wages are already covered by
Article 2241, number 6. "claims for laborers' wages, on the goods manufactured or the work done;" or by Article 2242, number 3: "claims of laborers
and other workers engaged in the construction, reconstruction or repair of buildings, canals and other works, upon said buildings, canals or other
works." To the extent that claims for unpaid wages fall outside the scope of Article 2241, number 6 and 2242, number 3, they would come within the
ambit of the category of ordinary preferred credits under Article 2244.
Applying Article 2241, number 6 to the instant case, the claims of the Unions for separation pay of their members constitute liens attaching to the
processed leaf tobacco, cigars and cigarettes and other products produced or manufactured by the Insolvent, but not to other assets owned by the
Insolvent. And even in respect of such tobacco and tobacco products produced by the Insolvent, the claims of the Unions may be given effect only after
the Bureau of Internal Revenue's claim for unpaid tobacco inspection fees shall have been satisfied out of the products so manufactured by the
Insolvent.
Article 2242, number 3, also creates a lien or encumbrance upon a building or other real property of the Insolvent in favor of workmen who constructed
or repaired such building or other real property. Article 2242, number 3, does not however appear relevant in the instant case, since the members of
the Unions to whom separation pay is due rendered services to the Insolvent not (so far as the record of this case would show) in the construction or
repair of buildings or other real property, but rather, in the regular course of the manufacturing operations of the Insolvent. The Unions' claims do not
therefore constitute a lien or encumbrance upon any immovable property owned by the Insolvent, but rather, as already indicated, upon the Insolvent's
existing inventory (if any of processed tobacco and tobacco products.
We come to the question of what impact Article 110 of the Labor Code has had upon the complete scheme of classification, concurrence and
preference of credits in insolvency set out in the Civil Code. We believe and so hold that Article 110 of the Labor Code did not sweep away the

10
overriding preference accorded under the scheme of the Civil Code to tax claims of the government or any subdivision thereof which constitute a lien
upon properties of the Insolvent. It is frequently said that taxes are the very lifeblood of government. The effective collection of taxes is a task of highest
importance for the sovereign. It is critical indeed for its own survival. It follows that language of a much higher degree of specificity than that exhibited in
Article 110 of the Labor Code is necessary to set aside the intent and purpose of the legislator that shines through the precisely crafted provisions of
the Civil Code. It cannot be assumed simpliciter that the legislative authority, by using in Article 110 the words "first preference" and "any provision of
law to the contrary notwithstanding" intended to disrupt the elaborate and symmetrical structure set up in the Civil Code. Neither can it be assumed
casually that Article 110 intended to subsume the sovereign itself within the term "other creditors" in stating that "unpaid wages shall be paid in full
before other creditors may establish any claim to a share in the assets of employer." Insistent considerations of public policy prevent us from giving to
"other creditors" a linguistically unlimited scope that would embrace the universe of creditors save only unpaid employees.
We, however, do not believe that Article 110 has had no impact at all upon the provisions of the Civil Code. Bearing in mind the overriding precedence
given to taxes, duties and fees by the Civil Code and the fact that the Labor Code does not impress any lien on the property of an employer, the use of
the phrase "first preference" in Article 110 indicates that what Article 110 intended to modify is the order of preference found in Article 2244, which
order relates, as we have seen, to property of the Insolvent that is not burdened with the liens or encumbrances created or recognized by Articles 2241
and 2242. We have noted that Article 2244, number 2, establishes second priority for claims for wages for services rendered by employees or laborers
of the Insolvent "for one year preceding the commencement of the proceedings in insolvency." Article 110 of the Labor Code establishes "first
preference" for services rendered "during the period prior to the bankruptcy or liquidation, " a period not limited to the year immediately prior to the
bankruptcy or liquidation. Thus, very substantial effect may be given to the provisions of Article 110 without grievously distorting the framework
established in the Civil Code by holding, as we so hold, that Article 110 of the Labor Code has modified Article 2244 of the Civil Code in two respects:
(a) firstly, by removing the one year limitation found in Article 2244, number 2; and (b) secondly, by moving up claims for unpaid wages of laborers or
workers of the Insolvent from second priority to first priority in the order of preference established I by Article 2244.
Accordingly, and by way of recapitulating the application of Civil Code and Labor Code provisions to the facts herein, the trial court should inventory the
properties of the Insolvent so as to determine specifically: (a) whether the assets of the Insolvent before the trial court includes stocks of processed or
manufactured tobacco products; and (b) whether the Bureau of Customs still has in its custody or control articles imported by the Insolvent and subject
to the lien of the government for unpaid customs duties and taxes.
In respect of (a), if the Insolvent has inventories of processed or manufactured tobacco products, such inventories must be subjected firstly to the claim
of the Bureau of Internal Revenue for unpaid tobacco inspection fees. The remaining value of such inventories after satisfaction of such fees (or should
such inspection fees be satisfied out of other properties of the Insolvent) will be subject to a lien in favor of the Unions by virtue of Article 2241, number
6. In case, upon the other hand, the Insolvent no longer has any inventory of processed or manufactured product, then the claim of the Unions for
separation pay would have to be satisfied out of the "free property" of the Insolvent under Article 2244 of the Civil Code. as modified by Article 110 of
the Labor Code.
Turning to (b), should the Bureau of Customs no longer have any importations by the Insolvent still within customs custody or control, or should the
importations still held by the Bureau of Customs be or have become insufficient in value for the purpose, customs duties and taxes remaining unpaid
would have only ninth priority by virtue of Article 2244, number 9. In respect therefore of the Insolvent's "free property, " the claims of the Unions will
enjoy first priority under Article 2244 as modified and will be paid ahead of the claims of the Bureau of Customs for any customs duties and taxes still
remaining unsatisfied.
It is understood that the claims of the Unions referred to above do not include the 10% claim for attorney's fees. Attorney's fees incurred by the Unions
do not stand on the same footing as the Unions' claims for separation pay of their members.
WHEREFORE, the petition for review is granted and the Orders dated 17 November 1980 and 19 January 1981 of the trial court are modified
accordingly. This case is hereby remanded to the trial court for further proceedings in insolvency compatible with the rulings set forth above. No
pronouncement as to costs. SO ORDERED.

Separate Opinions
CRUZ, J., dissenting:
I regret I cannot give my concurrence to the majority opinion because it reads into the law an exception that is not there. In so doing, it arrogates for the
Court a power rightfully belonging to the legislature.
It seems to me that the erudite ponencia "doth protest too much. "
The language of the provision in question is clear and categorical. Article 110 of P.D. No. 442 states quite plainly:
D. Art. 110. Worker preference in case of bankruptcy.— In the event of bankruptcy or liquidation of an employer's business, his workers shall enjoy first
preference as regards wages due them for services rendered during the period prior to the bankruptcy or liquidation, any provision of law to the
contrary notwithstanding. Unpaid wages shall be paid in full before other creditors may establish any claim to a share in the assets of the employer.
(Emphasis mine).
I take the phrase "any provision of law to the contrary notwithstanding" to mean exactly what it says, I submit that if the law had intended an exception,
it would have - and could easily have-provided for it.
The labor Code was promulgated by President Marcos who, we may assume, was aware of the usual preference of tax claims. So informed, he would
have reserved that primacy in the above article if that was what he really wanted.
That fact that he did not is to me a certain indication of his true intention, viz., that under the said article the claims of laborers for unpaid wages shall
have priority above all else.
It is axiomatic that the words of a statute are to be given their normal and ordinary connotation. We cannot read into the law meanings that are not
intended and - worse - that are precisely excluded as in this case.
Moreover, the Labor Code was promulgated later than the Civil Code, the Insolvency Law and the Internal Revenue Code where the tax claims are
preferred. The Labor Code prevails over these earlier statutes as it represents the later expression of the legislative will.
While I recognize the need for the usual preference of taxes over other claims, I suggest that general rule must be read in the light of the basic policy
embodied in the Labor Code for the protection of the working class.
The power of taxation, while indispensable, is not absolute and may be subordinated to the demands of social justice. I for one am not alarmed by the
dire prognostication that this would prejudice the very existence of the state. The amount involved is relatively insubstantial and is not significant
enough as to drain the coffers of the government.
By contrast, that same amount could, without exaggeration, spell the difference between subsistence and starvation for the laborer and affect the very
survival of the faith we hope he still retains in the concern of the state for his welfare.
Social justice is not a mere catchphrase to be mouthed with sham fervor in Labor Day celebrations for the delectation and seduction of the working
class. It is a mandate we should pursue with energy and sincerity if we are to truly insure the dignity and well-being of the laborer.
By the decision reached today, I feel the Court has reneged on its hitherto consistent commitment for the protection of labor under the policy of social
justice. It is for me a cause for deep disappointment.

Separate Opinions
CRUZ, J., dissenting:
I regret I cannot give my concurrence to the majority opinion because it reads into the law an exception that is not there. In so doing, it arrogates for the
Court a power rightfully belonging to the legislature.
It seems to me that the erudite ponencia "doth protest too much. "
The language of the provision in question is clear and categorical. Article 110 of P.D. No. 442 states quite plainly:
D. Art. 110. Worker preference in case of bankruptcy.— In the event of bankruptcy or liquidation of an employer's business, his workers shall enjoy first
preference as regards wages due them for services rendered during the period prior to the bankruptcy or liquidation, any provision of law to the
contrary notwithstanding. Unpaid wages shall be paid in full before other creditors may establish any claim to a share in the assets of the employer.
(Emphasis mine).
I take the phrase "any provision of law to the contrary notwithstanding" to mean exactly what it says, I submit that if the law had intended an exception,
it would have - and could easily have-provided for it.

11
The labor Code was promulgated by President Marcos who, we may assume, was aware of the usual preference of tax claims. So informed, he would
have reserved that primacy in the above article if that was what he really wanted.
That fact that he did not is to me a certain indication of his true intention, viz., that under the said article the claims of laborers for unpaid wages shall
have priority above all else.
It is axiomatic that the words of a statute are to be given their normal and ordinary connotation. We cannot read into the law meanings that are not
intended and - worse - that are precisely excluded as in this case.
Moreover, the Labor Code was promulgated later than the Civil Code, the Insolvency Law and the Internal Revenue Code where the tax claims are
preferred. The Labor Code prevails over these earlier statutes as it represents the later expression of the legislative will.
While I recognize the need for the usual preference of taxes over other claims, I suggest that general rule must be read in the light of the basic policy
embodied in the Labor Code for the protection of the working class.
The power of taxation, while indispensable, is not absolute and may be subordinated to the demands of social justice. I for one am not alarmed by the
dire prognostication that this would prejudice the very existence of the state. The amount involved is relatively insubstantial and is not significant
enough as to drain the coffers of the government.
By contrast, that same amount could, without exaggeration, spell the difference between subsistence and starvation for the laborer and affect the very
survival of the faith we hope he still retains in the concern of the state for his welfare.
Social justice is not a mere catchphrase to be mouthed with sham fervor in Labor Day celebrations for the delectation and seduction of the working
class. It is a mandate we should pursue with energy and sincerity if we are to truly insure the dignity and well-being of the laborer.
By the decision reached today, I feel the Court has reneged on its hitherto consistent commitment for the protection of labor under the policy of social
justice. It is for me a cause for deep disappointment.

JOSE CORDOVA v. REYES DAWAY LIM BERNARDO LINDO ROSALES LAW OFFICES, ATTY. WENDEL CORONEL, and the SEC (GR 146555,
July 3, 2007)
CORONA, J.:
This is a petition for review on certiorari[1] of a decision[2] and resolution[3] of the Court of Appeals (CA) dated July 31, 2000 and December 27, 2000,
respectively, in CA-G.R. SP No. 55311.

Sometime in 1977 and 1978, petitioner Jose C. Cordova bought from Philippine Underwriters Finance Corporation (Philfinance) certificates
of stock of Celebrity Sports Plaza Incorporated (CSPI) and shares of stock of various other corporations. He was issued a confirmation of sale.[4] The
CSPI shares were physically delivered by Philfinance to the former Filmanbank [5] and Philtrust Bank, as custodian banks, to hold these shares in behalf
of and for the benefit of petitioner.[6]

On June 18, 1981, Philfinance was placed under receivership by public respondent Securities and Exchange Commission (SEC). Thereafter,
private respondents Reyes Daway Lim Bernardo Lindo Rosales Law Offices and Atty. Wendell Coronel (private respondents) were appointed as
[7]
liquidators. Sometime in 1991, without the knowledge and consent of petitioner and without authority from the SEC, private respondents withdrew the
CSPI shares from the custodian banks.[8] On May 27, 1996, they sold the shares to Northeast Corporation and included the proceeds thereof in the funds
of Philfinance. Petitioner learned about the unauthorized sale of his shares only on September 10, 1996.[9] He lodged a complaint with private respondents
but the latter ignored it[10] prompting him to file, on May 6, 1997,[11] a formal complaint against private respondents in the receivership proceedings with
the SEC, for the return of the shares.

Meanwhile, on April 18, 1997, the SEC approved a 15% rate of recovery for Philfinances creditors and investors. [12] On May 13, 1997, the
liquidators began the process of settling the claims against Philfinance, from its assets.[13]

On April 14, 1998, the SEC rendered judgment dismissing the petition. However, it reconsidered this decision in a resolution dated September
24, 1999 and granted the claims of petitioner. It held that petitioner was the owner of the CSPI shares by virtue of a confirmation of sale (which was
considered as a deed of assignment) issued to him by Philfinance. But since the shares had already been sold and the proceeds commingled with the
other assets of Philfinance, petitioners status was converted into that of an ordinary creditor for the value of such shares. Thus, it ordered private
respondents to pay petitioner the amount of P5,062,500 representing 15% of the monetary value of his CSPI shares plus interest at the legal rate from
the time of their unauthorized sale.

On October 27, 1999, the SEC issued an order clarifying its September 24, 1999 resolution. While it reiterated its earlier order to pay petitioner
the amount of P5,062,500, it deleted the award of legal interest. It clarified that it never meant to award interest since this would be unfair to the other
claimants.

On appeal, the CA affirmed the SEC. It agreed that petitioner was indeed the owner of the CSPI shares but the recovery of such shares
had become impossible. It also declared that the clarificatory order merely harmonized the dispositive portion with the body of the
resolution. Petitioners motion for reconsideration was denied.

Hence this petition raising the following issues:

1) whether petitioner should be considered as a preferred (and secured) creditor of Philfinance;
2) whether petitioner can recover the full value of his CSPI shares or merely 15% thereof like all other ordinary creditors of Philfinance and
3) whether petitioner is entitled to legal interest.[14]

To resolve these issues, we first have to determine if petitioner was indeed a creditor of Philfinance.

There is no dispute that petitioner was the owner of the CSPI shares. However, private respondents, as liquidators of Philfinance,
illegally withdrew said certificates of stock without the knowledge and consent of petitioner and authority of the SEC. [15] After selling the CSPI
shares, private respondents added the proceeds of the sale to the assets of Philfinance.[16] Under these circumstances, did the petitioner become
a creditor of Philfinance? We rule in the affirmative.

The SEC, after holding that petitioner was the owner of the shares, stated:
Petitioner is seeking the return of his CSPI shares which, for the present, is no longer possible, considering that the same had
already been sold by the respondents, the proceeds of which are ADMITTEDLY commingled with the assets of PHILFINANCE.

This being the case, [petitioner] is now but a claimant for the value of those shares. As a claimant, he shall be treated as an
ordinary creditor in so far as the value of those certificates is concerned.[17]

The CA agreed with this and elaborated:

Much as we find both detestable and reprehensible the grossly abusive and illicit contrivance employed by private
respondents against petitioner, we, nevertheless, concur with public respondent that the return of petitioners CSPI shares is well-
nigh impossible, if not already an utter impossibility, inasmuch as the certificates of stocks have already been alienated or
transferred in favor of Northeast Corporation, as early as May 27, 1996, in consequence whereof the proceeds of the sale have
been transmuted into corporate assets of Philfinance, under custodia legis, ready for distribution to its creditors and/or
investors. Case law holds that the assets of an institution under receivership or liquidation shall be deemed in custodia legis in

12
 the hands of the receiver or liquidator, and shall from the moment of such receivership or liquidation, be exempt from any order,
garnishment, levy, attachment, or execution.

Concomitantly, petitioners filing of his claim over the subject CSPI shares before the SEC in the liquidation
proceedings bound him to the terms and conditions thereof. He cannot demand any special treatment [from] the liquidator, for
this flies in the face of, and will contravene, the Supreme Court dictum that when a corporation threatened by bankruptcy is taken
over by a receiver, all the creditors shall stand on equal footing. Not one of them should be given preference by paying one or
some [of] them ahead of the others. This is precisely the philosophy underlying the suspension of all pending claims against the
corporation under receivership. The rule of thumb is equality in equity.[18]

We agree with both the SEC and the CA that petitioner had become an ordinary creditor of Philfinance.

Certainly, petitioner had the right to demand the return of his CSPI shares.[19] He in fact filed a complaint in the liquidation proceedings
in the SEC to get them back but was confronted by an impossible situation as they had already been sold. Consequently, he sought instead to
recover their monetary value.

Petitioners CSPI shares were specific or determinate movable properties.[20] But after they were sold, the money raised from the sale
became generic[21] and were commingled with the cash and other assets of Philfinance. Unlike shares of stock, money is a generic thing. It is
designated merely by its class or genus without any particular designation or physical segregation from all others of the same class.[22] This means
that once a certain amount is added to the cash balance, one can no longer pinpoint the specific amount included which then becomes part of a
whole mass of money.

It thus became impossible to identify the exact proceeds of the sale of the CSPI shares since they could no longer be particularly
designated nor distinctly segregated from the assets of Philfinance. Petitioners only remedy was to file a claim on the whole mass of these assets,
to which unfortunately all of the other creditors and investors of Philfinance also had a claim.

Petitioners right of action against Philfinance was a claim properly to be litigated in the liquidation proceedings.[23] In Finasia Investments
and Finance Corporation v. CA,[24] we discussed the definition of claims in the context of liquidation proceedings:

We agree with the public respondent that the word claim as used in Sec. 6(c) of P.D. 902-A,[25] 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 [the 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.[26]

Undoubtedly, petitioner had a right to the payment of the value of his shares. His demand was of a pecuniary nature since he was
claiming the monetary value of his shares.It was in this sense (i.e. as a claimant) that he was a creditor of Philfinance.
The Civil Code provisions on concurrence and preference of credits are applicable to the liquidation proceedings.[27] The next question
is, was petitioner a preferred or ordinary creditor under these provisions?

Petitioner argues that he was a preferred creditor because private respondents illegally withdrew his CSPI shares from the custodian
banks and sold them without his knowledge and consent and without authority from the SEC. He quotes Article 2241 (2) of the Civil Code:

With reference to specific movable property of the debtor, the following claims or liens shall be preferred:

xxx xxx xxx

(2) Claims arising from misappropriation, breach of trust, or malfeasance by public officials committed in the performance of their
duties, on the movables, money or securities obtained by them;

xxx xxx xxx

(Emphasis supplied)
He asserts that, as a preferred creditor, he was entitled to the entire monetary value of his shares.

Petitioners argument is incorrect. Article 2241 refers only to specific movable property. His claim was for the payment of money, which,
as already discussed, is generic property and not specific or determinate.

Considering that petitioner did not fall under any of the provisions applicable to preferred creditors, he was deemed an ordinary creditor
under Article 2245:
Credits of any other kind or class, or by any other right or title not comprised in the four preceding articles, shall enjoy no
preference.

This being so, Article 2251 (2) states that:

Common credits referred to in Article 2245 shall be paid pro rata regardless of dates.

Like all the other ordinary creditors or claimants against Philfinance, he was entitled to a rate of recovery of only 15% of his money claim.
One final issue: was petitioner entitled to interest?

The SEC argues that awarding interest to petitioner would have given petitioner an unfair advantage or preference over the other
creditors.[28] Petitioner counters that he was entitled to 12% legal interest per annum under Article 2209 of the Civil Code from the time he was
deprived of the shares until fully paid.

The guidelines for awarding interest were laid down in Eastern Shipping Lines, Inc. v. CA:[29]

13
 I. When an obligation, regardless of its source, i.e., law, contracts, quasi-contracts, delicts or quasi-delicts is breached, the
contravenor can be held liable for damages. The provisions under Title XVIII on "Damages" of the Civil Code govern in determining
the measure of recoverable damages.

II. With regard particularly to an award of interest in the concept of actual and compensatory damages, the rate of interest, as well
as the accrual thereof, is imposed, as follows:
1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or forbearance of
money, the interest due should be that which may have been stipulated in writing. Furthermore, the interest due shall itself earn
legal interest from the time it is judicially demanded. In the absence of stipulation, the rate of interest shall be 12% per annum to
be computed from default, i.e., from judicial or extrajudicial demand under and subject to the provisions of Article 1169 of the Civil
Code.
2. When an obligation, not constituting a loan or forbearance of money, is breached, an interest on the amount of
damages awarded may be imposed at the discretion of the court at the rate of 6% per annum. No interest, however, shall be
adjudged on unliquidated claims or damages except when or until the demand can be established with reasonable certainty.

Accordingly, where the demand is established with reasonable certainty, the interest shall begin to run from the time the claim is
made judicially or extrajudicially (Art. 1169, Civil Code) but when such certainty cannot be so reasonably established at the time
the demand is made, the interest shall begin to run only from the date of the judgment of the court is made (at which time the
quantification of damages may be deemed to have been reasonably ascertained). The actual base for the computation of legal
interest shall, in any case, be on the amount of finally adjudged.

3. When the judgment of the court awarding a sum of money becomes final and executory, the rate of legal interest,
whether the case falls under paragraph 1 or paragraph 2, above, shall be 12% per annum from such finality until its satisfaction,
this interim period being deemed to be by then an equivalent to a forbearance of credit.[30] (Emphasis supplied)

Under this ruling, petitioner was not entitled to legal interest of 12% per annum (from demand) because the amount owing to him was not a
loan[31] or forbearance of money.[32]

Neither was he entitled to legal interest of 6% per annum under Article 2209 of the Civil Code[33] since this provision applies only when there
is a delay in the payment of a sum of money.[34] This was not the case here. In fact, petitioner himself manifested before the CA that the SEC (as liquidator)
had already paid him P5,062,500 representing 15% of P33,750,000.[35]

Accordingly, petitioner was not entitled to interest under the law and current jurisprudence.

Considering that petitioner had already received the amount of P5,062,500, the obligation of the SEC as liquidator of Philfinance was totally
extinguished.[36]

We note that there is an undisputed finding by the SEC and CA that private respondents sold the subject shares without authority from the SEC. Petitioner
evidently has a cause of action against private respondents for their bad faith and unauthorized acts, and the resulting damage caused to him.[37]
WHEREFORE, the petition is hereby DENIED. SO ORDERED.

REPUBLIC ACT No. 10142

AN ACT PROVIDING FOR THE REHABILITATION OR LIQUIDATION OF FINANCIALLY DISTRESSED ENTERPRISES AND INDIVIDUALS
Be it enacted by the Senate and House of Representatives of the Philippines in Congress assembled:
CHAPTER I
GENERAL PROVISIONS
Section 1. Title. - This Act shall be known as the "Financial Rehabilitation and Insolvency Act (FRIA) of 2010".
Section 2. Declaration of Policy. - It is the policy of the State to encourage debtors, both juridical and natural persons, and their creditors to collectively
and realistically resolve and adjust competing claims and property rights. In furtherance thereof, the State shall ensure a timely, fair, transparent,
effective and efficient rehabilitation or liquidation of debtors. The rehabilitation or liquidation shall be made with a view to ensure or maintain certainly
and predictability in commercial affairs, preserve and maximize the value of the assets of these debtors, recognize creditor rights and respect priority of
claims, and ensure equitable treatment of creditors who are similarly situated. When rehabilitation is not feasible, it is in the interest of the State to
facilities a speedy and orderly liquidation of these debtor's assets and the settlement of their obligations.
Section 3. Nature of Proceedings. - The proceedings under this Act shall be in rem. Jurisdiction over all persons affected by the proceedings shall be
considered as acquired upon publication of the notice of the commencement of the proceedings in any newspaper of general circulation in the
Philippines in the manner prescribed by the rules of procedure to be promulgated by the Supreme Court.
The proceedings shall be conducted in a summary and non-adversarial manner consistent with the declared policies of this Act and in accordance with
the rules of procedure that the Supreme Court may promulgate.
Section 4. Definition of Terms. - As used in this Act, the term:
(a) Administrative expenses shall refer to those reasonable and necessary expenses:
(1) incurred or arising from the filing of a petition under the provisions of this Act;
(2) arising from, or in connection with, the conduct of the proceedings under this Act, including those incurred for the rehabilitation or
liquidation of the debtor;
(3) incurred in the ordinary course of business of the debtor after the commencement date;
(4) for the payment of new obligations obtained after the commencement date to finance the rehabilitation of the debtor;
(5) incurred for the fees of the rehabilitation receiver or liquidator and of the professionals engaged by them; and
(6) that are otherwise authorized or mandated under this Act or such other expenses as may be allowed by the Supreme Court in its rules.
(b) Affiliate shall refer to a corporation that directly or indirectly, through one or more intermediaries, is controlled by, or is under the common
control of another corporation.
(c) Claim shall refer to all claims or demands of whatever nature or character against the debtor or its property, whether for money or otherwise,
liquidated or unliquidated, fixed or contingent, matured or unmatured, disputed or undisputed, including, but not limited to; (1) all claims of the
government, whether national or local, including taxes, tariffs and customs duties; and (2) claims against directors and officers of the debtor
arising from acts done in the discharge of their functions falling within the scope of their authority: Provided, That, this inclusion does not prohibit
the creditors or third parties from filing cases against the directors and officers acting in their personal capacities.
(d) Commencement date shall refer to the date on which the court issues the Commencement Order, which shall be retroactive to the date of
filing of the petition for voluntary or involuntary proceedings.
(e) Commencement Order shall refer to the order issued by the court under Section 16 of this Act.
(f) Control shall refer to the power of a parent corporation to direct or govern the financial and operating policies of an enterprise so as to obtain
benefits from its activities. Control is presumed to exist when the parent owns, directly or indirectly through subsidiaries or affiliates, more than
one-half (1/2) of the voting power of an enterprise unless, in exceptional circumstances, it can clearly be demonstrated that such ownership does
not constitute control. Control also exists even when the parent owns one-half (1/2) or less of the voting power of an enterprise when there is
power:

14
 (1) over more than one-half (1/2) of the voting rights by virtue of an agreement with investors;
(2) to direct or govern the financial and operating policies of the enterprise under a statute or an agreement;
(3) to appoint or remove the majority of the members of the board of directors or equivalent governing body; or
(4) to cast the majority votes at meetings of the board of directors or equivalent governing body.
(g) Court shall refer to the court designated by the Supreme Court to hear and determine, at the first instance, the cases brought under this Act.
(h) Creditor shall refer to a natural or juridical person which has a claim against the debtor that arose on or before the commencement date.
(i) Date of liquidation shall refer to the date on which the court issues the Liquidation Order.
(j) Days shall refer to calendar days unless otherwise specifically stated in this Act.
(k) Debtor shall refer to, unless specifically excluded by a provision of this Act, a sole proprietorship duly registered with the Department of Trade
and Industry (DTI), a partnership duly registered with the Securities and Exchange Commission (SEC), a corporation duly organized and existing
under Philippine laws, or an individual debtor who has become insolvent as defined herein.
(l) Encumbered property shall refer to real or personal property of the debtor upon which a lien attaches.
(m) General unsecured creditor shall refer to a creditor whose claim or a portion thereof its neither secured, preferred nor subordinated under this
Act.
(n) Group of debtors shall refer to and can cover only: (1) corporations that are financially related to one another as parent corporations,
subsidiaries or affiliates; (2) partnerships that are owned more than fifty percent (50%) by the same person; and (3) single proprietorships that are
owned by the same person. When the petition covers a group of debtors, all reference under these rules to debtor shall include and apply to the
group of debtors.
(o) Individual debtor shall refer to a natural person who is a resident and citizen of the Philippines that has become insolvent as defined herein.
(p) Insolvent shall refer to the financial condition of a debtor that is generally unable to pay its or his liabilities as they fall due in the ordinary
course of business or has liabilities that are greater than its or his assets.
(q) Insolvent debtor's estate shall refer to the estate of the insolvent debtor, which includes all the property and assets of the debtor as of
commencement date, plus the property and assets acquired by the rehabilitation receiver or liquidator after that date, as well as all other property
and assets in which the debtor has an ownership interest, whether or not these property and assets are in the debtor's possession as of
commencement date: Provided, That trust assets and bailment, and other property and assets of a third party that are in the possession of the
debtor as of commencement date, are excluded therefrom.
(r) Involuntary proceedings shall refer to proceedings initiated by creditors.
(s) Liabilities shall refer to monetary claims against the debtor, including stockholder's advances that have been recorded in the debtor's audited
financial statements as advances for future subscriptions.
(t) Lien shall refer to a statutory or contractual claim or judicial charge on real or personal property that legality entities a creditor to resort to said
property for payment of the claim or debt secured by such lien.
(u) Liquidation shall refer to the proceedings under Chapter V of this Act.
(v) Liquidation Order shall refer to the Order issued by the court under Section 112 of this Act.
(w) Liquidator shall refer to the natural person or juridical entity appointed as such by the court and entrusted with such powers and duties as set
forth in this Act: Provided, That, if the liquidator is a juridical entity, it must designated a natural person who possesses all the qualifications and
none of the disqualifications as its representative, it being understood that the juridical entity and the representative are solidarity liable for all
obligations and responsibilities of the liquidator.
(x) Officer shall refer to a natural person holding a management position described in or contemplated by a juridical entity's articles of
incorporation, bylaws or equivalent documents, except for the corporate secretary, the assistant corporate secretary and the external auditor.
(y) Ordinary course of business shall refer to transactions in the pursuit of the individual debtor's or debtor's business operations prior to
rehabilitation or insolvency proceedings and on ordinary business terms.
(z) Ownership interest shall refer to the ownership interest of third parties in property held by the debtor, including those covered by trust receipts
or assignments of receivables.
(aa) Parent shall refer to a corporation which has control over another corporation either directly or indirectly through one or more intermediaries.
(bb) Party to the proceedings shall refer to the debtor, a creditor, the unsecured creditors' committee, a stakeholder, a party with an ownership
interest in property held by the debtor, a secured creditor, the rehabilitation receiver, liquidator or any other juridical or natural person who stands
to be benefited or injured by the outcome of the proceedings and whose notice of appearance is accepted by the court.
(cc) Possessory lien shall refer to a lien on property, the possession of which has been transferred to a creditor or a representative or agent
thereof.
(dd) Proceedings shall refer to judicial proceedings commenced by the court's acceptance of a petition filed under this Act.
(ee) Property of others shall refer to property held by the debtor in which other persons have an ownership interest.
(ff) Publication notice shall refer to notice through publication in a newspaper of general circulation in the Philippines on a business day for two
(2) consecutive weeks.
(gg) Rehabilitation shall refer to the restoration of the debtor to a condition 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
debtor continues as a going concern than if it is immediately liquidated.
(hh) Rehabilitation receiver shall refer to the person or persons, natural or juridical, appointed as such by the court pursuant to this Act and which
shall be entrusted with such powers and duties as set forth herein.
(ii) Rehabilitation Plan shall refer to a plan by which the financial well-being and viability of an insolvent debtor can be restored using various
means including, but not limited to, debt forgiveness, debt rescheduling, reorganization or quasi-reorganization, dacion en pago, debt-equity
conversion and sale of the business (or parts of it) as a going concern, or setting-up of new business entity as prescribed in Section 62 hereof, or
other similar arrangements as may be approved by the court or creditors.
(jj) Secured claim shall refer to a claim that is secured by a lien.
(kk) Secured creditor shall refer to a creditor with a secured claim.
(ll) Secured party shall refer to a secured creditor or the agent or representative of such secured creditor.
(mm) Securities market participant shall refer to a broker dealer, underwriter, transfer agent or other juridical persons transacting securities in the
capital market.
(nn) Stakeholder shall refer, in addition to a holder of shares of a corporation, to a member of a nonstock corporation or association or a partner
in a partnership.
(oo) Subsidiary shall refer to a corporation more than fifty percent (50%) of the voting stock of which is owned or controlled directly or indirectly
through one or more intermediaries by another corporation, which thereby becomes its parent corporation.
(pp) Unsecured claim shall refer to a claim that is not secured by a lien.
(qq) Unsecured creditor shall refer to a creditor with an unsecured claim.
(rr) Voluntary proceedings shall refer to proceedings initiated by the debtor.
(ss) Voting creditor shall refer to a creditor that is a member of a class of creditors, the consent of which is necessary for the approval of a
Rehabilitation Plan under this Act.
Section 5. Exclusions. - The term debtor does not include banks, insurance companies, pre-need companies, and national and local government
agencies or units.
For purposes of this section:
(a) Bank shall refer to any duly licensed bank or quasi-bank that is potentially or actually subject to conservatorship, receivership or
liquidation proceedings under the New Central Bank Act (Republic Act No. 7653) or successor legislation;

15
 (b) Insurance company shall refer to those companies that are potentially or actually subject to insolvency proceedings under the Insurance
Code (Presidential Decree No. 1460) or successor legislation; and
(c) Pre-need company shall refer to any corporation authorized/licensed to sell or offer to sell pre-need plans.
Provided, That government financial institutions other than banks and government-owned or controlled corporations shall be covered by this Act,
unless their specific charter provides otherwise.
Section 6. Designation of Courts and Promulgation of Procedural Rules. - The Supreme Court shall designate the court or courts that will hear and
resolve cases brought under this Act and shall promulgate the rules of pleading, practice and procedure to govern the proceedings brought under this
Act.
Section 7. Substantive and Procedural Consolidation. - Each juridical entity shall be considered as a separate entity under the proceedings in this Act.
Under these proceedings, the assets and liabilities of a debtor may not be commingled or aggregated with those of another, unless the latter is a
related enterprise that is owned or controlled directly or indirectly by the same interests: Provided, however, That the commingling or aggregation of
assets and liabilities of the debtor with those of a related enterprise may only be allowed where:
(a) there was commingling in fact of assets and liabilities of the debtor and the related enterprise prior to the commencement of the proceedings;
(b) the debtor and the related enterprise have common creditors and it will be more convenient to treat them together rather than separately;
(c) the related enterprise voluntarily accedes to join the debtor as party petitioner and to commingle its assets and liabilities with the debtor's; and
(d) The consolidation of assets and liabilities of the debtor and the related enterprise is beneficial to all concerned and promotes the objectives of
rehabilitation.
Provided, finally, That nothing in this section shall prevent the court from joining other entities affiliated with the debtor as parties pursuant to the rules
of procedure as may be promulgated by the Supreme Court.
Section 8. Decisions of Creditors. - Decisions of creditors shall be made according to the relevant provisions of the Corporation Code in the case of
stock or nonstock corporations or the Civil Code in the case of partnerships that are not inconsistent with this Act.
Section 9. Creditors Representatives. - Creditors may designate representatives to vote or otherwise act on their behalf by filing notice of such
representation with the court and serving a copy on the rehabilitation receiver or liquidator.
Section 10. Liability of Individual Debtor, Owner of a Sole Proprietorship, Partners in a Partnership, or Directors and Officers. - Individual debtor, owner
of a sole proprietorship, partners in a partnership, or directors and officers of a debtor shall be liable for double the value of the property sold,
embezzled or disposed of or double the amount of the transaction involved, whichever is higher to be recovered for benefit of the debtor and the
creditors, if they, having notice of the commencement of the proceedings, or having reason to believe that proceedings are about to be commenced, or
in contemplation of the proceedings, willfully commit the following acts:
(a) Dispose or cause to be disposed of any property of the debtor other than in the ordinary course of business or authorize or approve any
transaction in fraud of creditors or in a manner grossly disadvantageous to the debtor and/or creditors; or
(b) Conceal or authorize or approve the concealment, from the creditors, or embezzles or misappropriates, any property of the debtor.
The court shall determine the extent of the liability of an owner, partner, director or officer under this section. In this connection, in case of partnerships
and corporations, the court shall consider the amount of the shareholding or partnership or equity interest of such partner, director or officer, the degree
of control of such partner, director or officer over the debtor, and the extent of the involvement of such partner, director or debtor in the actual
management of the operations of the debtor.
Section 11. Authorization to Exchange Debt for Equity. - Notwithstanding applicable banking legislation to the contrary, any bank, whether universal or
not, may acquire and hold an equity interest or investment in a debtor or its subsidiaries when conveyed to such bank in satisfaction of debts pursuant
to a Rehabilitation or Liquidation Plan approved by the court: Provided, That such ownership shall be subject to the ownership limits applicable to
universal banks for equity investments and: Provided, further, That any equity investment or interest acquired or held pursuant to this section shall be
disposed by the bank within a period of five (5) years or as may be prescribed by the Monetary Board.
CHAPTER II
COURT-SUPERVISED REHABILITATION
(A) Initiation Proceedings.
(1) Voluntary Proceedings.
Section 12. Petition to Initiate Voluntary Proceedings by Debtor. - When approved by the owner in case of a sole proprietorship, or by a majority of the
partners in case of a partnership, or in case of a corporation, by a majority vote of the board of directors or trustees and authorized by the vote of the
stockholders representing at least two-thirds (2/3) of the outstanding capital stock, or in case of nonstock corporation, by the vote of at least two-thirds
(2/3) of the members, in a stockholder's or member's meeting duly called for the purpose, an insolvent debtor may initiate voluntary proceedings under
this Act by filing a petition for rehabilitation with the court and on the grounds hereinafter specifically provided. The petition shall be verified to establish
the insolvency of the debtor and the viability of its rehabilitation, and include, whether as an attachment or as part of the body of the petition, as a
minimum the following:
(a) Identification of the debtor, its principal activities and its addresses;
(b) Statement of the fact of and the cause of the debtor's insolvency or inability to pay its obligations as they become due;
(c) The specific relief sought pursuant to this Act;
(d) The grounds upon which the petition is based;
(e) Other information that may be required under this Act depending on the form of relief requested;
(f) Schedule of the debtor's debts and liabilities including a list of creditors with their addresses, amounts of claims and collaterals, or securities, if any;
(g) An inventory of all its assets including receivables and claims against third parties;
(h) A Rehabilitation Plan;
(i) The names of at least three (3) nominees to the position of rehabilitation receiver; and
(j) Other documents required to be filed with the petition pursuant to this Act and the rules of procedure as may be promulgated by the Supreme
Court.
A group of debtors may jointly file a petition for rehabilitation under this Act when one or more of its members foresee the impossibility of meeting debts
when they respectively fall due, and the financial distress would likely adversely affect the financial condition and/or operations of the other members of
the group and/or the participation of the other members of the group is essential under the terms and conditions of the proposed Rehabilitation Plan.
(2) Involuntary Proceedings.
Section 13. Circumstances Necessary to Initiate Involuntary Proceedings. - Any creditor or group of creditors with a claim of, or the aggregate of
whose claims is, at least One Million Pesos (Php1,000,000.00) or at least twenty-five percent (25%) of the subscribed capital stock or partners'
contributions, whichever is higher, may initiate involuntary proceedings against the debtor by filing a petition for rehabilitation with the court if:
(a) there is no genuine issue of fact on law on the claim/s of the petitioner/s, and that the due and demandable payments thereon have not been
made for at least sixty (60) days or that the debtor has failed generally to meet its liabilities as they fall due; or
(b) a creditor, other than the petitioner/s, has initiated foreclosure proceedings against the debtor that will prevent the debtor from paying its debts as
they become due or will render it insolvent.
Section 14. Petition to Initiate Involuntary Proceedings. - The creditor/s' petition for rehabilitation shall be verified to establish the substantial likelihood
that the debtor may be rehabilitated, and include:
(a) identification of the debtor its principal activities and its address;
(b) the circumstances sufficient to support a petition to initiate involuntary rehabilitation proceedings under Section 13 of this Act;
(c) the specific relief sought under this Act;
(d) a Rehabilitation Plan;
(e) the names of at least three (3) nominees to the position of rehabilitation receiver;
(f) other information that may be required under this Act depending on the form of relief requested; and

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 (g) other documents required to be filed with the petition pursuant to this Act and the rules of procedure as may be promulgated by the Supreme
Court.
(B) Action on the Petition and Commencement of Proceedings.
Section 15. Action on the Petition. - If the court finds the petition for rehabilitation to be sufficient in form and substance, it shall, within five (5) working
days from the filing of the petition, issue a Commencement Order. If, within the same period, the court finds the petition deficient in form or substance,
the court may, in its discretion, give the petitioner/s a reasonable period of time within which to amend or supplement the petition, or to submit such
documents as may be necessary or proper to put the petition in proper order. In such case, the five (5) working days provided above for the issuance
of the Commencement Order shall be reckoned from the date of the filing of the amended or supplemental petition or the submission of such
documents.
Section 16. Commencement of Proceedings and Issuance of a Commencement Order. - The rehabilitation proceedings shall commence upon the
issuance of the Commencement Order, which shall:
(a) identify the debtor, its principal business or activity/ies and its principal place of business;
(b) summarize the ground/s for initiating the proceedings;
(c) state the relief sought under this Act and any requirement or procedure particular to the relief sought;
(d) state the legal effects of the Commencement Order, including those mentioned in Section 17 hereof;
(e) declare that the debtor is under rehabilitation;
(f) direct the publication of the Commencement Order in a newspaper of general circulation in the Philippines once a week for at least two (2)
consecutive weeks, with the first publication to be made within seven (7) days from the time of its issuance;
(g) If the petitioner is the debtor direct the service by personal delivery of a copy of the petition on each creditor holding at least ten percent (10%)
of the total liabilities of the debtor as determined from the schedule attached to the petition within five (5) days; if the petitioner/s is/are creditor/s,
direct the service by personal delivery of a copy of the petition on the debtor within five (5) days;
(h) appoint a rehabilitation receiver who may or not be from among the nominees of the petitioner/s and who shall exercise such powers and
duties defined in this Act as well as the procedural rules that the Supreme Court will promulgate;
(i) summarize the requirements and deadlines for creditors to establish their claims against the debtor and direct all creditors to their claims with
the court at least five (5) days before the initial hearing;
(j) direct Bureau of internal Revenue (BIR) to file and serve on the debtor its comment on or opposition to the petition or its claim/s against the
debtor under such procedures as the Supreme Court provide;
(k) prohibit the debtor's suppliers of goods or services from withholding the supply of goods and services in the ordinary course of business for as
long as the debtor makes payments for the services or goods supplied after the issuance of the Commencement Order;
(l) authorize the payment of administrative expenses as they become due;
(m) set the case for initial hearing, which shall not be more than forty (40) days from the date of filing of the petition for the purpose of determining
whether there is substantial likelihood for the debtor to be rehabilitated;
(n) make available copies of the petition and rehabilitation plan for examination and copying by any interested party;
(o) indicate the location or locations at which documents regarding the debtor and the proceedings under Act may be reviewed and copied;
(p) state that any creditor or debtor who is not the petitioner, may submit the name or nominate any other qualified person to the position of
rehabilitation receiver at least five (5) days before the initial hearing;
(q) include s Stay or Suspension Order which shall:
(1) suspend all actions or proceedings, in court or otherwise, for the enforcement of claims against the debtor;
(2) suspend all actions to enforce any judgment, attachment or other provisional remedies against the debtor;
(3) prohibit the debtor from selling, encumbering, transferring or disposing in any manner any of its properties except in the ordinary course of
business; and
(4) prohibit the debtor from making any payment of its liabilities outstanding as of the commencement date except as may be provided herein.
Section 17. Effects of the Commencement Order. - Unless otherwise provided for in this Act, the court's issuance of a Commencement Order shall, in
addition to the effects of a Stay or Suspension Order described in Section 16 hereof:
(a) vest the rehabilitation with all the powers and functions provided for this Act, such as the right to review and obtain records to which the
debtor's management and directors have access, including bank accounts or whatever nature of the debtor subject to the approval by the
court of the performance bond filed by the rehabilitation receiver;
(b) prohibit or otherwise serve as the legal basis rendering null and void the results of any extrajudicial activity or process to seize property,
sell encumbered property, or otherwise attempt to collection or enforce a claim against the debtor after commencement date unless
otherwise allowed in this Act, subject to the provisions of Section 50 hereof;
(c) serve as the legal basis for rendering null and void any setoff after the commencement date of any debt owed to the debtor by any of the
debtor's creditors;
(d) serve as the legal basis for rendering null and void the perfection of any lien against the debtor's property after the commencement
date; and
(e) consolidate the resolution of all legal proceedings by and against the debtor to the court Provided. However, That the court may allow
the continuation of cases on other courts where the debtor had initiated the suit.
Attempts to seek legal of other resource against the debtor outside these proceedings shall be sufficient to support a finding of indirect contempt of
court.
Section 18. Exceptions to the Stay or Suspension Order. - The Stay or Suspension Order shall not apply:
(a) to cases already pending appeal in the Supreme Court as of commencement date Provided, That any final and executory judgment
arising from such appeal shall be referred to the court for appropriate action;
(b) subject to the discretion of the court, to cases pending or filed at a specialized court or quasi-judicial agency which, upon determination
by the court is capable of resolving the claim more quickly, fairly and efficiently than the court: Provided, That any final and executory
judgment of such court or agency shall be referred to the court and shall be treated as a non-disputed claim;
(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;
(d) to any form of action of customers or clients of a securities market participant to recover or otherwise claim moneys and securities
entrusted to the latter in the ordinary course of the latter's business as well as any action of such securities market participant or the
appropriate regulatory agency or self-regulatory organization to pay or settle such claims or liabilities;
(e) to the actions of a licensed broker or dealer to sell pledged securities of a debtor pursuant to a securities pledge or margin agreement
for the settlement of securities transactions in accordance with the provisions of the Securities Regulation Code and its implementing rules
and regulations;
(f) the clearing and settlement of financial transactions through the facilities of a clearing agency or similar entities duly authorized,
registered and/or recognized by the appropriate regulatory agency like the Bangko Sentral ng Pilipinas (BSP) and the SEC as well as any
form of actions of such agencies or entities to reimburse themselves for any transactions settled for the debtor; and
(g) any criminal action against individual debtor or owner, partner, director or officer of a debtor shall not be affected by any proceeding
commend under this Act.
Section 19. Waiver of taxes and Fees Due to the National Government and to Local Government Units (LGUs). - Upon issuance of the
Commencement Order by the court, and until the approval of the Rehabilitation Plan or dismissal of the petition, whichever is earlier, the imposition of
all taxes and fees including penalties, interests and charges thereof due to the national government or to LGUs shall be considered waived, in
furtherance of the objectives of rehabilitation.

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Section 20. Application of Stay or Suspension Order to Government Financial Institutions. - The provisions of this Act concerning the effects of the
Commencement Order and the Stay or Suspension Order on the suspension of rights to foreclose or otherwise pursue legal remedies shall apply to
government financial institutions, notwithstanding provisions in their charters or other laws to the contrary.
Section 21. Effectivity and Duration of Commencement Order. - Unless lifted by the court, the Commencement Order shall be for the effective for the
duration of the rehabilitation proceedings for as long as there is a substantial likelihood that the debtor will be successfully rehabilitated. In determining
whether there is substantial likelihood for the debtor to be successfully rehabilitated, the court shall ensure that the following minimum requirements are
met:
(a) The proposed Rehabilitation Plan submitted complies with the minimum contents prescribed by this Act;
(b) There is sufficient monitoring by the rehabilitation receiver of the debtor's business for the protection of creditors;
(c) The debtor has met with its creditors to the extent reasonably possible in attempts to reach consensus on the proposed Rehabilitation Plan;
(d) The rehabilitation receiver submits a report, based on preliminary evaluation, stating that the underlying assumptions and the goals stated in
the petitioner's Rehabilitation Plan are realistic reasonable and reasonable or if not, there is, in any case, a substantial likelihood for the debtor to
be successfully rehabilitated because, among others:
(1) there are sufficient assets with/which to rehabilitate the debtor;
(2) there is sufficient cash flow to maintain the operations of the debtor;
(3) the debtor's, partners, stockholders, directors and officers have been acting in good faith and which due diligence;
(4) the petition is not s sham filing intended only to delay the enforcement of the rights of the creditor's or of any group of creditors; and
(5) the debtor would likely be able to pursue a viable Rehabilitation Plan;
(e) The petition, the Rehabilitation Plan and the attachments thereto do not contain any materially false or misleading statement;
(f) If the petitioner is the debtor, that the debtor has met with its creditor/s representing at least three-fourths (3/4) of its total obligations to the
extent reasonably possible and made a good faith effort to reach a consensus on the proposed Rehabilitation Plan if the petitioner/s is/are a
creditor or group of creditors, that/ the petitioner/s has/have met with the debtor and made a good faith effort to reach a consensus on the
proposed Rehabilitation Plan; and
(g) The debtor has not committed acts misrepresentation or in fraud of its creditor/s or a group of creditors.
Section 22. Action at the Initial Hearing. - At the initial hearing, the court shall:
(a) determine the creditors who have made timely and proper filing of their notice of claims;
(b) hear and determine any objection to the qualifications of the appointment of the rehabilitation receiver and, if necessary appoint a new
one in accordance with this Act;
(c) direct the creditors to comment on the petition and the Rehabilitation Plan, and to submit the same to the court and to the rehabilitation
receiver within a period of not more than twenty (20) days; and
(d) direct the rehabilitation receiver to evaluate the financial condition of the debtor and to prepare and submit to the court within forty (40)
days from initial hearing the report provided in Section 24 hereof.
Section 23. Effect of Failure to File Notice of Claim. - A creditor whose claim is not listed in the schedule of debts and liabilities and who fails to file a
notice of claim in accordance with the Commencement Order but subsequently files a belated claim shall not be entitled to participate in the
rehabilitation proceedings but shall be entitled to receive distributions arising therefrom.
Section 24. Report of the Rehabilitation Receiver. - Within forty (40) days from the initial hearing and with or without the comments of the creditors or
any of them, the rehabilitation receiver shall submit a report to the court stating his preliminary findings and recommendations on whether:
(a) the debtor is insolvent and if so, the causes thereof and any unlawful or irregular act or acts committed by the owner/s of a sole
proprietorship partners of a partnership or directors or officers of a corporation in contemplation of the insolvency of the debtor or which
may have contributed to the insolvency of the debtor;
(b) the underlying assumptions, the financial goals and the procedures to accomplish such goals as stated in the petitioner's Rehabilitation
Plan are realistic, feasible and reasonable;
(c) there is a substantial likelihood for the debtor to be successfully rehabilitated;
(d) the petition should be dismissed; and
(e) the debtor should be dissolved and/or liquidated.
Section 25. Giving Due Course to or Dismissal of Petition, or Conversion of Proceedings. - Within ten (10) days from receipt of the report of the
rehabilitation receiver mentioned in Section 24 hereof the court may:
(a) give due course to the petition upon a finding that:
(1) the debtor is insolvent; and
(2) there is a substantial likelihood for the debtor to be successfully rehabilitated;
(b) dismiss the petition upon a finding that:
(1)debtor is not insolvent;
(2) the petition i8 a sham filing intended only to delay the enforcement of the rights of the creditor/s or of any group of creditors;
(3)the petition, the Rehabilitation Plan and the attachments thereto contain any materially false or misleading statements; or
(4)the debtor has committed acts of misrepresentation or in fraud of its creditor/s or a group of creditors;
(c)convert the proceedings into one for the liquidation of the debtor upon a finding that:
(1)the debtor is insolvent; and
(2)there is no substantial likelihood for the debtor to be successfully rehabilitated as determined in accordance with the rules to
be promulgated by the Supreme Court.
Section 26.Petition Given Due Course. - If the petition is given due course, the court shall direct the rehabilitation receiver to review, revise and/or
recommend action on the Rehabilitation Plan and submit the same or a new one to the court within a period of not more than ninety (90) days.
The court may refer any dispute relating to the Rehabilitation Plan or the rehabilitation proceedings pending before it to arbitration or other modes of
dispute resolution, as provided for under Republic Act No. 9285, Or the Alternative Dispute Resolution Act of 2004, should it determine that such mode
will resolve the dispute more quickly, fairly and efficiently than the court.
Section 27.Dismissal of Petition. - If the petition is dismissed pursuant to paragraph (b) of Section 25 hereof, then the court may, in its discretion, order
the petitioner to pay damages to any creditor or to the debtor, as the case may be, who may have been injured by the filing of the petition, to the extent
of any such injury.
(C) The Rehabilitation Receiver, Management Committee and Creditors' Committee.
Section 28.Who May Serve as a Rehabilitation Receiver. - Any qualified natural or juridical person may serve as a rehabilitation
receiver: Provided, That if the rehabilitation receiver is a juridical entity, it must designate a natural person/s who possess/es all the qualifications and
none of the disqualification’s as its representative, it being understood that the juridical entity and the representative/s are solidarily liable for all
obligations and responsibilities of the rehabilitation receiver.
Section 29.Qualifications of a Rehabilitation Receiver. - The rehabilitation receiver shall have the following minimum qualifications:
(a)A citizen of the Philippines or a resident of the Philippines in the six (6) months immediately preceding his nomination;
(b)Of good moral character and with acknowledged integrity, impartiality and independence;
(c)Has the requisite knowledge of insolvency and other relevant commercial laws, rules and procedures, as well as the relevant training
and/or experience that may be necessary to enable him to properly discharge the duties and obligations of a rehabilitation receiver; and
(d)Has no conflict of interest: Provided, That such conflict of interest may be waived, expressly or impliedly, by a party who may be
prejudiced thereby.

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Other qualifications and disqualification’s of the rehabilitation receiver shall be set forth in procedural rules, taking into consideration the nature of the
business of the debtor and the need to protect the interest of all stakeholders concerned.
Section 30.Initial Appointment of the Rehabilitation Receiver. - The court shall initially appoint the rehabilitation receiver, who mayor may not be from
among the nominees of the petitioner, However, at the initial hearing of the petition, the creditors and the debtor who are not petitioners may nominate
other persons to the position. The court may retain the rehabilitation receiver initially appointed or appoint another who mayor may not be from among
those nominated.
In case the debtor is a securities market participant, the court shall give priority to the nominee of the appropriate securities or investor protection fund.
If a qualified natural person or entity is nominated by more than fifty percent (50%) of the secured creditors and the general unsecured creditors, and
satisfactory evidence is submitted, the court shall appoint the creditors' nominee as rehabilitation receiver.
Section 31.Powers, Duties and Responsibilities of the Rehabilitation Receiver. - The rehabilitation receiver shall be deemed an officer of the court with
the principal duty of preserving and maximizing the value of the assets of the debtor during the rehabilitation proceedings, determining the viability of
the rehabilitation of the debtor, preparing and recommending a Rehabilitation Plan to the court, and implementing the approved Rehabilitation Plan, To
this end, and without limiting the generality of the foregoing, the rehabilitation receiver shall have the following powers, duties and responsibilities:
(a)To verify the accuracy of the factual allegations in the petition and its annexes;
(b)To verify and correct, if necessary, the inventory of all of the assets of the debtor, and their valuation;
(c)To verify and correct, if necessary, the schedule of debts and liabilities of the debtor;
(d)To evaluate the validity, genuineness and true amount of all the claims against the debtor;
(e)To take possession, custody and control, and to preserve the value of all the property of the debtor;
(f)To sue and recover, with the approval of the court, all amounts owed to, and all properties pertaining to the debtor;
(g)To have access to all information necessary, proper or relevant to the operations and business of the debtor and for its rehabilitation;
(h) To sue and recover, with the. approval of the court, all property or money of the debtor paid, transferred or disbursed in fraud of the
debtor or its creditors, or which constitute undue preference of creditor/s;
(i) To monitor the operations and the business of the debtor to ensure that no payments or transfers of property are made other than in the
ordinary course of business;
(j) With the court's approval, to engage the services of or to employ persons or entities to assist him in the discharge of his functions;
(k) To determine the manner by which the debtor may be best rehabilitated, to review) revise and/or recommend action on the
Rehabilitation Plan and submit the same or a new one to the court for approval;
(1) To implement the Rehabilitation Plan as approved by the court, if 80 provided under the Rehabilitation Plan;
(m) To assume and exercise the powers of management of the debtor, if directed by the court pursuant to Section 36 hereof;
(n) To exercise such other powers as may, from time to time, be conferred upon him by the court; and
To submit a status report on the rehabilitation proceedings every quarter or as may be required by the court motu proprio. or upon motion of
any creditor. or as may be provided, in the Rehabilitation Plan.
Unless appointed by the court, pursuant to Section 36 hereof, the rehabilitation receiver shall not take over the management and control of
the debtor but may recommend the appointment of a management committee over the debtor in the cases provided by this Act.
Section 32.Removal of the Rehabilitation Receiver. – The rehabilitation receiver may be removed at any time by the court either motu proprio or upon
motion by any creditor/s holding more than fifty percent (50%) of the total obligations of the debtor, on such grounds as the rules of procedure may
provide which shall include, but are not limited to, the following:
(a) Incompetence, gross negligence, failure to perform or failure to exercise the proper degree of care in the performance of his duties and
powers;
(b) Lack of a particular or specialized competency required by the specific case;
(c) Illegal acts or conduct in the performance of his duties and powers;
(d) Lack of qualification or presence of any disqualification;
(e) Conflict of interest that arises after his appointment; and
(f) Manifest lack of independence that is detrimental to the general body of the stakeholders.
Section 33.Compensation and Terms of Service. The rehabilitation receiver and his direct employees or independent contractors shall be entitled to
compensation for reasonable fees and expenses from the debtor according to the terms approved by the court after notice and hearing. Prior to such
hearing, the rehabilitation receiver and his direct employees shall be entitled to reasonable compensation based on quantum meruit. Such costs shall
be considered administrative expenses.
Section 34.Oath and Bond of the Rehabilitation Receiver. Prior to entering upon his powers, duties and responsibilities, the rehabilitation receiver shall
take an oath and file a bond, in such amount to be fixed by the court, conditioned upon the faithful and proper discharge of his powers, duties and
responsibilities.
Section 35.Vacancy. - Incase the position of rehabilitation receiver is vacated for any reason whatsoever. the court shall direct the debtor and the
creditors to submit the name/s of their nominee/s to the position. The court may appoint any of the qualified nominees. or any other person qualified for
the position.
Section 36.Displacement of Existing Management by the Rehabilitation Receiver or Management Committee. – Upon motion of any interested party,
the court may appoint and direct the rehabilitation receiver to assume the powers of management of the debtor, or appoint a management committee
that will undertake the management of the debtor. upon clear and convincing evidence of any of the following circumstances:
(a) Actual or imminent danger of dissipation, loss, wastage or destruction of the debtor’s assets or other properties;
(b) Paralyzation of the business operations of the debtor; or
(c) Gross mismanagement of the debtor. or fraud or other wrongful conduct on the part of, or gross or willful violation of this Act by. existing
management of the debtor Or the owner, partner, director, officer or representative/s in management of the debtor.
In case the court appoints the rehabilitation receiver to assume the powers of management of the debtor. the court may:
(1) require the rehabilitation receiver to post an additional bond;
(2) authorize him to engage the services or to employ persona or entities to assist him in the discharge of his managerial functions; and
(3) authorize a commensurate increase in his compensation.
Section 37.Role of the Management Committee. – When appointed pursuant to the foregoing section, the management committee shall take the place
of the management and the governing body of the debtor and assume their rights and responsibilities.
The specific powers and duties of the management committee, whose members shall be considered as officers of the court, shall be prescribed by the
procedural rules.
Section 38.Qualifications of Members of the Management Committee. - The qualifications and disqualification’s of the members of the management
committee shall be set forth in the procedural rules, taking into consideration the nature of the business of the debtor and the need to protect the
interest of all stakeholders concerned.
Section 39.Employment of Professionals. - Upon approval of the court, and after notice and hearing, the rehabilitation receiver or the management
committee may employ specialized professionals and other experts to assist each in the performance of their duties. Such professionals and other
experts shall be considered either employees or independent contractors of the rehabilitation receiver or the management committee, as the case may
be. The qualifications and disqualification’s of the professionals and experts may be set forth in procedural rules, taking into consideration the nature of
the business of the debtor and the need to protect the interest of all stakeholders concerned.
Section 40.Conflict of Interest. - No person may be appointed as a rehabilitation receiver, member of a_ management committee, or be employed by
the rehabilitation receiver or the management committee if he has a conflict of interest.
An individual shall be deemed to have a conflict of interest if he is so situated as to be materially influenced in the exercise of his judgment for or
against any party to the proceedings. Without limiting the generality of the foregoing, an individual shall be deemed to have a conflict of interest if:

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 (a) he is a creditor, owner, partner or stockholder of the debtor;
(b) he is engaged in a line of business which competes with that of the debtor;
(c) he is, or was, within five (5) years from the filing of the petition, a director, officer, owner, partner or employee of the debtor or any of the
creditors, or the auditor or accountant of the debtor;
(d) he is, or was, within two (2) years from the filing of the petition, an underwriter of the outstanding securities of the debtor;
(e) he is related by consanguinity or affinity within the fourth civil degree to any individual creditor, owners of a sale proprietorship-debtor,
partners of a partnership- debtor or to any stockholder, director, officer, employee or underwriter of a corporation-debtor; or
(f) he has any other direct or indirect material interest in the debtor or any of the creditors.
Any rehabilitation receiver, member of the management committee or persons employed or contracted by them possessing any conflict of interest shall
make the appropriate disclosure either to the court or to the creditors in case of out-of-court rehabilitation proceedings. Any party to the proceeding
adversely affected by the appointment of any person with a conflict of interest to any of the positions enumerated above may however waive his right to
object to such appointment and, if the waiver is unreasonably withheld, the court may disregard the conflict of interest, taking into account the general
interest of the stakeholders.
Section 41.Immunity. - The rehabilitation receiver and all persons employed by him, and the members of the management committee and all persons
employed by it, shall not be subject to any action. claim or demand in connection with any act done or omitted to be done by them in good faith in
connection with the exercise of their powers and functions under this Act or other actions duly approved by the court.1awp++il
Section 42.Creditors' Committee. - After the creditors' meeting called pursuant to Section 63 hereof, the creditors belonging to a class may formally
organize a committee among
themselves. In addition, the creditors may, as a body, agree to form a creditors' committee composed of a representative from each class of creditors,
such as the following:
(a) Secured creditors;
(b) Unsecured creditors;
(c) Trade creditors and suppliers; and
(d) Employees of the debtor.
In the . election of the creditors' representatives, the rehabilitation receiver or his representative shall attend such meeting and extend the appropriate
assistance as may be defined in the procedural rules.
Section 43.Role of Creditors' Committee. - The creditors' committee when constituted pursuant to Section 42 of this Act shall assist the rehabilitation
receiver in communicating with the creditors and shall be the primary liaison between the rehabilitation receiver and the creditors. The creditors'
committee cannot exercise or waive any right or give any consent on behalf of any creditor unless specifically authorized in writing by such creditor.
The creditors' committee may be authorized by the court or by the rehabilitation receiver to perform such other tasks and functions as may be defined
by the procedural rules in order to facilitate the rehabilitation process.
(D) Determination of Claims.
Section 44.Registry of Claims. - Within twenty (20) days from his assumption into office, the rehabilitation receiver shall establish a preliminary registry
of claims. The rehabilitation receiver shall make the registry available for public inspection and provide
publication notice to the debtor, creditors and stakeholders on where and when they may inspect it. All claims included in the registry of claims must be
duly supported by sufficient evidence.
Section 45.Opposition or Challenge of Claims. – Within thirty (30) days from the expiration of the period stated in the immediately preceding section,
the debtor, creditors, stakeholders and other interested parties may submit a challenge to claim/s to the court, serving a certified copy on the
rehabilitation receiver and the creditor holding the challenged claim/so Upon the expiration of the thirty (30)-day period, the rehabilitation receiver shall
submit to the court the registry of claims which shall include undisputed claims that have not been subject to challenge.
Section 46.Appeal. - Any decision of the rehabilitation receiver regarding a claim may be appealed to the court.
(E) Governance.
Section 47.Management. - Unless otherwise provided herein, the management of the juridical debtor shall remain with the existing management
subject to the applicable law/s and agreement/s, if any, on the election or appointment of directors, managers Or managing partner. However, all
disbursements, payments or sale, disposal, assignment, transfer or encumbrance of property , or any other act affecting title or interest in property,
shall be subject to the approval of the rehabilitation receiver and/or the court, as provided in the following subchapter.
(F) Use, Preservation and Disposal of Assets and Treatment of Assets and Claims after Commencement Date.
Section 48.Use or Disposition of Assets. - Except as otherwise provided herein, no funds or property of the debtor shall he used or disposed of except
in the ordinary course of business of the debtor, or unless necessary to finance the administrative expenses of the rehabilitation proceedings.
Section 49.Sale of Assets. - The court, upon application of the rehabilitation receiver, may authorize the sale of unencumbered property of the debtor
outside the ordinary course of business upon a showing that the property, by its nature or because of other circumstance, is perishable, costly to
maintain, susceptible to devaluation or otherwise injeopardy.
Section 50.Sale or Disposal of Encumbered Property of the Debtor and Assets of Third Parties Held by Debtor. The court may authorize the sale,
transfer, conveyance or disposal of encumbered property of the debtor, or property of others held by the debtor where there is a security interest
pertaining to third parties under a financial, credit or other similar transactions if, upon application of the rehabilitation receiver and with the consent of
the affected owners of the property, or secured creditor/s in the case of encumbered property of the debtor and, after notice and hearing, the court
determines that:
(a) such sale, transfer, conveyance or disposal is necessary for the continued operation of the debtor's business; and
(b) the debtor has made arrangements to provide a substitute lien or ownership right that provides an equal level of security for the counter-
party's claim or right.
Provided, That properties held by the debtor where the debtor has authority to sell such as trust receipt or consignment arrangements may be sold or
disposed of by the .debtor, if such sale or disposal is necessary for the operation of the debtor's business, and the debtor has made arrangements to
provide a substitute lien or ownership right that provides an equal level of security for the counter-party's claim or right.
Sale or disposal of property under this section shall not give rise to any criminal liability under applicable laws.
Section 51.Assets of Debtor Held by Third Parties. – In the case of possessory pledges, mechanic's liens or similar claims, third parties who have in
their possession or control property of the debtor shall not transfer, conveyor otherwise dispose of the same to persons other than the debtor, unless
upon prior approval of the rehabilitation receiver. The rehabilitation receiver may also:
(a) demand the surrender or the transfer of the possession or control of such property to the rehabilitation receiver or any other person,
subject to payment of the claims secured by any possessory Iien/s thereon;
(b) allow said third parties to retain possession or control, if such an arrangement would more likely preserve or increase the value of the
property in question or the total value of the assets of the debtor; or
(c) undertake any otI1er disposition of the said property as may be beneficial for the rehabilitation of the debtor, after notice and hearing,
and approval of the court.
Section 52.Rescission or Nullity of Sale, Payment, Transfer or Conveyance of Assets. - The court may rescind or declare as null and void any sale,
payment, transfer or conveyance of the debtor's unencumbered property or any encumbering thereof by the debtor or its agents or representatives
after the commencement date which are not in the ordinary course of the business of the debtor: Provided, however, That the unencumbered property
may be sold, encumbered or otherwise disposed of upon order of the court after notice and hearing:
(a) if such are in the interest of administering the debtor and facilitating the preparation and implementation of a Rehabilitation Plan;
(b) in order to provide a substitute lien, mortgage or pledge of property under this Act;
(c) for payments made to meet administrative expenses as they arise;
(d) for payments to victims of quasi delicts upon a showing that the claim is valid and the debtor has insurance to reimburse the debtor for
the payments made;
(e) for payments made to repurchase property of the debtor that is auctioned off in a judicial or extrajudicial sale under. This Act; or

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 (f) for payments made to reclaim property of the debtor held pursuant to a possessory lien.
Section 53.Assets Subject to Rapid Obsolescence, Depreciation and Diminution of Value. - Upon the application of a secured creditor holding a lien
against or holder of an ownership interest in property held by the debtor that is subject to potentially rapid obsolescence, depreciation or diminution in
value, the court shall, after notice and hearing, order the debtor or rehabilitation receiver to take reasonable steps necessary to prevent the
depreciation. If depreciation cannot be avoided and such depreciation is jeopardizing the security or property interest of the secured creditor or owner,
the court shall:
(a) allow the encumbered property to be foreclosed upon by the secured creditor according to the relevant agreement between the debtor
and the secured creditor, applicable rules of procedure and relevant legislation: Provided. That the proceeds of the sale will be distributed in
accordance with the order prescribed under the rules of concurrence and preference of credits; or
(b) upon motion of, or with the consent of the affected secured creditor or interest owner. order the conveyance of a lien against or
ownership interest in substitute property of the debtor to the secured creditor: Provided. That other creditors holding liens on such property,
if any, do not object thereto, or, if such property is not available;
(c) order the conveyance to the secured creditor or holder . of an ownership interest of a lien on the residual funds from the sale of
encumbered property during the proceedings; or
(d) allow the sale or disposition of the property: Provided. That the sale or disposition will maximize the value of the property for the benefit
of the secured creditor and the debtor, and the proceeds of the sale will be distributed in accordance with the order prescribed under the
rules of concurrence and preference of credits.
Section 54.Post-commencement Interest. - The rate and term of interest, if any, on secured and unsecured claims shall be determined and provided
for in the approved Rehabilitation Plan.
Section 55.Post-commencement Loans and Obligations. - With the approval of the court upon the recommendation of the rehabilitation receiver, the
debtor, in order to enhance its
rehabilitation. may:
(a) enter into credit arrangements; or
(b) enter into credit arrangements, secured by mortgages of its unencumbered property or secondary mortgages of encumbered property
with the approval of senior secured parties with regard to the encumbered property; or
(c) incur other obligations as may be essential for its rehabilitation.
The payment of the foregoing obligations shall be considered administrative expenses under this Act.
Section 56.Treatment of Employees, Claims. Compensation of employees required to carry on the business shall be considered an administrative
expense. Claims of separation pay for months worked prior to the commencement date shall be considered a pre- ommencement claim. Claims for
salary and separation pay for work performed after the commencement date shall be an administrative expense.
Section 57.Treatment of Contracts. - Unless cancelled by virtue of a final judgment of a court of competent jurisdiction issued prior to the issuance of
the Commencement Order, or at anytime thereafter by the court before which the rehabilitation proceedings are pending, all valid and subbsisting
contracts of the debtor with creditors and other third parties as at the commencement date shall continue in
force: Provided, That within ninety (90) days following the commencement of proceedings, the debtor, with the consent of the rehabilitation receiver,
shall notify each contractual counter-party of whether it is confirming the particular contract. Contractual obligations of the debtor arising or performed
during this period, and afterwards for confirmed contracts, shall be considered administrative expenses. Contracts not confirmed within the required
deadline shall be considered terminated. Claims for actual damages, if any, arising as a result of the election to terminate a contract shall be
considered a pre-commencement claim against the debtor. Nothing contained herein shall prevent the cancellation or termination of any contract of the
debtor for any ground provided by law.
(G) Avoidance Proceedings.
Section 58.Rescission or Nullity of Certain Pre-commencement Transactions. Any transaction occurring prior to commencement date entered into by
the debtor or involving its funds or assets may be rescinded or declared null and void on the ground that the same was executed with intent to defraud
a creditor or creditors or which constitute undue preference of creditors. Without limiting the generality of the foregoing, a disputable presumption of
such design shall arise if the transaction:
(a) provides unreasonably inadequate consideration to the debtor and is executed within ninety (90) days prior to the commencement date;
(b) involves an accelerated payment of a claim to a creditor within ninety (90) days prior to the commencement date;
(c) provides security or additional security executed within ninety (90) days prior to the commencement date;
(d) involves creditors, where a creditor obtained, or received the benefit of, more than its pro rata share in the assets of the debtor,
executed at a time when the debtor was insolvent; or
(e) is intended to defeat, delay or hinder the ability of the creditors to collect claims where the effect of the transaction is to put assets of the
debtor beyond the reach of creditors or to otherwise prejudice the interests of creditors.
Provided, however, That nothing in this section shall prevent the court from rescinding or declaring as null and void a transaction on other grounds
provided by relevant legislation and jurisprudence: Provided, further, That the provisions of the Civil Code on rescission shall in any case apply to these
transactions.
Section 59.Actions for Rescission or Nullity. - (a) The rehabilitation receiver or, with his conformity, any creditor may initiate and prosecute any action
to rescind, or declare null and void any transaction described in Section 58 hereof. If the rehabilitation receiver does not consent to the filing or
prosecution of such action,
(b) If leave of court is granted under subsection (a), the rehabilitation receiver shall assign and transfer to the creditor all rights, title and interest in the
chose in action or subject matter of the proceeding, including any document in support thereof.
(c) Any benefit derived from a proceeding taken pursuant to subsection (a), to the extent of his claim and the costs, belongs exclusively to the creditor
instituting the proceeding, and the surplus, if any, belongs to the estate.
(d) Where, before an order is made under subsection (a), the rehabilitation receiver (or liquidator) signifies to the court his readiness to institute the
proceeding for the benefit of the creditors, the order shall fix the time within which he shall do so and, m that case, the benefit derived from the
proceeding, if instituted within the time limits so fixed, belongs to the estate.
(H) Treatment of Secured Creditors.
Section 60.No Diminution of Secured Creditor Rights. The issuance of the Commencement Order and the Suspension or Stay Order, and any other
provision of this Act, shall not be
deemed in any way to diminish or impair the security or lien of a secured creditor, or the value of his lien or security, except that his right to enforce
said security or lien may be suspended during the term of the Stay Order.
The court, upon motion or recommendation of the rehabilitation receiver, may allow a secured creditor to enforce his security or lien, or foreclose upon
property of the debtor
securing his/its claim, if the said property is not necessary for the rehabilitation of the debtor. The secured creditor and/or the other lien holders shall be
admitted to the rehabilitation proceedings only for the balance of his claim, if any.
Section 61.Lack of Adequate Protection. - The court, on motion or motu proprio, may terminate, modify or set conditions for the continuance of
suspension of payment, or relieve a claim from the coverage thereof, upon showing that: (a) a creditor does not have adequate protection over
property securing its claim; or
(b) the value of a claim secured by a lien on property which is not necessary for rehabilitation of the debtor exceeds the fair market value of the said
property.
For purposes of this section, a creditor shall be deemed to lack adequate protection if it can be shown that:
(a) the debtor fails or refuses to honor a pre-existing agreement with the creditor to keep the property insured;
(b) the debtor fails or refuses to take commercially reasonable steps to maintain the property; or
(c) the property has depreciated to an extent that the creditor is under secured.
Upon showing of a lack of protection, the court shall order the debtor or the rehabilitation receiver to make arrangements to provide for the insurance or
maintenance of the property; or to make payments or otherwise provide additional or replacement security such that the obligation is fully secured. If

21
such arrangements are not feasible, the court may modify the Stay Order to allow the secured creditor lacking adequate protection to enforce its
security claim against the debtor: Provided, however, That the court may deny the creditor the remedies in this paragraph if the property subject of the
enforcement is required for the rehabilitation of the debtor.
(i) Administration of Proceedings.
Section 62.Contents of a Rehabilitation Plan. – The Rehabilitation Plan shall, as a minimum:
(a) specify the underlying assumptions, the financial goals and the procedures proposed to accomplish such goals;
(b) compare the amounts expected to be received by the creditors under the Rehabilitation Plan with those that they will receive if liquidation
ensues within the next one hundred twenty (120) days;
(c) contain information sufficient to give the various classes of creditors a reasonable basis for determining whether supporting the Plan is in their
financial interest when compared to the immediate liquidation of the debtor, including any reduction of principal interest and penalties payable to
the creditors;
(d) establish classes of voting creditors;
(e) establish subclasses of voting creditors if prior approval has been granted by the court;
(f) indicate how the insolvent debtor will be rehabilitated including, but not limited to, debt forgiveness, debt rescheduling, reorganization or quasi-
reorganization. dacion en pago, debt-equity conversion and sale of the business (or parts of it) as a going concern, or setting-up of a new
business entity or other similar arrangements as may be necessary to restore the financial well-being and visibility of the insolvent debtor;
(g) specify the treatment of each class or subclass described in subsections (d) and (e);
(h) provide for equal treatment of all claims within the same class or subclass, unless a particular creditor voluntarily agrees to less favorable
treatment;
(i) ensure that the payments made under the plan follow the priority established under the provisions of the Civil Code on concurrence and
preference of credits and other applicable laws;
(j) maintain the security interest of secured creditors and preserve the liquidation value of the security unless such has been waived or modified
voluntarily;
(k) disclose all payments to creditors for pre-commencement debts made during the proceedings and the justifications thereof;
(1) describe the disputed claims and the provisioning of funds to account for appropriate payments should the claim be ruled valid or its amount
adjusted;
(m) identify the debtor's role in the implementation of the Plan;
(n) state any rehabilitation covenants of the debtor, the breach of which shall be considered a material breach of the Plan;
(o) identify those responsible for the future management of the debtor and the supervision and implementation of the Plan, their affiliation with the
debtor and their remuneration;
(p) address the treatment of claims arising after the confirmation of the Rehabilitation Plan;
(q) require the debtor and its counter-parties to adhere to the terms of all contracts that the debtor has chosen to confirm;
(r) arrange for the payment of all outstanding administrative expenses as a condition to the Plan's approval unless such condition has been
waived in writing by the creditors concerned;
(s) arrange for the payment" of all outstanding taxes and assessments, or an adjusted amount pursuant to a compromise settlement with the BlR
Or other applicable tax authorities;
(t) include a certified copy of a certificate of tax clearance or evidence of a compromise settlement with the BIR;
(u) include a valid and binding r(,solution of a meeting of the debtor's stockholders to increase the shares by the required amount in cases where
the Plan contemplates an additional issuance of shares by the debtor;
(v) state the compensation and status, if any, of the rehabilitation receiver after the approval of the Plan; and
(w) contain provisions for conciliation and/or mediation as a prerequisite to court assistance or intervention in the event of any disagreement in
the interpretation or implementation of the Rehabilitation Plan.
Section 63.Consultation with Debtor and Creditors. – if the court gives due course to the petition, the rehabilitation receiver shall confer with the debtor
and all the classes of creditors, and may consider their views and proposals ill the review, revision or preparation of a new Rehabilitation Plan.
Section 64.Creditor Approval of Rehabilitation Plan. – The rehabilitation receiver shall notify the creditors and stakeholders that the Plan is ready for
their examination. Within twenty (2Q) days from the said notification, the rehabilitation receiver shall convene the creditors, either as a whole or per
class, for purposes of voting on the approval of the Plan. The Plan shall be deemed rejected unless approved by all classes of creditors w hose rights
are adversely modified or affected by the Plan. For purposes of this section, the Plan is deemed to have been approved by a class of creditors if
members of the said class holding more than fifty percent (50%) of the total claims of the said class vote in favor of the Plan. The votes of the creditors
shall be based solely on the amount of their respective claims based on the registry of claims submitted by the rehabilitation receiver pursuant to
Section 44 hereof.
Notwithstanding the rejection of the Rehabilitation Plan, the court may confirm the Rehabilitation Plan if all of the following circumstances are present:
(a)The Rehabilitation Plan complies with the requirements specified in this Act.
(b) The rehabilitation receiver recommends the confirmation of the Rehabilitation Plan;
(c) The shareholders, owners or partners of the juridical debtor lose at least their controlling interest as a result of the Rehabilitation Plan; and
(d) The Rehabilitation Plan would likely provide the objecting class of creditors with compensation which has a net present value greater than that
which they would have received if the debtor were under liquidation.
Section 65.Submission of Rehabilitation Plan to the Court. - 1fthe Rehabilitation Plan is approved, the rehabilitation receiver shall submit the same to
the court for confirmation. Within five (5) days from receipt of the Rehabilitation Plan, the court shall notify the creditors that the Rehabilitation Plan has
been submitted for confirmation, that any creditor may obtain copies of the Rehabilitation Plan and that any creditor may file an objection thereto.
Section 66.Filing of Objections to Rehabilitation Plan. – A creditor may file an objection to the Rehabilitation Plan within twenty (20) days from receipt
of notice from the court that the Rehabilitation Plan has been submitted for confirmation. Objections to a Rehabilitation Plan shall be limited to the
following:
(a) The creditors' support was induced by fraud;
(b)The documents or data relied upon in the Rehabilitation Plan are materially false or misleading; or
(c)The Rehabilitation Plan is in fact not supported by the voting creditors.
Section 67.Hearing on the Objections. - If objections have been submitted during the relevant period, the court shall issue an order setting the time
and date for the hearing or hearings on the objections.
If the court finds merit in the objection, it shall order the rehabilitation receiver or other party to cure the defect, whenever feasible. If the court
determines that the debtor acted in bad faith, or that it is not feasible to cure the defect, the court shall convert the proceedings into one for the
liquidation of the debtor under Chapter V of this Act.
Section 68.Confirmation of the Rehabilitation Plan. – If no objections are filed within the relevant period or, if objections are filed, the court finds them
lacking in merit, or determines that the basis for the objection has been cured, or determines that the debtor has complied with an order to cure the
objection, the court shall issue an order confirming the Rehabilitation Plan.
The court may confirm the Rehabilitation Plan notwithstanding unresolved disputes over claims if the Rehabilitation Plan has made adequate
provisions for paying such claims.
For the avoidance of doubt, the provisions of other laws to the contrary notwithstanding, the court shall have the power to approve or implement the
Rehabilitation Plan despite the lack of approval, or objection from the owners, partners or stockholders of the insolvent debtor: Provided, That the
terms thereof are necessary to restore the financial well-being and viability of the insolvent debtor.
Section 69.Effect of Confirmation of the Rehabilitation Plan, - The confirmation of the Rehabilitation Plan by the court shall result in the following:

22
 (a) The Rehabilitation Plan and its provisions shall be binding upon the debtor and all persons who may be affected by . it, including the
creditors, whether or not such persons have participated in the proceedings or opposed the Rehabilitation Plan or whether or not their
claims have been scheduled;
(b) The debtor shall comply with the provisions of the Rehabilitation Plan and shall take all actions necessary to carry out the Plan;
(c) Payments shall be made to the creditors in accordance with the provisions of the Rehabilitation Plan;
(d) Contracts and other arrangements between the debtor and its creditors shall be interpreted as continuing to apply to the extent that they
do not conflict with the provisions of the Rehabilitation Plan;
(e) Any compromises on amounts or rescheduling of timing of payments by the debtor shall be binding on creditors regardless of whether
or not the Plan is successfully implement; and
(f) Claims arising after approval of the Plan that are otherwise not treated by the Plan are not subject to any Suspension Order.
The Order confirming the Plan shall comply with Rules 36 of the Rules of Court: Provided, however, That the court may maintain jurisdiction over the
case in order to resolve claims against the debtor that remain contested and allegations that the debtor has breached the Plan.
Section 70. Liability of General Partners of a Partnership for Unpaid Balances Under an Approved Plan. - The approval of the Plan shall not affect the
rights of creditors to pursue actions against the general partners of a partnership to the extent they are liable under relevant legislation for the debts
thereof.
Section 71. Treatment of Amounts of Indebtedness or Obligations Forgiven or Reduced. - Amounts of any indebtedness or obligations reduced or
forgiven in connection with a Plan's approval shall not be subject to any tax in furtherance of the purposes of this Act.
Section 72. Period for Confirmation of the Rehabilitation Plan. - The court shall have a maximum period of one (1) year from the date of the filing of the
petition to confirm a Rehabilitation Plan.
If no Rehabilitation Plan is confirmed within the said period, the proceedings may upon motion or motu propio, be converted into one for the liquidation
of the debtor .
Section 73. Accounting Discharge of Rehabilitation Receiver. - Upon the confirmation of the Rehabilitation Plan, the rehabilitation receiver shall
provide a final report and accounting to the court. Unless the Rehabilitation Plan specifically requires and describes the role of the rehabilitation
receiver after the approval of the Rehabilitation Plan, the court shall discharge the rehabilitation receiver of his duties.
(j) Termination of Proceedings
Section 74. Termination of Proceedings. - The rehabilitation proceedings under Chapter II shall, upon motion by any stakeholder or the rehabilitation
receiver be terminated by order of the court either declaring a successful implementation of the Rehabilitation Plan or a failure of rehabilitation.
There is failure of rehabilitation in the following cases:
(a) Dismissal of the petition by the court;
(b) The debtor fails to submit a Rehabilitation Plan;
(c) Under the Rehabilitation Plan submitted by the debtor, there is no substantial likelihood that the debtor can be rehabilitated within a
reasonable period;
(d) The Rehabilitation Plan or its amendment is approved by the court but in the implementation thereof, the debtor fails to perform its
obligations thereunder or there is a failure to realize the objectives, targets or goals set forth therein, including the timelines and conditions
for the settlement of the obligations due to the creditors and other claimants;
(e) The commission of fraud in securing the approval of the Rehabilitation Plan or its amendment; and
(f) Other analogous circumstances as may be defined by the rules of procedure.
Upon a breach of, or upon a failure of the Rehabilitation Plan the court, upon motion by an affected party may:
(1) Issue an order directing that the breach be cured within a specified period of time, falling which the proceedings may be converted to a
liquidation;
(2) Issue an order converting the proceedings to a liquidation;
(3) Allow the debtor or rehabilitation receiver to submit amendments to the Rehabilitation Plan, the approval of which shall be governed by
the same requirements for the approval of a Rehabilitation Plan under this subchapter;
(4) Issue any other order to remedy the breach consistent with the present regulation, other applicable law and the best interests of the
creditors; or
(5) Enforce the applicable provisions of the Rehabilitation Plan through a writ of execution.
Section 75. Effects of Termination. - Termination of the proceedings shall result in the following:
(a) The discharge of the rehabilitation receiver subject to his submission of a final accounting; and
(b) The lifting of the Stay Order and any other court order holding in abeyance any action for the enforcement of a claim against the debtor.
Provided, however, That if the termination of proceedings is due to failure of rehabilitation or dismissal of the petition for reasons other than technical
grounds, the proceedings shall be immediately converted to liquidation as provided in Section 92 of this Act.
CHAPTER III
PRE-NEGOTIATED REHABILITATION
Section 76. Petition by Debtor. - An insolvent debtor, by itself or jointly with any of its creditors, may file a verified petition with the court for the
approval of a pre-negotiated Rehabilitation Plan which has been endorsed or approved by creditors holding at least two-thirds (2/3) of the total liabilities
of the debtor, including secured creditors holding more than fifty percent (50%) of the total secured claims of the debtor and unsecured creditors
holding more than fifty percent (50%) of the total unsecured claims of the debtor. The petition shall include as a minimum:
(a) a schedule of the debtor's debts and liabilities;
(b) an inventory of the debtor's assets;
(c) the pre-negotiated Rehabilitation Plan, including the names of at least three (3) qualified nominees for rehabilitation receiver; and
(d) a summary of disputed claims against the debtor and a report on the provisioning of funds to account for appropriate payments should
any such claims be ruled valid or their amounts adjusted.
Section 77. Issuance of Order. - Within five (5) working days, and after determination that the petition is sufficient in form and substance, the court
shall issue an Order which shall;
(a) identify the debtor, its principal business of activity/ies and its principal place of business;
(b) declare that the debtor is under rehabilitation;
(c) summarize the ground./s for the filling of the petition;
(d) direct the publication of the Order in a newspaper of general circulation in the Philippines once a week for at least two (2) consecutive
weeks, with the first publication to be made within seven (7) days from the time of its issuance;
(e) direct the service by personal delivery of a copy of the petition on each creditor who is not a petitioner holding at least ten percent (10%)
of the total liabilities of the debtor, as determined in the schedule attached to the petition, within three (3) days;
(f) state that copies of the petition and the Rehabilitation Plan are available for examination and copying by any interested party;
(g) state that creditors and other interested parties opposing the petition or Rehabilitation Plan may file their objections or comments thereto
within a period of not later than twenty (20) days from the second publication of the Order;
(h) appoint a rehabilitation receiver, if provided for in the Plan; and
(i) include a Suspension or Stay Order as described in this Act.
Section 78. Approval of the Plan. - Within ten (10) days from the date of the second publication of the Order, the court shall approve the Rehabilitation
Plan unless a creditor or other interested party submits an objection to it in accordance with the next succeeding section.

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Section 79. Objection to the Petition or Rehabilitation Plan. - Any creditor or other interested party may submit to the court a verified objection to the
petition or the Rehabilitation Plan not later than eight (8) days from the date of the second publication of the Order mentioned in Section 77 hereof. The
objections shall be limited to the following:
(a) The allegations in the petition or the Rehabilitation Plan or the attachments thereto are materially false or misleading;
(b) The majority of any class of creditors do not in fact support the Rehabilitation Plan;
(c) The Rehabilitation Plan fails to accurately account for a claim against the debtor and the claim in not categorically declared as a
contested claim; or
(d) The support of the creditors, or any of them was induced by fraud.
Copies of any objection to the petition of the Rehabilitation Plan shall be served on the debtor, the rehabilitation receiver (if applicable), the secured
creditor with the largest claim and who supports the Rehabilitation Plan, and the unsecured creditor with the largest claim and who supports the
Rehabilitation Plan.
Section 80. Hearing on the Objections. - After receipt of an objection, the court shall set the same for hearing. The date of the hearing shall be no
earlier than twenty (20) days and no later than thirty (30) days from the date of the second publication of the Order mentioned in Section 77 hereof. If
the court finds merit in the objection, it shall direct the debtor, when feasible to cure the detect within a reasonable period. If the court determines that
the debtor or creditors supporting the Rehabilitation Plan acted in bad faith, or that the objection is non-curable, the court may order the conversion of
the proceedings into liquidation. A finding by the court that the objection has no substantial merit, or that the same has been cured shall be deemed an
approval of the Rehabilitation Plan.
Section 81. Period for Approval of Rehabilitation Plan. - The court shall have a maximum period of one hundred twenty (120) days from the date of the
filing of the petition to approve the Rehabilitation Plan. If the court fails to act within the said period, the Rehabilitation Plan shall be deemed approved.
Section 82. Effect of Approval. - Approval of a Plan under this chapter shall have the same legal effect as confirmation of a Plan under Chapter II of
this Act.
CHAPTER IV
OUT-OF-COURT OR INFORMAL RESTRUCTURING AGREEMENTS OR REHABILITATION PLANS
Section 83. Out-of-Court or Informal Restructuring Agreements and Rehabilitation Plans. - An out-of-curt or informal restructuring agreement or
Rehabilitation Plan that meets the minimum requirements prescribed in this chapter is hereby recognized as consistent with the objectives of this Act.
Section 84. Minimum Requirements of Out-of-Court or Informal Restructuring Agreements and Rehabilitation Plans.- For an out-of-court or informal
restructuring/workout agreement or Rehabilitation Plan to qualify under this chapter, it must meet the following minimum requirements:
(a) The debtor must agree to the out-of-court or informal restructuring/workout agreement or Rehabilitation Plan;
(b) It must be approved by creditors representing at least sixty-seven (67%) of the secured obligations of the debtor;
(c) It must be approved by creditors representing at least seventy-five percent (75%) of the unsecured obligations of the debtor; and
(d) It must be approved by creditors holding at least eighty-five percent (85%) of the total liabilities, secured and unsecured, of the debtor.
Section 85. Standstill Period. - A standstill period that may be agreed upon by the parties pending negotiation and finalization of the out-of-court or
informal restructuring/workout agreement or Rehabilitation Plan contemplated herein shall be effective and enforceable not only against the contracting
parties but also against the other creditors: Provided, That (a) such agreement is approved by creditors representing more than fifty percent (50%) of
the total liabilities of the debtor; (b) notice thereof is publishing in a newspaper of general circulation in the Philippines once a week for two (2)
consecutive weeks; and (c) the standstill period does not exceed one hundred twenty (120) days from the date of effectivity. The notice must invite
creditors to participate in the negotiation for out-of-court rehabilitation or restructuring agreement and notify them that said agreement will be binding on
all creditors if the required majority votes prescribed in Section 84 of this Act are met.
Section 86. Cram Down Effect. - A restructuring/workout agreement or Rehabilitation Plan that is approved pursuant to an informal workout framework
referred to in this chapter shall have the same legal effect as confirmation of a Plan under Section 69 hereof. The notice of the Rehabilitation Plan or
restructuring agreement or Plan shall be published once a week for at least three (3) consecutive weeks in a newspaper of general circulation in the
Philippines. The Rehabilitation Plan or restructuring agreement shall take effect upon the lapse of fifteen (15) days from the date of the last publication
of the notice thereof.
Section 87. Amendment or Modification. - Any amendment of an out-of-court restructuring/workout agreement or Rehabilitation Plan must be made in
accordance with the terms of the agreement and with due notice on all creditors.
Section 88. Effect of Court Action or Other Proceedings. - Any court action or other proceedings arising from, or relating to, the out-of-court or informal
restructuring/workout agreement or Rehabilitation Plan shall not stay its implementation, unless the relevant party is able to secure a temporary
restraining order or injunctive relief from the Court of Appeals.
Section 89. Court Assistance. - The insolvent debtor and/or creditor may seek court assistance for the execution or implementation of a Rehabilitation
Plan under this Chapter, under such rules of procedure as may be promulgated by the Supreme Court.
CHAPTER V
LIQUIDATION OF INSOLVENT JURIDICAL DEBTORS
Section 90. Voluntary Liquidation. - An insolvent debtor may apply for liquidation by filing a petition for liquidation with the court. The petition shall be
verified, shall establish the insolvency of the debtor and shall contain, whether as an attachment or as part of the body of the petition;
(a) a schedule of the debtor's debts and liabilities including a list of creditors with their addresses, amounts of claims and collaterals, or
securities, if any;
(b) an inventory of all its assets including receivables and claims against third parties; and
(c) the names of at least three (3) nominees to the position of liquidator.
At any time during the pendency of court-supervised or pre-negotiated rehabilitation proceedings, the debtor may also initiate liquidation proceedings
by filing a motion in the same court where the rehabilitation proceedings are pending to convert the rehabilitation proceedings into liquidation
proceedings. The motion shall be verified, shall contain or set forth the same matters required in the preceding paragraph, and state that the debtor is
seeking immediate dissolution and termination of its corporate existence.
If the petition or the motion, as the case may be, is sufficient in form and substance, the court shall issue a Liquidation Order mentioned in Section 112
hereof.
Section 91. Involuntary Liquidation. - Three (3) or more creditors the aggregate of whose claims is at least either One million pesos (Php1,000,000,00)
or at least twenty-five percent (25%0 of the subscribed capital stock or partner's contributions of the debtor, whichever is higher, may apply for and
seek the liquidation of an insolvent debtor by filing a petition for liquidation of the debtor with the court. The petition shall show that:
(a) there is no genuine issue of fact or law on the claims/s of the petitioner/s, and that the due and demandable payments thereon have not
been made for at least one hundred eighty (180) days or that the debtor has failed generally to meet its liabilities as they fall due; and
(b) there is no substantial likelihood that the debtor may be rehabilitated.
At any time during the pendency of or after a rehabilitation court-supervised or pre-negotiated rehabilitation proceedings, three (3) or more creditors
whose claims is at least either One million pesos (Php1,000,000.00) or at least twenty-five percent (25%) of the subscribed capital or partner's
contributions of the debtor, whichever is higher, may also initiate liquidation proceedings by filing a motion in the same court where the rehabilitation
proceedings are pending to convert the rehabilitation proceedings into liquidation proceedings. The motion shall be verified, shall contain or set forth
the same matters required in the preceding paragraph, and state that the movants are seeking the immediate liquidation of the debtor.
If the petition or motion is sufficient in form and substance, the court shall issue an Order:
(1) directing the publication of the petition or motion in a newspaper of general circulation once a week for two (2) consecutive weeks; and
(2) directing the debtor and all creditors who are not the petitioners to file their comment on the petition or motion within fifteen (15) days
from the date of last publication.
If, after considering the comments filed, the court determines that the petition or motion is meritorious, it shall issue the Liquidation Order mentioned in
Section 112 hereof.
Section 92. Conversion by the Court into Liquidation Proceedings. - During the pendency of court-supervised or pre-negotiated rehabilitation
proceedings, the court may order the conversion of rehabilitation proceedings to liquidation proceedings pursuant to (a) Section 25(c) of this Act; or (b)

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Section 72 of this Act; or (c) Section 75 of this Act; or (d) Section 90 of this Act; or at any other time upon the recommendation of the rehabilitation
receiver that the rehabilitation of the debtor is not feasible. Thereupon, the court shall issue the Liquidation Order mentioned in Section 112 hereof.
Section 93. Powers of the Securities and Exchange Commission (SEC). - The provisions of this chapter shall not affect the regulatory powers of the
SEC under Section 6 of Presidential Decree No. 902-A, as amended, with respect to any dissolution and liquidation proceeding initiated and heard
before it.
CHAPTER VI
INSOLVENCY OF INDIVIDUAL DEBTORS
(A) Suspension of Payments.
Section 94. Petition. - An individual debtor who, possessing sufficient property to cover all his debts but foreseeing the impossibility of meeting them
when they respectively fall due, may file a verified petition that he be declared in the state of suspension of payments by the court of the province or
city in which he has resides for six (6) months prior to the filing of his petition. He shall attach to his petition, as a minimum: (a) a schedule of debts and
liabilities; (b) an inventory of assess; and (c) a proposed agreement with his creditors.
Section 95. Action on the Petition. - If the court finds the petition sufficient in form and substance, it shall, within five (5) working days from the filing of
the petition, issue an Order:
(a) calling a meeting of all the creditors named in the schedule of debts and liabilities at such time not less than fifteen (15) days nor more
than forty (40) days from the date of such Order and designating the date, time and place of the meeting;
(b) directing such creditors to prepare and present written evidence of their claims before the scheduled creditors' meeting;
(c) directing the publication of the said order in a newspaper of general circulation published in the province or city in which the petition is
filed once a week for two (2) consecutive weeks, with the first publication to be made within seven (7) days from the time of the issuance of
the Order;
(d) directing the clerk of court to cause the sending of a copy of the Order by registered mail, postage prepaid, to all creditors named in the
schedule of debts and liabilities;
(e) forbidding the individual debtor from selling, transferring, encumbering or disposing in any manner of his property, except those used in
the ordinary operations of commerce or of industry in which the petitioning individual debtor is engaged so long as the proceedings relative
to the suspension of payments are pending;
(f) prohibiting the individual debtor from making any payment outside of the necessary or legitimate expenses of his business or industry, so
long as the proceedings relative to the suspension of payments are pending; and
(g) appointing a commissioner to preside over the creditors' meeting.
Section 96. Actions Suspended. - Upon motion filed by the individual debtor, the court may issue an order suspending any pending execution against
the individual debtor. Provide, That properties held as security by secured creditors shall not be the subject of such suspension order. The suspension
order shall lapse when three (3) months shall have passed without the proposed agreement being accepted by the creditors or as soon as such
agreement is denied.
No creditor shall sue or institute proceedings to collect his claim from the debtor from the time of the filing of the petition for suspension of payments
and for as long as proceedings remain pending except:
(a) those creditors having claims for personal labor, maintenance, expense of last illness and funeral of the wife or children of the debtor
incurred in the sixty (60) days immediately prior to the filing of the petition; and
(b) secured creditors.
Section 97. Creditors' Meeting. - The presence of creditors holding claims amounting to at least three-fifths (3/5) of the liabilities shall be necessary for
holding a meeting. The commissioner appointed by the court shall preside over the meeting and the clerk of court shall act as the secretary thereof,
subject to the following rules:
(a) The clerk shall record the creditors present and amount of their respective claims;
(b) The commissioner shall examine the written evidence of the claims. If the creditors present hold at least three-fifths (3/5) of the liabilities
of the individual debtor, the commissioner shall declare the meeting open for business;
(c) The creditors and individual debtor shall discuss the propositions in the proposed agreement and put them to a vote;
(d) To form a majority, it is necessary:
(1) that two-thirds (2/3) of the creditors voting unite upon the same proposition; and
(2) that the claims represented by said majority vote amount to at least three-fifths (3/5) of the total liabilities of the debtor
mentioned in the petition; and
(e) After the result of the voting has been announced, all protests made against the majority vote shall be drawn up, and the commissioner
and the individual debtor together with all creditors taking part in the voting shall sign the affirmed propositions.
No creditor who incurred his credit within ninety (90) days prior to the filing of the petition shall be entitled to vote.
Section 98. Persons Who May Refrain From Voting. - Creditors who are unaffected by the Suspension Order may refrain from attending the meeting
and from voting therein. Such persons shall not be bound by any agreement determined upon at such meeting, but if they should join in the voting they
shall be bound in the same manner as are the other creditors.
Section 99. Rejection of the Proposed Agreement. - The proposed agreement shall be deemed rejected if the number of creditors required for holding
a meeting do not attend thereat, or if the two (2) majorities mentioned in Section 97 hereof are not in favor thereof. In such instances, the proceeding
shall be terminated without recourse and the parties concerned shall be at liberty to enforce the rights which may correspond to them.
Section 100. Objections. - If the proposal of the individual debtor, or any amendment thereof made during the creditors' meeting, is approved by the
majority of creditors in accordance with Section 97 hereof, any creditor who attended the meeting and who dissented from and protested against the
vote of the majority may file an objection with the court within ten (10) days from the date of the last creditors' meeting. The causes for which objection
may be made to the decision made by the majority during the meeting shall be: (a) defects in the call for the meeting, in the holding thereof and in the
deliberations had thereat which prejudice the rights of the creditors; (b) fraudulent connivance between one or more creditors and the individual debtor
to vote in favor of the proposed agreement; or (c) fraudulent conveyance of claims for the purpose of obtaining a majority. The court shall hear and
pass upon such objection as soon as possible and in a summary manner.
In case the decision of the majority of creditors to approve the individual debtor's proposal or any amendment thereof made during the creditors'
meeting is annulled by the court, the court shall declare the proceedings terminated and the creditors shall be at liberty to exercise the rights which
may correspond to them.
Section 101. Effects of Approval of Proposed Agreement. - If the decision of the majority of the creditors to approve the proposed agreement or any
amendment thereof made during the creditors' meeting is uphold by the court, or when no opposition or objection to said decision has been presented,
the court shall order that the agreement be carried out and all parties bound thereby to comply with its terms.
The court may also issue all orders which may be necessary or proper to enforce the agreement on motion of any affected party. The Order confirming
the approval of the proposed agreement or any amendment thereof made during the creditors' meeting shall be binding upon all creditors whose claims
are included in the schedule of debts and liabilities submitted by the individual debtor and who were properly summoned, but not upon: (a) those
creditors having claims for personal labor, maintenance, expenses of last illness and funeral of the wife or children of the debtor incurred in the sixty
(60) days immediately prior to the filing of the petition; and (b) secured creditors who failed to attend the meeting or refrained from voting therein.
Section 102. Failure of Individual Debtor to Perform Agreement. - If the individual debtor fails, wholly or in part, to perform the agreement decided
upon at the meeting of the creditors, all the rights which the creditors had against the individual debtor before the agreement shall revest in them. In
such case the individual debtor may be made subject to the insolvency proceedings in the manner established by this Act.
(B) Voluntary Liquidation.
Section 103. Application. - An individual debtor whose properties are not sufficient to cover his liabilities, and owing debts exceeding Five hundred
thousand pesos (Php500,000.00), may apply to be discharged from his debts and liabilities by filing a verified petition with the court of the province or
city in which he has resided for six (6) months prior to the filing of such petition. He shall attach to his petition a schedule of debts and liabilities and an
inventory of assets. The filing of such petition shall be an act of insolvency.
Section 104. Liquidation Order. - If the court finds the petition sufficient in form and substance it shall, within five (5) working days issue the Liquidation
Order mentioned in Section 112 hereof.

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(C) In voluntary Liquidation.
Section 105. Petition; Acts of Insolvency. - Any creditor or group of creditors with a claim of, or with claims aggregating at least Five hundred thousand
pesos (Php500, 000.00) may file a verified petition for liquidation with the court of the province or city in which the individual debtor resides.
The following shall be considered acts of insolvency, and the petition for liquidation shall set forth or allege at least one of such acts:
(a) That such person is about to depart or has departed from the Republic of the Philippines, with intent to defraud his creditors;
(b) That being absent from the Republic of the Philippines, with intent to defraud his creditors, he remains absent;
(c) That he conceals himself to avoid the service of legal process for the purpose of hindering or delaying the liquidation or of defrauding his
creditors;
(d) That he conceals, or is removing, any of his property to avoid its being attached or taken on legal process;
(e) That he has suffered his property to remain under attachment or legal process for three (3) days for the purpose of hindering or delaying the
liquidation or of defrauding his creditors;
(f) That he has confessed or offered to allow judgment in favor of any creditor or claimant for the purpose of hindering or delaying the liquidation or
of defrauding any creditors or claimant;
(g) That he has willfully suffered judgment to be taken against him by default for the purpose of hindering or delaying the liquidation or of
defrauding his creditors;
(h) That he has suffered or procured his property to be taken on legal process with intent to give a preference to one or more of his creditors and
thereby hinder or delay the liquidation or defraud any one of his creditors;
(i) That he has made any assignment, gift, sale, conveyance or transfer of his estate, property, rights or credits with intent to hinder or delay the
liquidation or defraud his creditors;
(j) That he has, in contemplation of insolvency, made any payment, gift, grant, sale, conveyance or transfer of his estate, property, rights or credits;
(k) That being a merchant or tradesman, he has generally defaulted in the payment of his current obligations for a period of thirty (30) days;
(l) That for a period of thirty (30) days, he has failed, after demand, to pay any moneys deposited with him or received by him in a fiduciary; and
(m) That an execution having been issued against him on final judgment for money, he shall have been found to be without sufficient property
subject to execution to satisfy the judgment.
The petitioning creditor/s shall post a bond in such as the court shall direct, conditioned that if the petition for liquidation is dismissed by the court, or
withdrawn by the petitioner, or if the debtor shall not be declared an insolvent the petitioners will pay to the debtor all costs, expenses, damages
occasioned by the proceedings and attorney's fees.
Section 106. Order to Individual Debtor to Show Cause. - Upon the filing of such creditors' petition, the court shall issue an Order requiring the
individual debtor to show cause, at a time and place to be fixed by the said court, why he should not be adjudged an insolvent. Upon good cause
shown, the court may issue an Order forbidding the individual debtor from making payments of any of his debts, and transferring any property
belonging to him. However, nothing contained herein shall affect or impair the rights of a secured creditor to enforce his lien in accordance with its
terms.
Section 107. Default. - If the individual debtor shall default or if, after trial, the issues are found in favor of the petitioning creditors the court shall issue
the Liquidation Order mentioned in Section 112 hereof.
Section 108. Absent Individual Debtor. - In all cases where the individual debtor resides out of the Republic of the Philippines; or has departed
therefrom; or cannot, after due diligence, be found therein; or conceals himself to avoid service of the Order to show cause, or any other preliminary
process or orders in the matter, then the petitioning creditors, upon submitting the affidavits requisite to procedure an Order of publication, and
presenting a bond in double the amount of the aggregate sum of their claims against the individual debtor, shall be entitled to an Order of the court
directing the sheriff of the province or city in which the matter is pending to take into his custody a sufficient amount of property of the individual debtor
to satisfy the demands of the petitioning creditors and the costs of the proceedings. Upon receiving such Order of the court to take into custody of the
property of the individual debtor, it shall be the duty of the sheriff to take possession of the property and effects of the individual debtor, not exempt
from execution, to an extent sufficient to cover the amount provided for and to prepare within three (3) days from the time of taking such possession, a
complete inventory of all the property so taken, and to return it to the court as soon as completed. The time for taking the inventory and making return
thereof may be extended for good cause shown to the court. The sheriff shall also prepare a schedule of the names and residences of the creditors,
and the amount due each, from the books of the debtor, or from such other papers or data of the individual debtor available as may come to his
possession, and shall file such schedule or list of creditors and inventory with the clerk of court.
Section 109. All Property Taken to be Held for All Creditors; Appeal Bonds; Exemptions to Sureties. - In all cases where property is taken into custody
by the sheriff, if it does not embrace all the property and effects of the debtor not exempt from execution, any other creditor or creditors of the individual
debtor, upon giving bond to be approved by the court in double the amount of their claims, singly or jointly, shall be entitled to similar orders and to like
action, by the sheriff; until all claims be provided for, if there be sufficient property or effects. All property taken into custody by the sheriff by virtue of
the giving of any such bonds shall be held by him for the benefit of all creditors of the individual debtor whose claims shall be duly proved as provided
in this Act. The bonds provided for in this section and the preceding section to procure the order for custody of the property and effects of the individual
debtor shall be conditioned that if, upon final hearing of the petition in insolvency, the court shall find in favor of the petitioners, such bonds and all of
them shall be void; if the decision be in favor of the individual debtor, the proceedings shall be dismissed, and the individual debtor, his heirs,
administrators, executors or assigns shall be entitled to recover such sum of money as shall be sufficient to cover the damages sustained by him, not
to exceed the amount of the respective bonds. Such damages shall be fixed and allowed by the court. If either the petitioners or the debtor shall appeal
from the decision of the court, upon final hearing of the petition, the appellant shall be required to give bond to the successful party in a sum double the
amount of the value of the property in controversy, and for the costs of the proceedings.
Any person interested in the estate may take exception to the sufficiency of the sureties on such bond or bonds. When excepted to the petitioner's
sureties, upon notice to the person excepting of not less than two (2) nor more than five (5) days, must justify as to their sufficiency; and upon failure to
justify, or of others in their place fail to justify at the time and place appointed the judge shall issue an Order vacating the order to take the property of
the individual debtor into the custody of the sheriff, or denying the appeal, as the case may be.
Section 110. Sale Under Execution. - If, in any case, proper affidavits and bonds are presented to the court or a judge thereof, asking for and obtaining
an Order of publication and an Order for the custody of the property of the individual debtor and thereafter the petitioners shall make it appear
satisfactorily to the court or a judge thereof that the interest of the parties to the proceedings will be subserved by a sale thereof, the court may order
such property to be sold in the same manner as property is sold under execution, the proceeds to de deposited in the court to abide by the result of the
proceedings.
CHAPTER VII
PROVISIONS COMMON TO LIQUIDATION IN INSOLVENCY OF INDIVIDUAL AND JURIDICAL DEBTORS
Section 111. Use of Term Debtor. - For purposes of this chapter, the term debtor shall include both individual debtor as defined in Section 4(o) and
debtor as defined in Section 4(k) of this Act.
(A) The Liquidation Order.
Section 112. Liquidation Order. - The Liquidation Order shall:
(a) declare the debtor insolvent;
(b) order the liquidation of the debtor and, in the case of a juridical debtor, declare it as dissolved;
(c) order the sheriff to take possession and control of all the property of the debtor, except those that may be exempt from execution;
(d) order the publication of the petition or motion in a newspaper of general circulation once a week for two (2) consecutive weeks;
(e) direct payments of any claims and conveyance of any property due the debtor to the liquidator;
(f) prohibit payments by the debtor and the transfer of any property by the debtor;
(g) direct all creditors to file their claims with the liquidator within the period set by the rules of procedure;
(h) authorize the payment of administrative expenses as they become due;
(i) state that the debtor and creditors who are not petitioner/s may submit the names of other nominees to the position of liquidator; and
(j) set the case for hearing for the election and appointment of the liquidator, which date shall not be less than thirty (30) days nor more than forty-
five (45) days from the date of the last publication.

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Section 113. Effects of the Liquidation Order. - Upon the issuance of the Liquidation Order:
(a) the juridical debtor shall be deemed dissolved and its corporate or juridical existence terminated;
(b) legal title to and control of all the assets of the debtor, except those that may be exempt from execution, shall be deemed vested in the liquidator
or, pending his election or appointment, with the court;
(c) all contracts of the debtor shall be deemed terminated and/or breached, unless the liquidator, within ninety (90) days from the date of his
assumption of office, declares otherwise and the contracting party agrees;
(d) no separate action for the collection of an unsecured claim shall be allowed. Such actions already pending will be transferred to the Liquidator for
him to accept and settle or contest. If the liquidator contests or disputes the claim, the court shall allow, hear and resolve such contest except when
the case is already on appeal. In such a case, the suit may proceed to judgment, and any final and executor judgment therein for a claim against the
debtor shall be filed and allowed in court; and
(e) no foreclosure proceeding shall be allowed for a period of one hundred eighty (180) days.
Section 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:
(a) waive his right under the security or lien, prove his claim in the liquidation proceedings and share in the distribution of the assets of the debtor; or
(b) maintain his rights under the security or lien:
If the secured creditor maintains his rights under the security or lien:
(1) the value of the property may be fixed in a manner agreed upon by the creditor and the liquidator. When the value of the property is less than the
claim it secures, the liquidator may convey the property to the secured creditor and the latter will be admitted in the liquidation proceedings as a
creditor for the balance. If its value exceeds the claim secured, the liquidator may convey the property to the creditor and waive the debtor's right of
redemption upon receiving the excess from the creditor;
(2) the liquidator may sell the property and satisfy the secured creditor's entire claim from the proceeds of the sale; or
(3) the secure creditor may enforce the lien or foreclose on the property pursuant to applicable laws.
(B) The Liquidator.
Section 115. Election of Liquidator. - Only creditors who have filed their claims within the period set by the court, and whose claims are not barred by
the statute of limitations, will be allowed to vote in the election of the liquidator. A secured creditor will not be allowed to vote, unless: (a) he waives his
security or lien; or (b) has the value of the property subject of his security or lien fixed by agreement with the liquidator, and is admitted for the balance
of his claim.
The creditors entitled to vote will elect the liquidator in open court. The nominee receiving the highest number of votes cast in terms of amount of
claims, ad who is qualified pursuant to Section 118 hereof, shall be appointed as the liquidator.
Section 116. Court-Appointed Liquidator. - The court may appoint the liquidator if:
(a) on the date set for the election of the liquidator, the creditors do not attend;
(b) the creditors who attend, fail or refuse to elect a liquidator;
(c) after being elected, the liquidator fails to qualify; or
(d) a vacancy occurs for any reason whatsoever, In any of the cases provided herein, the court may instead set another hearing of the
election of the liquidator.
Provided further, That nothing in this section shall be construed to prevent a rehabilitation receiver, who was administering the debtor prior to the
commencement of the liquidation, from being appointed as a liquidator.
Section 117. Oath and Bond of the Liquidator. -Prior to entering upon his powers, duties and responsibilities, the liquidator shall take an oath and file a
bond, In such amount to be fixed by the court, conditioned upon the proper and faithful discharge of his powers, duties and responsibilities.
Section 118. Qualifications of the Liquidator. - The liquidator shall have the qualifications enumerated in Section 29 hereof. He may be removed at any
time by the court for cause, either motu propio or upon motion of any creditor entitled to vote for the election of the liquidator.
Section 119. Powers, Duties and Responsibilities of the Liquidator. - The liquidator shall be deemed an officer of the court with the principal duly of
preserving and maximizing the value and recovering the assets of the debtor, with the end of liquidating them and discharging to the extent possible all
the claims against the debtor. The powers, duties and responsibilities of the liquidator shall include, but not limited to:
(a) to sue and recover all the assets, debts and claims, belonging or due to the debtor;
(b) to take possession of all the property of the debtor except property exempt by law from execution;
(c) to sell, with the approval of the court, any property of the debtor which has come into his possession or control;
(d) to redeem all mortgages and pledges, and so satisfy any judgement which may be an encumbrance on any property sold by him;
(e) to settle all accounts between the debtor and his creditors, subject to the approval of the court;
(f) to recover any property or its value, fraudulently conveyed by the debtor;
(g) to recommend to the court the creation of a creditors' committee which will assist him in the discharge of the functions and which shall have
powers as the court deems just, reasonable and necessary; and
(h) upon approval of the court, to engage such professional as may be necessary and reasonable to assist him in the discharge of his duties.
In addition to the rights and duties of a rehabilitation receiver, the liquidator, shall have the right and duty to take all reasonable steps to manage and
dispose of the debtor's assets with a view towards maximizing the proceedings therefrom, to pay creditors and stockholders, and to terminate the
debtor's legal existence. Other duties of the liquidator in accordance with this section may be established by procedural rules.
A liquidator shall be subject to removal pursuant to procedures for removing a rehabilitation receiver.
Section 120. Compensation of the Liquidator. - The liquidator and the persons and entities engaged or employed by him to assist in the discharge of
his powers and duties shall be entitled to such reasonable compensation as may determined by the liquidation court, which shall not exceed the
maximum amount as may be prescribed by the Supreme Court.
Section 121. Reporting Requiremen5ts. - The liquidator shall make and keep a record of all moneys received and all disbursements mad by him or
under his authority as liquidator. He shall render a quarterly report thereof to the court , which report shall be made available to all interested parties.
The liquidator shall also submit such reports as may be required by the court from time to time as well as a final report at the end of the liquidation
proceedings.
Section 122. Discharge of Liquidator. - In preparation for the final settlement of all the claims against the debtor , the liquidator will notify all the
creditors, either by publication in a newspaper of general circulation or such other mode as the court may direct or allow, that will apply with the court
for the settlement of his account and his discharge from liability as liquidator. The liquidator will file a final accounting with the court, with proof of notice
to all creditors. The accounting will be set for hearing. If the court finds the same in order, the court will discharge the liquidator.
(C) Determination of Claims
Section 123. Registry of Claims. - Within twenty (20) days from his assumption into office the liquidator shall prepare a preliminary registry of claims of
secured and unsecured creditors. Secured creditors who have waived their security or lien, or have fixed the value of the property subject of their
security or lien by agreement with the liquidator and is admitted as a creditor for the balance , shall be considered as unsecured creditors. The
liquidator shall make the registry available for public inspection and provide publication notice to creditors, individual debtors owner/s of the sole
proprietorship-debtor, the partners of the partnership-debtor and shareholders or members of the corporation-debtor, on where and when they may
inspect it. All claims must be duly proven before being paid.
Section 124. Right of Set-off. - If the debtor and creditor are mutually debtor and creditor of each other one debt shall be set off against the other, and
only the balance, if any shall be allowed in the liquidation proceedings.
Section 125. - Opposition or Challenge to Claims. - Within thirty (30 ) days from the expiration of the period for filing of applications for recognition of
claims, creditors, individual debtors, owner/s of the sole proprietorship-debtor, partners of the partnership-debtor and shareholders or members of the
corporation -debtor and other interested parties may submit a challenge to claim or claims to the court, serving a certified copy on the liquidator and the
creditor holding the challenged claim. Upon the expiration of the (30) day period, the rehabilitation receiver shall submit to the court the registry of
claims containing the undisputed claims that have not been subject to challenge. Such claims shall become final upon the filling of the register and may
be subsequently set aside only on grounds or fraud, accident, mistake or inexcusable neglect.

27
Section 126. Submission of Disputed to the Court. - The liquidator shall resolve disputed claims and submit his findings thereon to the court for final
approval. The liquidator may disallow claims.
(D) Avoidance Proceedings.
Section 127. Rescission or Nullity of Certain Transactions. - Any transaction occurring prior to the issuance of the Liquidation Order or, in case of the
conversion of the rehabilitation proceedings prior to the commencement date, entered into by the debtor or involving its assets, may be rescinded or
declared null and void on the ground that the same was executed with intent to defraud a creditor or creditors or which constitute undue preference of
creditors. The presumptions set forth in Section 58 hereof shall apply.
Section 128. Actions for Rescission or Nullity. - (a) The liquidator or, with his conformity, a creditor may initiate and prosecute any action to rescind, or
declare null and void any transaction described in the immediately preceding paragraph. If the liquidator does not consent to the filling or prosecution of
such action, any creditor may seek leave of the court to commence said action.
(b) if leave of court is granted under subsection (a) hereof, the liquidator shall assign and transfer to the creditor all rights, title and interest
in the chose in action or subject matter of the proceeding, including any document in support thereof.
(c) Any benefit derived from a proceeding taken pursuant to subsection (a) hereof, to the extent of his claim and the costs, belongs
exclusively to the creditor instituting the proceeding, and the surplus, if any, belongs to the estate.
(d) Where, before an orders is made under subsection (a) hereof, the liquidator signifies to the court his readiness to the institute the
proceeding for the benefit of the creditors, the order shall fix the time within which he shall do so and, in that case the benefit derived from
the proceedings, if instituted within the time limits so fixed, belongs to the estate.
(E) The Liquidation Plan.
Section 129. The Liquidation Plan. - Within three (3) months from his assumption into office, the Liquidator shall submit a Liquidation Plan to the court.
The Liquidation Plan shall, as a minimum enumerate all the assets of the debtor and a schedule of liquidation of the assets and payment of the claims.
Section 130. Exempt Property to be Set Apart. - It shall be the duty of the court, upon petition and after hearing, to exempt and set apart, for the use
and benefit of the said insolvent, such real and personal property as is by law exempt from execution, and also a homestead; but no such petition shall
be heard as aforesaid until it is first proved that notice of the hearing of the application therefor has been duly given by the clerk, by causing such
notice to be posted it at least three (3) public places in the province or city at least ten (10) days prior to the time of such hearing, which notice shall set
forth the name of the said insolvent debtor, and the time and place appointed for the hearing of such application, and shall briefly indicate the
homestead sought to be exempted or the property sought to be set aside; and the decree must show that such proof was made to the satisfaction of
the court, and shall be conclusive evidence of that fact.
Section 131. Sale of Assets in Liquidation. - The liquidator may sell the unencumbered assets of the debtor and convert the same into money. The
sale shall be made at public auction. However, a private sale may be allowed with the approval of the court if; (a) the goods to be sold are of a
perishable nature, or are liable to quickly deteriorate in value, or are disproportionately expensive to keep or maintain; or (b) the private sale is for the
best interest of the debtor and his creditors.
With the approval of the court, unencumbered property of the debtor may also be conveyed to a creditor in satisfaction of his claim or part thereof.
Section 132. manner of Implementing the Liquidation Plan. - The Liquidator shall implement the Liquidation Plan as approved by the court. Payments
shall be made to the creditors only in accordance with the provisions of the Plan.
Section 133. Concurrence and Preference of Credits. - The Liquidation Plan and its Implementation shall ensure that the concurrence and preference
of credits as enumerated in the Civil Code of the Philippines and other relevant laws shall be observed, unless a preferred creditor voluntarily waives
his preferred right. For purposes of this chapter, credits for services rendered by employees or laborers to the debtor shall enjoy first preference under
Article 2244 of the Civil Code, unless the claims constitute legal liens under Article 2241 and 2242 thereof.
Section 134. Order Removing the Debtor from the List of Registered Entitles at the Securities and Exchange Commission. - Upon determining that the
liquidation has been completed according to this Act and applicable law, the court shall issue an Order approving the report and ordering the SEC to
remove the debtor from the registry of legal entities.
Section 135. Termination of Proceedings. - Upon receipt of evidence showing that the debtor has been removed from the registry of legal entities at
the SEC. The court shall issue an Order terminating the proceedings.
(F) Liquidation of a Securities Market Participant.
Section 136. Liquidation of a Securities Market Participant. - The foregoing provisions of this chapter shall be without prejudice to the power of a
regulatory agency or self- regulatory organization to liquidate trade-related claims of clients or customers of a securities market participant which, for
purposes of investor protection, are hereby deemed to have absolute priority over other claims of whatever nature or kind insofar as trade-related
assets are concerned.
For purposes of this section, trade -related assets include cash, securities, trading right and other owned and used by the securities market participant
in the ordinary course of this business.
CHAPTER VIII
PROCEEDINGS ANCILLARY TO OTHER INSOLVENCY OR REHABILITAION PROCEEDINGS
(A) Banks and Other Financial Institutions Under Rehabilitation Receivership Pursuant to a State-funded or State-mandated Insurance
System.
Section 137. Provision of Assistance. - The court shall issue orders, adjudicate claims and provide other relief necessary to assist in the liquidation of
a financial under rehabilitation receivership established by a state-funded or state-mandated insurance system.
Section 138. Application of Relevant Legislation. - The liquidation of bank, financial institutions, insurance companies and pre-need companies shall
be determined by relevant legislation. The provisions in this Act shall apply in a suppletory manner.
(B) Cross-Border Insolvency Proceedings.
Section 139. Adoption of Uncitral Model Law on Cross-Border Insolvency. - Subject to the provision of Section 136 hereof and the rules of procedure
that may be adopted by the Supreme Court, the Model Law on Cross-Border Insolvency of the United Nations Center for International Trade and
Development is hereby adopted as part of this Act.
Section 140. Initiation of Proceedings. - The court shall set a hearing in connection with an insolvency or rehabilitation proceeding taking place in a
foreign jurisdiction, upon the submission of a petition by the representative of the foreign entity that is the subject of the foreign proceeding.
Section 141. Provision of Relief. - The court may issue orders:
(a) suspending any action to enforce claims against the entity or otherwise seize or foreclose on property of the foreign entity located in the
Philippines;
(b) requiring the surrender property of the foreign entity to the foreign representative; or
(c) providing other necessary relief.
Section 142. Factors in Granting Relief. - In determining whether to grant relief under this subchapter, the court shall consider;
(a) the protection of creditors in the Philippines and the inconvenience in pursuing their claim in a foreign proceeding;
(b) the just treatment of all creditors through resort to a unified insolvency or rehabilitation proceedings;
(c) whether other jurisdictions have given recognition to the foreign proceeding;
(d) the extent that the foreign proceeding recognizes the rights of creditors and other interested parties in a manner substantially in
accordance with the manner prescribed in this Act; and
(e) the extent that the foreign proceeding has recognized and shown deference to proceedings under this Act and previous legislation.
CHAPTER IX
FUNDS FOR REHABILITATION OF GOVERNMENT-OWNED AND CONTROLLED CORPORATIONS
Section 143. Funds for Rehabilitation of Government -owned and Controlled Corporations. - Public funds for the rehabilitation of government-owned
and controlled corporations shall be released only pursuant to an appropriation by Congress and shall be supported by funds actually available as
certified by the National Treasurer.
The Department of Finance, in collaboration with the Department of Budget and Management, shall promulgate the rules for the use and release of
said funds.

28
 CHAPTER X
MISCELLANEOUS PROVISIOS
Section 144. Applicability of Provisions. - The provisions in Chapter II, insofar as they are applicable, shall likewise apply to proceedings in Chapters II
and IV.
Section 145. Penalties. - An owner, partner, director, officer or other employee of the debtor who commits any one of the following acts shall, upon
conviction thereof, be punished by a fine of not more than One million pesos (Php 1, 000,000.00) and imprisonment for not less than three(3) months
nor more than five (5) years for each offense;
(a) if he shall, having notice of the commencement of the proceedings, or having reason to believe that proceedings are about to be commented,
or in contemplation of the proceedings hide or conceal, or destroy or cause to be destroyed or hidden any property belonging to the debtor or if
he shall hide, destroy, after mutilate or falsify, or cause to be hidden, destroyed, altered, mutilated or falsified, any book, deed, document or
writing relating thereto; if he shall, with intent to defraud the creditors of the debtor, make any payment sale, assignment, transfer or conveyance
of any property belongings to the debtor
(b) if he shall, having knowledge belief of any person having proved a false or fictitious claim against the debtor, fail to disclose the same to the
rehabilitation receiver of liquidator within one (1) month after coming to said knowledge or belief; or if he shall attempt to account for any of the
debtors property by fictitious losses or expense; or
(c) if he shall knowingly violate a prohibition or knowingly fail to undertake an obligation established by this Act.
Section 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
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.
Section 147. Application to Pending Contracts. - This Act shall apply to all contracts of the debtor regardless of the date of perfection.
Section 148. Repeating Clause. - The Insolvency Law (Act No. 1956). As amended is hereby repealed. All other laws, orders, rules and regulations or
parts thereof inconsistent with any provision of this Act are hereby repealed or modified accordingly.
Section 149. Separability Clause. - If any provision of this Act shall be held invalid, the remainder of this Act not otherwise affected shall remain in full
force effect
Section 150. Effectivity Clause. - This Act shall take effect fifteen (15) days after its complete publication in the Official Gazette or in at least two (2)
national newspaper of general circulation.

[G.R. No. 124185-87. January 20, 1998]

RUBY INDUSTRIAL CORPORATION and BENHAR INTERNATIONAL, INC. petitioners, vs. COURT OF APPEALS, MIGUEL LIM, ALLIED LEASING
and FINANCE CORPORATION, and THE MANAGEMENT COMMITTEE OF RUBY INDUSTRIAL CORPORATION, respondents.
PUNO, J.:
Petitioners seek the reversal of the Court of Appeals Decision, [1] setting aside the Orders of the Securities and Exchange Commission (SEC),
dated July 30, 1993 and October 15, 1993, which approved the Revised Rehabilitation Plan of Ruby Industrial Corporation (RUBY) and appointed Benhar
International, Inc. (BENHAR) as member of RUBY's Management Committee.
The facts: Petitioner Ruby Industrial Corporation (RUBY) is a domestic corporation engaged in glass manufacturing, while petitioner Benhar
International, Inc. (BENHAR) is a domestic corporation engaged in importation and sale of vehicle spare parts. BENHAR is wholly-owned by the Yu
family and headed by Henry Yu who is also a director and majority stockholder of RUBY.
In 1983, RUBY suffered severe liquidity problems. Thus, on December 13, 1983, it filed a Petition for Suspension of Payments with the Securities
and Exchange Commission (SEC). [2]
On December 20, 1983, the SEC issued an Order[3] declaring RUBY under suspension of payments. Pending hearing of its petition, the SEC
enjoined RUBY from disposing its property,except insofar as necessary in its ordinary operations. It also enjoined RUBY from making payments outside
of the necessary or legitimate expenses of its business.
On August 10, 1984, the SEC Hearing Panel[4] created a management committee[5] for RUBY to: (1) undertake the management of RUBY; (2)
take custody of and control over all existing assets and liabilities of RUBY; (3) evaluate RUBY's existing assets and liabilities, earnings and operations;
(4) determine the best way to salvage and protect the interest of its investors and creditors; and (5) study, review and evaluate the proposed rehabilitation
plan for RUBY.[6]
Subsequently, at RUBY's special stockholders meeting, its majority stockholders led by Yu Kim Giang presented the BENHAR/RUBY
Rehabilitation Plan to be submitted to SEC.Under the plan, BENHAR shall lend its P60 million credit line in China Bank to RUBY, payable within ten
(10) years. Moreover, BENHAR shall purchase the credits of RUBY's creditors and mortgage RUBY's properties to obtain credit facilities for
RUBY.[7] Upon approval of the rehabilitation plan, BENHAR shall control and manage RUBY'S operations. For its service, BENHAR shall receive a
management fee equivalent to 7.5% of RUBY's net sales.[8]
Some 40% of the stockholders opposed the BENHAR/RUBY Plan, including private respondent MIGUEL LIM, a minority shareholder of
RUBY. Private respondent Allied Leasing and Finance Corporation, the biggest unsecured creditor of RUBY and chairman of the management committee,
also objected to the plan as it would transfer RUBY's assets beyond the reach and to the prejudice of its unsecured creditors. Despite the oppositions,
the majority stockholders still submitted the BENHAR/RUBY Plan to the SEC for approval.
Upon the other hand, RUBY's minority stockholders, represented by private respondent Lim, submitted their own rehabilitation plan (the
ALTERNATIVE PLAN) to the SEC where they proposed to: (1) pay all RUBY'S creditors without securing any bank loan; (2) run and operate RUBY
without charging management fees; (3) buy-out the majority shares or sell their shares to the majority stockholders; (4) rehabilitate RUBY's two plants;
and (5) secure a loan at 25% interest, as against the 28% interest charged in the loan under the BENHAR/RUBY Plan.[9]
Both plans were endorsed by the SEC to RUBY's management committee for evaluation.
On October 28, 1988, the SEC Hearing Panel approved the BENHAR/RUBY Plan.[10] The minority stockholders, thru private respondent Lim,
appealed the approval to the SEC enbanc. On November 15, 1988, the SEC en banc temporarily enjoined the implementation of the BENHAR/RUBY
Plan. On December 20, 1988, after the expiration of the TRO, the SEC enbanc granted the writ of preliminary injunction against the enforcement of the
BENHAR/RUBY Plan.[11]
Thereafter, BENHAR and Henry Yu, later joined by RUBY and Yu Kim Giang, appealed to the Court of Appeals (CA-G.R. SP No. 16798)
questioning the issuance of the writ. Their appeal was denied.[12]
BENHAR and company elevated the matter to this Court. In a minute Resolution,[13] dated February 28, 1990, we denied the petition and upheld
the injunction against the implementation of the BENHAR/RUBY Plan.
However, it appears that before the SEC Hearing Panel approved the BENHAR/RUBY Plan on October 28, 1988, BENHAR had already
implemented part of the plan by paying off Far East Bank & Trust Company (FEBTC), one of RUBY's secured creditors. Thus, by May 30, 1988, FEBTC
had already executed a deed of assignment of credit and mortgage rights in favor of BENHAR. Moreover, despite the SEC en banc's TRO and injunction,
BENHAR still paid RUBY's other secured creditors who, in turn, assigned their credits in favor of BENHAR.
Hence, RUBY's biggest unsecured creditor, Allied Leasing and Finance Corporation, and private respondent Lim moved to nullify the deeds of
assignment executed in favor of BENHAR and cite the parties thereto in contempt for willful violation of the December 20, 1983 SEC Order enjoining
RUBY from disposing its properties and making payments pending the hearing of its petition for suspension of payments. Private respondents Lim and
Allied Leasing charged that in paying off FEBTC's credits, FEBTC was given undue preference over the other creditors of RUBY.
Acting on private respondents' motions, the SEC Hearing Panel nullified the deeds of assignment executed by RUBY's creditors in favor of
BENHAR and declared the parties thereto guilty of indirect contempt.[14]
Petitioners appealed to the SEC en banc. Their appeal was denied.[15] It was ruled that, pending approval of the BENHAR/RUBY plan, BENHAR
had no authority to pay off FEBTC, one of RUBY's creditors. In prematurely implementing the BENHAR/RUBY plan, BENHAR defied the SEC Order
declaring RUBY under suspension of payments and directing the management committee to preserve its assets.
Petitioners RUBY and BENHAR, joined by Henry Yu and Yu Kim Giang, appealed to the Court of Appeals (CA-G.R. SP No. 18310). On August
29, 1990, the Court of Appeals affirmed the SEC ruling nullifying the deeds of assignment.[16] It also declared that its decision is final and executory as to
RUBY and Yu Kim Giang for their failure to file their pleadings within the reglementary period. This Court affirmed the Court of Appeals' decision in G.R.
No. 96675.[17]

29
 Earlier, on May 29, 1990, after the SEC en banc enjoined the implementation of BENHAR/RUBY Plan, RUBY filed with the SEC en banc an ex-
parte petition to create a new management committee and to approve its revised rehabilitation plan (Revised BENHAR/RUBY Plan). Under the revised
plan, BENHAR shall receive P34.068 Million of the P60.437 Million credit facility to be extended to RUBY, as reimbursement for BENHAR's payment to
some of RUBY's creditors.
The SEC en banc directed RUBY to submit the Revised BENHAR/RUBY Plan to its creditors for comment and approval. The petition for the
creation of a new management committee was remanded for further proceedings to the SEC Hearing Panel. The Alternative Plan of RUBY's minority
stockholders was also forwarded to the hearing panel for evaluation.
On April 26, 1991, over ninety (90%) percent of RUBY's creditors objected to the Revised BENHAR/RUBY Plan and the creation of a new
management committee. Instead, they endorsed the minority stockholders' Alternative Plan.
At the hearing of the petition for the creation of a new management committee, three (3) members of the original management
committee[18] opposed the Revised BENHAR/RUBY Plan on the following grounds:
(1) the Revised BENHAR/RUBY Plan would legitimize the entry of BENHAR, a total stranger, to RUBY as BENHAR would become the biggest creditor
of RUBY;
(2) the revised plan would put RUBY's assets beyond the reach of the unsecured creditors and the minority stockholders; and,
(3) the revised plan was not approved by RUBY's stockholders in a meeting called for the purpose.
However, on September 18, 1991, despite the objections of over 90% of RUBY's creditors and three (3) members of the management committee,
the SEC Hearing Panel approved the revised plan and dissolved the existing management committee. It also created a new management committee
and appointed BENHAR as one of its members.[19] In addition to the powers originally conferred to the management committee under P.D. No. 902-A,
the new management committee was tasked to oversee the implementation by the Board of Directors of the revised rehabilitation plan for RUBY.
Consequently, the original management committee, Lim, and the Allied Leasing Corporation appealed to the SEC en banc. On July 30, 1993, the
SEC En Banc affirmed the approval of the Revised BENHAR/RUBY Plan and the creation of a new management committee. [20] To avoid any group from
controlling the management of RUBY, the SEC appointed SEC lawyers Ruben C. Ladia and Teresita R. Siao as additional members of the new
management committee. Further, it declared that BENHAR's membership in the new management committee is subject to the condition that BENHAR
will extend its credit facilities to RUBY without using the latter's assets as security or collateral.
Private respondents Lim, Allied Leasing Corporation and the original management committee moved for reconsideration. Petitioners, on the other
hand, asked the SEC to reconsider the portion of its Order prohibiting BENHAR from utilizing RUBY's assets as collateral.
On October 15, 1993, the SEC denied private respondents' motions for reconsideration. However, it granted petitioners' motion and allowed
BENHAR to use RUBY's assets as collateral for loans, subject to the approval of the majority of all the members of the new management committee.[21]
On appeal by private respondents, the Court of Appeals set aside[22] SEC's approval of the Revised BENHAR/RUBY plan and remanded the case
to the SEC for further proceedings. It ruled that the revised plan circumvented its earlier decision (CA-G.R. SP No. 18310) nullifying the deeds of
assignment executed by RUBY's creditors in favor of BENHAR. Under the revised plan, BENHAR was to receive P34.068 Million of the P60.437 Million
credit facility to be extended to RUBY, as settlement for its advance payment to RUBY's seven (7) secured creditors. In effect, the payments made by
BENHAR under the void Deeds of Assignment were recognized as payable to BENHAR under the revised plan. Petitioners' motion for reconsideration
was denied.[23]
Hence, this petition where petitioners aver that:
"I. THE COURT OF APPEALS COMMITTED A REVERSIBLE ERROR, GRAVELY ABUSED ITS DISCRETION AND EXCEEDED ITS
JURISDICTION WHEN IT WENT AGAINST THE FACTS AS FOUND BY THE SEC AND, THEREAFTER, SUBSTITUTED ITS JUDGMENT
FOR THAT OF THE SEC.
"II. THE COURT OF APPEALS COMMITTED AN ERROR REVIEWABLE ON APPEAL AND ALSO A PROPER SUBJECT OF CERTIORARI
WHEN IT ALLOWED PRIVATE RESPONDENTS TO FILE SEPARATE PETITIONS PREPARED BY LAWYERS REPRESENTING
THEMSELVES AS BELONGING TO DIFFERENT LAW FIRMS."
We find no merit in the petition.
Petitioners first contend that, in reversing the SEC's approval of the Revised BENHAR/RUBY Plan, the Court of Appeals exceeded its jurisdiction
and disregarded the SEC's expertise in resolving corporate controversies.
The settled doctrine is that factual findings of an administrative agency are accorded respect and, at times, finality for they have acquired the
expertise inasmuch as their jurisdiction is confined to specific matters.[24] Nonetheless, these doctrines do not apply when the board or official has gone
beyond his statutory authority, exercised unconstitutional powers or clearly acted arbitrarily and without regard to his duty or with grave abuse of
discretion.[25] In Leongson vs. Court of Appeals,[26] we held: "once the actuation of the administrative official or administrative board or agency is tainted
by a failure to abide by the command of the law, then it is incumbent on the courts of justice to set matters right, with this Tribunal having the last say on
the matter."
We hold that the SEC acted arbitrarily when it approved the Revised BENHAR/RUBY Plan. As found by the Court of Appeals, the plan contained
provisions which circumvented its final decision[27] in CA-G.R. SP No. 18310, nullifying the deeds of assignment of credits and mortgages executed by
RUBY's creditors in favor of BENHAR, as well as this Court's resolution in G.R. No. 96675, affirming said Court of Appeals' decision. Specifically, the
Revised BENHAR/RUBY Plan considered as valid the advance payments made by BENHAR in favor of some of RUBY'S creditors. The nullity of
BENHAR's unauthorized dealings with RUBY's creditors is settled. The deeds of assignment between BENHAR and RUBY's creditors had been
categorically declared void by the SEC Hearing Panel in two (2) orders issued on January 12, 1989 and March 15, 1989.[28] The dispositive portion of the
Order, dated January 12, 1989, held:
"WHEREFORE, the motion for reconsideration of the Order dated October 7, 1988, insofar as it relates to the motion of Allied Leasing and Finance
Corporation to cite for contempt and to annul deed of assignment is hereby GRANTED. ... The Deed of Assignment of Receivables and Mortgages,
Rights, Credits and Interest Without Recourse having been executed in violation of the Order dated December 20, 1988 is hereby declared NULL and
VOID.
"SO ORDERED."
The dispositive portion of the Order dated March 15, 1989, similarly provided:
"WHEREFORE, Mr. Yu Kim Giang and others are hereby found guilty of indirect contempt and a penalty of P500.00 each is hereby imposed on
them. The Deed of Assignment of Receivables and Mortgages, Rights, Credits and Interest Without Recourse, in favor of Benhar International, Inc., by
Florence Danon, Philippine Bank of Communication, Philippine Commercial International Bank, Philippine Trust Company and PCI Leasing and
Finance Incorporated, having been executed in violation of the Order dated December 20, 1988 are hereby declared NULL and VOID.
These orders were upheld by the SEC en banc[29] and the Court of Appeals.[30] In CA-GR SP No. 18310, the Court of Appeals ruled as follows:
"xxx xxx xxx
"1) x x x when the Deed of Assignment was executed on May 30, 1988 by and between Ruby Industrial Corp., Benhar International Inc., and FEBTC,
the Rehabilitation Plan proposed by petitioner Ruby Industrial Corp. for Benhar International Inc. to assume all petitioner's obligation has not been
approved by the SEC. The Rehabilitation Plan was not approved until October 28, 1988. There was a willful and blatant violation of the SEC order
dated December 20, 1983 on the part of petitioner Ruby Industrial Corp., represented by Yu Kim Giang, by Benhar International Inc., represented by
Henry Yu and by FEBTC ... .
"2) The magnitude and coverage of the transactions involved were such that Yu Kim Giang and the other signatories cannot feign ignorance or pretend
lack of knowledge thereto in view of the fact that they were all signatories to the transaction and privy to all the negotiations leading to the questioned
transactions. In executing the Deeds of Assignments, the petitioners totally disregarded the mandate contained in the SEC order not to dispose the
properties of Ruby Industrial Corp. in any manner whatsoever pending the approval of the Rehabilitation Plan and rendered illusory the SEC efforts to
rehabilitate the petitioner corporation to the best interests of all the creditors.
"3) The assignments were made without prior approval of the Management Committee created by the SEC in an Order dated August 10, 1984. Under
Section 6, par. d, sub. par. (2) of P.D. 902-A as amended by P.D. 1799, the Management Committee, rehabilitation receiver, board or body shall have
the power to take custody and control over all existing assets of such entities under management notwithstanding any provision of law, articles of
incorporation or by-law to the contrary. The SEC therefore has the power and authority, through a Management Committee composed of petitioner's
creditors or through itself directly, to declare all assignment of assets of the petitioner Corporation declared under suspension of payments, null and
void, and to conserve the same in order to effect a fair, equitable and meaningful rehabilitation of the insolvent corporation."
"4) x x x. The acts for which petitioners were held in indirect contempt by the SEC arose from the failure or willful refusal by petitioners to obey the
lawful order of the SEC not to dispose of any of its properties in any manner whatsoever without authority or approval of the SEC. The execution of the

30
Deeds of Assignment tend to defeat or obstruct the administration of justice.Such acts are offenses against the SEC because they are calculated to
embarrass, hinder and obstruct the tribunal in the administration of justice or lessen its authority.
"In view of the foregoing conclusion which has now been reached, it is not necessary to discuss at length or to determine other questions which are
presented on record. It is sufficient to say that the facts as established by the evidence on records warrant a finding that petitioners are guilty of indirect
contempt. The Order of the SEC is hereby AFFIRMED. This petition is DISMISSED with costs against the petitioners.
"SO ORDERED." (emphasis ours)
Petitioners insist that the Court of Appeals did not make a categorical statement in the dispositive portion of its decision in CA-G.R. SP No.
18310 that it was nullifying the deeds of assignment in favor of BENHAR. Allegedly, it merely stated that it is affirming the decision of the SEC. Petitioners
cite Olac vs. Court of Appeals[31] where we held that the dispositive portion or the fallo constitutes the court's resolution in a given case, while the
discussion in the body of the decision merely expresses the court's opinion.
The contention has no merit. The principle laid down in Olac applies only when there is a conflict between the dispositive part (fallo) and the
opinion of the court contained in the decision. Hence, in the execution of the court's judgment, the fallo should be considered as the final disposition of
the case before it. Such conflict does not exist in the Court of Appeals' decision in CA-G.R. SP No. 18310. It is crystal clear that what the Court of
Appeals affirmed in CA-GR SP No. 18310 was the nullity of the deeds of assignment in favor of BENHAR. In a minute resolution in G.R. No. 96675, we
even sustained the Court of Appeals' decision in CA-GR SP No. 18310.[32]
In any event, petitioners actively participated in the proceedings before the SEC and the Court of Appeals when private respondents sought the
nullification of the subject deeds.Petitioners are, therefore, estopped from questioning anew the validity of the deeds of assignment executed by RUBY's
creditors in favor of BENHAR. Petitioners should know that it is not for a party to participate in the proceedings, submit his case for decision, accept the
judgment if it is favorable to him but attack it for any reason when it is adverse.[33]
Even the SEC en banc, in its July 30, 1993 Order affirming the approval of the Revised BENHAR/RUBY Plan, has acknowledged the invalidity of
the subject deeds of assignment.However, to justify its approval of the plan and the appointment of BENHAR to the new management committee, it gave
the lame excuse that BENHAR became RUBY's creditor for having paid RUBY's debts. We quote the relevant portion of the SEC's ruling, thus:
"Anent the contention that BENHAR should not take an active participation in the management of petitioner corporation, the same deserves scant
consideration.
"While the Deeds of Assignment executed by creditors of Ruby in favor of Benhar were all declared null and void, the Revised Rehabilitation Plan, as
herein approved by the Commission, shows that Benhar will assign its credit lines/loan proceeds or will act as financier whereby it re-lends the
contracted loan to Ruby thereby converting Benhar as a creditor of the petitioner corporation once the Rehabilitation Plan is implemented. In fact, as of
March 31, 1990, it appears that Benhar had made some advance payments to some creditors of Ruby further strengthening its status as a creditor. We
cannot, therefore, see any reason why Benhar should not sit in the management team to oversee the implementation of the Plan."
For its part, the Court of Appeals noted that the approved Revised BENHAR/RUBY Plan gave undue preference to BENHAR. The records, indeed,
show that BENHAR's offer to lend its credit facility in favor of RUBY is conditioned upon the payment of the amount it advanced to RUBY's creditors,
thus:
"FUND SOURCING
xxx
1.1. Deed of Assignment of Credit Facility (or Loan Proceeds) to be executed by Benhar in favor of Ruby, under pre-arrangement with China Banking
Corporation or by any other creditor-banks, and upon payment by Ruby of such amount already advanced by Benhar."
In fact, BENHAR shall receive P34.068 Million out of the P60.437 Million credit facility to be extended to RUBY for the latter's rehabilitation.
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.[34] When a distressed company is placed under rehabilitation, the appointment of a management committee follows
to avoid collusion between the previous management and creditors it might favor, to the prejudice of the other creditors. All assets of a corporation under
rehabilitation receivership 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 attachment, execution or otherwise. As between the creditors, the key phrase is equality in equity. Once the corporation threatened
by bankruptcy is taken over by a receiver, all the creditors ought to stand on equal footing. Not any one of them should be paid ahead of the others. This
is precisely the reason for suspending all pending claims against the corporation under receivership.[35]
Parenthetically, BENHAR is a domestic corporation engaged in importing and selling vehicle spare parts with an authorized capital stock of thirty
million pesos. Yet, it offered to lend its credit facility in the amount of sixty to eighty millions pesos to RUBY. It is to be noted that BENHAR is not a lending
or financing corporation and lending its credit facilities, worth more than double its authorized capitalization, is not one of the powers granted to it under
its Articles of Incorporation. Significantly, Henry Yu, a director and a majority stockholder of RUBY is, at the same time, a stockholder of BENHAR, a
corporation owned and controlled by his family. These circumstances render the deals between BENHAR and RUBY highly irregular.
To justify its appointment in the new management committee and to dispute that it will become a creditor of RUBY only on account of the proposed
assignment of its credit facility to RUBY, BENHAR avers that as early as December 27, 1988, it already lent one million pesos (P1,000,000.00) to RUBY
for the latter's working capital.
The submission deserves scant consideration. To start with, this argument was raised by BENHAR for the first time in its motion for reconsideration
before the Court of Appeals. The settled rule is that issues not raised in the court a quo cannot be raised for the first time on appeal -- in this case, in a
motion for reconsideration -- for being offensive to the basic rules of fair play, justice and due process.[36]
Moreover, when RUBY initiated its petition for suspension of payments with the SEC, BENHAR was not listed as one of RUBY's
creditors. BENHAR is a total stranger to RUBY. If at all, BENHAR only served as a conduit of RUBY. As aptly stated in the challenged Court of Appeals
decision:[37]
"Benhar's role in the Revised Benhar/Ruby Plan, as envisioned by the majority stockholders, is to contract the loan for Ruby and, serving the role of a
financier, relend the same to Ruby.Benhar is merely extending its credit line facility with China Bank, under which the bank agrees to advance funds to
the company should the need arise. This is unlikely a loan in which the entire amount is made available to the borrower so that it can be used and
programmed for the benefit of the company's financial and operational needs. Thus, it is actually China Bank which will be the source of the funds to be
relent to Ruby. Benhar will not shell out a single centavo of its own funds. It is the assets of Ruby which will be mortgaged in favor of Benhar.Benhar's
participation will only make the rehabilitation plan more costly and, because of the mortgage of its (Ruby's) assets to a new creditor, will create a
situation which is worse than the present. x x x."
We need not say more.
On the second issue, petitioners charge that private respondents are guilty of forum-shopping. It appears that the three (3) private respondents
filed separate petitions before the Court of Appeals upon receipt of the adverse ruling of the SEC en banc. Private respondent Miguel Lim commenced
CA-G.R. SP No. 32404, thru its counsel Romulo Mabanta Beunaventura Sayoc and De los Angeles. For their part, private respondent Allied Leasing
and the original management committee of RUBY, represented by Attorney Walter T. Young, commenced CA-G.R. SP No. 32483 and CA-G.R. SP No.
32469, respectively. In CA-G.R. SP No. 32483, Atty. Young signed for and in behalf of the law firm Ocampo Quiroz Pesayco and Associates, while in CA-
G.R. SP No. 32469, Atty. Young signed for the law firm Quiroz and Young. In both petitions, he used the same business address-- Allied Bank Center,
6754 Ayala Avenue, Makati City.
We hold that private respondents are not guilty of forum-shopping. In Ramos, Sr. vs. Court of Appeals, [38] we ruled:
"The private respondents can be considered to have engaged in forum shopping if all of them, acting as one group, filed identical special civil actions in
the Court of Appeals and in this Court. There must be identity of parties or interests represented, rights asserted and relief sought in different
tribunals. In the case at bar, two groups of private respondents appear to have acted independently of each other when they sought relief from the
appellate court. Both group sought relief from the same tribunal.
"It would not matter even if there are several divisions in the Court of Appeals. The adverse party can always ask for the consolidation of the two
cases. x x x"
In the case at bar, private respondents represent different groups with different interests-- the minority stockholders' group, represented by private
respondent Lim; the unsecured creditors group, Allied Leasing & Finance Corporation; and the old management group. Each group has distinct rights to
protect. In line with our ruling in Ramos, the cases filed by private respondents should be consolidated. In fact, BENHAR and RUBY did just that-- in their
urgent motions filed on December 1, 1993 and December 6, 1993, respectively, they prayed for the consolidation of the cases before the Court of
Appeals.
IN VIEW OF THE FOREGOING, the instant petition is DISMISSED for lack of merit. The Court of Appeals' Decision, dated March 31, 1995, and
its Resolution, dated March 12, 1996, in CA-G.R. SP Nos. 32404, 42469 and 32483 are AFFIRMED. The case is remanded to the Securities and
Exchange Commission for further proceedings. Costs against petitioners. SO ORDERED.

31
 RUBBERWORLD (PHILS.), INC., or JULIE YAP ONG, petitioner, vs. NATIONAL LABOR RELATIONS COMMISSION, MARILYN F. ARELLANO,
EMILY S. LEGASPI, MYRNA S. GALGANA, MERCEDITA R. SONGCO, WILFREDO V. SANTOS, JOSEPHINE S. RAMOS, REDENTOR G. HONA,
LUZ B. HONA, ROLANDO B. CRUZ, GUILLERMA R. MUZONES, CARMELITA V. HALILI, SUSAN A. REYES, EMILY A. ROBILLOS, PLACIDO
REYES, MANOLITO DELA CRUZ, VICTORINO C. FRANCISCO, ROGER B. MARIAS, VIOLETA ALEJO, RICARDO T. TORRES, EMMA DELA
TORRE, PERLA N. MANZANERO, FRANCISCO D. SERDONCILLO, LUISITO P. HERNANDEZ, RAYMOND PEREA, EDITHA A. SERDONCILLO,
FRANCISCO GENER, MARIO B. REYES, VALERIANO A. HERRERA, JORGE S. SEERES, ELENA S. IGNACIO, EMERITA S. CACHERO, NERIZA
G. ENRIQUEZ, LOLITA M. FABULAR, NORMITA M. HERNANDEZ, DOMINADOR P. ENRIQUEZ, respondents. [G.R. No. 126773. April 14, 1999]
By virtue of a SEC Order, all actions for claims against Rubberworld Phil., Inc., pending before any court, tribunal, office, body or board were
suspended. Consequently, all pending incidents for preliminary injunctions, attachments, foreclosures and the like were rendered moot and
academic. Meanwhile, private respondents who are employees of Rubberworld filed against the latter their respective complaints for illegal dismissal,
unfair labor practice, damages and payment of separation pay, retirement benefits, 13th month pay and service incentive pay. Rubberworld moved to
suspend the proceedings in the labor cases on the strength of the SEC Order, but the same was denied. Hence, this petition.
It must be noted that, upon petition of Rubberworld with the SEC, the latter ordered the creation of a management committee and the suspension
of all actions for claims against Rubberworld. Thus, the applicable law here is PD 902-A, as amended. No exception in favor of labor claims is mentioned
in the law. Thus, allowing labor cases to proceed clearly defeats the purpose of the automatic stay and severely encumbers the management committees
time and resources, whose primary and urgent duty is to work towards rehabilitating the corporation and making it viable again. Besides, even if the
NLRC awards the claims of private respondents, as it did, its ruling could not be enforced as long as the petitioner is under the management
committee. True the NLRC has the power to hear and decide labor disputes but such authority is deemed suspended when PD 902-A was put also
effect by the SEC. Further, the preferential right of workers and employees under Article 110 of the Labor Code may be invoked only upon the institution
of insolvency or judicial liquidation proceedings. The present case involves the rehabilitation, not the liquidation of the corporation. Hence, the preference
of credit granted the worker or employees under Article 110 of the Labor Code is not applicable.
SYLLABUS
1. CORPORATION LAW; PD 902-A AS AMENDED; SEC ORDER CREATING A REHABILITATION RECEIVER AND SUSPENDING ALL ACTION
FOR CLAIMS; JUSTIFICATION OF THE STORY. - Petitioner Rubberworld filed before the SEC a Petition for Declaration of Suspension of
Payments, as well as a proposed rehabilitation plan. The SEC ordered the creation of a management committee and the suspension of all actions
for claims against Rubberworld. Clearly, the applicable law is PD 902-A, as amended; that upon the appointment [by the SEC] of a management
committee or a rehabilitation receiver, all actions for claims against the corporation pending before any court, tribunal or board shall ipso jure be
suspended. The justification for the automatic stay of all pending actions for claims is to enable the management committee or the 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 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. Parenthetically, the rehabilitation of a financially distressed corporation benefits its employees, creditors, stockholders and, in
a larger sense, the general public. And in considering whether to rehabilitate or not, the SEC gives preference to the interest of creditors, including
employees. The reason is that shareholders can recover their investments only upon liquidation of the corporation, and only if there are assets
remaining after all corporate creditors are paid.
2. ID.; ID.; ID.; DURATION THEREOF. - PD 902-A itself does not provide for the duration of the automatic stay. Neither does the Order of the
SEC. Hence, the suspensive effect have no time limit and remains in force as long as reasonably necessary to accomplish the purpose of the
Order.
3. ID.; ID.; ID.; LABOR CLAIMS, INCLUDED. -- Upon the creation of a management committee or the appointment of a rehabilitation receiver, all claims
for actions shall be suspended accordingly. No exception in favor of labor claims is mentioned in the law. Since the law makes no distinction or
exemptions, neither should this Court. Ubi lex non distinguit nec nos distinguere debemos. Allowing labor cases to proceed clearly defeats the
purpose of the automatic stay and severely encumbers the management committees time and resources. The said committee would need to
defend against these suits, to the detriment of its primary and urgent duty to work towards rehabilitating the corporation and making it viable
again.To rule otherwise would open the floodgates to other similarly situated claimants and forestall if not defeat the rescue efforts. Besides, even
if the NLRC awards the claims of private respondents, as it did, its ruling could not be enforced as long as the petitioner is under the management
committee.
4. STATUTORY CONSTRUCTION; ARTICLE 217 OF THE LABOR CODE SHOULD BE READ IN HARMONY WITH PD 902-A. - Article 217 of the
Labor Code should be construed not in isolation but in harmony with PD 902-A, according to the basic rule in statutory construction that implied
repeals are not favored. Indeed, it is axiomatic that each and every statute must be construed in a way that would avoid conflict with existing
laws. Tue, the NLRC has the power to hear and decide labor disputes, but such authority is deemed suspended when PD 902-A is put into effect
by the Securities and Exchange Commission.
5. LABOR AND SOCIAL LEGISLATION; PREFERENTIAL RIGHT OF EMPLOYEES CAN BE INVOKED ONLY IN INSOLVENCY PROCEEDINGS.
- The preferential right of workers and employees under Article 110 of the Labor Code may be invoked only upon the institution of insolvency or
judicial liquidation proceedings. Indeed, it is well-settled that a declaration of bankruptcy or a judicial liquidation must be present before
preferences over various money claims may be enforced. But debtors resort to preference of credit - giving preferred creditors the right to have
their claims paid ahead of those of other claimants - only when their assets are insufficient to pay their debts fully. The purpose of rehabilitation
proceedings is precisely to enable the company to gain a new lease on life and thereby allow creditors to be paid their claims from its earnings. In
insolvency proceedings, on the other hand, the company stops operating, and the claims of creditors are satisfied from the assets of the insolvent
corporation. The present case involves the rehabilitation, not the liquidation, of petitioner-corporation. Hence, the preference of credit granted to
workers or employees under Article 110 of the Labor Code is not applicable.
PANGANIBAN, J.:
Presidential Decree 902-A, as amended, provides that "upon the 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."[1] 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. Among, the actions suspended are those for money claims before labor tribunals, like the National Labor Relation Commission (NLRC) and the
Labor arbiters.
Statement of the Case

The foregoing Summarizes this Court's grant of the Petition for Certiorari under Rule 65 of the Rules of Court, assailing the April 26, 1996
Resolution[2] promulgate by the NLRC[3]which upheld the labor arbiter's refusal to suspend proceedings involving, monetary claims of the petitioner's
employees.
Petitioner likewise assails the June 20, 1996 NLRC Resolution[4] which denied its Motion for Reconsideration.
On November 20, 1996, this Court issued a temporary restraining order signed by then Chief Justice Andres R. Narvasa, "restraining the public
respondents from further conducting proceedings in the aforesaid cases effective immediately xxx."
The Facts

The facts are undisputed. They are narrated by the Office of the Solicitor General as follows:
"Petitioner xxx is a domestic corporation which used to be in the business of manufacturing footwear, bags and garments. It filed with the Securities
and Exchange Commission on November 24, 1994 a petition for suspension of payments praying that it be declared in a state of suspension of
payments and that the SEC accordingly issue an order restraining its creditors from enforcing their claims against petitioner corporation. It further
prayed for the creation of a management committee as well as for the approval of the proposed rehabilitation plan and memorandum of agreement
between petitioner corporation and its creditors.
"In an order dated December 28, 1994, the SEC favorably ruled on the petition for suspension of payments thusly:
'Accordingly, with the creation of the Management Committee, all actions for claims against Rubberworld Philippines, Inc. pending before any court,
tribunal, office, board, body Commission of Sheriff are hereby deemed SUSPENDED.
'Consequently, all pending incidents for preliminary injunctions, writ of attachments (sic), foreclosures' and the like are hereby rendered moot and
academic.'
"Private respondents, who claim to be employees of petitioner corporation, filed against petitioners [from] April to July 1995 their respective complaints
for illegal dismissal, unfair labor practice, damages and payment of separation pay, retirement benefits, 13th month pay and service incentive pay.

32
"Petitioners moved to suspend the proceedings in the above labor cases on the strength of the SEC Order dated December 28, 1994. Likewise,
petitioners cited the rulings of BF Homes vs.Court of Appeals (190 SCRA 262), Alemar's Sibal & Sons, Inc. vs. Elbinias (186 SCRA 94) and Bank of
Philippine Islands vs. Court of Appeals (229 SCRA 223) to support their motion to suspend the proceedings in the labor cases.
"In an Order dated September 25, 1995, the Labor Arbiter denied the aforesaid motion holding that the injunction contained in the SEC Order applied
only to the enforcement of established rights and did not include the suspension of proceedings involving claims against petitioner which have yet to be
ascertained. The Labor Arbiter further held that the order of the SEC suspending all actions for claims against petitioners does not cover the claims of
private respondents in the labor cases because said claims and the concomitant liability of petitioners still had to be determined, thus carrying no
dissipation of the assets of petitioners.
"Petitioners appealed the adverse order of the Labor Arbiter to public respondent which, in a Resolution dated April 26, 1996, dismissed the appeal for
lack of merit and, instead, sustained the rulings of the Labor Arbiter.
"The motion for reconsideration of petitioners fared no better and was denied by public respondent in a Resolution dated June 20, 1996."[5]
Hence, this petition.[6]
The Issue

Petitioner raises only one issue:

"Whether or not the Respondent NLRC acted without or in excess of Jurisdiction or with grave abuse of discretion amounting to lack of
jurisdiction in affirming the order of Labor Arbiter Voltaire A. Balitaan denying petitioners' motion to suspend proceedings despite the Order of
the Securities and Exchange Commission under Sec. 6 (c) of P.D. 902-A directing the suspension of all actions against a company under the
first stages of insolvency proceedings."[7]
This Court's Ruling

The petition is meritorious.

Sole Issue:

Suspension Proceedings

Jurisprudence teaches us:

"xxx where the petition filed is one for declaration of a state of suspension of payments due to a recognition of the inability to pay one's debts and
liabilities, and where the petitioning corporation either: (a) has sufficient property to cover all its debts but foresees the impossibility of meeting them
when they fall due (solvent but illiquid) or (b) has no sufficient property (insolvent) but is under the management of a rehabilitation receiver or a
management committee, the applicable law is P.D. 902-A pursuant to Sec. 5 par. (d) thereof. However, if the petitioning corporation has no sufficient
assets to cover its liabilities and is not under a rehabilitation receiver or a management committee created under P.D. 902-A and does not seek merely
to have the payments of its debts suspended, but seeks a declaration of insolvency xxx the applicable law is Act 1956 [The Insolvency Law] on
voluntary insolvency, xxx."[8]
In the case at bar, Petitioner Rubberworld filed before the SEC a Petition for Declaration of Suspension of Payments, as well as a propose
rehabilitation plan. On December 28, 1994, the SEC ordered the creation of a management committee and the suspension of all actions for claim against
Rubberworld. Clearly, the applicable law is PD 902-A, as amended, the relevant provision of which read:
"SECTION 5. In addition to the regulatory adjudicative functions of the Securities and Exchange Commission over corporations, partnerships and other
forms of associations registered with it as expressly granted under existing laws and decrees, it shall have original and exclusive jurisdiction to hear
and decide cases involving:
xxxxxxxxx
d) Petitions of corporations, partnerships or associations to be declared in the state of suspension of payments in cases where the corporation,
partnership or association possesses sufficient property to cover all its debts but foresees the impossibility of meeting them when they respectively fall
due or in cases where the corporation, partnership or association has no sufficient assets to cover its liabilities, but is under the management of a
rehabilitation receiver or management committee created pursuant to this Decree.
SECTION 6. In order to effectively exercise such jurisdiction, the Commission shall possess the following powers:
xxxxxxxxx
c) To appoint one or more receivers of the property, real or personal, which is the subject of the action pending before the Commission in accordance
with the pertinent provisions of the Rules of Court in such other cases whenever necessary in order to preserve the rights of the parties-litigants and/or
protect the interest of the investing public and creditors: x x x Provided finally, That upon appointment of a management committee, the 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."
It is plain from the foregoing provisions of law that "upon the appointment [by, the SEC] of a management committee or a rehabilitation receiver,"
all actions for claims against the corporation pending before any court, tribunal or board shall ipso jure be suspended.[9] The justification for the automatic
stay of all pending actions for claims "is to enable the management committee or the 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 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." [10]
Parenthetically, the rehabilitation of a financially distressed corporation benefits its employees, creditors, stockholders and, in a larger sense, the
general public. And in considering whether to rehabilitate or not, the SEC gives preference to the interest of creditors, including employees. The reason
that shareholders can recover their investments only upon liquidation of' the corporation, and only if there are assets remaining after all corporate creditors
ire paid.[11]
Labor Claims Included in Suspension Order

The solicitor general, representing Public Respondent NLRC, argues that the rationale for an automatic stay will not be frustrated even if the
NLRC proceeds with the disposition of these labor cases, because any favorable judgment obtained by the private respondents would only establish
their rights as creditors. The solicitor general also contends that the assailed Resolutions of the NLRC will not result in an undue preference for the assets
of Rubberworld, as the private respondents will still present their claims before the management committee.[12]
We disagree. The law is clear: upon the creation of a management committee or the appointment of rehabilitation receiver, all claims for actions
"shall be suspended accordingly." No exception in favor of labor claims is mentioned in the law. Since the law makes no distinction or exemptions, neither
should this Court. Ubi lex non distinguit nec nos distinguere debemos.[13] Allowing labor cases to proceed clearly defeats the purpose of the automatic stay
and severely encumbers the management committee's time and resources. The said committee would need to defend against these suits, to the detriment
of its primary and urgent duty to work towards rehabilitating the corporation and making it viable again. To rule otherwise would open the floodgates to
other similarly situated claimants and forestall if not defeat the rescue efforts. Besides, even if the NLRC awards the claims of private respondents, as it
did, its ruling could not be enforced as long as the petitioner is under the management committee.[14]
In Chua v. National Labor Relation Commission,[15] we ruled that labor claims cannot proceed independently of a bankruptcy liquidation
proceeding, since these claims "would spawn needless controversy, delays, and confusion." [16] With more reason, allowing labor claims to continue in
spite of a SEC suspension order in rehabilitation case would merely lead to such results.
The solicitor general insists that since Article 217 of the Labor Code[17] vested public respondent with jurisdiction to hear and decide these labor
cases, the NLRC did not exceed its jurisdiction when it refused to suspend the proceedings therein.[18] The Court is not persuaded.
Article 217 of the Labor Code should be construed not in isolation but in harmony with PD 902-A, according to the basic rule in statutory
construction that implied repeals are not favored.[19] Indeed, it is axiomatic that each and every statute must be construed in a way that would avoid
conflict with existing laws.[20] True, the NLRC has the power to hear and decide labor disputes, but such authority is deemed suspended when PD 902-
A is put into effect by the Securities and Exchange Commission.
Preference in Favor of Workers in Case of Bankruptcy or Liquidation

The private respondents contend that automatic stay under PD 902-A is not applicable to the instant case; otherwise, the preference granted to
workers by Article 110 of the Labor Code would be rendered ineffective.[21] This contention is misleading.
The preferential right of workers and employees under Article 110 of the Labor Code may be invoked only upon the institution of insolvency or
judicial liquidation proceeding.[22] Indeed, it is well-settled that "a declaration of bankruptcy or a judicial liquidation must be present before preferences
over various money claims may be enforced."[23] But debtors resort to preference of credit -- giving preferred creditors the right to have their claims paid
ahead of those of other claimants -- only when their assets are insufficient to pay their debts fully.[24] The purpose of rehabilitation proceedings is precisely

33
to enable the company to gain a new lease on life and thereby allow creditors to be paid their claims from its earnings. In insolvency proceedings, on the
other hand, the company stops operating, and the claims of creditors are satisfied from the assets of the insolvent corporation. The present case involves
the rehabilitation, not the liquidation, of petitioner-corporation. Hence, the preference of credit granted to workers or employees under Article 110 of the
Labor Code is not applicable.
Duration of Automatic Stay Under PD 902-A

Finally, private respondents posit that under Section 6 of the Insolvency Law, the December 28, 1994 Order of the SEC suspending all actions for
claims against Rubberworld should have expired after three months, in the absence of an agreement between the company and the corporate
creditors.[25] Private respondents also accuse the SEC of abusing its power by "allowing said suspension order to remain pending for many years without
resolving and approving any rehabilitation plan."[26] They contend that "[t]his is fatal to the instant petition for it had been a party to the abuse by the SEC
of its suspension order."[27]
This Court notes that PD 902-A itself does not provide for the duration of the automatic stay. Neither does the Order[28] of the SEC. Hence, the
suspensive effect has no time limit and remains in force as long as reasonably necessary to accomplish the purpose of the Order.[29] On the other hand,
the attack against the SEC's alleged "abuse of power" is misplaced. Under review in this Petition for Certiorari are Resolutions of the NLRC, not of the
SEC. The scope of this review is thus limited to whether the NLRC gravely abused or exceeded its jurisdiction in refusing to heed the SEC Order of
Suspension and in issuing its challenged Resolutions. In any event, the bare allegation of inaction is insufficient to condemn the Securities and Exchange
Commission and the management committee where, it should be noted, all affected parties, including, the labor union in the company, are represented.
WHEREFORE, the petition is hereby GRANTED. The assailed Resolutions of the NLRC dated April 26, 1996, and June 20, 1996,
are REVERSED and SET ASIDE. No costs. SO ORDERED.

UNION BANK OF THE PHILIPPINES, petitioner, vs. THE HONORABLE COURT OF APPEALS, COMMISSIONER FE ELOISA C. GLORIA, ATTY.
MANOLITO SOLLER, IN THEIR CAPACITY AS CHAIRPERSON AND MEMBER, RESPECTIVELY, OF THE HEARING PANEL OF THE
SECURITIES AND EXCHANGE COMMISSION, EULOGIO O. YUTINGCO, CAROLINE YUTINGCO-YAO, THERESA I. LAO, NIKON INDUSTRIAL
CORPORATION, NIKOLITE INDUSTRIAL CORPORATION, THAMES PHILIPPINES, INC., 2000 INDUSTRIES CORPORATION, TRADE HOPE
INDUSTRIAL CORPORATION, FIRST UNI-BRANDS FOOD CORPORATION, INTEGRAL STEEL CORPORATION, CLARION PRINTING HOUSE,
INC., NIKON PLAZA, INC., NIKON LAND CORPORATION, EYCO PROPERTIES, INC., INTERIM RECEIVERS AMELIA B. CABAL, as
representative of SGV, INOCENCIO R. DEZA, JR., as representative of PNB, and FLORENCIO B. ORENDAIN of EYCO, respondents. [G.R. No.
131729. May 19, 1998]
ROMERO, J.:
It has been about a year since the Thai baht plummeted to a record low and sparked the downspin of most of Asias other currencies including our
very own peso. The Philippines has not suffered as much from the full impact of the regions worst financial turmoil when most neighboring economies
are still sluggishly inching their way towards recovery. Tested economic initiatives often hailed for helping save the country from losing its hard-earned
gains cannot hide the fact that some businesses are still going downhill in light of serious liquidity problems resulting from said crisis. Private respondents
present predicament is one such example and from which they now intend to free themselves.
The road to recovery seems elusive though. Private respondents bid to salvage their collapsing business by seeking suspension of payments a
statutory device allowing distressed debtors to defer payment of their debts now faces a major hindrance as petitioner challenges their recourse to said
remedy.
The records disclose the following antecedent facts:
On September 16, 1997, private respondents EYCO Group of Companies (EYCO),[1] Eulogio O. Yutingco, Caroline Yutingco-Yao, and Theresa T.
Lao (the Yutingcos), all of whom are controlling stockholders of the aforementioned corporations, jointly filed with the SEC a Petition for the
Declaration of Suspension of Payment[s], Formation and Appointment of Rehabilitation Receiver/Committee, Approval of Rehabilitation Plan
with Alternative Prayer for Liquidation and Dissolution of Corporations[2] alleging, among other things, that, the present combined financial
condition of the petitioners clearly indicates that their assets are more than enough to pay off the credits but that due to factors beyond control and
anticipation of the management xxx the inability of the EYCO Group of Companies to meet the obligations as they fall due on the schedule agreed with
the [creditors] has now become a stark reality.[3] In a footnote to said petition[4] the Yutingcos justified their inclusion as co-petitioners before the SEC
on the ground that they had personally bound themselves to EYCOs creditor under a J.S.S. Clause (Joint Several Solidary Guaranty).
Upon finding the above petition to be sufficient in form and substance, the SEC Hearing Panel then composed of Manolito S. Soller, George P.
Palmares and Rommel G. Olivia issued an order[5] dated September 19, 1997 setting its hearing on October 22, 1997. At the same time, said panel also
directed the suspension of all actions, claims and proceedings against private respondents pending before any court, tribunal, office, board and/or
commission.
Meanwhile, some of private respondents creditor, composed mainly of twenty-two (22) domestic banks (the consortium)[6] including herein
petitioner Union Bank of the Philippines,[7]also convened on September 19, 1997 for the purpose of deciding their options in the event that private
respondents invoke the provisions of Presidential Decree No. 902-A, as amended.The minutes[8] embodying the terms agreed upon by the consortium
in said meeting provided, inter alia, for the following:
. . . In response to this, the following were actions agreed upon by all the creditor banks present:
Hire a lawyer to advise the banks on the legal matters of suspension of payments. Atty. Balgos was engaged to be the legal counsel.
Form a management committee to represent all the creditor banks. This will be composed of the first seven banks with the highest exposures, namely:
Philippine National Bank
Far East Bank and Trust Co.
Traders Royal Bank
Allied Banking Corporation
Philippine Commercial and International Bank
Bank of Commerce
Westmont Bank
The other creditor Banks will be informed as often as needed.
Without notifying the members of the consortium, petitioner, however, decided to break away from the group by suing private respondents in the
regular courts. These cases are:
Civil Case No. 97-2184 (Union Bank of the Philippines v. Nikon Industrial Corporation, et al.) for Sum of Money with Application for Preliminary
Attachment filed before the Regional Trial Court of Makati, Branch 148, on September 23, 1997;[9]
Civil Case No. 5360-V-97 (Union Bank of the Philippines v. Eulogio and Bee Kuan Yutingco, et al.,) for Annulment, Rescission of Titles/Injunction
with prayer for Issuance of Preliminary Mandatory Injunction filed before the Regional Trial Court of Valenzuela, Branch 172, on September 24,
1997;[10]
Civil Case No. 66477 (Union Bank of the Philippines v. Eulogion and Bee Kuan Yutingco, et al.) for Annulment, Rescission of Titles/Injunction with
prayer for Issuance of Preliminary Mandatory Injunction filed before the Regional Trial Court of Pasig City, Branch 157, on September 26, 1997;
Civil Case No. 66479 (Union Bank of the Philippines v. Eulogio and Bee Kuan Yutingco, et al.) for Annulment, Rescission of Titles/Injunction with
Prayer for Issuance of Preliminary Mandatory Injunction filed before the Regional Trial Court of Pasig City, Branch 159, on September 24, 1997;
and
Civil Case No. 66478 (Union Bank of the Philippines v. Eulogion and Bee Kuan Yutingco, and Enrique Yao) for Annulment, Rescission of
Titles/Injunction with prayer for Issuance of Preliminary Mandatory Injunction filed before the Regional Trial Court of Pasig City, Branch 158, on
September 25, 1997.
In the meantime, the SEC issued an order[11] on October 3, 1997, appointing (a) Amelia B. Cabal of SGV & Co., as common representative; (b)
Inoncencio Deza, Jr., of the Philippine National Bank as representative of the creditor-banks; and (c) Atty. Florencio B. Orendain as representative of the
EYCO Group and the Yutingcos, to act collectively as interim receivers of the distressed corporations.
Aside from commencing suits in the regular courts, petitioner also vehemently opposed private respondents petition for suspension of payments
in the SEC by filing a Motion to Dismiss on October 22, 1997.[12] It contended that the SEC was bereft of jurisdiction over such petition on the ground
that the inclusion of the Yutingcos in the petition cannot be allowed since the authority and power of the Commission under the (sic) virtue of [the] law
applies only to corporations, partnership[s] and other forms of associations, and not to individual petitioners who are not clearly covered by P.D. 902-A
as amended. According to petitioner, what should have been applied instead was the provision on suspension of payments under Act No. 1956, otherwise
known as the Insolvency Law, which mandated the filing of the petition in the Regional Trial Court and not in the SEC. Finally, petitioner disputed private

34
respondents recourse to suspension of payments alleging that the latter prejudiced their creditors by fraudulently disposing of corporate properties within
the 30-day period prior to the filing of such petition.
Subsequently, a creditors meeting was again convened pursuant to SECs earlier order dated September 19, 1997, wherein the matter of creating
a management committee (the Mancom) was submitted for resolution. Apparently, only petitioner opposed the creation of said Mancom as it filed earlier
with the SEC its Motion to Dismiss.
The SEC Hearing Panel composed of Hon. Fe Eloisa C. Gloria and Manolito S. Soller subsequently issued an Omnibus Order[13] on October 27,
1997, directing this time the creation of the Mancom consisting of seven (7) members; four (4) of whom shall come from the creditor banks, one (1) from
the non-bank creditors, one (1) from the petitioners and one (1) to be appointed by the SEC. Moreover, the panel likewise granted an earlier Urgent
Motion for Reconsideration filed by creditor banks which sought to annotate the September 19, 1997 suspension order on the titles of the properties
of the private respondent corporations. In issuing said order, the panel resolved that the interest of private respondents and their creditors could be best
served if such Mancom is created. It is noteworthy, however, that this directive expressly stated that the same was without prejudice to the resolution of
petitioners Motion to Dismiss whose scheduled hearing was set by petitioner itself on October 29, 1997.
Aggrieved, petitioner immediately took recourse to the Court of Appeals on October 29, 1997 by filing therewith a Petition for Certiorari with
Prayer for the Issuance of a Temporary Restraining Order and/or Writ of Preliminary Injunction [14] under Rule 65 of the 1997 Rules of Civil
Procedure. It imputed grave abuse of discretion on the part of the SEC Hearing Panel in precipitately issuing the suspension order dated September 19,
1997 and in prematurely directing the creation of the Mancom prior to the scheduled hearing of its Motion to Dismiss on October 29, 1997. Petitioner
lamented that these actions of the panel deprived it of due process by effectively rendering moot and academic its Motion to Dismiss which allegedly
presented a prejudicial question to the propriety of creating a Mancom. Furthermore, it insisted that jurisdiction over private respondents petition properly
pertained to the Regional Trial Courts under Act No. 1956 and that, in any event, private respondents were not entitled to suspension of payments since
they had already committed fraudulent dispositions of their properties.
Without giving due course to Union Banks petition, the appellate court issued a resolution[15] on October 31, 1997 directing private respondents
to submit their comment on the petition while temporarily restraining the SEC from appointing the members of Mancom, annotating the suspension orders
on the titles of the properties of private respondents, and taking further proceedings with regard to the suspension of payments and/or rehabilitation.
Meanwhile, members of so-called steering committee of the consortium composed of the Philippine National Bank, Far East Bank and Trust
Company, Allied Bank, Traders Royal Bank, Philippine Commercial International Bank, Bank of Commerce, and Westmont Bank (the Intervenors) filed
with the appellate court an Urgent Motion for Intervention[16] and a Consolidated Intervention and Counter-Motion for Contempt and for the
Imposition of Disciplinary Measures Against Petitioners Counsel[17] both dated November 3, 1997 claiming that they were not impleaded at all by
petitioner in its petition before the appellate court when in fact they had actual, material, direct and legal interest in the outcome of said case as owners
of at least eighty-five percent (85%) of private respondents obligations. Moreover, they opposed said petition because of petitioners ostensible failure to
exhaust administrative remedies in the consortium and in the SEC and for being guilty of forum-shopping in the appellate court as its Motion to Dismiss
in the SEC was yet to be resolved at the time.
Petitioner, however, countered intervenors motion in its Opposition to Urgent Motion for Intervention and Reply to the Comment-in-
Intervention,[18] vehemently challenging the existence of a consortium, its membership therein, the intervenors ownership of at least eighty-five percent
(85%) of private respondents obligations and their due representation of the twenty-two (22) creditor banks, the existence of an agreement drawn up
during the September 19, 1997 meeting regarding the satisfaction of the individual exposures of the creditor banks, and its consent to the creation of the
Mancom. It also denied intervenors accusation of forum-shopping and non-exhaustion of administrative remedies on the ground that it was acting with a
sense of urgency, the Hearing Panel having already created the Mancom and was about to appoint the members thereof at the same time.
After several exchanges of pleadings between the parties, the Court of Appeals First Division finally rendered its assailed decision[19] on
December 22, 1997, granting intervention of the seven (7) creditor banks named above while dismissing the petition for failure to exhaust administrative
remedies and forum-shopping. Nothing in the said decision, however, indicates that the appellate court squarely confronted the issue of jurisdiction raised
earlier by petitioner.
Without moving for reconsideration of the appellate courts decision, petitioner elevated the said matter to this Court through a Petition
for Certiorari with Prayer for the Issuance of a Temporary Restraining Order and/or Writ of Preliminary Injunction [20] filed on December 29
1997. Petitioner, however, seasonably amended[21] the same on January 5, 1998.
Upon being notified by petitioner that the SEC Hearing Panel had already appointed members of the proposed Mancom on January 5, 1998,[22] this
Court issued a resolution[23] on January 6, 1998, granting the temporary restraining order (TRO) prayed for in the petition and requiring all the
respondents to comment thereon.
Both EYCO and the Yutingcos duly filed their Comment[24] on January 14, 1998 asking the Court to cite petitioner and its counsel for contempt
because of deliberate forum shopping, assailing the propriety of the temporary restraining order which we issued, and arguing that Union Banks petition
should be dismissed outright for (1) categorizing it as having been filed both under Rule 45 and Rule 65 of the 1997 Rules of Civil Procedure; (2) failing
to move for reconsideration before the Court of Appeals; (3) failing to implead indispensable parties; (4) raising factual allegations of fraud; (5) forum
shopping; and (6) failing to exhaust administrative remedies.
On January 27, 1998, the intervenors before the appellate court also came to as through an Urgent Manifestation,[25] seeking the outright
dismissal of the petition on grounds of forum-shopping and failure to implead them as indispensable parties which allegedly violated Section 4, Rule 45
of the 1997 Rules of Civil Procedure requiring that the petition should state the name of the appealing party as the petitioner and the adverse party as
respondent.
For their part, the interim receivers who are also impleaded as private respondents in the instant petition, filed their own Comment[26] on January
30, 1998, likewise contending that petitioner failed to exhaust administrative remedies when it leap-frogged to the Court of Appeals and that, in any case,
the SEC had jurisdiction to entertain private respondents petition for suspension of payments.
In response to the respective comments of private respondents and interim receivers, petitioner filed its Consolidated Reply and
Opposition[27] on February 5, 1998, reiterating its earlier position that (1) the SEC had no jurisdiction to entertain private respondents petition for
suspension of payments; (2) private respondents are already bankrupt because of the alleged fraudulent disposition they have made and hence, are no
longer entitled to the remedy of suspension of payments; (3) prior motion for reconsideration is not indispensable when, as in this case, there is an actual
threat that the Mancom members would soon be appointed; (4) intervenors are not indispensable parties; and (5) there is no forum-shopping.
Complaining that daily interests on its outstanding debts continue mounting by the millions and that the work of SEC-appointed interim receivers
has been paralyzed for quite some time, private respondents filed an Urgent Motion[28] on February 12, 1998 praying that the temporary restraining
order be lifted for the preservation of their assets and to pave the way for rehabilitation. They likewise asked, among other things, that their motion to cite
petitioner and its counsel for contempt be immediately resolved.
Petitioner, in turn, filed a Motion to Cite Yutingcos and Their Counsel in Contempt [29] for allegedly misleading this Court in stating that Union
Bank failed to pay the required deposit for costs, that they were not served a copy of the Amended Petition, and that they never nominated Sycip, Gorres,
Velayo & Co. (the SGV) is rehabilitation receiver.
As may be gleaned from the above factual account, there are only two basic and outstanding issues in the instant case which require our resolution,
namely:
(1) Whether the SEC can validly acquire jurisdiction over a petition for suspension of payments filed pursuant to Section 5(d) of P.D. No. 902 A, as
amended, when such petition joins as co-petitioners the petitioning corporate entities AND individual stockholders thereof; and
(1) Whether petitioner engaged in forum-shopping and failed to exhaust administrative remedies in taking direct recourse to the Court of Appeals to
challenge the assumption of jurisdiction by the SEC Hearing panel over private respondents petition for suspension of payments.
We shall discuss this issues seriatim.
I. Jurisdiction of the Securities and Exchange Commission.
It is already a well-settled jurisprudential precept that jurisdiction over a subject matter is conferred by law.[30] In this regard, the pertinent provision
of law conferring jurisdiction upon the SEC over petitions for suspension of payments such as the one filed earlier by private respondents provides:
SEC. 5. In addition to the regulatory and adjudicative functions of the Securities and Exchange Commission over corporations, partnerships and other
forms of association registered with it as expressly granted under existing law and decrees, it shall have original and exclusive jurisdiction to hear and
decide cases involving.
xxxxxxxxx
(a) Petitions of corporations, partnerships or associations to be declared in the state of suspension of payments in cases where the corporation,
partnership or association possesses sufficient property to cover all its debts but foresees the impossibility of meeting then when they
respectively fall due or in case where the corporation, partnership or association has no sufficient assets to cover its liabilities, but is under the
management of a Rehabilitation Receiver or Management Committee created pursuant to this Decree. (As added by P.D. No. 1758).

35
 As state earlier, it is precisely on the basis of above provision that petitioner now avers that the SEC cannot validly entertain private respondents
petition for suspension of payments. Its reason is that the law vesting jurisdiction upon the SEC to hear petitions of this kind limits itself to petitions filed
only by corporations, partnerships or associations. Petitioner thus asserts that the petition filed by private respondents with the SEC should have been
dismissed because it was not such a kind of petition filed solely by corporations when it impleaded as co-petitioners the Yutingcos who are individual
persons upon whom said body cannot acquire jurisdiction.
We fully agree with petitioner in contending that the SECs jurisdiction on matters of suspension of payments is confined only to those initiated by
corporations, partnerships or associations. Actually, this is not the first time that the Court has encountered an issue as the one at bar. It has made a
similar pronouncement in the seminal case of Chung Ka Bio v. Intermediate Appellate Court, et al.,[31] likewise involving a petition for suspension of
payments filed by a corporate entity and an individual stockholder, where we ruled that:
This section [referring to Section 5 (d) of P.D. No. 902-A, as amended] clearly does not allow a mere individual to file the petition which is limited to
corporations, partnerships or associations. Administrative agencies like the SEC are tribunals of limited jurisdiction and, as such, can exercise only
those powers which are specifically granted to them by their enabling statutes. Consequently, where no authority is granted to hear petitions of
individuals for suspension of payments, such petitions are beyond the competence of the SEC. x x x.
The circumstance that Ching is a co-signer in the corporations promissory notes, collateral or guarantee or security agreements, does not make him a
proper party. Jurisdiction over the subject matter must exist as a matter of law and cannot be fixed by agreement of the parties, acquired through, or
waived, enlarged or diminished by, any act or omission; neither can it be conferred by acquiescence of the tribunal. Hence, Alfredo Ching, as a mere
individual, cannot be allowed as a co-petitioner in SEC Case No. 2250. [Underscoring supplied]
This Court reinforced further the above dictum in Traders Royal Bank v. Court of Appeals, et al.,[32] a sequel to Chung Ka Bio, where we declared:
Although Ching was impleaded in SEC Case No. 2250, as a co-petitioner of PBM [Philippine Blooming Mills], the SEC could not assume jurisdiction
over his person and properties. The Securities and Exchange Commission was empowered, as rehabilitation receiver, to take custody and control of
the assets and properties of PBM only not over private individuals, except stockholders in an intra-corporate dispute (Sec. 5, P.D. 902-A and Sec. 2 of
P.D. 1758). Being a nominal party in SEC Case No. 2250, Chings properties were not included in the rehabilitation receivership that the SEC
constituted to take custody of PBMs assets. Therefore, the petitioner bank was not barred from filing a suit against Ching, as a surety for PBM. An
anomalous situation would arise if individual sureties for debtor corporations may escape liability by simply co-filing with the corporation a petition for
suspension of payments in the SEC whose jurisdiction is limited only to corporations and their corporate assets. [Underscoring supplied]
Very recently, we reiterated said pronouncements in Modern Paper Products, Inc. et al., v. Court of Appeals, et al.,[33] viz.:
The Court of Appeal was correct in concluding that the SEC lacked or exceeded its jurisdiction when it included the Co spouses under a state of
suspension of payments together with MPPI. x x x
It is axiomatic that jurisdiction is conferred by the Constitution or by law. It is indubitably clear from the aforequoted Section 5 (d) that only corporations,
partnerships, and associations --- NOT private individuals --- can file with the SEC petitions to be declared in a state of suspension of payments. It
logically follows that the SEC does not have jurisdiction to entertain petitions for suspension of payments filed by parties other than corporations,
partnerships or associations. x x x [Underscoring supplied].
Notwithstanding the foregoing conclusions, this Court, however, does not subscribe to the theory espoused by petitioner that the case filed by private
respondents should be dismissed outright in its entirety.The reason is that while it is true that the SEC cannot acquire jurisdiction over an individual
filing a petition for suspension of payments together with a corporate entity, a closer scrutiny of Chung Ka Bio and MPPI does not in any manner
suggest, even tangentially, that a petition as the one at bar must be dismissed likewise with respect to the corporate co-petitioner. What Chung Ka
Bio and MPPI respectively declared was that Alfredo Ching, as a mere individual, cannot be allowed as a co-petitioner in SEC Case No. 2250 and
respondent Court of Appeals was correct in ordering the dismissal of the petition for suspension of payments insofar as the Co spouses were
concerned. [Underscoring supplied]
That the Court never dismissed a petition for suspension of payments as the cases involved in Chung Ka Bio and MPPI is not without legal
basis. The reason is to be found in Section 1, Rule XXIII of the REVISED RULES OF PROCEDURE IN THE SECURITIES AND EXCHANGE
COMMISSION (As amended on April 25, 1993) which was promulgated pursuant to the rule-making powers vested in the SEC by P.D. No. 902-A, as
amended. It states:
SECTION 1. Provisions of the Rules of Court. --- The provisions of the Rules of Court, unless inconsistent, shall have suppletory effect on those Rules.
(Amended). [Underscoring Supplied].
Since we have painstakingly probed said SEC rules but unearthed nothing that squarely treats of a situation where an individual and a corporate entity
both filed together a petition for suspension of payments, recourse must then be had to the Rules of Court which is expressly made suppletory to the
SEC rules. In this regard, we find Section 11, Rule 3 of the 1997 Rules of Civil Procedure applicable which provides:
SEC. 11. Misjoinder and non-joinder of parties. --- Neither misjoinder nor non-joinder of parties is ground for dismissal of an action. Parties may be
dropped or added by order or the court on motion of any party or on its own initiative at any stage of the action and on such terms as are just. Any
claim against a misjoined party may be severed and proceeded with separately. (11a) [Underscoring supplied]
From the foregoing, it is thus clear that in a case of misjoinder of parties --- which in this case is the co-filing of the petition for suspension of
payments by both the Yutingcos and the EYCO group --- the remedy has never been to dismiss the petition in its entirety but to dismiss it only as against
the party upon whom the tribunal or body cannot acquire jurisdiction. The result, therefore, is that the petition with respect to EYCO shall subsist and
may be validly acted upon by the SEC. The Yutingcos, on the other hand, shall be dropped from the petition and be required to pursue their remedies in
the regular courts of competent jurisdiction.[34]
We are, of course, aware of the argument advanced by petitioner that the petition should be entirely dismissed and taken out of the SECs
jurisdiction on account of the alleged insolvency of private respondents. In this regard, petitioner theorizes that private respondents have already become
insolvent when they allegedly disposed of a substantial portion of their properties in fraud of creditors, hence, suspension of payments with the SEC is
not the proper remedy.
Such argument does not persuade us. Petitioners allegation of fraudulent dispositions of private respondents assets and the supposed insolvency
of the latter are hardly of any consequence to the assumption of jurisdiction by the SEC over the nature or subject matter of the petition for suspension
of payments. Aside from the fact that these allegations are evidentiary in nature and still remains to be proved, we have likewise consistently ruled that
what determines the nature of an action, as well as which court or body has jurisdiction over it, are the allegations of the complaint, or a petition as in this
case, and the character of the relief sought.[35] That the merits of the case after due proceedings are later found to veer away from the claims asserted
by EYCO in its petition, as when it is shown later that it is actually insolvent and may not be entitled to suspension of payments, does not divest the SEC
at all of its jurisdiction already acquired at its inception through the allegations made in the petition.
Neither are we convinced by petitioners reasoning that the Yutingcos and the corporate entities making up the EYCO Group, on the basis of the
footnote[36] that the former were filing the petition because they bound themselves as surety to the corporate obligations, should be considered as mere
individuals who should file their petition for suspension of payments with the regular courts pursuant to Section 2 of the Insolvency Law.[37] We do not
see any legal ground which should lead one to such conclusion. The doctrine of piercing the veil of corporate fiction heavily relied upon by the petitioner
is entirely misplaced, as said doctrine only applies when such corporate fiction is used to defeat public convenience, justify wrong, protect fraud or defend
crime.[38]
II. Non-Exhaustion of Administrative Remedies and Forum-Shopping
Equally weak is petitioners challenge on the Court of Appeals decision dismissing its petition for certiorari for failure to exhaust administrative
remedies. Its complaint that the SEC Hearing Panel was acting without jurisdiction in conducting proceedings relative to private respondents petition and
for rendering moot and academic its Motion to Dismiss does not justify the procedural short-cut it took to the appellate court. Basic is the rule which has
been consistently held by this Court in a long line of cases that before a party is allowed to seek the intervention of the court, it is a pre-condition that
should have availed of all the means of administrative processes afforded by him. Hence, if a remedy within the administrative machinery can still be
resorted to by giving the administrative officer concerned every opportunity to decide on a matter that comes within his jurisdiction, then such remedy
should be exhausted first before the courts judicial power can be sought. The premature invocation of courts intervention is fatal to ones cause of
action.[39] That this is the prevailing rule is aptly explained thus:
The underlying principle of the rule of exhaustion of administrative remedies rests on the presumption that the administrative agency, if afforded a
complete chance to pass upon the matter, will decide the same correctly. There are both legal and practical reasons for the principle. The
administrative process is intended to provide less expensive and more speedy solutions to disputes. Where the enabling statute indicates a procedure
for administrative review and provides a system of administrative appeal or reconsideration, the courts --- for reason of law, comity, and convenience --
- will not entertain a case unless the available administrative remedies have been resorted to and the appropriate authorities have been given an
opportunity to act and correct the errors committed in the administrative forum.[40]
In this case, petitioner was actually not without remedy to correct what it perceived and supposed was an erroneous assumption of jurisdiction by
the SEC without having recourse immediately to the Court of Appeals. Under Section 6 (m) of P.D. No. 902-A, it has been expressly provided that "the

36
decision, ruling or order of any such Commissioner, bodies, boards, committees and/or officer may be appealed to the Commission sitting en banc within
thirty days after receipt by the appellant of notice of such decision, ruling or order." Such procedure being available, could have been resorted to by
petitioner which, however, it chose to forego. Furthermore, by taking up the matter with the SEC, it could still have obtained an injunction which it similarly
sought from the appellate court via its petition for certiorari because the said body has been empowered by Section 6 (a) of P.D. No. 902-A "to issue
preliminary or permanent injunctions whether prohibitory or mandatory, in all cases in which it has jurisdiction...." Finally, petitioner itself hardly concealed
the fact that it distrusted altogether the whole mechanism of appeal to the SEC en banc, which is why it did not find resort thereto imperative. Thus, it
explicitly stated that "it is a given that SEC will not reverse itself, therefore, any reconsideration or appeal en banc would be a mere exercise of futility,
[particularly] when public respondent Associate Commissioner Fe Gloria is the acting Chairperson of SEC." [41] What basis does petitioner have in casting
doubt on the integrity and competence of the SEC en banc? This baseless, even reckless, reasoning hardly deserves an iota of attention. It cannot justify
a procedural short-cut quite contrary to law. If this were so, then the SEC en banc would not have been empowered at all by the statute to take cognizance
of appeals from its subordinate units. But the lawmakers, having faith in a collegial body such as the SEC en banc, precisely empowered it to act as such
appellate body. Whatever opinion petitioner entertains with respect to the SEC's competence cannot override the fact that the law mandates recourse
thereto.
As to the issue of forum-shopping, we fully subscribe to the Court of Appeals in ruling that such violation existed when it declared:
"Finally, the charge that petitioner is guilty of forum shopping --- which is the institution of two or more actions or proceedings grounded on the same
cause --- cannot unceremoniously be glossed over. It is patent that the instant petition and the pending motion to dismiss before the SEC raise
identical issues, namely, lack of jurisdiction and the propriety of the suspension of payments."[42] [Underscoring supplied]
Actually, even a simple perusal of the pleadings filed by petitioner before this Court reveals that it has been continuously reiterating the same
arguments that it had earlier raised in its Motion to Dismiss and its Petition for Certiorari before the appellate court. Hence, we do not see why the
appellate court's decision on this aspect should not be sustained.
WHEREFORE, the instant petition is hereby DENIED for lack of merit. Finding neither reversible error nor grave abuse of discretion amounting to
lack or excess of jurisdiction on the part of the Court of Appeals, its decision dated December 22, 1997 is AFFIRMED. Furthermore, the Temporary
Restraining Order (TRO) issued by this Court in its resolution order of January 6, 1988, is hereby LIFTED and/or DISSOLVED. However, the Securities
and Exchange Commission is directed to drop from the petition for suspension of payments filed before it the names of Eulogio O. Yutingco, Caroline
Yutingco-Yao, and Theresa T. Lao without prejudice to their filing a separate petition in the Regional Trial Courts. Cost against petitioner. SO ORDERED.

G.R. No. 74851 December 9, 1999

RIZAL COMMERCIAL BANKING CORPORATION, petitioner, vs. INTERMEDIATE APPELLATE COURT AND BF HOMES, INC., respondents.
MELO, J.:
On September 14, 1992, the Court passed upon the case at bar and rendered its decision, dismissing the petition of Rizal Commercial Banking
Corporation (RCBC), thereby affirming the decision of the Court of Appeals which canceled the transfer certificate of title issued in favor of RCBC, and
reinstating that of respondent BF Homes.
This will now resolve petitioner's motion for reconsideration which, although filed in 1992 was not deemed submitted for resolution until in late 1998.
The delay was occasioned by exchange of pleadings, the submission of supplemental papers, withdrawal and change of lawyers, not to speak of the
case having been passed from one departing to another retiring justice. It was not until May 3, 1999, when the case was re-raffled to herein ponente,
but the record was given to him only sometime in the late October 1999.
By way of review, the pertinent facts as stated in our decision are reproduced herein, to wit:
On September 28, 1984, BF Homes filed a "Petition for Rehabilitation and for Declaration of Suspension of Payments" (SEC Case No. 002693)
with the Securities and Exchange Commission (SEC).
One of the creditors listed in its inventory of creditors and liabilities was RCBC.
On October 26, 1984, RCBC requested the Provincial Sheriff of Rizal to extra-judicially foreclose its real estate mortgage on some properties of
BF Homes. A notice of extra-judicial foreclosure sale was issued by the Sheriff on October 29, 1984, scheduled on November 29, 1984, copies
furnished both BF Homes (mortgagor) and RCBC (mortgagee).
On motion of BF Homes, the SEC issued on November 28, 1984 in SEC Case No. 002693 a temporary restraining order (TRO), effective for 20
days, enjoining RCBC and the sheriff from proceeding with the public auction sale. The sale was rescheduled to January 29, 1985.
On January 25, 1985, the SEC ordered the issuance of a writ of preliminary injunction upon petitioner's filing of a bond. However, petitioner did
not file a bond until January 29, 1985, the very day of the auction sale, so no writ of preliminary injunction was issued by the SEC. Presumably,
unaware of the filing of the bond, the sheriffs proceeded with the public auction sale on January 29, 1985, in which RCBC was the highest
bidder for the properties auctioned.
On February 5, 1985, BF Homes filed in the SEC a consolidated motion to annul the auction sale and to cite RCBC and the sheriff for contempt.
RCBC opposed the motion
Because of the proceedings in the SEC, the sheriff withheld the delivery to RCBC of a certificate of sale covering the auctioned properties.
On February 13, 1985, the SEC in Case No. 002693 belatedly issued a writ of preliminary injunction stopping the auction sale which had been
conducted by the sheriff two weeks earlier.
On March 13, 1985, despite SEC Case No. 002693, RCBC filed with the Regional Trial Court, Br. 140, Rizal (CC 10042) an action
for mandamus against the provincial sheriff of Rizal and his deputy to compel them to execute in its favor a certificate of sale of the auctioned
properties.
In answer, the sheriffs alleged that they proceeded with the auction sale on January 29, 1985 because no writ of preliminary injunction had
been issued by SEC as of that date, but they informed the SEC that they would suspend the issuance of a certificate of sale to RCBC.
On March 18, 1985, the SEC appointed a Management Committee for BF Homes.
On RCBC's motion in the mandamus case, the trial court issued on May 8, 1985 a judgment on the pleadings, the dispositive portion of which
states:
WHEREFORE, petitioner's Motion for Judgment on the pleadings is granted and judgment is hereby rendered ordering respondents
to execute and deliver to petitioner the Certificate of the Auction Sale of January 29, 1985, involving the properties sold therein,
more particularly those described in Annex "C" of their Answer." (p. 87, Rollo.)
On June 4, 1985, B.F. Homes filed an original complaint with the IAC pursuant to Section 9 of B.P. 129 praying for the annulment of the
judgment, premised on the following:
. . .: (1) even before RCBC asked the sheriff to extra-judicially foreclose its mortgage on petitioner's properties, the SEC had already
assumed exclusive jurisdiction over those assets, and (2) that there was extrinsic fraud in procuring the judgment because the
petitioner was not impleaded as a party in the mandamus case, respondent court did not acquire jurisdiction over it, and it was
deprived of its right to be heard. (CA Decision, p. 88, Rollo).
On April 8, 1986, the IAC rendered a decision, setting aside the decision of the trial court, dismissing the mandamus case and suspending
issuance to RCBC of new land titles, "until the resolution of case by SEC in Case No. 002693," disposing as follows:
WHEREFORE, the judgment dated May 8, 1985 in Civil Case No. 10042 is hereby annulled and set aside and the case is hereby
dismissed. In view of the admission of respondent Rizal Commercial Banking Corporation that the sheriff's certificate of sale has been
registered on BF Homes' TCT's . . . (here the TCTs were enumerated) the Register of Deeds for Pasay City is hereby ordered to suspend
the issuance to the mortgagee-purchaser, Rizal Commercial Banking Corporation, of the owner's copies of the new land titles replacing
them until the matter shall have been resolved by the Securities and Exchange Commission in SEC Case No. 002693.
(p. 257-260, Rollo; also pp. 832-834, 213 SCRA 830 [1992]; Emphasis in the original.)
On June 18, 1986, RCBC appealed the decision of the then Intermediate Appellate Court (now, back to its old revered name, the Court of Appeals) to
this Court, arguing that:
1. Petitioner did not commit extrinsic fraud in excluding private respondent as party defendant in Special Civil Case No. 10042 as private
respondent was not indispensable party thereto, its participation not being necessary for the full resolution of the issues raised in said case.
2. SEC Case No. 2693 cannot be invoked to suspend Special Civil Case No. 10042, and for that matter, the extra-judicial foreclosure of the real
estate mortgage in petitioner's favor, as these do not constitute actions against private respondent contemplated under Section 6(c) of Presidential
Decree No. 902-A.

37
 3. Even assuming arguendo that the extra-judicial sale constitute an action that may be suspended under Section 6(c) of Presidential Decree No.
902-A, the basis for the suspension thereof did not exist so as to adversely affect the validity and regularity thereof.
4. The Regional Trial court had jurisdiction to take cognizable of Special Civil Case No. 10042.
5. The Regional Trial court had jurisdiction over Special Civil Case No. 10042.
(p. 5, Rollo.)
On November 12, 1986, the Court gave due course to the petition. During the pendency of the case, RCBC brought to the attention of the Court an
order issued by the SEC on October 16, 1986 in Case No. 002693, denying the consolidated Motion to Annul the Auction Sale and to cite RCBC and
the Sheriff for Contempt, and ruling as follows:
WHEREFORE, the petitioner's "Consolidated Motion to Cite Sheriff and Rizal Commercial Banking Corporation for Contempt and to Annul
Proceedings and Sale," dated February 5, 1985, should be as is, hereby DENIED.
While we cannot direct the Register of Deeds to allow the consolidation of the titles subject of the Omnibus Motion dated September 18, 1986
filed by the Rizal Commercial Banking Corporation, and therefore, denies said Motion, neither can this Commission restrain the said bank and
the Register of Deeds from effecting the said consolidation.
SO ORDERED.
By virtue of the aforesaid order, the Register of Deeds of Pasay City effected the transfer of title over subject pieces of property to petitioner RCBC,
and the issuance of new titles in its name. Thereafter, RCBC presented a motion for the dismissal of the petition, theorizing that the issuance of said
new transfer certificates of title in its name rendered the petition moot and academic.
In the decision sought to be reconsidered, a greatly divided Court (Justices Gutierrez, Nocon, and Melo concurred with the ponente, Justice Medialdea;
Chief Justice Narvasa, Justices Bidin, Regalado, and Bellosillo concurred only in the result; while Justice Feliciano dissented and was joined by Justice
Padilla, then Justice, now Chief Justice Davide, and Justice Romero; Justices Griño-Aquino and Campos took no part) denied petitioner's motion to
dismiss, finding basis for nullifying and setting aside the TCTs in the name of RCBC. Ruling on the merits, the Court upheld the decision of the
Intermediate Appellate Court which dismissed the mandamus case filed by RCBC and suspended the issuance of new titles to RCBC. Setting aside
RCBC's acquisition of title and nullifying the TCTs issued to it, the Court held that:
. . . whenever a distressed corporation asks the SEC for rehabilitation and suspension of payments, preferred creditors may no longer assert
such preference, but . . . stand on equal footing with other creditors. Foreclosure shall be disallowed so as not to prejudice other creditors, or
cause discrimination among them. If foreclosure is undertaken despite the fact that a petition, for rehabilitation has been filed, the certificate of
sale shall not be delivered pending rehabilitation. Likewise, if this has also been done, no transfer of title shall be effected also, within the period
of rehabilitation. The rationale behind PD 902-A, as amended to effect a feasible and viable rehabilitation. This cannot be achieved if one creditor
is preferred over the others.
In this connection, the prohibition against foreclosure attaches as soon as a petition for rehabilitation is filed. Were it otherwise, what is to prevent
the petitioner from delaying the creation of a Management Committee and in the meantime dissipate all its assets. The sooner the SEC takes
over and imposes a freeze on all the assets, the better for all concerned.
(pp. 265-266, Rollo; also p. 838, 213
SCRA 830 [1992].)
Then Justice Feliciano (joined by three other Justices), dissented and voted to grant the petition. He opined that the SEC acted prematurely and
without jurisdiction or legal authority in enjoining RCBC and the sheriff from proceeding with the public auction sale. The dissent maintain that Section 6
(c) of Presidential Decree 902-A is clear and unequivocal that, claims against the corporations, partnerships, or associations shall be suspended only
upon the appointment of a management committee, rehabilitation receiver, board or body. Thus, in the case under consideration, only upon the
appointment of the Management Committee for BF Homes on March 18, 1985, should the suspension of actions for claims against BF Homes have
taken effect and not earlier.
In support of its motion for reconsideration, RCBC contends:
The restraining order and the writ of preliminary injunction issued by the Securities and Exchange Commission enjoining the foreclosure sale of
the properties of respondent BF Homes were issued without or in excess of its jurisdiction because it was violative of the clear provision of
Presidential Decree No. 902-A, and are therefore null and void; and Petitioner, being a mortgage creditor, is entitled to rely solely on its security
and to refrain from joining the unsecured creditors in SEC Case No. 002693, the petition for rehabilitation filed by private respondent.
We find the motion for reconsideration meritorious.
The issue of whether or not preferred creditors of distressed corporations stand on equal footing with all other creditors gains relevance and materiality
only upon the appointment of a management committee, rehabilitation receiver, board, or body. Insofar as petitioner RCBC is concerned, the
provisions of Presidential Decree No. 902-A are not yet applicable and it may still be allowed to assert its preferred status because it foreclosed on the
mortgage prior to the appointment of the management committee on March 18, 1985. The Court, therefore, grants the motion for reconsideration on
this score.
The law on the matter, Paragraph (c), Section 6 of Presidential Decree 902-A, provides:
Sec. 6. In order to effectively exercise such jurisdiction, the Commission shall posses the following powers:
c) To appoint one or more receivers of the property, real and personal, which is the subject of the action pending before the Commission in
accordance with the pertinent provisions of the Rules of Court in such other cases whenever necessary to preserve the rights of the parties
litigants to and/or protect the interest of the investing public and creditors; Provided, however, that the Commission may, in appropriate cases,
appoint a rehabilitation receiver of corporations, partnerships or other associations not supervised or regulated by other government agencies
who shall have, in addition to the powers of a regular receiver under the provisions of the Rules of Court, such functions and powers as are
provided for in the succeeding paragraph (d) hereof: 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. (As amended by PDs No. 1673, 1758 and by
PD No. 1799. Emphasis supplied.)
It is thus adequately clear that suspension of claims against a corporation under rehabilitation is counted or figured up only upon the appointment of a
management committee or a rehabilitation receiver. The holding that suspension of actions for claims against a corporation under rehabilitation takes
effect as soon as the application or a petition for rehabilitation is filed with the SEC — may, to some, be more logical and wise but unfortunately, such
is incongruent with the clear language of the law. To insist on such ruling, no matter how practical and noble, would be to encroach upon legislative
prerogative to define the wisdom of the law — plainly judicial legislation.
It bears stressing that the first and fundamental duty of the Court is to apply the law. When the law is clear and free from any doubt or ambiguity, there
is no room for construction or interpretation. As has been our consistent ruling, where the law speaks in clear and categorical language, there is no
occasion for interpretation; there is only room for application (Cebu Portland Cement Co. vs. Municipality of Naga, 24 SCRA-708 [1968]).
Where the law is clear and unambiguous, it must be taken to mean exactly what it says and the court has no choice but to see
to it that its mandate is obeyed (Chartered Bank Employees Association vs. Ople, 138 SCRA 273 [1985]; Luzon Surety Co., Inc.
vs. De Garcia, 30 SCRA 111 [1969]; Quijano vs. Development Bank of the Philippines, 35 SCRA 270 [1970]).
Only when the law is ambiguous or of doubtful meaning may the court interpret or construe its true intent. Ambiguity is a condition of admitting two or
more meanings, of being understood in more than one way, or of referring to two or more things at the same time. A statute is ambiguous if it is
admissible of two or more possible meanings, in which case, the Court is called upon to exercise one of its judicial functions, which is to interpret the
law according to its true intent.
Furthermore, as relevantly pointed out in the dissenting opinion, a petition for rehabilitation does nor always result in the appointment of a receiver or
the creation of a management committee. The SEC has to initially determine whether such appointment is appropriate and necessary under the
circumstances. Under Paragraph (d), Section 6 of Presidential Decree No. 902-A, certain situations must be shown to exist before a management
committee may be created or appointed, such as;
1. when there is imminent danger of dissipation, loss, wastage or destruction of assets or other properties; or
2. when there is paralization of business operations of such corporations or entities which may be prejudicial to the interest of minority
stockholders, parties-litigants or to the general public.
On the other hand, receivers may be appointed whenever:
1. necessary in order to preserve the rights of the parties-litigants; and/or
2. protect the interest of the investing public and creditors. (Section 6 (c), P.D. 902-A.)

38
These situations are rather serious in nature, requiring the appointment of a management committee or a receiver to preserve the existing assets and
property of the corporation in order to protect the interests of its investors and creditors. Thus, in such situations, suspension of actions for claims
against a corporation as provided in Paragraph (c) of Section 6, of Presidential Decree No. 902-A is necessary, and here we borrow the words of the
late Justice Medialdea, "so as not to render the SEC management Committee irrelevant and inutile and to give it unhampered "rescue efforts" over the
distressed firm" (Rollo, p. 265).
Otherwise, when such circumstances are not obtaining or when the SEC finds no such imminent danger of losing the corporate assets, a management
committee or rehabilitation receiver need not be appointed and suspension of actions for claims may not be ordered by the SEC. When the SEC does
not deem it necessary to appoint a receiver or to create a management committee, it may be assumed, that there are sufficient assets to sustain the
rehabilitation plan and, that the creditors and investors are amply protected.
Petitioner additionally argues in its motion for reconsideration that, being a mortgage creditor, it is entitled to rely on its security and that it need not join
the unsecured creditors in filing their claims before the SEC appointed receiver. To support its position, petitioner cites the Court's ruling in the case
of Philippine Commercial International Bank vs. Court of Appeals, (172 SCRA 436 [1989]) that an order of suspension of payments as well as actions
for claims applies only to claims of unsecured creditors and cannot extend to creditors holding a mortgage, pledge, or any lien on the property.
Ordinarily, the Court would refrain from discussing additional matters such as that presented in RCBC's second ground, and would rather limit itself
only to the relevant issues by which the controversy may be settled with finality.
In view, however, of the significance of such issue, and the conflicting decisions of this Court on the matter, coupled with the fact that our decision of
September 14, 1992, if not clarified, might mislead the Bench and the Bar, the Court resolved to discuss further.
It may be recalled that in the herein en banc majority opinion (pp. 256-275, Rollo, also published as RCBC vs. IAC, 213 SCRA 830 [1992]), we held
that:
. . . whenever a distressed corporation asks the SEC for rehabilitation and suspension of payments, preferred creditors may no longer assert
such preference, but . . . stand on equal footing with other creditors. Foreclosure shall be disallowed so as not to prejudice other creditors, or
cause discrimination among them. If foreclosure is undertaken despite the fact that a petition for rehabilitation has been filed, the certificate of
sale shall not be delivered pending rehabilitation. Likewise, if this has also, been done, no transfer of title shall be effected also, within the period
of rehabilitation. The rationale behind PD 902-A, as amended, is to effect a feasible and viable rehabilitation. This cannot be achieved if one
creditor is preferred over the others.
In this connection, the prohibition against foreclosure attaches as soon as a petition for rehabilitation is filed. Were it otherwise, what is to prevent
the petitioner from delaying the creation of a Management Committee and in the meantime dissipate all its assets. The sooner the SEC takes
over and imposes a freeze on all the assets, the better for all concerned.
The foregoing majority opinion relied upon BF Homes, Inc. vs. Court of Appeals (190 SCRA 262 [1990] — per Cruz, J.: First Division) where it held that
"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 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 (pp. 269-270; emphasis in the original). This ruling is a reiteration of Alemar's Sibal
& Sons, Inc. vs. Hon. Jesus M. Elbinias (pp. 99-100; 186 SCRA 94 [1991] — per Fernan, C.J.: Third Division).
Taking the lead from Alemar's Sibal & Sons, the Court also applied this same ruling in Araneta vs. Court of Appeals(211 SCRA 390 [1992] — per
Nocon, J.: Second Division).
All the foregoing cases departed from the ruling of the Court in the much earlier case of PCIB vs. Court of Appeals(172 SCRA 436 [1989] — per
Medialdea, J.: First Division) where the Court categorically ruled that:
SEC's order for suspension of payments of Philfinance as well as for all actions of claims against Philfinance could only be
applied to claims of unsecured creditors. Such order can not extend to creditors holding a mortgage, pledge or any lien on the
property unless they give up the property, security or lien in favor of all the creditors of Philfinance . . .
(p. 440. Emphasis supplied)
Thus, in BPI vs. Court of Appeals (229 SCRA 223 [1994] — per Bellosilio, J.: First Division) the Court explicitly stared that ". . . the doctrine in the PCIB
Case has since been abrogated. In Alemar's Sibal & Sons v. Elbinias, BF Homes, Inc. v. Court of Appeals, Araneta v. Court of Appeals and RCBC v.
Court of Appeals, we already ruled that whenever a distressed corporation asks SEC for rehabilitation and suspension of payments, preferred
creditors may no longer assert such preference, but shall stand on equal footing with other creditors . . ." (pp. 227-228).
It may be stressed, however, that of all the cases cited by Justice Bellosillo in BPI, which abandoned the Court's ruling in PCIB, only the present case
satisfies the constitutional requirement that "no doctrine or principle of law laid down by the court in a decision rendered en banc or in division may be
modified or reversed except by the court sitting en banc" (Sec 4, Article VIII, 1987 Constitution). The rest were division decisions.
It behooves the Court, therefore, to settle the issue in this present resolution once and for all, and for the guidance of the Bench and the Bar, the
following rules of thumb shall are laid down:
1. All claims against corporations, partnerships, or associations that are pending before any court, tribunal, or board, without distinction as to whether
or not a creditor is secured or unsecured, shall be suspended effective upon the appointment of a management committee, rehabilitation receiver,
board, or body in accordance which the provisions of Presidential Decree No. 902-A.
2. Secured creditors retain their preference over unsecured creditors, but enforcement of such preference is equally suspended upon the appointment
of a management committee, rehabilitation receiver, board, or body. In the event that the assets of the corporation, partnership, or association are
finally liquidated, however, secured and preferred credits under the applicable provisions of the Civil Code will definitely have preference over
unsecured ones.
In other words, once a management committee, rehabilitation receiver, board or body is appointed pursuant to P.D. 902-A, all actions for claims
against a distressed corporation pending before any court, tribunal, board or body shall be suspended accordingly.
This suspension shall not prejudice or render ineffective the status of a secured creditor as compared totally unsecured creditor P.D. 902-A does not
state anything to this effect. What it merely provides is that all actions for claims against the corporation, partnership or association shall be suspended.
This should give the receiver a chance to rehabilitate the corporation if there should still be a possibility of doing so. (This will be in consonance with
Alemar's BF Homes, Araneta, and RCBC insofar as enforcing liens by preferred creditors are concerned.)
However, in the event that rehabilitation is no longer feasible and claims against the distressed corporation would eventually have to be settled, the
secured creditors shall enjoy preference over the unsecured creditors (still maintaining PCIB ruling), subject only to the provisions of the Civil Code on
Concurrence and Preferences of Credit (our ruling in State Investment House, Inc. vs. Court of Appeals, 277 SCRA 209 [1997]).
The Majority ruling in our 1992 decision that preferred creditors of distressed corporations shall, in a way, stand an equal footing with all other creditors,
must be read and understood in the light of the foregoing rulings. All claims of both a secured or unsecured creditors, without distinction on this score,
are suspended once a management committee is appointed. Secured creditors, in the meantime, shall not be allowed to assert such preference before
the Securities and Exchange Commission. It may be stressed, however, that this shall only take effect upon the appointment of a management
committee, rehabilitation receiver, board, or body, as opined in the dissent.
In fine, the Court grants the motion for reconsideration for the cogent reason that suspension of actions for claims commences only from the time a
management committee or receiver is appointed by the SEC. Petitioner RCBC, therefore, could have rightfully, as it did, move for the extrajudicial
foreclosure of its mortgage on October 26, 1984 because a management committee was not appointed by the SEC until March 18, 1985.
WHEREFORE, petitioner's motion for reconsideration is hereby GRANTED. The decision, dated September 14, 1992 is vacated, the decision of
Intermediate Appellate Court in AC-G.R. No. SP-06313 REVERSED and SET ASIDE, and the judgment of the Regional Trial Court National Capital
Judicial Region, Branch 140, in Civil Case No. 10042 REINSTATED. SO ORDERED.

Separate Opinions
PANGANIBAN, J., separate opinion;
The issue as to when suspension of payments takes effect upon a petition of a distressed corporation is a contentious one. The ponencia in the case
under consideration, Rizal Commercial Banking Corporation (RCBC) v. Immediate Appellate Court, 1 has ruled that "the prohibition against foreclosure
attaches as soon as a petition for rehabilitation is filed. Were it otherwise, what is to prevent the [creditors] from delaying the creation of the
Management Committee and in the meantime [seizing] all [the debtor's] assets. The sooner the SEC takes over and imposes a freeze on all the assets,
the better for all concerned." 2
Suspension Takes Effect Only Upon

39
 Constitution of Management Committee
A Dissent debunking the quoted ruling was written by the esteemed Justice Florentino P. Feliciano as follows:
I understand the above quoted portion of the ponencia to be saying that suspension of actions for claims against the corporation which applies for
rehabilitation takes effect as soon as the application or a petition for rehabilitation is filed with the SEC.
I would point out with respect, that the actual language used in Section 6 (c) and (d) of P.D. No. 902-A, as amended, does not support the
position taken in the ponencia. The pertinent provision of Section 6 (c) is as follows:
Sec. 6. In order to effectively exercise such jurisdiction, the commission shall possess the following powers:
xxx xxx xxx
c) To appoint one or more receivers of the property, real and personal, which is the subject of the action pending before the Commission
in accordance with the pertinent provisions of the Rules of Court in such cases whenever necessary to preserve the rights of the parties-
litigants to and/or protect the interest of the investing public and creditors; Provided, however, That the Commission may, in appropriate
cases, appoint a rehabilitation receiver of corporations, partnerships or other associations not supervised or regulated by other
government agencies who shall have, in addition to the powers of a regular receiver under the provisions of the Rules of Court, such
functions and powers as are provided for in the succeeding paragraph (d) hereof; Provided, further, that the Commission may appoint a
rehabilitation receiver 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; 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.
It should be pointed out that the appointment of a management committee or a rehabilitation receiver is not ordinarily effected immediately upon
the filing of an application for suspension of payments and for rehabilitation. The reason is that the SEC must first determine whether the
jurisdictional requirements for the appointment of a management committee are present. There are at least two (2) sets of requirements: (a) the
requirements in respect of the petition for declaration of suspension of payments; and (b) the requirements concerning the petition for creation
and appointment of a management committee.
xxx xxx xxx
As already noted, SEC took just about six (6) months after the filing of the petition of B.F. Homes to decide to create and appoint a management
committee. Only upon such appointment of the management committee did the proviso in Section 6 (c) which decrees suspension of actions for
claims against the petitioning corporation take effect.
It is only then that the SEC determines that the circumstances warranting, under the statute, the appointment of a management committee do
exist, i.e., that there is "imminent danger of dissipation, loss, wastage or destruction of assets — or paralization of business operations — which
[would] be prejudicial to the interest of minority stockholders, parties litigant or the general public." Only when such circumstances have been
determined to exist is there justification for suspending actions for claims against the corporation so placed under SEC management. The
authority of the SEC to suspend or freeze the judicial enforcement of claims against a corporation is an extraordinary authority, most especially
where credits secured by specific liens on property, like real estate mortgages, are involved; such authority cannot lightly be assumed to have
arisen simply because the corporation on its own initiative goes to the SEC and there seeks shelter from its lawful creditors. 3
The foregoing Dissent found jural expression in a later case, Barotac Sugar Mills, Inc. v. Court of Appeals, 4 penned by then Associate, now Chief
Justice Hilario G. Davide Jr.:
The appointment of a management committee or rehabilitation receiver may only take place after the filing with the SEC of an
appropriate petition for suspension of payments. This is clear from a reading of sub-paragraph (d) of Section 5 and sub-
paragraph (d) of Section 6 P.D. No. 902-A, as amended by P.D. Nos. 1653 and 1758 . . . .
xxx xxx xxx
The conclusion then is inevitable that pursuant to the underscored proviso in sub-paragraph (c) of the aforementioned Section
6, taken together with sub-paragraph (d) of Section 6, a court action is ipso jure suspended only upon the appointment of a
management committee or a rehabilitation receiver.
As a member of the then First Division which promulgated Barotac, I concurred in the aforequoted ruling. To repeat, Barotac and Justice Feliciano's
Dissent are clearly supported by Section 6, paragraph (c) of presidential Decree 902-A. It is basic in statutory construction that in the absence of doubt
or ambiguity, there is no necessity for construction or interpretation of the law, as in this case. Where the law speaks in clear and categorical language,
there is no room for interpretation. There is only room for application. 5
SEC Retains Power to
Issue Injunctive Relief
Left unsaid in RCBC, Barotac and even in the present Resolution, however, is the existence of two competing economic interests in the determination
of the issue. On the one hand, there is the creditor; on the other, the corporation and its stockholders. Under the RCBC ponencia of Justice Medialdea,
an unscrupulous company can seek shelter in a petition for suspension of payments in order to evade or at least unfairly delay the payment of just
obligations. This course of action would clearly prejudice its creditors, who would be barred from judicially enforcing their rightful claims, simply
because a petition for suspension has been filed. Indeed, to paraphrase Justice Medialdea, what is to prevent the debtor from delaying the creation of
the management committee, in the meantime dissipating all its assets?
On the other hand, if the bare ruling of Barotac were to be applied strictly, a distressed company would be exposed to grave danger that may
precipitate its untimely demise, the very evil sought to be avoided by a suspension of payments. Notably, the appointment of a management committee
takes place only after several months, even years, from submission of the petition. The appointment entails hearings and the submission of
documentary evidence to determine whether the requisites for suspension of payments have been met. By the time a management committee or
receiver is appointed, creditors, upon knowledge of the application for suspension of payments, will have feasted on the distressed corporation.
Money lenders will demand satisfaction of their credits by precipitately foreclosing on their mortgages. Particularly vulnerable are liquid assets which
can be attached and rendered useless. Payrolls will be frozen and suppliers will lose faith in the company. Verily, the distressed company's credit
standing would be zero-rated. Indeed, after the vultures' feast, the remaining corporate carcass can no longer be resurrected into a viable enterprise.
When this happens, there will be no more company left to rehabilitate, thus rendering ineffectual the very law which was enacted precisely to effect
such rehabilitation. In the business world, bridge liquidity and credit are sometimes even more important than profits.
The prudent way to avoid the disastrous consequence of a strict application of said law is to call attention to the power of the SEC to issue injunctive
reliefs. Herein movant (RCBC) raises the issue of the validity of the restraining order and the writ of preliminary injunction later issued by the Securities
and Exchange Commission (SEC) prior to the appointment of the management committee. It contends that the issuance of the injunctive reliefs
effectively results, the suspension of actions against the petitioning distressed corporation.
Movant is thus saying that the SEC has no jurisdiction to issue injunctive reliefs in favor of the distressed corporation petitioning for suspension of
payments prior to the appointment of a management committee I disagree.
Sec. 5(d) of PD 902-A clearly enumerates the cases over which the SEC has original and exclusive jurisdiction to hear and decide:
Sec. 5. In addition to the regulatory and adjudicative functions of the Securities and Exchange Commission over corporations, partnerships and
other forms of associations registered with it as expressly granted under existing laws and decrees, it shall have original and exclusive jurisdiction
to hear and decide cases involving:
xxx xxx xxx
d) Petitions of corporations, partnerships or associations to be declared in the state of suspension of payments in cases where the corporation,
partnership or association possesses sufficient property to cover all its debts but foresees the impossibility of meeting them when they
respectively fall due or in cases where the corporation, partnership or association has no sufficient assets to cover its liabilities, but is under the
management of a Rehabilitation Receiver or Management Committee created pursuant to this Decree.
Sec. 6 (a) of said Decree goes on further to say:
Sec. 6. In order to effectively exercise such jurisdiction, the Commission shall possess the following powers:
a) To issue preliminary or permanent injunctions, whether prohibitory or mandatory, in all cases in which it has jurisdiction, and
in which cases the pertinent provisions of the Rules of Court shall apply;
xxx xxx xxx

40
Thus, it is obvious from the above-quoted provisions that the SEC acquires jurisdiction over the distressed companies upon the submission of a
petition for suspension of payments. And when the legal requirements are complied with, it has the authority to issue injunctive reliefs for the effective
exercise of its jurisdiction. I would like to emphasize that this power to issue restraining orders or preliminary injunctions, upon the prayer of the
petitioning corporation, may be the only buffer that could save a company from being feasted on by any vulture-creditor prior to the appointment of a
management committee or a rehabilitation receiver.
WHEREFORE, I vote to GRANT the Motion for Reconsideration, subject to the caveat that the Securities and Exchange Commission, in meritorious
cases, may issue injunctive reliefs.

SPS. EDUARDO AND FIDELA SOBRAJUANITE v. ASB DEVELOPMENT CORP. (GR 165675, Sept. 30, 2005)
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 CA-G.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, NOT BEING IN ACCORDANCE WITH LAW
AND JURISPRUDENCE.

3. THE COURT OF APPEALS COMMITTED REVERSIBLE ERROR AND GRAVELY ABUSED ITS DISCRETION IN
RULING THAT RESPONDENT IS JUSTIFIED IN EXTENDING THE AGREED DATE OF DELIVERY BY INVOKING AS GROUND
THE FINANCIAL CONSTRAINTS IT EXPERIENCED, BEING CONTRARY TO LAW AND IN EEFECT AN UNLAWFUL
NOVATION OF THE AGREEMENT OF THE DATE OF DELIVERY ENTERED INTO BY PETITIONERS AND RESPONDENT. [11]

The petition lacks merit.

Section 6(c) of PD No. 902-A empowers the SEC:

41
 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

42
 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. SO ORDERED.

MWSS v. DAWAY – SUPRA

JOSE MARCEL PANLILIO, ERLINDA PANLILIO, NICOLE MORRIS and MARIO T. CRISTOBAL, Petitioners, vs. REGIONAL TRIAL COURT,
BRANCH 51, CITY OF MANILA, represented by HON. PRESIDING JUDGE ANTONIO M. ROSALES; PEOPLE OF THE PHILIPPINES; and the
SOCIAL SECURITY SYSTEM, Respondents. G.R. No. 173846 February 2, 2011
PERALTA, J.:
Before this Court is a petition for review on certiorari1 under Rule 45 of the Rules of Court, seeking to set aside the April 27, 2006 Decision2 and August
2, 2006 Resolution3 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 Order5 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 Order11 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 certiorari13 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 Court’s resolution, to wit:
x x x WHETHER OR NOT THE STAY ORDER ISSUED BY BRANCH 24, REGIONAL TRIAL COURT OF MANILA, IN SEC CORP. CASE NO. 04-
111180 COVERS ALSO VIOLATION OF SSS LAW FOR 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 x21

43
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. Co24 (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.25lauuphil
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
CA-G.R. SP No. 90947 are AFFIRMED. The Regional Trial Court of Manila, Branch 51, is ORDERED to proceed with the criminal cases filed against
petitioners. SO ORDERED.

G.R. No. 181126 June 15, 2011

LEONARDO S. UMALE, [deceased] represented by CLARISSA VICTORIA, JOHN LEO, GEORGE LEONARD, KRISTINE, MARGUERITA
ISABEL, AND MICHELLE ANGELIQUE, ALL SURNAMED UMALE, Petitioners, vs. ASB REALTY CORPORATION, Respondent.
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 Certiorari1 assailing the October 15, 2007 Decision2 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 of land identified as Lot 7, Block 5, Amethyst Street, Ortigas Center, Pasig City which was originally owned by Amethyst
Pearl Corporation (Amethyst Pearl), a company that is, in turn, wholly-owned by respondent ASB Realty Corporation (ASB Realty).
In 1996, Amethyst Pearl executed a Deed of Assignment in Liquidation of the subject premises in favor of ASB Realty in consideration of the full
redemption of Amethyst Pearl’s 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 detainer7 of the subject premises
against petitioner Leonardo S. Umale (Umale). ASB Realty alleged that it entered into a lease contract8 with Umale for the period June 1, 1999-May 31,
2000. Their agreement was for Umale to conduct a pay-parking business on the property and pay a monthly rent of ₱60,720.00 to ASB Realty.
Upon the contract’s expiration on May 31, 2000, Umale continued occupying the premises and paying rentals albeit at an increased monthly rent of
₱100,000.00. 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. 565119 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 ₱1.3 million by July 15, 2003. Umale failed to comply with ASB Realty’s demands and continued in possession of the subject premises, even
constructing commercial establishments thereon.
Umale admitted occupying the property since 1999 by virtue of a verbal lease contract but vehemently denied that ASB Realty was his lessor. He was
adamant that his lessor was the original owner, Amethyst Pearl. Since there was no contract between himself and ASB Realty, the latter had no cause
of action to file the unlawful detainer complaint against him.

44
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 ₱1.2 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 ₱1.2 million. He was thus
surprised when he received the Notice of Termination of Lease from ASB Realty.14
Umale also challenged ASB Realty’s personality to recover the subject premises considering that ASB Realty had been placed under receivership by
the Securities and Exchange Commission (SEC) and a rehabilitation receiver had been duly appointed. Under Section 14(s), Rule 4 of the
Administrative Memorandum No. 00-8-10SC, otherwise known as the Interim Rules of Procedure on Corporate Rehabilitation (Interim Rules), it is the
rehabilitation receiver that has the power to "take possession, control and custody of the debtor’s assets." Since ASB Realty claims that it owns the
subject premises, it is its duly-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 Realty’s complaint against Umale without prejudice. It held that ASB Realty had no cause to
seek Umale’s ouster from the subject property because it was not Umale’s lessor. The trial court noted an inconsistency in the written lease contract
that was presented by ASB Realty as basis for its complaint. Its whereas clauses cited ASB Realty, with Eden C. Lin as its representative, as Umale’s
lessor; but its signatory page contained Eden C. Lin’s name under the heading Amethyst Pearl. The MTC then concluded from such inconsistency that
Amethyst Pearl was the real lessor, who can seek Umale’s ejectment from the subject property.17
Likewise, the MTC agreed with Umale that only the rehabilitation receiver could file suit to recover ASB Realty’s 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 reversed20 the MTC ruling.
The RTC held that the MTC erred in dismissing ASB Realty’s complaint for lack of cause of action. It found sufficient evidence to support the
conclusion that it was indeed ASB Realty that entered into a lease contract with Umale, hence, the proper party who can assert the corresponding right
to seek Umale’s ouster from the leased premises for violations of the lease terms. In addition to the written lease contract, the official receipt
evidencing Umale’s rental payments for the period June 2001 to May 2002 to ASB Realty adequately established that Umale was aware that his
lessor, the one entitled to receive his rent payments, was ASB Realty, not Amethyst Pearl.
ASB Realty’s positive assertions, supported as they are by credible evidence, are more compelling than Umale’s bare negative assertions. The RTC
found Umale’s version of the facts incredible. It was implausible that a businessman such as Umale would enter into several transactions with his
alleged lessor – a lease contract, payment of lease rentals, acceptance of an offer to sell from his alleged lessor, and an agreement to waive rentals –
sans a sliver of evidence.
With the lease contract between Umale and ASB Realty duly established and Umale’s failure to pay the monthly rentals since June 2002 despite due
demands from ASB Realty, the latter had the right to terminate the lease contract and seek his eviction from the leased premises. Thus, when the
contract expired on June 30, 2003 (as stated in the Notice of Termination of Lease), Umale lost his right to remain on the premises and his continued
refusal to vacate the same constituted sufficient cause of action for his ejectment.21
With respect to ASB Realty’s personality to file the unlawful detainer suit, the RTC ruled that ASB Realty retained all its corporate powers, including the
power to sue, despite the appointment of a rehabilitation receiver. Citing the Interim Rules, the RTC noted that the rehabilitation receiver was not
granted therein the power to file complaints on behalf of 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 ₱1,300,000.00 representing rentals in arrears from June 2002 to June 2003;
3) To pay plaintiff-appellant the amount of ₱100,000.00 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 ₱200,000.00 as and by way of attorney’s fees; and the costs of suit.
SO ORDERED.24
Umale filed a Motion for Reconsideration25 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 Realty’s Motion for Issuance of a Writ of Execution.27
Umale then filed his appeal28 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 Umale’s admission that he paid monthly rents in accordance therewith.36
The CA found no merit in Umale’s claim that in light of Article 1687 of the Civil Code the lease should be extended until the end of the year. The said
provision stated that in cases where the lease period was not fixed by the parties, the lease period depended on the payment periods. In the case at
bar, the rent payments were made on a monthly basis, not annually; thus, Umale’s failure to pay the monthly rent gave ASB Realty the corresponding
right to terminate the lease at the end of the month.37
The CA then upheld ASB Realty’s, as well as its corporate officers’, personality to recover an unlawfully withheld corporate property. As expressly
stated in Section 14 of Rule 4 of the Interim Rules, the rehabilitation receiver does not take over the functions of the corporate 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

45
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 receiver’s power
by providing that the rehabilitation receiver does not take over the management and control of the corporation but shall closely oversee and 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 receiver’s 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.57The 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
corporation’s business as a going concern while it is undergoing rehabilitation is called debtor-in-possession or debtor-in-place. This means that the
debtor corporation (the corporation undergoing rehabilitation), through its Board of Directors and corporate officers, remains in control of its business
and 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.60It 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 deprive63 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
transactions64 (most of which involve some kind of disposition or encumbrance of the corporation’s assets) during the pendency of the rehabilitation
proceedings but none of which touch on the debtor corporation’s right to sue. The implication therefore is that our concept of rehabilitation does not
restrict this particular power, save for the caveat that all its actions are monitored closely by the receiver, who can seek an annulment of any prohibited
or anomalous transaction or agreement entered into by the officers of the debtor corporation.
Petitioners insist that the rehabilitation receiver has the power to bring and defend actions in his own name as this power is provided in Section 6 of
Rule 59 of the Rules of Court.
Indeed, PD 902-A, as amended, provides that the receiver shall have the powers enumerated under Rule 59 of the Rules of Court. But Rule 59 is a
rule of general application. It applies to different kinds of receivers – rehabilitation receivers, receivers of entities under management, ordinary
receivers, receivers in liquidation – and for different kinds of situations. While the SEC has the discretion65 to authorize the rehabilitation receiver, as
the case may warrant, to exercise the powers in Rule 59, the SEC’s exercise of such discretion cannot simply be assumed. There is no allegation
whatsoever in this case that the SEC gave ASB Realty’s rehabilitation receiver the exclusive right to sue.
Petitioners cite Villanueva,66 Yam,67 and Abacus Real Estate68 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 bank’s 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 Bank’s president had no
authority to execute an "option to purchase" contract while the bank was under liquidation.
These jurisprudence are inapplicable to the case at bar because they involve
banking and financial institutions that are governed by different laws.72 In the cited cases, the applicable banking law was Section 2973 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
rehabilitation75 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 court’s 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
Court’s 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 Umale’s actions which are consistent with the terms of the contract – the payment of lease rentals to ASB Realty (instead of his
alleged lessor Amethyst Pearl) for a 12-month period. These matters cannot simply be brushed off as sheer happenstance especially when weighed
against Umale’s incredible version of the facts – that he entered into a verbal lease contract with Amethyst Pearl; that the term of the lease is for a
"very long period of time;" that Amethyst Pearl offered to sell the leased premises and Umale had accepted the offer, with both parties not demanding
any written documentation of the transaction and without any mention of the purchase price; and that finally, Amethyst Pearl agreed that Umale need
not pay rentals until the perfection of the sale. The Court is of the same mind as the appellate court that it is simply inconceivable that a businessman,
such as petitioners’ predecessor-in-interest, would enter into commercial transactions with and pay substantial rentals to a corporation nary a single
documentation.
Petitioners then try to turn the table on ASB Realty with their third argument. They say that under Article 1687 of the New Civil Code, the period for rent
payments determines the lease period. Judging by the official receipt presented by ASB Realty, which covers the 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 1687.811âwphi1

46
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. SO ORDERED.

G.R. No. 164641 December 20, 2007

BANK OF THE PHILIPPINE ISLANDS, as successor of Far East Bank and Trust Company, petitioner, vs. SECURITIES AND EXCHANGE
COMMISSION, REHABILITATION HOLDINGS, INC., VELASCO, JR., ASB DEVELOPMENT CORPORATION, ASB LAND, INC., ASB FINANCE,
INC., MAKATI HOPE CHRISTIAN SCHOOL, INC., BEL-AIR HOLDINGS CORP., WINCHESTER TRADING, INC., VYL DEVELOPMENT CORP.,
GERRICK HOLDINGS CORP., NEIGHBORHOOD HOLDINGS, INC., and THE COURT OF APPEALS,respondents.
TINGA, J.:
For resolution is a petition seeking to nullify the 30 January 2004 Decision1 of the Court of Appeals in CA-G.R. SP No. 773092 upholding the Securities
and Exchange Commission’s (SEC) approval of the rehabilitation of the ASB Group of Companies (ASB Group) in SEC En Banc Case No. EB-726.3
The antecedent facts are as follows:
The Bank of the Philippine Islands (BPI), through its predecessor-in- interest, Far East Bank and Trust Company (FEBTC), extended credit
accommodations to the ASB Group4 with an outstanding aggregate principal amount of P86,800,000.00, secured by a real estate mortgage over two
(2) properties located in Greenhills, San Juan.5 On 2 May 2000, the ASB Group filed a petition for rehabilitation and suspension of payments before the
SEC, docketed as SEC Case No. 05-00-6609.6 Thereafter, on 18 August 2000, the interim receiver submitted its Proposed Rehabilitation Plan
(Rehabilitation Plan)7 for the ASB Group. The Rehabilitation Plan provides, among others, a dacion en pago by the ASB Group to BPI of one of the
properties mortgaged to the latter at the ASB Group as selling value of P84,000,000.00 against the total amount of the ASB Group’s exposure to the
bank. In turn, ASB Group would require the release of the other property mortgaged to BPI, to be thereafter placed in the asset pool. Specifically, the
pertinent portion of the plan reads:
"x x x ASB plans to invoke a dacion en pago for its #35 Eisenhower property at ASB’s selling value of P84 million against the total amount
of the ASB’s exposure to the bank. In return, ASB requests the release of the #27 Annapolis property which will be placed in the ASB
creditors’ asset pool." 8
The dacion would constitute full payment of the entire obligation due to BPI because the balance was then to be considered waived, as per the
Rehabilitation Plan.9
BPI opposed the Rehabilitation Plan and moved for the dismissal of the ASB Group’s petition for rehabilitation.10However, on 26 April 2001, the SEC
hearing panel issued an order11 approving ASB Group’s proposed rehabilitation plan and appointed Mr. Fortunato Cruz as rehabilitation receiver.
BPI filed a petition for review12 of the 26 April 2001 order before the SEC en banc, imputing grave abuse of discretion on the part of the hearing panel.
It argued that the Order constituted an arbitrary violation of BPI’s freedom and right to contract since the Rehabilitation Plan compelled BPI to enter into
a dacion en pago agreement with the ASB Group.13 The SEC en banc denied the petition.14
BPI then filed a petition for review15 before the Court of Appeals (CA), claiming that the SEC en banc erred in affirming the approval of the
Rehabilitation Plan despite being violative of BPI’s contractual rights. BPI contended that the terms of the Rehabilitation Plan would impair its freedom
to contract, and alleged that the dacion en pagowas a mode of payment beneficial to the ASB Group only.16
The CA dismissed the petition for lack of merit. It held that considering that the dacion en pago transaction could proceed only proceed upon the
mutual agreement of the parties, BPI’s assertion that it is being coerced could not be sustained. At no point would the Rehabilitation Plan compel
secured creditors such as BPI to agree to a settlement agreement against their will, the CA added. Moreover, BPI could refuse to accept any
arrangement contemplated by the receiver and just assert its preferred right in the liquidation and distribution of the assets of the ASB Group.17BPI filed
a motion for reconsideration, but the same was denied for lack of merit.18
Before this Court, BPI asserts that the CA erred in ruling that the approval by the SEC of the ASB Group’s Rehabilitation Plan did not violate BPI’s
rights as a creditor.19 It maintains its position that the dacion en pago is a form of coercion or compulsion, and violative of the rights of secured
creditors.20 It asserts that in order for the Rehabilitation Plan to be feasible and legally tenable, it must reflect the express and free consent of the
parties; i.e,that the conditions should not be imposed but agreed upon by the parties. By approving the Rehabilitation Plan, the SEC hearing panel
totally disregarded the efficacy of the mortgage agreements between the parties, and sanctioned a mode of payment which is solely for the unilateral
benefit of the ASB Group.21 This is so because in the event that the secured creditors such as itself would not agree to dacion en pago, the ASB
Group’s obligations would be settled at the selling prices of the mortgaged properties to be dictated by the ASB Group,22 rendering BPI’s status as a
preferred creditor illusory.23
BPI further claims that despite its rejection of the Rehabilitation Plan, no effort was made to resolve the impasse on the valuation of the mortgaged
properties. With no repayment scheme for secured creditors not accepting the Rehabilitation Plan, the same has become discriminatory.24 Moreover,
any interference on the rights of the secured creditors must not be so indefinite and open-ended as to effectively deprive secured creditors of their right
to their security,25 BPI adds.
In its Comment,26 the SEC, through the Office of the Solicitor General, claims that the terms and conditions of the Rehabilitation Plan do not violate
BPI’s right as a creditor because the dacion en pago transaction contemplated in the plan can only proceed upon mutual agreement of the parties.
Moreover, being a secured creditor, BPI enjoys preference over unsecured creditors, thus there is no reason for BPI to fear the non-payment of the
loan, or the inability to assert its preferred right over the mortgaged property.27
On the other hand, private respondents maintain that the non-impairment clause of the Constitution relied on by BPI is a limit on the exercise of
legislative power and not of judicial or quasi-judicial power. The SEC’s approval of the Rehabilitation Plan was an exercise of adjudicatory power by an
administrative agency and thus the non-impairment clause does not apply.28 In addition, they stress that there is no coercion or compulsion that would
be employed under the Rehabilitation Plan. If dacion en pago fails to materialize, the Rehabilitation Plan contemplates to settle the obligations to
secured creditors with mortgaged properties at selling prices.29 Finally, they claim that BPI failed to submit any valuation of the mortgage properties to
substantiate its objection to the Rehabilitation Plan, making its objection thereto totally unreasonable.30
The petition must be denied.
The very same issues confronted the Court in the case of Metropolitan Bank & Trust Company v. ASB Holdings, et al.31 In this case, Metropolitan Bank
& Trust Company (MBTC) refused to enter into a dacion en pago arrangement contained in ASB’s proposed Rehabilitation Plan.32 MBTC argued,
among others, that the forced transfer of properties and the diminution of its right to enforce its lien on the mortgaged properties violate its
constitutional right against impairment of contracts and right to due process. The Court ruled that there is no impairment of contracts because the
approval of the Rehabilitation Plan and the appointment of a rehabilitation receiver merely suspends the action for claims against the ASB Group, and
MBTC may still enforce its preference when the assets of the ASB Group will be liquidated. But if the rehabilitation is found to be no longer feasible,
then the claims against the distressed corporation would have to be settled eventually and the secured creditors shall enjoy preference over the
unsecured ones. Moreover, the Court stated that there is no compulsion to enter into a dacion en pago agreement, nor to waive the interests, penalties
and related charges, since these are merely proposals to creditors such as MBTC, such that in the event the secured creditors refuse the dacion, the
Rehabilitation Plan proposes to settle the obligations to secured creditors with mortgaged properties at selling prices.
Rehabilitation proceedings in our jurisdiction, much like the bankruptcy laws of the United States, have equitable and rehabilitative purposes. On the
one hand, they attempt to provide for the efficient and equitable distribution of an insolvent debtor’s remaining assets to its creditors; and on the other,
to provide debtors with a "fresh start" by relieving them of the weight of their outstanding debts and permitting them to reorganize their affairs.33 The
rationale of P.D. No. 902-A, as amended, is to "effect a feasible and viable rehabilitation,"34 by preserving a foundering business as going concern,
because the assets of a business are often more valuable when so maintained than they would be when liquidated.35
The Court reiterates that the SEC’s approval of the Rehabilitation Plan did not impair BPI’s right to contract.1âwphi1 As correctly contended by private
respondents, the non-impairment clause is a limit on the exercise of legislative power and not of judicial or quasi-judicial power.36 The SEC, through the
hearing panel that heard the petition for approval of the Rehabilitation Plan, was acting as a quasi-judicial body and thus, its order approving the plan
cannot constitute an impairment of the right and the freedom to contract.
Besides, the mere fact that the Rehabilitation Plan proposes a dacion en pago approach does not render it defective on the ground of impairment of
the right to contract. Dacion en pago is a special mode of payment where the debtor offers another thing to the creditor who accepts it as equivalent of

47
payment of an outstanding debt.37 The undertaking really partakes in a sense of the nature of sale, that is, the creditor is really buying the thing or
property of the debtor, the payment for which is to be charged against the debtor’s debt. As such, the essential elements of a contract of sale, namely;
consent, object certain, and cause or consideration must be present.38 Being a form of contract, the dacion en pago agreement cannot be perfected
without the consent of the parties involved.
We find no element of compulsion in the dacion en pago provision of the Rehabilitation Plan. It was not the only solution presented by the ASB to pay
its creditors. In fact, it was stated in the Rehabilitation Plan that:
x x x. If the dacion en pago herein contemplated does not materialize for failure of the secured creditors to agree thereto, the rehabilitation
plan contemplates to settle the obligations (without interest, penalties and other related charges accruing after the date of the initial
suspension order) to secured creditors with mortgaged properties at ASB selling prices for the general interest of the employees, creditors,
unit buyers, government, general public and the economy.39
Thus, if BPI does not find the dacion en pago modality acceptable, the ASB Group can propose to settle its debts at such amount as is equivalent to
the selling price of the mortgaged properties. If BPI still refuses this option, it can assert its rights in the liquidation and distribution of the ASB Group’s
assets. It will not lose its status as a secured creditor, retaining its preference over unsecured creditors when the assets of the corporation are finally
liquidated.40
WHEREFORE, in view of the foregoing, the petition is DENIED and the Decision dated 30 January 2004 of the Court of Appeals in CA-G.R. SP No.
77309 is AFFIRMED. Costs against petitioner. SO ORDERED.

LECA REALTY CORPORATION, Petitioner, vs. MANUELA CORPORATION and MS. MARILOU O. ADEA, as REHABILITATION RECEIVER for
MANUELA CORPORATION, Respondents. G.R. No. 166800 September 25, 2007
x ------------------------------------------- x
LECA REALTY CORPORATION, Petitioner, vs. MANUELA CORPORATION and MS. MARILOU O. ADEA, as REHABILITATION RECEIVER for
MANUELA CORPORATION, Respondents. G.R. No. 168924 September 25, 2007
SANDOVAL-GUTIERREZ,J.:
These are consolidated petitions for review on certiorari filed by Leca Realty Corporation (LECA), petitioner, assailing the separate related Decisions of
the Court of Appeals in CA-G.R. SP No. 87185 and CA-G.R. SP No. 80861.
G.R. No. 168924
In a petition for review on certiorari under Rule 45 of the 1997 Rules of Civil Procedure, as amended, petitioner LECA assails the Decision of the Court
of Appeals (Special 8th Division) dated April 28, 2005 and its Resolution of July 15, 2005 in CA-G.R. SP No. 87185.
In its Decision, the Court of Appeals sustained the Rehabilitation Plan of Manuela Corporation (Manuela), respondent. Petitioner now contends that the
Rehabilitation Plan has impaired its contract of lease with respondent over a tract of land consisting of almost three (3) hectares. Petitioner is the owner
of the property situated on Shaw Boulevard, Mandaluyong City.
G.R. No. 166800
This is a petition for review on certiorari under the same Rule questioning the Decision dated September 30, 2004 of the Court of Appeals (17th
Division) and its Resolution dated January 25, 2005 in CA-G.R. SP No. 80861.
In its Decision, the Court of Appeals affirmed the trial court’s Order denying petitioner’s motion for extension of time to file its Record on Appeal in Civil
Case No. LP-02-0028, entitled "In the Matter of the Petition for Rehabilitation of Manuela Corporation."
As found by the Court of Appeals in CA-G.R. SP No. 87185, the antecedent facts, common to both petitions, are:
On January 31, 2002, respondent filed with the Regional Trial Court (RTC), Branch 253, Las Piñas City, a Petition for Rehabilitation, docketed as Civil
Case No. LP-02-0028.
The petition alleges inter alia that respondent is a corporation duly organized and existing under the laws of the Republic of the Philippines, primarily
engaged in the business of leasing to retailers commercial spaces in shopping malls. Its principal office address is Alabang-Zapote Road, Pamplona,
Las Piñas City.
Respondent is the owner and operator of the following malls strategically located in Metro Manila:
a) M Star One
b) M Star
c) Starmall
d) Metropolis Star
e) Pacific Mall
Respondent has assets valued at ₱12.43 billion and total liabilities of ₱4.87 billion as of December 31, 2001.
However, due to reasons that shall be discussed below, respondent is now having severe cash flow problems which prevent it from paying its debts as
they fall due.
In order to finance the costs of building the Metropolis Star and the Pacific Mall, respondent obtained several loans from two syndicates of lenders.
The first syndicate is composed of Bank of Philippine Islands, BPI Family Bank, Metropolitan Bank and Trust Company, Allied Bank, and Bank of
Commerce; the second syndicate is composed of Allied Bank, Bank of Commerce, Philippine National Bank, and Equitable PCI Bank. Respondent’s
loans are governed by the Loan Agreement dated July 5, 1995 and the Syndicated Loan Agreement dated December 16, 1996.
Respondent’s total outstanding loan from the syndicates (e.g., principal plus interest) is ₱2.174 billion as of December 31, 2001. These loans are
secured by a mortgage over M Star One and M Star, both located in Las Piñas City.
Respondent also has liabilities to the Hero Holdings, Inc. and its trade suppliers and other parties in the sum of ₱1.476 billion as of December 31,
2001.
At the onset of the Asian financial crisis in 1997, the banks stopped their lending activities to borrowers, including respondent. This event took its toll
upon respondent since its malls failed to operate sufficiently resulting in heavy losses.
Matters finally came to a head in 1997 when respondent could no longer pay its trade suppliers for maturing obligations. Neither could it pay its creditor
banks. The adjusted interest rates on its outstanding loans, as a result of the Asian financial crisis, were between 18% to 30% which added to
respondent’s liquidity problems.
Nonetheless, respondent has been acting in good faith and has exerted earnest efforts to avert its worsening financial problems. It closed down non-
income generating businesses, concentrated on its business of leasing commercial spaces, intensified collection efforts, reduced personnel, negotiated
for restructuring of loans with creditors, and worked out a viable payment scheme without giving undue preference to any creditor. Despite its efforts,
respondent could no longer pay its suppliers and the maturing interests on its loans.
The petition further alleges that respondent can only be brought back to its financial viability if its proposed Rehabilitation Plan is approved and that it is
given a respite from its creditors’ demands through the issuance of a Stay Order. The successful implementation of the proposed Rehabilitation Plan
will enable it to settle its remaining obligations in an orderly manner, restore its financial viability, and allow it to resume its normal operations.
On February 5, 2002, the trial court issued a Stay Order,1 thus:
xxx
a) a stay in the enforcement of all claims, whether for money or otherwise and whether such enforcement is by court action or otherwise,
against petitioner MANUELA, its guarantors and sureties not solidarily liable with it;
b) prohibiting MANUELA from selling, encumbering, transferring or disposing in any manner any of its properties except in the ordinary
course of business;
c) prohibiting MANUELA from making any payment of its liabilities outstanding as of the filing of the instant petition;
d) prohibiting MANUELA’s suppliers of goods and services from withholding supply of goods and services in the ordinary course of
business as long as MANUELA makes payments for the goods and services supplied after the issuance of this Stay Order; and
e) directing the payment in full of all administrative expenses incurred after the issuance of this Stay Order. 2
In the same Stay Order, the trial court appointed Marilou Adea, also a respondent, as Rehabilitation Receiver. On February 12, 2002, respondent Adea
accepted her appointment.

48
In its Order dated May 21, 2002, the trial court referred the petition to respondent Adea for evaluation and recommendation. On September 28, 2002,
she submitted to the trial court her Report and Recommendation finding respondent Manuela’s Rehabilitation Plan viable and feasible and
recommending its approval.
Respondent Adea then held several consultative meetings with respondent Manuela’s creditors to discuss their respective concerns and suggestions
relative to its rehabilitation. For their part, the creditors filed their various comments/oppositions to respondent Manuela’s Petition for Rehabilitation and
Rehabilitation Plan.
On July 31, 2002, petitioner filed with the trial court its Comment and/or Formal Claim with Leave of Court against respondent Manuela amounting to
₱193,724,262.34 as of February 28, 2002, representing unpaid rentals, security deposits, interests, and penalty charges.
On September 30, 2002, respondent Adea issued a Notice informing all creditors, claimants, suppliers, lot and/or house buyers, counsels, oppositors,
and other parties that copies of her Report and Recommendation on respondent Manuela’s Petition for Rehabilitation are available and on file with the
trial court for distribution to all parties concerned.
On October 22, 2002, petitioner filed its comment on respondent Adea’s Report and Recommendation. Petitioner opposed her recommendation to
reduce respondent Manuela’s liability, considering its contractual nature which cannot be impaired during the process of rehabilitation.
On July 28, 2003, the trial court issued an Order approving the Rehabilitation Plan, the dispositive portion of which reads:
WHEREFORE, the Rehabilitation Plan submitted by the Rehabilitation Receiver, pp. 120 to 165 of the Report and Recommendation on Manuela
Corporation (Manuela)’s Petition for Rehabilitation revised June 9, 2003, is APPROVED. Petitioner is strictly enjoined to abide by its terms and
conditions and the Rehabilitation Receiver shall, unless directed otherwise, submit a quarterly report on the progress of the implementation of the
Rehabilitation Plan.3
Aggrieved, petitioner filed with the trial court its Notice of Appeal with Motion for Extension of Time to File Record on Appeal.4
However, the trial court issued an Order denying the Motion for Extension of Time to File Record on Appeal, thus:
Before the Court is a Notice of Appeal with Motion forExtension of Time filed by creditor Leca Realty Corporation praying for a period of thirty (30) days
from August 21, 2003 to September 20, 2003 to file its intended record on appeal.
However, under Rule 3, Section 1 of the Interim Rules of Procedure on Corporate Rehabilitation, a motion for extension is a prohibited pleading.
WHEREFORE, the subject motion is DENIED.
SO ORDERED.
Petitioner then elevated the case to the Court of Appeals through a Petition for Certiorari and Mandamus, docketed as CA-G.R. SP No. 80861 and
assigned to the 17th Division.
On September 30, 2004, the Court of Appeals rendered a Decision dismissing the petition for lack of merit.5
Petitioner then filed a motion for reconsideration but it was denied by the appellate court in its Resolution dated January 25, 2005.6
Hence, the instant petition for review on certiorari, docketed as G.R. No. 166800.
G.R. No. 168924
In the meantime, petitioner seasonably filed with the Court of Appeals a petition for review under Rule 43 of the 1997 Rules of Civil Procedure, as
amended, alleging that the RTC erred in approving respondent Manuela’s Rehabilitation Plan as it violates its (petitioner’s) constitutional right to non-
impairment of contract and the Interim Rules of Procedure on Corporate Rehabilitation.
On April 28, 2005, the Court of Appeals (Special 8th Division) promulgated its Decision denying the petition, holding that:
x x x The pendency of the rehabilitation proceedings cannot be interpreted to impair the contractual obligations previously entered into by the
contracting parties because the automatic stay of all actions is sanctioned by P.D. 902-A which provides that "all actions for claims against
corporations, partnerships or associations under management or receivership pending before any court, tribunal, board or body shall be suspended
accordingly [Rubberworld (Phils.), Inc. v. NLRC, 391 Phil. 318 (2000)].
On May 20, 2005, petitioner filed with the Court of Appeals a motion for reconsideration but it was denied in its Resolution dated July 15, 2005.
Hence, petitioner filed with this Court a Petition for Review on Certiorari, docketed as G.R. No. 168924.
In view of the identity of parties and the inter-relationship of the issues involved in G.R. No. 166800 and G.R. No. 168924, we resolved to consolidate
the two petitions.
The issue posed before us in G.R. No. 166800 for certiorari and mandamus is whether the trial court erred in ruling that a motion for extension of time
to file record on appeal is a prohibited pleading under Section 1 of the Interim Rules of Procedure on Corporate Rehabilitation which provides:
Section 1. Nature of Proceedings. – Any proceeding initiated under these Rules shall be considered in rem.Jurisdiction over all those affected by the
proceedings shall be considered as acquired upon publication of the notice of the commencement of the proceedings in any newspaper of general
circulation in the Philippines in the manner prescribed by these Rules.
The proceedings shall also be summary and non-adversarial in nature. The following pleadings are prohibited:
a. Motion to Dismiss;
b. Motion for Bill of Particulars;
c. Motion for New Trial or For Reconsideration;
d. Petition for Relief;
e. Motion for Extension;
f. Memorandum;
g. Motion for Postponement;
h. Reply or Rejoinder;
i. Third Party Complaint;
j. Intervention;
xxx xxx xxx
The prohibited pleadings enumerated above are those filed in the rehabilitation proceedings. Once the trial court decides the case and an aggrieved
party appeals, the procedure to be followed is that prescribed by the Rules of Court as mandated by Section 5, Rule 3, of the same Interim Rules, thus:
The review of any order or decision of the court or on appeal therefrom shall be in accordance with the Rules of Court.
In this connection, Section 11, Rule 11, of the Rules of Court (now the 1997 Rules of Civil Procedure, as amended), states:
Extension of time to plead. – Upon motion and on such terms as may be just, the court may extend the time to plead provided in these Rules.
The court may also, upon like terms, allow an answer or other pleading to be filed after the time fixed by these Rules.
Verily, the trial court erred in denying petitioner’s motion for extension of time to file record on appeal. At any rate, this petition has become moot
considering that the Court of Appeals gave due course to LECA’s petition for review (CA-G.R. SP No. 80861) which eventually reached this Court via a
petition for review on certiorari, docketed as G.R. No. 168924.
In G.R. No. 168924, petitioner ascribes to the Court of Appeals the following assignment of errors:
1. THE COURT OF APPEALS GRIEVOUSLY ERRED IN RULING THAT THE "PENDENCY OF THE REHABILITATION PROCEEDINGS
CANNOT BE INTERPRETED TO IMPAIR THE CONTRACTUAL OBLIGATIONS PREVIOUSLY ENTERED INTO BY THE CONTRACTING
PARTIES BECAUSE THE AUTOMATIC STAY OF ALL ACTIONS IS SANCTIONED BY P.D. 902-A WHICH PROVIDES THAT "ALL
ACTIONS FOR CLAIMS AGAINST CORPORATIONS, PARTNERSHIPS OR ASSOCIATIONS UNDER MANAGEMENT OR
RECEIVERSHIP PENDING BEFORE ANY COURT, TRIBUNAL, BOARD OR BODY SHALL BE SUSPENDED ACCORDINGLY," CITING
RUBBERWORLD (PHILS.), INC. V. NLRC, G.R. NO. 128003, JULY 26, 2000, 336 SCRA 433.
2. THE COURT OF APPEALS ERRED IN SUSTAINING THE LOWER COURT’S APPROVAL OF RESPONDENT MANUELA’S
REHABILITATION PLAN EVEN IF SUCH PLAN IS NOT VIABLE OR FEASIBLE BECAUSE RESPONDENT MANUELA CORPORATION
COULD NOT EVEN COMPLY WITH THE TERMS AND PROVISIONS OF THE COURT-APPROVED REHABILITATION PLAN.
3. THE COURT OF APPEALS ALSO ERRED IN NOT ADDRESSING THE ISSUE OF THE LOWER COURT’S FAILURE TO ACT, THAT
IS, APPROVE OR DISAPPROVE, THE REHABILITATION PLAN OF MANUELA CORPORATION WITHIN EIGHTEEN MONTHS AFTER
THE FILING OF THE PETITION FOR REHABILITATION.
Petitioner contends that the approved Rehabilitation Plan drastically altered the terms of its lease contract with respondent Manuela, hence, should be
declared void.

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The contract of lease between petitioner and respondent Manuela7 for twenty-five years, from August 1, 1995 to July 31, 2020, stipulates that the rates
of rental on the leased parcel of land are as follows:
Year Rent/Sq. M. Monthly Rent Yearly Rent

1 60.00 1,607,400.00 19,288,800.00

2 64.20 1,719,918.00 20,639,016.00

3 68.40 1,832,436.00 21,989,232.00

4 72.60 1.944,954.00 23,339,448.00

5 76.80 2,057,472.00 24,689,664.00

6 82.94 2,221,962.00 26,663,551.20

7 89.08 2,386,453.20 28,637,438.40

8 95.23 2,552,211.70 30,614,540.40

9 101.37 2,715,702.30 32,588,427.60

10 107.52 2,880,460.80 34,565,529.60

11 117.19 3,139,520.10 37,674,241.20

12 126.87 3,398,847.30 40,786,167.60

13 136.54 3,657,906.60 43,894,879.20

14 146.22 3,917,233.80 47,006,805.60

15 155.90 4,176,561.00 50,118,732.00

16 174.60 4,677,534.00 56,130,408.00

17 193.30 5,178,507.00 62,142,084.00

18 212.00 5,679,480.00 68,153,760.00

19 230.70 6,180,453.00 74,165,436.00

20 260.69 6,983,885.10 83,806,621.20

21 290.68 7,787,317.20 93,447,806.40

22 320.67 8,590,749.30 103,088,991.60

23 365.56 9,793,352.40 117,520,288.80

24 410.45 10,995,955.50 131,951,466.00

25 455.34 12,198,558.60 146,382,703.20

On the other hand, the Rehabilitation Plan prescribes the following rental rates:
Year Yearly Rent

1st year 2003-2004 RENT FREE

2nd year 2004-2005 ₱ 5,000,000.00

3rd year 2005-2006 5,000,000.00

4th year 2006-2007 5,000,000.00

5th year 2007-2008 19,288,800.00

6th year 2008-2009 20,639,016.00

7th year 2009-2010 21,639,016.00

8th year 2010-2011 23,339,445.00

9th year 2011-2012 24,689,664.00

10th year 2012-2013 26,663,544.00

Clearly, there is a gross discrepancy between the amounts of rent agreed upon by the parties and those provided in the Rehabilitation Plan.
In its Decision, the Court of Appeals rejected petitioner’s contention that the approved Rehabilitation Plan impairs the obligation of contract,
ratiocinating that the automatic stay of all actions is sanctioned by Section 5 (c) of Presidential Decree (P.D.) No. 902-A which provides that "all
actions for claims against corporations, partnerships or associations under management or receivership pending before any court, tribunal, board or
body shall be suspended accordingly."
Petitioner, in support of its contention, cites in its Memorandum the treatises of Ateneo Law Dean Cesar L. Villanueva and former SEC Commissioner
Danilo L. Concepcion, both known authorities on Corporation Law. In his Article which appeared in the Ateneo Law Journal, Dean Villanueva said:
The nature and extent of the power of the SEC to approve and enforce a rehabilitation plan is certainly an important issue. Often, a rehabilitation plan
would require a diminution, if not destruction, of contractual and property rights of some, if not most of the various stakeholders in the petitioning
corporation. In the absence of clear coercive legal provisions, the courts of justice and much less the SEC would have no power to amend or destroy
the property and contractual rights of private parties, much less relieve a petitioning corporation from its contractual commitments.8
On the other hand, Professor Concepcion stated that what is allowed in rehabilitation proceedings is only the suspension of payments, or the stay
of all actions for claims of distressed corporations, and upon its successful rehabilitation, the claims must be settled in full.9

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We agree with petitioner.
In The Insular Life Assurance Company, Ltd., v. Court of Appeals, et al., we held:
When the language of the contract is explicit leaving no doubt as to the intention of the drafters thereof, the courts may not read into it any other
intention that would contradict its plain import. The Court would be rewriting the contract of lease between Insular and Sun Brothers under the guise of
construction were we to interpret the ‘option to renew’ clause as Sun Brothers propounds it, despite the express provision in the original contract of
lease and the contracting parties’ subsequent acts. As the Court has held in Riviera Filipina, Inc. vs. Court of Appeals, ‘a court, even the Supreme
Court, has no right to make new contracts for the parties or ignore those already made by them, simply to avoid seeming hardships. Neither abstract
justice nor the rule of liberal construction justifies the creation of a contract for the parties which they did not make themselves or the imposition upon
one party to a contract of an obligation not assumed.’10
The amount of rental is an essential condition of any lease contract. Needless to state, the change of its rate in the Rehabilitation Plan is not justified as
it impairs the stipulation between the parties. We thus rule that the Rehabilitation Plan is void insofar as it amends the rental rates agreed upon by the
parties.
It must be emphasized that there is nothing in Section 5 (c) of P.D. No. 902-A authorizing the change or modification of contracts entered into by the
distressed corporation and its creditors.
Moreover, the Stay Order issued by the trial court directed respondent Manuela to pay in full, after the issuance of such Order, all administrative
expenses incurred. Administrative expenses are costs associated with the general administration of an organization and include such items as
utilities, rents, salaries, postages, furniture, and housekeeping charges.11
Inasmuch as rents are considered administrative expenses and considering that the Stay Order directed respondent Manuela to pay the rents in full,
then it must comply at the rates agreed upon.
Respondent Manuela, therefore, must update its payment of rental arrears and continue to pay current rentals at the rate stipulated in the lease
contract. The rentals shall incur interest at the legal rate of 6% per annum. Upon finality of this Decision, the legal rate shall be 12% per annum,
pursuant to the following rulings of this Court:
1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or forbearance of money, the interest due
should be that which may have been stipulated in writing. Furthermore, the interest due shall itself earn legal interest from the time it is judicially
demanded. In the absence of stipulation, the rate of interest shall be 12% per annum to be computed from default, i.e., from judicial or
extrajudicial demand under and subject to the provisions of Article 1169 of the Civil Code.
2. When an obligation, not constituting a loan or forbearance of money, is breached, an interest on the amount of damages awarded may be
imposed at the discretion of the court at the rate of 6% per annum. No interest, however, shall be adjudged on unliquidated claims or damages
except when or until the demand can be established with reasonable certainty. Accordingly, where the demand is established with reasonable
certainty, the interest shall begin to run from the time the claim is made judicially or extrajudicially (Art. 1169, Civil Code) but when such certainty
cannot be so reasonably established at the time the demand is made, the interest shall begin to run only from the date the judgment of the court
is made (at which time the quantification of damages may be deemed to have been reasonably ascertained). The actual base for the computation
of legal interest shall, in any case, be on the amount finally adjudged.
3. When the judgment of the court awarding a sum of money becomes final and executory, the rate of legal interest, whether the case falls under
paragraph 1 or paragraph 2, above, shall be 12% per annum from such finality until its satisfaction, this interim period being deemed to be by
then an equivalent to a forbearance of credit.12
WHEREFORE, we GRANT the Petition for Review in G.R. No. 168924. The assailed Decision of the Court of Appeals in CA-G.R. SP No. 87185
is AFFIRMED with MODIFICATION. The Rehabilitation Plan, insofar as it modifies the rental rates agreed upon by petitioner LECA and respondent
Manuela, is declared VOID.
Respondent Manuela is ordered to pay the rentals and all arrearages at the rates stipulated in the lease contract with interest at 6% per annum. Upon
the finality of this Decision, the interest shall be 12% per annum until fully paid.
The Petition for Review on Certiorari in G.R. No. 166800 is DENIED for being moot. It has been overtaken by events. No costs. SO ORDERED.

METROPOLITAN BANK and TRUST COMPANY, INC., petitioner, vs. SLGT HOLDINGS, INC., DANILO A. DYLANCO and ASB DEVELOPMENT
CORPORATION, respondents. G.R. Nos. 175181-82 September 14, 2007
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.
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. 92808and 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.

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 UCPB, for its part, denies its liability to SLGT [for lack of privity of contract] … [and] questioned the personality of SLGT to challenge the validity
of the mortgage reasoning that the latter is not party to the mortgage contract … [and] maintains that the mortgage transaction was done in good
faith…. Finally, it prays for the suspension of the proceedings because of the on-going rehabilitation of ASB.
In resolving the complaint in favor of Dylanco and SLGT, the Housing Arbiter ruled that the mortgage constituted over the lots is invalid for lack of
mortgage clearance from the HLURB. He also rebuffed the banks’ request to suspend the proceedings under Section 5 © of Presidential Decree
(PD) No. 902-A as the banks are parties under receivership. xxx
The HLURB Board of Commissioners, [per its separate Decision both dated April 21, 2005] affirmed the above rulings … with the modification
that ASB should cause the subdivision of the mother titles into condominium certificates of title of Dylanco and SLGT free from all liens and
encumbrances. [On June 28, 2005 the HLURB denied the separate motions of Metrobank and UCPB for reconsideration. (Words in brackets and
emphasis added).
For perspective, the decretal portion of the HLURB’s 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 UCPB’s 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 SLGT’s motion, but denying those of Metrobank and UCPB. The fallo of the
OP’s Order reads:
"WHEREFORE, the Motions for Reconsideration of [Metrobank] and [UCPB] are hereby DENIED. With respect to the partial motion for
reconsideration of SLGT …, the same is hereby GRANTED. Accordingly, the mortgage contract executed between ASB Development
Corporation and respondent banks (Metrobank and UCPB) is hereby declared null and void in its entirety. Respondents-appellants
are hereby ordered to release to ASBDC [TCT] Nos. 9834 and 9835, and for ASBDC to cause the subdivision of the mother titles into
condominium certificates of title, and thereafter deliver to complainants [SLGT and Dylanco] their respective condominium certificates of
title free of lien and encumbrances.
The records of the instant cases are hereby remanded to [HLURB] for its appropriate disposition.
SO ORDERED. (Emphasis and words in brackets added)
In time, petitioner banks went to the CA on a petition for review under Rule 43 of the Rules of Court whereat the appellate recourses were likewise
consolidated and docketed as CA-G.R. SP No. 92807, CA-G.R. SP No. 92808and 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 OP’s October 10, 2005 Decision as
modified in its December 22, 2005 Order, the affirmance being predicated, in gist, on the following main premises:
1. A mortgage constituted on a condominium project without the approval of the HLURB in violation of the prescription of Presidential
Decree (PD) 957, like the ASB-Metrobank-Trust Division mortgage contract, is void; a mortgage is indivisible and cannot be divided into a
valid and invalid parts.
2. The complaints of Dylanco and SLGT are not covered by the order issued by the SEC suspending all actions and proceedings against
ASB.
Petitioner banks’ separate motions for reconsideration were later denied in the CA’s equally assailed resolution15dated 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 HLURB’s prior written approval and notice to both individual
respondents. Section 18 of Presidential Decree No. (PD) 957 – The Subdivision and Condominium Buyers’ Protective Decree – provides:
SEC. 18. Mortgages. - No mortgage of any unit or lot shall be made by the owner or developer without prior written approval of
the [HLURB]. Such approval shall not be granted unless it is shown that the proceeds of the mortgage loan shall be used for the
development of the condominium or subdivision project …. The loan value of each lot or unit covered by the mortgage shall be determined
and the buyer thereof, if any, shall be notified before the release of the loan. The buyer may, at his option, pay his installment for the
lot or unit directly to the mortgagee who shall apply the payments to the corresponding mortgage indebtedness secured by the particular lot
or unit being paid for …. (Emphasis and word in bracket added)
There can thus be no quibbling that the project lot/s and the improvements introduced or be introduced thereon were mortgaged in clear violation of the
aforequoted provision of PD 957. And to be sure, Dylanco and SLGT, as Project unit buyers, were not notified of the mortgage before the release of
the loan proceeds by petitioner banks.
As it were, PD 957 aims to protect innocent subdivision lot and condominium unit buyers against fraudulent real estate practices. Its preambulatory
clauses say so and the Court need not belabor the matter presently. Section 18, supra, of the decree directly addresses the problem of fraud and other
manipulative practices perpetrated against buyers when the lot or unit they have contracted to acquire, and which they religiously paid for, is
mortgaged without their knowledge, let alone their consent. The avowed purpose of PD 957 compels, as the OP correctly stated, the reading of Section
18 as prohibitory and acts 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,

52
 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,25necessarily 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 developer’s obligation under PD 957. For, "[E]"ven if respondent is under receivership,
its obligations as a real estate developer under P.D. 957 are not suspended. Section 6 (C) of P.D. No. 902-A, as amended …, on ‘suspension of all
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 respondent’s obligation as subdivision developer [for which the HLURB, not
the SEC, is equipped with the expertise to deal with the matter]. Such claims are basically 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 Sobrejuanite’s claim involves
pecuniary consideration, or a claim for refund of the purchase price paid, with interest, to be precise. Unlike the spouses Sobrejuanite in Sobrejuanite,
SLGT’s and Dylanco’s complaints in the instant case did not seek monetary recovery or to touch the corporate coffers of ASB ahead of others. They
did not even consider themselves as money claimants. All they ask was for the enforcement of ASB’s statutory and contractual obligations as a
condominium developer. In the concrete, they pressed for the delivery of their units free from all liens and encumbrances and the declaration of nullity
of the mortgage in question arising from the breach of Section 18 of PD 957.
Significantly, in Sobrejuanite, the Court stated the observation, in reference to the Arranza case, that "the proceedings before the HLURB [may] be
suspended during the 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 debtor-creditor as to bring the case within the purview of the rules on corporate
recovery, let alone the Sobrejuanite case. Then, too, the vinculum that binds SLGT/Dylanco, as unit buyers and as suitors before the HLURB, and ASB
is far from being akin to that of debtor-creditor. As it were, SLGT/Dylanco sued ASB for having constituted, in breach of PD 957, a mortgage on the
condominium project without prior HLURB approval and so much as notifying them of the loan release for which reason they prayed for the delivery of
their units free from all liens and encumbrances. With the view we take of the case, the complaint of individual respondents is not in the nature of
"claims" that should be covered by the suspensive effect of a rehabilitation proceeding.
Looking beyond the strictly legal issues involved in this case, however, the pendency of the 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.

53
WHEREFORE, the instant petitions are DENIED and the assailed CA Decision and Resolution are AFFIRMED. Cost against the petitioners. SO
ORDERED.

CLARION PRINTING HOUSE, INC., and EULOGIO YUTINGCO, petitioners, vs. THE HONORABLE NATIONAL LABOR RELATIONS
COMMISSION (Third Division) and MICHELLE MICLAT, respondents. [G.R. No. 148372. June 27, 2005]
CARPIO-MORALES, J.:
Respondent Michelle Miclat (Miclat) was employed on April 21, 1997 on a probationary basis as marketing assistant with a monthly salary
of P6,500.00 by petitioner Clarion Printing House (CLARION) owned by its co-petitioner Eulogio Yutingco. At the time of her employment, she was not
informed of the standards that would qualify her as a regular employee.
On September 16, 1997, the EYCO Group of Companies of which CLARION formed part filed with the Securities and Exchange Commission
(SEC) a Petition for the Declaration of Suspension of Payment, Formation and Appointment of Rehabilitation Receiver/ Committee, Approval of
Rehabilitation Plan with Alternative Prayer for Liquidation and Dissolution of Corporation[1] the pertinent allegations of which read:
xxx
5. The situation was that since all these companies were sister companies and were operating under a unified and centralized management team, the
financial requirements of one company would normally be backed up or supported by one of the available fundings from the other companies.
6. The expansion exhausted the cash availability of Nikon, NKI, and 2000 because those fundings were absorbed by the requirements of NPI and
EYCO Properties, Inc. which were placed on real estate investments. However, at the time that those investments and expansions were made, there
was no cause for alarm because the market situation was very bright and very promising, hence, the decision of the management to implement the
expansion.
7. The situation resulted in the cash position being spread thin. However, despite the thin cash positioning, the management still was very positive and
saw a very viable proposition since the expansion and the additional investments would result in a bigger real estate base which would be very credible
collateral for further expansions. It was envisioned that in the end, there would be bigger cash procurement which would result in greater volume of
production, profitability and other good results based on the expectations and projections of the team itself.
8. Unfortunately, factors beyond the control and anticipation of the management came into play which caught the petitioners flat-footed, such as:
a) The glut in the real estate market which has resulted in the bubble economy for the real estate demand which right now has resulted in a
severe slow down in the sales of properties;
b) The economic interplay consisting of the inflation and the erratic changes in the peso-dollar exchange rate which precipitated a
soaring banking interest.
c) Labor problems that has precipitated adverse company effect on the media and in the financial circuit.
d) Liberalization of the industry (GATT) which has resulted in flooding the market with imported goods;
e) Other related adverse matters.
9. The inability of the EYCO Group of Companies to meet the obligations as they fall due on the schedule agreed with the bank has now become a
stark reality. The situation therefore is that since the obligations would not be met within the scheduled due date, complications and problems would
definitely arise that would impair and affect the operations of the entire conglomerate comprising the EYCO Group of Companies.
xxx
12. By virtue of this development, there is a need for suspension of all accounts o[r] obligations incurred by the petitioners in their separate and
combined capacities in the meantime that they are working for the rehabilitation of the companies that would eventually redound to the benefit of these
creditors.
13. The foregoing notwithstanding, however, the present combined financial condition of the petitioners clearly indicates that their assets are more than
enough to pay off the credits.
x x x (Emphasis and underscoring supplied)[2]
On September 19, 1997, the SEC issued an Order[3] the pertinent portions of which read:
xxx
It appearing that the petition is sufficient in form and
substance, the corporate petitioners prayer for the creation of management or receivership committee and creditors approval of the proposedRehabilita
tion Plan is hereby set for hearing on October 22, 1997 at 2:00 oclock in the afternoon at the SICD, SEC Bldg., EDSA, Greenhills, Mandaluyong City.
xxx
Finally, the petitioners are hereby enjoined from disposing any and all of their properties in any manner, whatsoever, except in the ordinary course of
business and from making any payment outside of the legitimate business expenses during the pendency of the proceedings and as a consequence of
the filing of the Petition, all actions, claims and proceedings against herein petitioners pending before any court, tribunal, office board and/or
commission are deemed SUSPENDED until further orders from this Hearing Panel pursuant to the rulings of the Supreme Court in the cases of RCBC
v. IAC et al., 213 SCRA 830 and BPI v. CA, 229 SCRA 223. (Underscoring supplied)
And on September 30, 1997, the SEC issued an Order[4] approving the creation of an interim receiver for the EYCO Group of Companies.
On October 10, 1997, the EYCO Group of Companies issued to its employees the following Memorandum:[5]
This is to formally announce the entry of the Interim Receiver Group represented by SGV from today until October 22, 1997 or until further formal
notice from the SEC.
This interim receiver groups function is to make sure that all assets of the company are secured and accounted for both for the protection of us and our
creditors.
Their function will involve familiarization with the different processes and controls in our organization & keeping physical track of our assets like
inventories and machineries.
Anything that would be required from you would need to be in writing and duly approved by the top management in order for us to maintain a clear line.
We trust that this temporary inconvenience will benefit all of us in the spirit of goodwill. Lets extend our full cooperation to them.
Thank you. (Underscoring supplied)
On October 22, 1997, the Assistant Personnel Manager of CLARION informed Miclat by telephone that her employment contract had been
terminated effective October 23, 1997. No reason was given for the termination.
The following day or on October 23, 1997, on reporting for work, Miclat was informed by the General Sales Manager that her termination was part
of CLARIONs cost-cutting measures.
On November 17, 1997, Miclat filed a complaint[6] for illegal dismissal against CLARION and Yutingco (petitioners) before the National Labor
Relations Commission (NLRC).
In the meantime, or on January 7, 1998, the EYCO Group of Companies issued a Memorandum [7] addressed to company managers advising
them of a temporary partial shutdown of some operations of the Company commencing on January 12, 1998 up to February 28, 1998:
In view of the numerous external factors such as slowdown in business and consumer demand and consistent with Art. 286 of the Revised Labor Code
of the Philippines, we are constrained to go on a temporary partial shutdown of some operations of the Company.
To implement this measure, please submit to my office through your local HRAD the list of those whom you will require to report for work and their
specific schedules. Upon revalidation and approval of this list, all those not in the list will not receive any pay nor will it be credited against their VL.
Please submit the listing no later than the morning of Friday, January 09, 1998.
Shutdown shall commence on January 12, 1998 up to February 28, 1998, unless otherwise recalled at an earlier date.
Implementation of th[ese] directives will be done through your HRAD departments. (Underscoring supplied)
In her Position Paper[8] dated March 3, 1998 filed before the labor arbiter, Miclat claimed that she was never informed of the standards which
would qualify her as a regular employee. She asserted, however, that she qualified as a regular employee since her immediate supervisor even submitted
a written recommendation in her favor before she was terminated without just or authorized cause.

54
 Respecting the alleged financial losses cited by petitioners as basis for her termination, Miclat disputed the same, she contending that as marketing
assistant tasked to receive sales calls, produce sales reports and conduct market surveys, a credible assessment on production and sales showed
otherwise.
In any event, Miclat claimed that assuming that her termination was necessary, the manner in which it was carried out was illegal, no written notice
thereof having been served on her, and she merely learned of it only a day before it became effective.
Additionally, Miclat claimed that she did not receive separation pay, 13th month pay and salaries for October 21, 22 and 23, 1997.
On the other hand, petitioners claimed that they could not be faulted for retrenching some of its employees including Miclat, they drawing attention
to the EYCO Group of Companies being placed under receivership, notice of which was sent to its supervisors and rank and file employees via a
Memorandum of July 21, 1997; that in the same memorandum, the EYCO Group of Companies advised them of a scheme for voluntary separation from
employment with payment of severance pay; and that CLARION was only adopting the LAST IN, FIRST OUT PRINCIPLE when it terminated Miclat who
was relatively new in the company.
Contending that Miclats termination was made with due process, petitioners referred to the EYCO Group of Companies abovesaid July 21, 1997
Memorandum which, so they claimed, substantially complied with the notice requirement, it having been issued more than one month before Miclat was
terminated on October 23, 1997.
By Decision[9] of November 23, 1998, the labor arbiter found that Miclat was illegally dismissed and directed her reinstatement. The dispositive
portion of the decision reads:
WHEREFORE, in view of the foregoing premises, judgment is hereby rendered ordering the respondent to reinstate complainant to her former or
equivalent position without loss of seniority rights and benefits and to pay her backwages, from the time of dismissal to actual reinstatement,
proportionate 13th month pay and two (2) days salary computed as follows:
a.1) Backwages 10/23/97 to 11/30/98
P6,500.00 x 13.25 months = P86,125.00
a.2) Proportionate 13th month pay
1/12 of P86,125 = 7,177.08
b) 13th month pay - 1997
=P6,500 x 9.75 months/12 = 5,281.25
c) Two days salary
=P6,500/26 x 2 days = 500.00
TOTAL P 99,083.33
(Emphasis and underscoring supplied).
Before the National Labor Relations Commission (NLRC) to which petitioners appealed, they argued that:[10]
1. [CLARION] was placed under receivership thereby evidencing the fact that it sustained business losses to warrant the termination of [Miclat]
from her employment.
2. The dismissal of [Miclat] from her employment having been effected in accordance with the law and in good faith, [Miclat] does not deserve to
be reinstated and paid backwages, 13th month pay and two (2) days salary.
And petitioners pointed out that CLARION had expressed its decision to shutdown its operations by Memorandum [11] of January 7, 1998 to its
company managers.
Appended to petitioners appeal before the NLRC were photocopies of their balance sheets from 1997 to November 1998 which they claimed to
unanimously show that x x x [petitioner] company experienced business reverses which were made the basis x x x in retrenching x x x.[12]
By Resolution[13] of June 17, 1999, the NLRC affirmed the labor arbiters decision. The pertinent portion of the NLRC Resolution reads:
There are three (3) valid requisites for valid retrenchment: (1) the retrenchment is necessary to prevent losses and such losses are proven; (2) written
notices to the employees and to the Department of Labor and Employment at least one (1) month prior to the intended date of retrenchment; and (3)
payment of separation pay equivalent to one (1) month pay or at least month pay for every year of service, whichever is higher. The two notices are
mandatory. If the notice to the workers is later than the notices sent to DOLE, the date of termination should be at least one month from the date of
notice to the workers.
In Lopez Sugar Corporation v. Federation of Free Workers Philippine Labor Union Association (PLUA-NACUSIP) and National Labor Relations
Commission, the Supreme Court had the occasion to set forth four standards which would justify retrenchment, being, firstly, - the losses expected
should be substantial and not merely de minimis in extent. If the loss purportedly sought to be forestalled by retrenchment is clearly shown to be
insubstantial and inconsequential in character, the bona fide nature of the retrenchment would appear to be seriously in question; secondly, - the
substantial loss apprehended must be reasonably imminent, as such imminence can be perceived objectively and in good faith by the employer. There
should, in other words, be a certain degree of urgency for the retrenchment, which is after all a drastic course with serious consequences for the
livelihood of the employees retired or otherwise laid-off; thirdly, - because of the consequential nature of retrenchment, it must be reasonably
necessary and likely to effectively prevent the expected losses. The employer should have taken other measures prior or parallel to retrenchment to
forestall losses, i.e., cut other cost than labor costs; and lastly, - the alleged losses if already realized and the expected imminent losses sought to be
forestalled, must be proven by sufficient and convincing evidence.
The records show that these requirements were not substantially complied with. And proofs presented by respondents-appellants were short of being
sufficient and convincing to justify valid retrenchment. Their position must therefore fail. The reason is simple. Evidences on record presented fall short
of the requirement of substantial, sufficient and convincing evidence to persuade this Commission to declare the validity of retrenchment espoused by
respondents-appellants. The petition before the Securit[ies] and Exchange Commission for suspension of payment does not prove anything to come
within the bounds of justifying retrenchment. In fact, the petition itself lends credence to the fact that retrenchment was not actually reinstated under the
circumstances prevailing when it stated, The foregoing notwithstanding, however, the present combined financial condition of the petitioners clearly
indicates that their assets are more than enough to pay off the credits. Verily, reading further into the petition, We are not ready to disregard the fact
that the petition merely seeks to suspend payments of their obligation from creditor banks and other financing institutions, and not because of imminent
substantial financial loss. On this account, We take note of paragraph 7 of the petition which stated: The situation resulted in cash position being
spread thin. However, despite the thin cash positioning, the management was very positive and saw a very viable proposition since the expansion and
the additional investments would result in a bigger real estate base which would be a very credible collateral for further expansions. It was envisioned
that in the end, there would a bigger cash procurement which would result in greater volume of production, profitability and other good results based on
the expectations and projections of the team itself.Admittedly, this does not create a picture of retrenchable business atmosphere pursuant to Article
283 of the Labor Code.
We cannot disregard the fact that respondent-appellants failed in almost all of the criteria set by law and jurisprudence in justifying valid retrenchment.
The two (2) mandatory notices were violated. The supposed notice to the DOLE (Annex 4, List of Employees on Shutdown) is of no moment, the same
having no bearing in this case. Herein complainant-appellee was not even listed therein and the date of receipt by DOLE, that is, January 18, 1999,
was way out of time in relation to this case. And no proof was adduced to evidence cost cutting measures, to say the least. Nor was there proof shown
that separation pay had been awarded to complainant-appellee.
WHEREFORE, premises considered, and finding no grave abuse of discretion on the findings of Labor Arbiter Nieves V. De Castro, the appeal is
DENIED for lack of merit.
The decision appealed from is AFFIRMED in toto. (Italics in the original; underscoring supplied; citations omitted)
Petitioners Motion for Reconsideration of the NLRC resolution having been denied by Resolution[14] of July 29, 1999, petitioners filed a petition
for certiorari[15] before the Court of Appeals (CA) raising the following arguments:
1. PETITIONER CLARION WAS PLACED UNDER RECEIVERSHIP THEREBY EVIDENCING THE FACT THAT IT SUSTAINED BUSINESS
LOSSES TO WARRANT THE TERMINATION OF PRIVATE RESPONDENT MICLAT FROM HER EMPLOYMENT.
2. THE DISMISSAL OF PRIVATE RESPONDENT MICLAT FROM HER EMPLOYMENT HAVING BEEN EFFECTED IN ACCORDANCE WITH
THE LAW AND IN GOOD FAITH, PRIVATE RESPONDENT DOES NOT DESERVE TO BE REINSTATED AND PAID BACKWAGES,
13TH MONTH PAY AND TWO (2) DAYS SALARY. (Underscoring supplied)
By Decision[16] of November 24, 2000, the CA sustained the resolutions of the NLRC in this wise:

55
In the instant case, Clarion failed to prove its ground for retrenchment as well as compliance with the mandated procedure of furnishing the employee
and the Department of Labor and Employment (hereafter, DOLE) with one (1) month written notice and payment of separation pay to the
employee. Clarions failure to discharge its burden of proof is evident from the following instances:
First, Clarion presented no evidence whatsoever before the Labor Arbiter. To prove serious business losses, Clarion presented its 1997 and 1998
financial statements and the SEC Order for the Creation of an Interim Receiver, for the first time on appeal before the NLRC. The Supreme Court
has consistently disallowed such practice unless the party making the belated submission of evidence had satisfactorily explained the delay. In the
instant case, said financial statements are not admissible in evidence due to Clarions failure to explain the delay.
Second, even if such financial statements were admitted in evidence, they would not alter the outcome of the case as statements have weak probative
value. The required method of proof in such case is the presentation of financial statements prepared by independent auditors and not merely by
company accountants. Again, petitioner failed in this regard.
Third, even audited financial statements are not enough. The employer must present the statement for the year immediately preceding the year the
employee was retrenched, which Clarion failed to do in the instant case, to prove not only the fact of business losses but more importantly, the fact that
such losses were substantial, continuing and without immediate prospect of abatement. Hence, neither the NLRC nor the courts must blindly accept
such audited financial statements. They must examine and make inferences from the data presented to establish business losses. Furthermore, they
must be cautioned by the fact that sliding incomes or decreasing gross revenues alone are not necessarily business losses within the meaning of Art.
283 since in the nature of things, the possibility of incurring losses is constantly present in business operations.
Last, even if business losses were indeed sufficiently proven, the employer must still prove that retrenchment was resorted to only after less drastic
measures such as the reduction of both management and rank-and-file bonuses and salaries, going on reduced time, improving manufacturing
efficiency, reduction of marketing and advertising costs, faster collection of customer accounts, reduction of raw materials investment and others, have
been tried and found wanting. Again, petitioner failed to prove the exhaustion of less drastic measures short of retrenchment as it had failed with the
other requisites.
It is interesting to note that Miclat started as a probationary employee on 21 April 1997. There being no stipulation to the contrary, her probation period
had a duration of six (6) months from her date of employment. Thus, after the end of the probation period on 22 October 1997, she became a regular
employee as of 23 October 1997 since she was allowed to work after the end of said period. It is also clear that her probationary employment was not
terminated at the end of the probation period on the ground that the employee failed to qualify in accordance with reasonable standards made known
to her at the time of engagement.
However, 23 October 1997 was also the day of Miclats termination from employment on the ground of retrenchment. Thus, we have a bizarre situation
when the first day of an employees regular employment was also the day of her termination. However, this is entirely possible, as had in fact happened
in the instant case, where the employers basis for termination is Art. 288, instead of Art. 281 of the Labor Code. If petitioner terminated Miclat with Art.
281 in mind, it would have been too late to present such theory at this stage and it would have been equally devastating for petitioner had it done so
because no evidence exists to show that Miclat failed to qualify with petitioners standards for regularization. Failure to discharge its burden of proof
would still be petitioners undoing.
Whichever way We examine the case, the conclusion is the same Miclat was illegally dismissed. Consequently, reinstatement without loss of seniority
rights and full backwages from date of dismissal on 23 October 1997 until actual reinstatement is in order.
WHEREFORE, the instant petition is hereby DISMISSED and the 29 July 1999 and 7 June 1999 resolutions of the NLRC are SUSTAINED. (Emphasis
and underscoring supplied)
By Resolution[17] of May 23, 2001, the CA denied petitioners motion for reconsideration of the decision.
Hence, the present petition for review on certiorari, petitioners contending that:
WITH ALL DUE RESPECT, THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN SUSTAINING THE ASSAILED DECISIONS OF
HONORABLE PUBLIC RESPONDENT COMMISSION:
A. HOLDING THAT PRIVATE RESPONDENT MICLAT WAS ILLEGALLY DISMISSED; and
B. ORDERING THE REINSTATEMENT OF PRIVATE RESPONDENT MICLAT TO HER FORMER OR EQUIVALENT POSITION WITHOUT
LOSS OF SENIORITY RIGHTS AND BENEFITS AND PAYMENT OF BACKWAGES, 1[3] TH MONTH PAY AND TWO (2) DAYS
SALARY.[18]
Petitioners argue that the conclusion of the CA that no sufficient proof of financial losses on the part of CLARION was adduced is patently
erroneous, given the serious business reverses it had gravely suffered as reflected in its financial statements/balance sheets, thereby leaving as its only
option the retrenchment of its employees including Miclat.[19]
Petitioners further argue that when a company is under receivership and a receiver is appointed to take control of its management and corporate
affairs, one of the evident reasons is to prevent further losses of said company and protect its remaining assets from being dissipated; and that the
submission of financial reports/statements prepared by independent auditors had been rendered moot and academic, the company having shutdown its
operations and having been placed under receivership by the SEC due to its inability to pay or comply with its obligations. [20]
Respecting the CAs holding that the financial statements CLARION submitted for the first time on appeal before the NLRC are inadmissible in
evidence due to its failure to explain the delay in the submission thereof, petitioners lament the CAs failure to consider that technical rules on evidence
prevailing in the courts are not controlling in proceedings before the NLRC which may consider evidence such as documents and affidavits submitted by
the parties for the first time on appeal.[21]
As to the CAs holding that CLARION failed to prove the exhaustion of less drastic measures short of retrenching, petitioners advance that prior to
the termination of Miclat, CLARION, together with the other companies under the EYCO Group of Companies, was placed under receivership during
which drastic measures to continue business operations of the company and eventually rehabilitate itself were implemented.[22]
Denying Miclats entitlement to backwages, petitioners proffer that her dismissal rested upon a valid and authorized cause. And petitioners assail
as grossly erroneous the award of 13thmonth pay to Miclat, she not having sought it and, therefore, there was no jurisdiction to award the same.[23]
The petition is partly meritorious.
Contrary to the CAs ruling, petitioners could present evidence for the first time on appeal to the NLRC. It is well-settled that the NLRC is not
precluded from receiving evidence, even for the first time on appeal, because technical rules of procedure are not binding in labor cases.
The settled rule is that the NLRC is not precluded from receiving evidence on appeal as technical rules of evidence are not binding in labor cases. In
fact, labor officials are mandated by the Labor Code to use every and all reasonable means to ascertain the facts in each case speedily and
objectively, without regard to technicalities of law or procedure, all in the interest of due process. Thus, in Lawin Security Services v. NLRC, and Bristol
Laboratories Employees Association-DFA v. NLRC, we held that even if the evidence was not submitted to the labor arbiter, the fact that it was duly
introduced on appeal to the NLRC is enough basis for the latter to be more judicious in admitting the same, instead of falling back on the mere
technicality that said evidence can no longer be considered on appeal. Certainly, the first course of action would be more consistent with equity and the
basic notions of fairness. (Italics in the original; citations omitted)[24]
It is likewise well-settled that for retrenchment to be justified, any claim of actual or potential business losses must satisfy the following standards:
(1) the losses are substantial and not de minimis; (2) the losses are actual or reasonably imminent; (3) the retrenchment is reasonably necessary and is
likely to be effective in preventing expected losses; and (4) the alleged losses, if already incurred, or the expected imminent losses sought to be
forestalled, are proven by sufficient and convincing evidence.[25] And it is the employer who has the onus of proving the presence of these standards.
Sections 5 and 6 of Presidential Decree No. 902-A (P.D. 902-A) (REORGANIZATION OF THE SECURITIES AND EXCHANGE COMMISSION
WITH ADDITIONAL POWERS AND PLACING SAID AGENCY UNDER THE ADMINISTRATIVE SUPERVISION OF THE OFFICE OF THE
PRESIDENT),[26] as amended, read:
SEC. 5 In addition to the regulatory and adjudicative functions of THE SECURITIES AND EXCHANGE COMMISSION over corporations, partnerships
and other forms of associations registered with it as expressly granted under existing laws and decrees, it shall have original and exclusive jurisdiction
to hear and decide cases involving:
xxx
(d) Petitions of corporations, partnerships or associations declared in the state of suspension of payments in cases where the corporation,
partnership or association possesses sufficient property to cover all debts but foresees the impossibility of meeting them when they
respectively fall due or in cases where the corporation, partnership, association has no sufficient assets to cover its liabilities, but is under
the management of a Rehabilitation Receiver or Management Committee created pursuant to this Decree.
SEC. 6. In order to effectively exercise such jurisdiction, the Commission shall possess the following powers:
xxx

56
(c) To appoint one or more receivers of the property, real and personal, which is the subject of the action pending before the Commission in
accordance with the provisions of the Rules of Court in such other cases whenever necessary in order to preserve the rights of the parties-litigants
and/or protect the interest of the investing public and creditors: Provided, however, That the Commission may in appropriate cases, appoint
a rehabilitation receiver of corporations, partnerships or other associations not supervised or regulated by other government agencies who
shall have, in addition to powers of the regular receiver under the provisions of the Rules of Court, such functions and powers as are
provided for in the succeeding paragraph (d) hereof: x x x
(d) To create and appoint a management committee, board or body upon petition or motu propio to undertake the management of corporations,
partnership 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 paralization of business operations of such corporations or
entities which may be prejudicial to the interest of minority stockholders, parties-litigants of the general public: x x x (Emphasis and
underscoring supplied).
From the above-quoted provisions of P.D. No. 902-A, as amended, the appointment of a receiver or management committee by the SEC
presupposes a finding that, inter alia, a company possesses sufficient property to cover all its debts but foresees the impossibility of meeting them when
they respectively fall due and there is imminent danger of dissipation, loss, wastage or destruction of assets of other properties or paralization of business
operations.
That the SEC, mandated by law to have regulatory functions over corporations, partnerships or associations, [27] appointed an interim receiver for
the EYCO Group of Companies on its petition in light of, as quoted above, the therein enumerated factors beyond the control and anticipation of the
management rendering it unable to meet its obligation as they fall due, and thus resulting to complications and problems . . . to arise that would impair
and affect [its] operations . . . shows that CLARION, together with the other member-companies of the EYCO Group of Companies, was suffering
business reverses justifying, among other things, the retrenchment of its employees.
This Court in fact takes judicial notice of the Decision[28] of the Court of Appeals dated June 11, 2000 in CA-G.R. SP No. 55208, Nikon Industrial
Corp., Nikolite Industrial Corp., et al.[including CLARION], otherwise known as the EYCO Group of Companies v. Philippine National Bank, Solidbank
Corporation, et al., collectively known and referred as the Consortium of Creditor Banks, which was elevated to this Court via Petition for Certiorari and
docketed as G.R. No. 145977, but which petition this Court dismissed by Resolution dated May 3, 2005:
Considering the joint manifestation and motion to dismiss of petitioners and respondents dated February 24, 2003, stating that the parties have
reached a final and comprehensive settlement of all the claims and counterclaims subject matter of the case and accordingly, agreed to the dismissal
of the petition for certiorari, the Court Resolved to DISMISS the petition for certiorari (Underscoring supplied).
The parties in G.R. No. 145977 having sought, and this Court having granted, the dismissal of the appeal of the therein petitioners including
CLARION, the CA decision which affirmed in toto the September 14, 1999 Order of the SEC, the dispositive portion of which SEC Order reads:
WHEREFORE, premises considered, the appeal is as it is hereby, granted and the Order dated 18 December 1998 is set aside. The Petition to be
Declared in State of Suspension of payments is hereby disapproved and the SAC Plan terminated. Consequently, all committee, conservator/
receivers created pursuant to said Order are dissolved and discharged and all acts and orders issued therein are vacated.
The Commission, likewise, orders the liquidation and dissolution of the appellee corporations. The case is hereby remanded to the hearing
panel below for that purpose.
x x x (Emphasis and underscoring supplied),
has now become final and executory. Ergo, the SECs disapproval of the EYCO Group of Companies Petition for the Declaration of Suspension
of Payment . . . and the order for the liquidation and dissolution of these companies including CLARION, must be deemed to have been unassailed.
That judicial notice can be taken of the above-said case of Nikon Industrial Corp. et al. v. PNB et al., there should be no doubt.
As provided in Section 1, Rule 129 of the Rules of Court:
SECTION 1. Judicial notice, when mandatory. A court shall take judicial notice, without the introduction of evidence, of the existence and territorial
extent of states, their political history, forms of government and symbols of nationality, the law of nations, the admiralty and maritime courts of the world
and their seals, the political constitution and history of the Philippines, the official acts of thelegislative, executive and judicial departments of the
Philippines, the laws of nature, the measure of time, and the geographical divisions. (Emphasis and underscoring supplied)
which Mr. Justice Edgardo L. Paras interpreted as follows:
A court will take judicial notice of its own acts and records in the same case, of facts established in prior proceedings in the same case, of the
authenticity of its own records of another case between the same parties, of the files of related cases in the same court, and of public records on
file in the same court. In addition judicial notice will be taken of the record, pleadings or judgment of a case in another court between the same parties
or involving one of the same parties, as well as of the record of another case between different parties in the same court. Judicial notice will also be
taken of court personnel. (Emphasis and underscoring supplied)[29]
In fine, CLARIONs claim that at the time it terminated Miclat it was experiencing business reverses gains more light from the SECs disapproval of
the EYCO Group of Companies petition to be declared in state of suspension of payment, filed before Miclats termination, and of the SECs
consequent order for the group of companies dissolution and liquidation.
This Courts finding that Miclats termination was justified notwithstanding, since at the time she was hired on probationary basis she was not
informed of the standards that would qualify her as a regular employee, under Section 6, Rule I of the Implementing Rules of Book VI of the Labor Code
which reads:
SEC. 6. Probationary employment. There is probationary employment where the employee, upon his engagement, is made to undergo a trial period
during which the employer determines his fitness to qualify for regular employment, based on reasonable standards made known to him at the time of
engagement.
Probationary employment shall be governed by the following rules:
xxx
(d) In all cases of probationary employment, the employer shall make known to the employee the standards under which he will qualify as a
regular employee at the time of his engagement. Where no standards are made known to the employee at that time, he shall be deemed a regular
employee (Emphasis and underscoring supplied),
she was deemed to have been hired from day one as a regular employee.[30]
CLARION, however, failed to comply with the notice requirement provided for in Article 283 of the Labor Code, to wit:
ART. 283. CLOSURE OF ESTABLISHMENT AND REDUCTION OF PERSONNEL. The employer may also terminate the employment of any
employee due to the installation of labor saving devices, redundancy, retrenchment to prevent losses or the closing or cessation of operation of the
establishment or undertaking unless the closing is for the purpose of circumventing the provisions of this Title, by serving a written notice on the
worker and the Ministry of Labor and Employment at least one (1) month before the intended date thereof. x x x (Emphasis and underscoring
supplied)
This Court thus deems it proper to award the amount equivalent to Miclats one (1) month salary of P6,500.00 as nominal damages to deter
employers from future violations of the statutory due process rights of employees.[31]
Since Article 283 of the Labor Code also provides that [i]n case of retrenchment to prevent losses, . . . the separation pay shall be equivalent to
one (1) month pay or at least one-half (1/2) month pay for every year of service, whichever is higher. . . , [a] fraction of at least six (6) months [being]
considered one (1) whole year, this Court holds that Miclat is entitled to separation pay equivalent to one (1) month salary.
As to Miclats entitlement to 13th month pay, paragraph 6 of the Revised Guidelines on the 13th Month Pay Law provides:
6. 13th Month Pay of Resigned or Separated Employee
An employee x x x whose services were terminated any time before the time for payment of the 13th month pay is entitled to this monetary benefit in
proportion to the length of time he worked during the calendar year up to the time of his resignation or termination from the service. Thus if he worked
only from January up to September his proportionate 13th month pay shall be equivalent to 1/12 of his total basic salary he earned during that period.
xxx
Having worked at CLARION for six months, Miclats 13th month pay should be computed as follows:
(Monthly Salary x 6 ) / 12 = Proportionate 13th month pay
(P6,500.00 x 6) / 12 = P3,250.00

57
 With the appointment of a management receiver in September 1997, however, all claims and proceedings against CLARION, including labor
claims,[32] were deemed suspended during the existence of the receivership.[33] The labor arbiter, the NLRC, as well as the CA should not have proceeded
to resolve respondents complaint for illegal dismissal and should instead have directed respondent to lodge her claim before the then duly-appointed
receiver of CLARION. To still require respondent, however, at this time to refile her labor claim against CLARION under the peculiar circumstances of
the case that 8 years have lapsed since her termination and that all the arguments and defenses of both parties were already ventilated before the labor
arbiter, NLRC and the CA; and that CLARION is already in the course of liquidation this Court deems it most expedient and advantageous for both parties
that CLARIONs liability be determined with finality, instead of still requiring respondent to lodge her claim at this time before the liquidators of CLARION
which would just entail a mere reiteration of what has been already argued and pleaded. Furthermore, it would be in the best interest of the other creditors
of CLARION that claims against the company be finally settled and determined so as to further expedite the liquidation proceedings. For the lesser
number of claims to be proved, the sooner the claims of all creditors of CLARION are processed and settled.
WHEREFORE, the Court of Appeals November 24, 2000 Decision, together with its May 23, 2001 Resolution, is SET ASIDE and another rendered
declaring the legality of the dismissal of respondent, Michelle Miclat. Petitioners are ORDERED, however, to PAY her the following in accordance with
the foregoing discussions:
1) P6,500.00 as nominal damages for non-compliance with statutory due process;
2) P6,500.00 as separation pay; and
3) P3,250.00 as 13th month pay.
Let a copy of this Decision be furnished the SEC Hearing Panel charged with the liquidation and dissolution of petitioner corporation for inclusion,
in the list of claims of its creditors, respondent Michelle Miclats claims, to be satisfied in accordance with Article 110 of the Labor Code in relation to the
Civil Code provisions on Concurrence and Preference of Credits. Costs against petitioners. SO ORDERED.

[G.R. No. 160466. January 17, 2005]

SPOUSES ALFREDO and SUSANA ONG, petitioners, vs. PHILIPPINE COMMERCIAL INTERNATIONAL BANK, respondent.
PUNO, J.:
This is a petition for review on certiorari under Rule 45 of the Rules of Court to set aside the Decision of the Court of Appeals in CA-G.R. SP No.
39255, dated February 17, 2003, affirming the decision of the trial court denying petitioners motion to dismiss.
The facts: Baliwag Mahogany Corporation (BMC) is a domestic corporation engaged in the manufacture and export of finished wood products.
Petitioners-spouses Alfredo and Susana Ong are its President and Treasurer, respectively.
On April 20, 1992, respondent Philippine Commercial International Bank (now Equitable-Philippine Commercial International Bank or E-PCIB)
filed a case for collection of a sum of money[1] against petitioners-spouses. Respondent bank sought to hold petitioners-spouses liable as sureties on the
three (3) promissory notes they issued to secure some of BMCs loans, totalling five million pesos (P5,000,000.00).
The complaint alleged that in 1991, BMC needed additional capital for its business and applied for various loans, amounting to a total of five million
pesos, with the respondent bank. Petitioners-spouses acted as sureties for these loans and issued three (3) promissory notes for the purpose. Under the
terms of the notes, it was stipulated that respondent bank may consider debtor BMC in default and demand payment of the remaining balance of the
loan upon the levy, attachment or garnishment of any of its properties, or upon BMCs insolvency, or if it is declared to be in a state of suspension of
payments. Respondent bank granted BMCs loan applications.
On November 22, 1991, BMC filed a petition for rehabilitation and suspension of payments with the Securities and Exchange Commission (SEC)
after its properties were attached by creditors. Respondent bank considered debtor BMC in default of its obligations and sought to collect payment thereof
from petitioners-spouses as sureties. In due time, petitioners-spouses filed their Answer.
On October 13, 1992, a Memorandum of Agreement (MOA)[2] was executed by debtor BMC, the petitioners-spouses as President and Treasurer
of BMC, and the consortium of creditor banks of BMC (of which respondent bank is included). The MOA took effect upon its approval by the SEC on
November 27, 1992.[3]
Thereafter, petitioners-spouses moved to dismiss[4] the complaint. They argued that as the SEC declared the principal debtor BMC in a state
of suspension of payments and, under the MOA, the creditor banks, including respondent bank, agreed to temporarily suspend any pending civil action
against the debtor BMC, the benefits of the MOA should be extended to petitioners-spouses who acted as BMCs sureties in their contracts of loan with
respondent bank. Petitioners-spouses averred that respondent bank is barred from pursuing its collection case filed against them.
The trial court denied the motion to dismiss. Petitioners-spouses appealed to the Court of Appeals which affirmed the trial courts ruling that a
creditor can proceed against petitioners-spouses as surety independently of its right to proceed against the principal debtor BMC.
Hence this appeal.
Petitioners-spouses claim that the collection case filed against them by respondent bank should be dismissed for three (3) reasons: First, the
MOA provided that during its effectivity, there shall be a suspension of filing or pursuing of collection cases against the BMC and this provision should
benefit petitioners as sureties. Second, principal debtor BMC has been placed under suspension of payment of debts by the SEC; petitioners contend
that it would prejudice them if the principal debtor BMC would enjoy the suspension of payment of its debts while petitioners, who acted only as sureties
for some of BMCs debts, would be compelled to make the payment; petitioners add that compelling them to pay is contrary to Article 2063 of the Civil
Code which provides that a compromise between the creditor and principal debtor benefits the guarantor and should not prejudice the latter. Lastly,
petitioners rely on Article 2081 of the Civil Code which provides that: the guarantor may set up against the creditor all the defenses which pertain to the
principal debtor and are inherent in the debt; but not those which are purely personal to the debtor. Petitioners aver that if the principal debtor BMC can
set up the defense of suspension of payment of debts and filing of collection suits against respondent bank, petitioners as sureties should likewise be
allowed to avail of these defenses.
We find no merit in petitioners contentions.
Reliance of petitioners-spouses on Articles 2063 and 2081 of the Civil Code is misplaced as these provisions refer to contracts of
guaranty. They do not apply to suretyship contracts. Petitioners-spouses are not guarantors but sureties of BMCs debts. There is a sea of difference
in the rights and liabilities of a guarantor and a surety. A guarantor insures the solvency of the debtor while a surety is an insurer of the debt itself.
A contract of guaranty gives rise to a subsidiary obligation on the part of the guarantor. It is only after the creditor has proceeded against the
properties of the principal debtor and the debt remains unsatisfied that a guarantor can be held liable to answer for any unpaid amount. This is the
principle of excussion. In a suretyship contract, however, the benefit of excussion is not available to the surety as he is principally liable for the
payment of the debt. As the surety insures the debt itself, he obligates himself to pay the debt if the principal debtor will not pay, regardless of whether
or not the latter is financially capable to fulfill his obligation. Thus, a creditor can go directly against the surety although the principal debtor is solvent and
is able to pay or no prior demand is made on the principal debtor. A surety is directly, equally and absolutely bound with the principal debtor for
the payment of the debt and is deemed as an original promissor and debtor from the beginning.[5]
Under the suretyship contract entered into by petitioners-spouses with respondent bank, the former obligated themselves to be solidarily bound
with the principal debtor BMC for the payment of its debts to respondent bank amounting to five million pesos (P5,000,000.00). Under Article 1216 of
the Civil Code,[6] respondent bank as creditor may proceed against petitioners-spouses as sureties despite the execution of the MOA which provided
for the suspension of payment and filing of collection suits against BMC. Respondent banks right to collect payment from the surety exists independently
of its right to proceed directly against the principal debtor. In fact, the creditor bank may go against the surety alone without prior demand for payment
on the principal debtor.[7]
The provisions of the MOA regarding the suspension of payments by BMC and the non-filing of collection suits by the creditor banks
pertain only to the property of the principal debtor BMC. Firstly, in the rehabilitation receivership filed by BMC, only the properties of BMC were
mentioned in the petition with the SEC.[8] Secondly, there is nothing in the MOA that involves the liabilities of the sureties whose properties are separate
and distinct from that of the debtor BMC. Lastly, it bears to stress that the MOA executed by BMC and signed by the creditor-banks was approved by the
SEC whose jurisdiction is limited only to corporations and corporate assets. It has no jurisdiction over the properties of BMCs officers or sureties.
Clearly, the collection suit filed by respondent bank against petitioners-spouses as sureties can prosper. The trial courts denial of petitioners
motion to dismiss was proper.
IN VIEW WHEREOF, the petition is DISMISSED for lack of merit. No pronouncement as to costs. SO ORDERED.

58