94

JOSE MARCEL PANLILIO, ET AL. VS. REGIONAL TRIAL COURT, PEOPLE OF THE
PHILIPPINES AND SOCIAL SECURITY SYSTEM, G.R. NO. 173846, FEBRUARY 2, 2011
FACTS:
The petitioners are corporate officers of Silahis International Hotel,Inc. (SIHI) who have filed
a petition for Suspension of Payments and Rehabilitation before a commercial court.
However, at the time of the filing of the petition for rehabilitation by the Silahis Hotel, there
were a number of criminal charges pending against the corporate officers for violation of the
SSS law. Subsequently, the officers filed with the criminal court a motion to suspend
proceedings arguing that the stay order issued by the commercial court should also apply to
the criminal cases then pending. The criminal court ruled against the petitioners on the
ground that the Stay Order issued by the commercial court does not cover the prosecution
of criminal offenses. On appeal, the Court of Appeals confirmed the criminal courts ruling.
Hence, the petitioners filed a petition for review on certiorari before the Supreme Court.
ISSUE:
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?
HELD:
No. The petition is not meritorious.
RATIO:
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. 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
A principal feature of corporate rehabilitation is the suspension of claims against the
distressed corporation.
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. As correctly observed
in Rosario, 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. 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.
Congress has recently enacted Republic Act No. 10142, or the Financial Rehabilitation
and Insolvency Act of 2010. 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.
Furthermore, the Court pointed out that Congress has recently enacted Republic Act No.
10142, or the Financial Rehabilitation and Insolvency Act of 2010 where 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.
 95

SAMUEL U. LEE, ET. AL. VS. BANGKOK BANK PUBLIC COMPANY, LIMITED
G.R. NO. 173349, FEB. 9, 2011
FACTS:
The petitioner and some members of his family owned, controlled and managed Midas
Diversified Export Corporation (MDEC) and Manila Home Textile, Inc. (MHI). The corporations
are engaged in the manufacturing and export of garments, ladies bags and apparel. The
said corporations secured two credit line agreements with the respondent bank and they
also secured several loans with AsiaTrust. The Lee family made guarantees that they shall
be principally liable to the indebtedness of MDEC and MHI with the respondent. The Bangkok
Bank, however, did not set aside any of the Lees properties as collateral to the loans they
granted the said corporations. The Lee family had, however, mortgaged several properties
that Samuel and his wife owned in Antipolo, Rizal with AsiaTrust to secure their loans with
AsiaTrust. In connection therewith, Samuel and his wife executed a new deed of mortgage
covering the properties in Antipolo. Thereafter, the said corporations defaulted on their
loans not only with the said banks but as well as with their other creditors. This prompted
the corporations to file a consolidated petition for the Declaration of a State of Suspension of
Payments and for Appointment of a Management Committee/Rehabilitation Receiver before
the Securities and Exchange Commission (SEC). The petition for suspension of payment
further stated that the Lee family and their corporations had more than sufficient properties
to cover all liabilities to their creditors; and presented a list of all their properties including
the subject properties located in Antipolo, Rizal. Notably, the list of properties attached to
the petition indicated that the subject Antipolo properties of the spouses Lee had already
been earmarked, or that they had already served as security, for MDECs unpaid obligation
with Asiatrust. Subsequently, SEC issued a Suspension Order which enjoined the Lee
corporations from disposing of their property in any manner except in the ordinary course of
business, and from making any payments outside the legitimate expenses of their business
during the pendency of the petition. A month after the Suspension Order, the respondent
bank filed a civil case against the petitioners corporations to recover the loans it granted
under the guarantees the Lee family had made. The lower court partially ruled in favour of
the respondent Bank but the banks execution over several of Lees properties was not
sufficient to cover their loans. The said court likewise granted the respondent bank a writ of
preliminary attachment against the Lees properties in Baguio, Cavite, Quezon City and
those including in Antipolo which were mortgaged to AsiaTrust. Meanwhile, AsiaTrust
foreclosed the mortgage of the Lee familys properties in Antipolo for failure to pay the loans
granted to the family. AsiaTrust subsequently won as the highest bidder in the auction sale
to own the said properties in Antipolo. The respondent bank did not redeem the said
properties believing that the real estate mortgage and the foreclosure sale to be fraudulent.
Based on this belief, the respondent bank filed an action to rescind the Real Estate
Mortgage over the properties in Antipolo, nullify the foreclosure sale and cancel the TCTs
issued in favour of AsiaTrust. The lower court dismissed the case on the ground that there
was no proof of fraud in the transactions involved in the real estate mortgage and the
foreclosure sale. Furthermore, the respondent bank failed to exercise its right of redemption
over the subject properties. The lower court further stated that the SEC Suspension Order
does not cover the subject properties which therefore did not preclude the Lee family to
mortgage the said properties to Asia Trust. Upon appeal, the Court of Appeals reversed the
lower courts decision and granted the respondent banks petition. The Court of Appeals
ruled on the ground that the subject Antipolo properties, though personal assets of the Lee
family, are covered by the Suspension Order of the SEC, since they are included in the list
submitted to SEC by the Lee family; and that Samuel is a guarantor of the loans incurred by
MDEC and MHI from Bangkok Bank. It ruled that Samuel, being a guarantor, is jointly and
severally liable to Bangkok Bank for the corporate debts of MDEC and MHI, as he divested
himself from the protection of the limited liability doctrine, which was shown (1) through the
inclusion of the said subject Antipolo properties in the list submitted to the SEC; and (2) by
Samuel, through the guarantees that he executed, thus voluntarily binding himself to the
payment of the loans incurred from Bangkok Bank. Hence, the petition for review on
certiorari was filed before the Supreme Court assailing the Court of Appeals decision.
 96

ISSUE:
Whether the subject Antipolo properties are covered under SEC Suspension Order?
HELD:
The subject properties are not under the purview of the SEC Suspension Order. The Court of
Appeals decision shall be reversed and set aside. The lower courts decision shall be
reinstated.
RATIO:
It can be clearly gleaned from the Secs. 3 and 5 of PD 902-A provisions that in cases of
petitions for the suspension of payments, the SEC has jurisdiction over corporations,
partnerships and associations, which are grantees of primary franchise or license or
permit issued by the government to operate in the Philippines, and their properties. And
it is indubitably clear from the aforequoted Sec. 5(d) that only corporations, partnerships
and associationsNOT private individualscan file with the SEC, petitions for
declaration in a state of suspension of payments. Thus, 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. Indeed, settled is the rule
that it is axiomatic that jurisdiction is the authority to hear and determine a cause, which
is conferred by law and not by the policy of any court or agency.

Private individuals and their privately owned properties cannot be placed under the
jurisdiction of the SEC in a petition for suspension of payments
In Chung Ka Bio v. Intermediate Appellate Court, this Court resolved in the negative the
issue of whether private individuals can file with the SEC petitions for declaration in a
state of suspension of payments. We held that Sec. 5(d) of PD 902-A clearly does not
allow a mere individual to file the petition, which is limited to corporations, partnerships
or associations. Besides, We pointed out that the SEC, being a mere administrative
agency, is a tribunal of limited jurisdiction and, as such, can only exercise those powers,
which are specifically granted to them by their enabling statutes. We, thus, concluded
that where no authority is granted to hear petitions of individuals for suspension of
payments, such petitions are beyond the competence of the SEC. In short, the SEC has
no jurisdiction over private individuals relative to any petition for suspension of
payments, whether the private individual is a petitioner or a co-petitioner. We have said
time and again that the SECs jurisdiction is limited only to corporations and corporate
assets; it has no jurisdiction over the properties of private individuals or natural
persons, even if they are the corporations officers or sureties. We
have, thus, consistently applied this ruling to the subsequent Ong v. Philippine
Commercial International Bank, Modern Paper Products, Inc. v. Court of
Appeals, and Union Bank of the Philippines v. Court of Appeals.
Here, it is undisputed that the petition for suspension of payments was collectively filed
by the five corporations owned by the Lee family. It is likewise undisputed that together
with the consolidated petition is a list of properties, which included the subject Antipolo
properties owned by Samuel and Pauline Lee. The fact, however, that the subject
properties were included in the list submitted to the SEC does not confer jurisdiction on
the SEC over such properties. It is apparent that even if the members of the Lee family
are joined as co-petitioners with the five corporations, still, this could not confer
jurisdiction on the SEC over the Lee family membersas private individualsnor could
this affect their privately owned properties.
Further, the fact that the debts of MDEC and MHI to Bangkok Bank are secured by the
Lee family through the guarantees will not likewise put the Lee family and their privately
owned properties under the jurisdiction of the SEC through the consolidated petition for
suspension of payments.
Therefore, the February 20, 1998 Suspension Order issued by the SEC did not and could
not have included the subject properties.
 97

SIOCHI FISHERY ENTERPRISES, INC. ET. AL. VS. BANK OF PHILIPPINE

ISLANDS
G.R. NO. 193872, OCTOBER 19, 2011
FACTS:
Petitioners Siochi Fishery Enterprises, Inc., Jun-Jun Fishing Corporation, Dede Fishing
Corporation, Blue Crest Aqua-Farms, Inc. and Iloilo Property Ventures, Inc. (petitioners) are
domestic corporations of the Siochi family. Petitioners are engaged in various businesses
and have interlocking stockholders and directors. In the course of their business, petitioners
borrowed from respondent Bank of the Philippine Islands (BPI) and from Ayala Life
Assurance, Inc. As of 30 June 2004, petitioners total obligation amounted
to P85,362,262.05. On 15 July 2004, petitioners filed with the RTC a petition for corporate
rehabilitation. Petitioners prayed that the RTC (1) issue a stay order; (2) declare petitioners
in a state of suspension of payments; (3) approve petitioners proposed rehabilitation plan;
and (4) appoint a rehabilitation receiver. The RTC granted the said petition and appointed
Atty. Cesar C. Cruz as the petitioners rehabilitation receiver. The respondent Bank opposed
the petition on the ground among others that the rehabilitation plan was unfeasible and
prejudicial to its interest. Atty. Cruz, the rehabilitation receiver, prayed before the RTC to
issue an order to call for a meeting between the petitioners and their creditor. RTC denied
the motion. Thereafter, the RTC issued an order of approval of the petitioners rehabilitation
plan. On appeal, the Court of Appeals set aside the RTCs Order on the ground that the lower
courts order of granting the petition was rife with procedural infirmities. Hence, the present
petition.
ISSUE:
Whether or not the RTC correctly gave due course in granting the petition for corporate
rehabilitation?
HELD:
No. The petition is denied. The Court of Appeals decision is affirmed.
RATIO:
In the present case, the RTC hastily approved the rehabilitation plan in the same order
giving due course to the petition. The RTC confined the initial hearing to the issue of
jurisdiction and failed to address other more important matters relating to the petition
and comment. The RTC also failed to refer for evaluation the rehabilitation plan to the
rehabilitation receiver. Thus, the rehabilitation receiver was unable to submit his
recommendations and make modifications or revisions to the rehabilitation plan as
necessary. Moreover, the RTC denied the rehabilitation receivers motion to issue an
order directing petitioners and their creditors to attend a meeting. In its 20 October 2009
Decision, the Court of Appeals found:
The most glaring procedural infirmity committed by the court a quo, however, is its
failure to refer respondent corporations petition for rehabilitation and Rehabilitation Plan
to the rehabilitation receiver despite the explicit and clear mandate of the Interim Rules
that if the court is satisfied that there is merit in the petition, it shall give due course to
the petition and immediately refer the same and its annexes to the rehabilitation
receiver x x x.
 98

It is discernible from the foregoing that there are serious matters which should be
determined before rehabilitation may be had. For this reason, the Interim Rules required
the appointment of a rehabilitation receiver simultaneously with the issuance of the Stay
Order and prescribed the following qualifications expertise and acumen to manage
and operate a business similar in size and complexity to that of the debtor, knowledge in
management, finance, and rehabilitation of distressed companies, and general
familiarity with the rights of creditors in rehabilitation, etc. to further emphasize the
significance of the role of the rehabilitation receiver in rehabilitation proceedings, the
Interim Rules directed the rehabilitation receiver to evaluate the rehabilitation plan and
submit his recommendations to the court. In fact, his recommendation bears much
weight as it is one of the factors which must be considered by the court if it were to
approve the rehabilitation plan. More importantly, it must be emphasized that the
purpose of the law in directing the appointment of receivers is to protect the interests of
the corporate investors and creditors. Thus, the court a quo committed serious error
when it failed to refer the petition for rehabilitation and its annexes to the appointed
receiver.

We have likewise observed that the court a quo made an unwarranted procedural
shortcut as its finding that there was merit in respondent corporations petition for
rehabilitation was made in the same Order approving their Rehabilitation Plan.
As an officer of the court and an expert, the rehabilitation receiver plays an important
role in corporate rehabilitation proceedings. In Pryce Corporation v. Court of Appeals, the
Court held that, the purpose of the law in directing the appointment of receivers is to
protect the interests of the corporate investors and creditors. Section 14 of the Interim
Rules of Procedure on Corporate Rehabilitation enumerates the powers and functions of
the rehabilitation receiver: (1) verify the accuracy of the petition, including its annexes
such as the schedule of debts and liabilities and the inventory of assets submitted in
support of the petition; (2) accept and incorporate, when justified, amendments to the
schedule of debts and liabilities; (3) recommend to the court the disallowance of claims
and rejection of amendments to the schedule of debts and liabilities that lack sufficient
proof and justification; (4) submit to the court and make available for review by the
creditors a revised schedule of debts and liabilities; (5) investigate the acts, conduct,
properties, liabilities, and financial condition of the debtor, the operation of its business
and the desirability of the continuance thereof, and any other matter relevant to the
proceedings or to the formulation of a rehabilitation plan; (6) examine under oath the
directors and officers of the debtor and any other witnesses that he may deem
appropriate; (7) make available to the creditors documents and notices necessary for
them to follow and participate in the proceedings; (8) report to the court any fact
ascertained by him pertaining to the causes of the debtors problems, fraud,
preferences, dispositions, encumbrances, misconduct, mismanagement, and
irregularities committed by the stockholders, directors, management, or any other
person; (9) employ such person or persons such as lawyers, accountants, appraisers,
and staff as are necessary in performing his functions and duties as rehabilitation
receiver; (10) monitor the operations of the debtor and to immediately report to the
court any material adverse change in the debtors business; (11) evaluate the existing
assets and liabilities, earnings and operations of the debtor; (12) determine and
recommend to the court the best way to salvage and protect the interests of the
creditors, stockholders, and the general public; (13) study the rehabilitation plan
proposed by the debtor or any rehabilitation plan submitted during the proceedings,
together with any comments made thereon; (14) prohibit and report to the court any
encumbrance, transfer, or disposition of the debtors property outside of the ordinary
course of business or what is allowed by the court; (15) prohibit and report to the court
any payments outside of the ordinary course of business; (16) have unlimited access to
the debtors employees, premises, books, records, and financial documents during
business hours; (17) inspect, copy, photocopy, or photograph any document, paper,
book, account, or letter, whether in the possession of the debtor or other persons; (18)
gain entry into any property for the purpose of inspecting, measuring, surveying, or
photographing it or any designated relevant object or operation thereon; (19) take
possession, control, and custody of the debtors assets; (20) notify the parties and the
court as to contracts that the debtor has decided to continue to perform or breach; (21)
be notified of, and to attend all meetings of the board of directors and stockholders of
the debtor; (22) recommend any modification of an approved rehabilitation plan as he
may deem appropriate; (23) bring to the attention of the court any material change
affecting the debtors ability to meet the obligations under the rehabilitation plan; (24)
recommend the appointment of a management committee in the cases provided for
under Presidential Decree No. 902-A, as amended; (25) recommend the termination of
the proceedings and the dissolution of the debtor if he determines that the continuance
in business of such entity is no longer feasible or profitable or no longer works to the
 99

best interest of the stockholders, parties-litigants, creditors, or the general public; and
(26) apply to the court for any order or directive that he may deem necessary or
desirable to aid him in the exercise of his powers.
The rehabilitation plan is an indispensable requirement in corporate rehabilitation
proceedings. Section 5 of the Rules enumerates the essential requisites of a
rehabilitation plan:
The rehabilitation plan shall include (a) the desired business targets or goals and the
duration and coverage of the rehabilitation; (b) the terms and conditions of such
rehabilitation which shall include the manner of its implementation, giving due regard to
the interests of secured creditors; (c) the material financial commitments to support the
rehabilitation plan; (d) the means for the execution of the rehabilitation plan, which may
include conversion of the debts or any portion thereof to equity, restructuring of the
debts, dacion en pago, or sale of assets or of the controlling interest; (e) a liquidation
analysis that estimates the proportion of the claims that the creditors and shareholders
would receive if the debtors properties were liquidated; and (f) such other relevant
information to enable a reasonable investor to make an informed decision on the
feasibility of the rehabilitation plan.
The Court notes that petitioners failed to include a liquidation analysis in their
rehabilitation plan.

Advent Capital and Finance Corporation vs. Nicasio I. Alcantara and Editha
I. Alcantara
G.R. No. 1803050, January 25, 2012
FACTS:
The corporation petitioner, Advent Capital, was subject to rehabilitation. Its court appointed
rehabilitation receiver, Atty. Danilo L. Concepcion, subsequently found out that the
respondent Alcantara couple had owned the Advent Capital P27,398,026.59, representing
trust fees that it supposedly earned for managing their several trust accounts. Prompted by
this finding, Atty. Concepcion requested Belson Securities, Inc. (Belson) to deliver to him, as
Advent Capitals rehabilitation receiver, the P7,635,597.50 in cash dividends that Belson
held under the Alcantaras Trust Account 95-013. Atty. Concepcion claimed that the
dividends, as trust fees, formed part of Advent Capitals assets. Belson refused, however,
citing the Alcantaras objections as well as the absence of an appropriate order from the
rehabilitation court. Thus, Atty. Concepcion filed a motion before the rehabilitation court to
direct Belson to release the money to him. The Alcantaras made a special appearance
before the rehabilitation court to oppose Atty. Concepcions motion. They claimed that the
money in the trust account belonged to them under their Trust Agreement with Advent
Capital. The rehabilitation court granted the motion despite the Alcantara couples
opposition. Complying with the rehabilitation courts order and Atty. Concepcions demand
letter, Belson turned over the subject dividends to him. Meanwhile, the Alcantaras filed a
special civil action of certiorari before the Court of Appeals (CA), seeking to annul the
 100

rehabilitation courts order. The CA rendered a decision, granting the petition and directing
Atty. Concepcion to account for the dividends and deliver them to the Alcantaras. The CA
ruled that the Alcantaras owned those dividends. They did not form part of Advent Capitals
assets as contemplated under the Interim Rules of Procedure on Corporate Rehabilitation
(Interim Rules). Hence, the present petition.
ISSUE:
Whether or not the cash dividends held by Belson and claimed by both the Alcantaras and
Advent Capital constitute corporate assets of the latter that the rehabilitation court may,
upon motion, require to be conveyed to the rehabilitation receiver for his disposition?
HELD:
No. The Court of Appeals decision is affirmed.
RATIO:
Cash dividends held by Belson and claimed by both the Alcantaras and Advent Capital does
not constitute corporate assets of the latter that the rehabilitation court may, upon motion,
require to be conveyed to the rehabilitation receiver for his disposition.
Advent Capital asserts that the cash dividends in Belsons possession formed part of its
assets based on paragraph 9 of its Trust Agreement with the Alcantaras,
According to Advent Capital, it could automatically deduct its management fees from the
Alcantaras portfolio that they entrusted to it. Paragraph 9 of the Trust Agreement provides
that Advent Capital could automatically deduct its trust fees from the Alcantaras portfolio,
at the end of each calendar quarter, with the corresponding duty to submit to the
Alcantaras a quarterly accounting report within 20 days after.
But the problem is that the trust fees that Advent Capitals receiver was claiming were for
past quarters. Based on the stipulation, these should have been deducted as they became
due. As it happened, at the time Advent Capital made its move to collect its supposed
management fees, it neither had possession nor control of the money it wanted to apply to
its claim. Belson, a third party, held the money in the Alcantaras names. Whether it should
deliver the same to Advent Capital or to the Alcantaras is not clear. What is clear is that the
issue as to who should get the same has been seriously contested.
The real owner of the trust property is the trustor-beneficiary. In this case, the trustors-
beneficiaries are the Alcantaras. Thus, Advent Capital could not dispose of the Alcantaras
portfolio on its own. The income and principal of the portfolio could only be withdrawn upon
the Alcantaras written instruction or order to Advent Capital. The latter could not also
assign or encumber the portfolio or its income without the written consent of the Alcantara.
All these are stipulated in the Trust Agreement. Advent Capital and Finance Corporation
vs. Nicasio I. Alcantara and Editha I. Alcantara,
Ultimately, the issue is what court has jurisdiction to hear and adjudicate the conflicting
claims of the parties over the dividends that Belson held in trust for their owners. Certainly,
not the rehabilitation court which has not been given the power to resolve ownership
disputes between Advent Capital and third parties. Neither Belson nor the Alcantaras are its
debtors or creditors with interest in the rehabilitation.
Advent Capital must file a separate action for collection to recover the trust fees that it
allegedly earned and, with the trial courts authorization if warranted, put the money in
escrow for payment to whoever it rightly belongs. Having failed to collect the trust fees at
the end of each calendar quarter as stated in the contract, all it had against the Alcantaras
was a claim for payment which is a proper subject for an ordinary action for collection. It
cannot enforce its money claim by simply filing a motion in the rehabilitation case for
delivery of money belonging to the Alcantaras but in the possession of a third party.
Rehabilitation proceedings are summary and non-adversarial in nature, and do not
contemplate adjudication of claims that must be threshed out in ordinary court
proceedings. Adversarial proceedings similar to that in ordinary courts are inconsistent with
the commercial nature of a rehabilitation case. The latter must be resolved quickly and
expeditiously for the sake of the corporate debtor, its creditors and other interested parties.
Thus, the Interim Rules incorporate the concept of prohibited pleadings, affidavit evidence
in lieu of oral testimony, clarificatory hearings instead of the traditional approach of
receiving evidence, and the grant of authority to the court to decide the case, or any
incident, on the basis of affidavits and documentary evidence.
 101

Wonder Book Corporation vs. Philippine Bank of Communications

G.R. No. 187316 January 16, 2012
FACTS:
Petitioner Wonder Book Corporation (Wonder Book) is a corporation duly organized and
existing under Philippine laws engaged in the business of retailing books, school and office
supplies, greeting cards and other related items. It operates the chain of stores known as
the Diplomat Book Center. The petitioner filed a petition for rehabilitation before the RTC.
The petitioner in the course of its business acquired a loan from the respondent Bank. The
respondent, Philippine Bank of Communications, opposed the petition for rehabilitation on
the ground that the corporation is insolvent and can no longer be rehabilitated. The RTC
granted the petition despite the respondent banks opposition. However, on appeal, the
Court of Appeals reversed the lower courts decision on the ground that Wonder Book as a
corporation is not merely illiquid but in a state of insolvency. This can be proven in Wonder
 102

Books financial statement. Hence, the present petition.

ISSUE:
Whether Wonder Books petition for rehabilitation is impressed with merit?
HELD:
No. The Court of Appeals decision is affirmed.
RATIO:
Rehabilitation contemplates a continuance of corporate life and activities in an effort to
restore and reinstate the corporation to its former position of successful operation and
solvency. The purpose of rehabilitation proceedings is to enable the company to gain a new
lease on life and thereby allow creditors to be paid their claims from its earnings. The
rehabilitation of a financially distressed corporation benefits its employees, creditors,
stockholders and, in a larger sense, the general public.
Rehabilitation proceedings in our jurisdiction, much like the bankruptcy laws of the United
States, have equitable and rehabilitative purposes. On one hand, they attempt to provide for
the efficient and equitable distribution of an insolvent debtors 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. The
rationale of Presidential Decree No. 902-A, as amended, is to effect a feasible and viable
rehabilitation, by preserving a floundering business as going concern, because the assets
of a business are often more valuable when so maintained than they would be when
liquidated.
Under Section 23, Rule 4 of the Interim Rules, a rehabilitation plan may be approved if there
is a showing that rehabilitation is feasible and the opposition entered by the creditors
holding a majority of the total liabilities is unreasonable. In determining whether the
objections to the approval of a rehabilitation plan are reasonable or otherwise, the court has
the following to consider: (a) that the opposing creditors would receive greater
comp.ensation under the plan than if the corporate assets would be sold; (b) that the
shareholders would lose their controlling interest as a result of the plan; and (c) that the
receiver has recommended approval.
Rehabilitation is therefore available to a corporation who, while illiquid, has assets that can
generate more cash if used in its daily operations than sold. Its liquidity issues can be
addressed by a practicable business plan that will generate enough cash to sustain daily
operations, has a definite source of financing for its proper and full implementation, and
anchored on realistic assumptions and goals. This remedy should be denied to corporations
whose insolvency appears to be irreversible and whose sole purpose is to delay the
enforcement of any of the rights of the creditors, which is rendered obvious by the following:
(a) the absence of a sound and workable business plan; (b) baseless and unexplained
assumptions, targets and goals; (c) speculative capital infusion or complete lack thereof for
the execution of the business plan; (d) cash flow cannot sustain daily operations; and (e)
negative net worth and the assets are near full depreciation or fully depreciated.
The figures appearing on Wonder Books financial documents and the nature and value of its
assets are indeed discouraging. Rehabilitation is not the proper remedy for Wonder Books
dire financial condition. Given that it is actually insolvent and not just suffering from
temporary liquidity problems, rehabilitation is not a viable option.
Another reason for this Courts denial of Wonder Books petition is its failure to comply with
Section 5 of the Interim Rules, which enumerates the minimum requirements of an
acceptable rehabilitation plan. It is imperative for a distressed corporation seeking
rehabilitation to present material financial commitments as this is critical in determining
its resolve, determination, earnestness and good faith in financing its proposed
rehabilitation plan. Wonder Books material financial commitments are limited to
converting all deposits for future subscriptions to common stock and treating all its payables
to its officers and stockholders as trade payables. These, unfortunately, do not qualify as
sincere commitment and even betray Wonder Books intent to fund the implementation of
its rehabilitation plan using whatever cash it will generate during the reprieve provided by
the stay order and the moratorium on the principal and interest payments. This scheme is
certainly unfair as PBCOM or any of Wonder Books creditors cannot be compelled to finance
Wonder Books rehabilitation by a delay in the payment of their claims or a considerable
reduction in the amounts thereof.

Pryce Corporation vs. Court of Appeals, G.R. No. 172302, February 4, 2008
FACTS:
Pryce Corporation, petitioner, was incorporated under the Philippine laws. Its primary
purpose was to develop real estate in Mindanao. It engaged in the development of memorial
 103

parks, operated a major hotel in Cagayan de Oro City, and produced industrial gases. The
1997 Asian financial crisis, however, badly affected petitioners operations, resulting in
heavy losses. It could not meet its obligations as they became due. It incurred losses of
P943.09 million in 2001, P479.05 million in 2002, and P125.86 million in 2003. Thus, on July
12, 2004, petitioner filed with the Regional Trial Court of Makati acting as Commercial Court,
a petition for rehabilitation. Petitioner prayer for the appointment of a Rehabilitation
Receiver from among the nominees named therein and the staying of the enforcement of all
claims, monetary or otherwise against it. Petitioner also prayed that after due hearing, its
proposed Rehabilitation Plan be approved. The said rehabilitation plan, among others
include the payment to bank creditors through dacion en pago of assets already mortgaged
to them and that any other debt not covered by mortgaged assets or not falling under the
aforementioned categories shall be paid through dacion of memorial park lots. On July 13,
2004, the RTC issued a Stay Order directing that; all claims against petitioner be deferred;
the initial hearing of the petition for rehabilitation be set on September 1, 20044; and all
creditors and interested parties should file their respective comments/oppositions to the
petition. In the same Order, the RTC then appointed Gener T. Mendoza as Rehabilitation
Receiver. The petition was opposed by petitioners bank-creditors. The Bank of the Philippine
Islands claimed that the petition and the proposed Rehabilitation Plan are coercive and
violative of the contract. The Land Bank of the Philippines contended, among others, that
the petition is unacceptable because of the unrealistic valuation of the properties subject of
the dacion en pago. The China Banking Corporation, respondent herein, alleged in its
opposition that the petitioner is solvent and that it filed the petition to force its creditors to
accept dacion payments. In effect, petitioner passed on to the creditors the burden of
marketing and financing unwanted memorial lots, while exempting it (petitioner) from
paying interests and penalties. On September 13, 2004, the RTC issued an Order giving due
course to the Rehabilitation Plan. The receiver made proposals to amend the rehabilitation
plan and the same was approved by the RTC. Consequently, on February 23, 2005,
respondent filed with the Court of Appeals a petition for review alleging that in approving
the Amended Rehabilitation Plan, the RTC impaired the obligation of contracts, voided the
contract stipulation and contravened the avowed policy of the State to maintain a
competitive financial system. On July 25, 2005, the CA granted respondents petition and
reversed the assailed Order of the RTC. Hence, this present petition.
ISSUE:
Was the serious test necessary in determining the appointment of a receiver for Pryce
Properties?
HELD:
Yes. The Court denies the petition and remanded the case to RTC, sitting as a Commercial
Court for further proceedings with dispatch to determine the merits of the petition for
rehabilitation.
RATIO:
Section 6 of the Interim Rules of Procedure on Corporate Rehabilitation requires the petition
must be sufficient in form and substance. Moreover, the Court held in the case of Rizal
Commercial Banking Corporation vs. Intermediate Appellate Court, that under Section 6(c)
of P.D. 902-A, 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. The situations contemplated in these instances are serious in nature. There must
exist a clear and imminent danger of losing the corporate assets if a receiver is not
appointed. Absent such danger, such as where there are sufficient assets to sustain the
rehabilitation plan and both investors and creditors are amply protected, the need for
appointing a receiver does not exist. Simply put, the purpose of the law in directing the
appointment of receiver is to protect the interests of the corporate investors and creditors.
It is clear that in the petition for rehabilitation does not allege that there is a clear and
imminent danger that petitioner will lose its corporate assets if a receiver is not appointed.
In other words, the serious situation test laid down by Rizal Commercial Banking
Corporation has not been met or at least substantially complied with. We observe that in
appointing Mr. Gener T. Mendoza as Rehabilitation Receiver, the only basis of the lower court
was its finding that the petition is sufficient in form and substance. However, it did not
specify any reason or ground to sustain such finding. Clearly, the petition failed to comply
with the serious situation test
 104

Bank of the Philippine Islands v. Shemberg Biotech Corporation and

Benson Dakay, G.R. No. 162291, August 11, 2010
FACTS:
Respondent Shemberg Biotech Corporation (SBC), a domestic corporation which
manufactures carrageenan from seaweeds, filed a petition for the approval of its
rehabilitation plan and appointment of a rehabilitation receiver before the RTC. The RTC
issued a stay order, and petitioner Bank of the Philippine Islands (BPI) filed its opposition to
SBCs petition. After initial hearings, the RTC issued the assailed October 12, 2001 Order
which gave due course to the SBCs petition; referred the rehabilitation plan to the
Rehabilitation Receiver for evaluation; ordered the Rehabilitation receiver to submit its
recommendation; recalled the appointment of the first Rehabilitation Receiver; and
appointed Atty. Pio Y. Go as new Rehabilitation Receiver. The RTC found that SBC complied
with the conditions necessary to give due course to its petition for rehabilitation. The RTC
was also satisfied of the merit of SBCs petition and noted that SBCs business appears
viable since it has a market for its product. A sufficient breathing spell, according to the
RTC, may help SBC settle its debts. The RTC further said that it will reflect on the issue
raised by SBCs creditors that the rehabilitation plan is not feasible, upon submission by the
Rehabilitation Receiver of his recommendation. Consequently, BPI filed a petition for
certiorari, prohibition and mandamus before the CA. In its assailed decision, the CA
dismissed the petition. The CA ruled that the RTCs decision dated April 22, 2002 in Civil
Case No. CEB-26481-SRC, which approved its modification SBCs rehabilitation plan,
rendered the petition moot. The CA also ruled that the issues against the rehabilitation plan
should be raised in BPIs appeal from the said RTCs decision. The CA found that the RTC did
not commit an error or grave abuse of discretion in issuing the October 12,2001 and
December 26, 2001 Orders. BPI laments that CA focused its discussion on the procedural
matters, i.e., on the propriety of the petition for certiorari, rather than on the substantial and
jurisdictional issues raised. BPI contends that the rehabilitation plan does not require
infusion of new capital from its guarantors and sureties and that forcing creditors to
transform their debt to equity amounts to taking private property without just compensation
and due process of law. BPI further contends that the RTC exercised its rehabilitation power
whimsically, arbitrarily and despotically by eliminating penalties and reducing interests
amounting to millions. Such exercise of power, BPI contends, also amounts to taking of
property without just compensation and due process of law that could not be justified under
the police power. BPI adds that the Interim Rules of Corporate Recovery is unconstitutional
insofar as it alters or modifies and expands the existing law on rehabilitation contrary to the
principle that rules of procedure cannot modify or affect substantive rights.
ISSUE:
Is the Interim Rules of Procedure on Corporate Rehabilitation unconstitutional?
HELD:
The Interim Rules of Procedure on Corporate Rehabilitation is constitutional.
On the question of the constitutionality of the Interim Rules of Procedure on Corporate
Rehabilitation, BPI failed in its burden of clearly and unequivocally proving its assertion. Its
failure to so prove defeats the challenge. We even note that BPI itself opposes its own stand
by invoking Section 27, Rule 44 of the Interim Rules to support its prayer that the
rehabilitation proceedings be declared terminated. BPI also impliedly invoked the Interim
Rules before the CA in seeking a modified rehabilitation plan considering that SBCs petition
for approval of its rehabilitation plan had been filed under the Interim Rules.
In addition, the challenge on the constitutionality of the Interim Rules is a new and belated
theory that we should not even entertain. It was not raised before the CA. Well settled is the
rule that issues not previously ventilated cannot be raised for the first time on appeal.
Relatedly, the constitutional question was not raised at the earliest opportunity. The rule is
that when issues of constitutionality are raised, the Court can exercise its power of judicial
review only if the following requisites are present: 1)the existence of an actual and
appropriate case; 2)a personal and substantial interest; 3)the exercise of judicial review is
pleaded at the earliest possible opportunity; and 4)the constitutional question is the lis mota
of the case.
The Court cannot grant BPIs prayer that the petition for rehabilitation be ordered dismissed
and terminated. To dismiss the petition for rehabilitation would be to reverse improperly the
final course of that petition: the petition was granted by the RTC; the RTC decision was
affirmed with finality; and the rehabilitation plan is now being implemented. And while
Interim Rules and new Rules of Procedure on Corporate Rehabilitation contain provisions on
 105

termination of the corporate rehabilitation proceedings, neither the RTC nor the CA rule on
this point. In fact, BPI did not ask the CA to terminate the rehabilitation proceedings. Aside
from being another new issue, its resolution involve factual matters such as: 1) Whether
there was failure to achieve the desired targets or goals as set forth in the rehabilitation
plan; 2)whether there was failure of the debtor (SBC) to perform its obligations under the
plan; 3)whether the rehabilitation plan may no longer be implemented in accordance with
its terms, conditions, restrictions or assumptions; or 4)whether there was successful
implementation of the rehabilitation plan. The Court is not at liberty to consider these
factual matters for the first time.

North Bulacan Corporation vs. Philippine Bank of Communications, G.R.

No. 183140, August 2, 2010
FACTS:
Petitioner North Bulacan Corporation (NBC) is engaged in the business of developing low
medium-cost housing projects. Respondent Philippine Bank of Communication (PBCom)
offered to finance the whole project of NBC and immediately provide it a loan facility.
Relying on PBComs commitment, NBC accepted the banks offer. NBC executed a deed of
assignment, assigning to PBCom its rights and interests over all payments that may be due
from the Pag-IBIG. After a time, however, PBCom discontinued its financial support to NBC
reportedly because Bangko Sentral ng Pilipinas (BSP) had issued a cease and desist order
against the bank. When it became apparent that PBCom had no intention of complying with
its commitment, NBC sought life from Cocolife and Land Bank which express their intention
to finance the project by taking out NBCs loan from PBCom. But the latter refused the offer,
insisting on the supposed BSP cease and desist order. NBCs construction eventually
stopped for lack of funds. NBC filed a petition for corporate rehabilitation with the
Mandaluyong Regional Trial Court (RTC). It filed with the court a manifestation and urgent
motions a) to order PBCom to release 12 Transfer Certificates of Title of finished housing
units, b)to order Pag-IBIG to issue Letters of Guaranty to PBCom representing the take-out
value of the finished units, and c) to allow NBC to use the proceeds to make emergency
repairs and restoration works. The RTC issued an order giving due course to NBCs petition
for rehabilitation. PBCom challenges the RTCs order alleging that NBC violated the several
rules on corporate rehabilitation and that it had not met the requirements for the grant of
the petition involved. Among the rules alleged to have been violated is a rule on prohibited
pleadings on motion for extension in filing the required rehabilitation plan, which NBC did in
this case. Petitioner counters however, that it did not violated the rules on petition for
rehabilitation because such rules allows extension under certain circumstances.
ISSUE:
Whether or not the RTC correctly gave due course on NBCs action for corporate
rehabilitation?
HELD:
No. The Court held that the RTC erred in giving due course to the petitioners action. The
RTC utterly disregarded the Rules on Corporate Rehabilitation in the guise of liberal
construction and granted the petition for rehabilitation based on insufficient evidence. The
NBC inventory did not mention the condition of its listed assets. It merely enumerated
certain real properties and their respective sizes and market values. The RTC should have
dismissed the petition as it had not approved any rehabilitation plan within the period
specified by law. Further under, the circumstances, NBCs total debts would balloon to
P560,81,213.5, exclusive of interests, penalties, and other charges. Obviously, its continued
operation would no longer be viable. The Court holds that the RTC should have ruled on the
creditors objections instead of merely treating them as premature. The RTC of course
claims that the rehabilitation plan would still have to be referred to the receiver for study
and evaluation. But there would be no need to go that far when the petitioning corporation
declined to comply with the simpler rules of rehabilitation, when the documentation of its
assets were inadequate, and the when the creditors opposition offered insurmountable
basis for shelving the entire effort.
 106

Banco De Oro-EPCI, Inc. vs. JAPRL Development Corporation, et.al. G.R.

No. 179901, April 14, 2008
FACTS:
After evaluating the financial statements of respondent JAPRL Development Corporation
(JAPRL) for fiscal years 1998, 1999, and 2000, petitioner Banco de Oro-EPCI, Inc. extended
credit facilities to it amounting to P 230,000,000. Respondents Rapid Forming Corporation
(RFC) and Jose U. Arollado acted as JAPRLs sureties. Despite its seemingly strong financial
position, JAPRL defaulted in the payment of four trust receipts soon after the approval of its
loan. Petitioner later learned from MRM management, JAPRLs financial adviser, that JAPRL
had altered and falsified its financial statements. It allegedly bloated its sales revenues to
post a big income from operations for the concerned fiscal years to project itself as a viable
investment. The information alarmed petitioner. Citing relevant provisions of the Trust
Receipt Agreement, it demanded immediate payment of JAPRLs outstanding obligations
amounting to P194,493,388.98. On August 30, 2003, JAPRL (and its subsidiary, RFC) filed a
petition for rehabilitation in the Regional Trial Court (RTC) of Quezon City. It disclosed that it
had been experiencing a decline in sales for the three preceding years and a staggering loss
in 2002. Because the petition was sufficient in form and substance, a stay order was issued.
However, the proposed rehabilitation plan for JAPRL and RFC was eventually rejected by the
Quezon City RTC. Because JAPRL ignored its demand for payment, petitioner filed a
complaint for sum of money with an application for the issuance of a writ of preliminary
attachment against respondents in the RTC of Makati docketed as Civil Case No. 03-991.
Petitioner essentially asserted that JAPRL was guilty of fraud because it (JAPRL) altered and
falsified its financial statements. The Makati RTC subsequently denied the application (for
the issuance of a writ of preliminary attachment) for lack of merit as petitioner was unable
to substantiate its allegations. Nevertheless, it ordered the service of summons on
respondents. On February 20, 2006, JAPRL (and its subsidiary, RFC) filed a petition for
rehabilitation in the RTC of Calamba. Finding JAPRLs petition sufficient in form and
substance, the Calamba RTC issued a stay order. In view of the said order, respondents
hastily moved to suspend the proceeding in Civil Case No. 03-991 pending in the Makati
RTC. The Makati RTC granted the motion with regard to JAPRL and RFC but ordered Arollado
to file an answer. It ruled that, because he was jointly and solidarily liable with JAPRL and
RFC, the proceedings against him should continue. Respondents moved for the
reconsideration but it was denied. On appeal before the Court of Appeals, the latter denied
petitioners appeal and subsequent motion for reconsideration. Hence, this petition.
ISSUE:
Whether the granting of the petition for corporate rehabilitation of JAPRL Devt. Corp. is
proper which would necessarily cause the suspension of the proceedings due to a valid stay
order?
HELD:
The petition is granted.
RATIO:
The Court withheld the judgment for the moment on the order of the Makati RTC suspending
the proceedings in Civil Case 03-991 insofar as JAPRL and RFC are concerned. Under the
Interim Rules of Procedure on Corporate Rehabilitation, a stay order defers all actions or
claims against the corporation seeking rehabilitation from the date of its issuance until the
dismissal of the petition or termination of the rehabilitation proceeding.
 107

The Makati RTC may proceed to hear Civil Case No. 03-991 only against Arollado if there is
no ground to go after JAPRL and RFC (as will later be discussed). A creditor can demand
payment from the surety solidarily liable with the corporation seeking rehabilitation.
It is noteworthy to stress the role of bank in financial business. Banks are entities engaged
in the lending of funds obtained through deposits from the public. They borrow the publics
excess money (i.e., deposits) and lend out the same. Banks therefore redistribute wealth in
the economy by channelling idle savings to profitable investments. Since banks deal with
the publics money, their viability depends largely on their ability to return those deposits on
demand. For this reason, banking is undeniable imbued with public interest. Consequently,
much importance is given to sound lending practices and good corporate governance.
In this case, petitioner alleged that JAPRL fraudulently altered and falsified its financial
statements in order to obtain its credit facilities. Considering the amount of petitioners
exposure in JAPRL, justice and fairness dictate that the Makati RTC, hear whether or not
respondents indeed committed fraud in securing the credit accommodation. A finding of
fraud will change the whole picture. In this event, petitioner can use the finding of fraud to
move for the dismissal of the rehabilitation case in the Calamba RTC. The protective remedy
of rehabilitation was never intended to be a refuge of a debtor guilty of fraud.
Meanwhile, the Makati RTC should proceed to hear the Civil Case No. 03-991 against the
three respondents guided by Section 40 of the General Banking Law which gives banks the
right to annul any credit accommodation or loan, and demand the immediate payment
thereof, from borrowers proven to be guilty of fraud. Petitioner would then be entitled to the
immediate payment of P194, 493,388.98 and other appropriate damages.
Finally, considering that respondents failed to pay the four trust receipts, the Makati City
Prosecutor should investigate whether or not there is probable cause to indict respondents
for violation of Section 13 of the Trust Receipt Law.

Philippine National Bank and Equitable PCI Bank vs. Court of Appeals,
Securities and Exchange Corporation, ASB Holding, et.al. G.R. No. 165571,
January 20, 2009
FACTS:
Petitioners Philippine National Bank (PNB) and Equitable PCI Bank are members of the
consortium of creditor banks constituted pursuant to the Mortgage Trust Indenture
(MTI) dated May 29, 1989, as amended, by and between Rizal Commercial Banking
Corporation-Trust and Investments Division, acting as trustee for the consortium, and ASB
Development Corporation (ASBDC, formerly Tiffany Tower Realty Corporation). Other
members of the consortium include Metropolitan Bank and Trust Company (Metrobank),
Prudential Bank, Union Bank of the Philippines, and United Coconut Planters Bank. Private
respondents ASB Holdings, Inc., ASBDC, ASB Land, Inc., ASB Finance, Inc., Makati Hope
Christian School, Inc., Bel-Air Holdings Corporation, Winchester Trading, Inc., VYL Holdings
Corporation, and Neighborhood Holdings, Inc. (ASB Group) are corporations engaged in real
estate development. The ASB Group is owned by Luke C. Roxas. Under the MTI, petitioners
granted a loan of PhP 1,081,000,000 to ASBDC secured by a mortgage of five parcels of land
with improvements. On May 2, 2000, private respondents filed with the SEC a verified
petition for rehabilitation with prayer for suspension of actions and proceedings pending
rehabilitation pursuant to Presidential Decree No. (PD) 902-A, as amended. The case was
docketed as SEC Case No. 05-00-6609. Private respondents stated that they possess
sufficient properties to cover their obligations but foresee inability to pay them within a
period of one year. They cited the sudden non-renewal and/or massive withdrawal by
creditors of their loans to ASB Holdings, the glut in the real estate market, severe drop in
the sale of real properties, peso devaluation, and decreased investor confidence in the
economy which resulted in the non-completion of and failure to sell their projects and
default in the servicing of their credits as they fell due. The ASB Group had assets worth
PhP 19,410,000,000 and liabilities worth PhP 12,700,000,000. Faced with at least 712
creditors, 317 contractors/suppliers, and 492 condominium unit buyers, and the prospect of
having secured and non-secured creditors press for payments and threaten to initiate
foreclosure proceedings, the ASB Group pleaded for suspension of payments while working
for rehabilitation with the help of the SEC. Private respondents petition to the SEC was
accompanied by documentary requirements in accordance with the Rules of Procedure on
Corporate Recovery. Finding the petition sufficient in form and substance, the SEC Hearing
Panel issued on May 4, 2000 an order suspending for 60 days all actions for claims against
the ASB Group, enjoining the latter from disposing its properties in any manner except in
the ordinary course of business and from paying outstanding liabilities, and appointing Atty.
Monico V. Jacob as interim receiver of the ASB Group. Atty. Jacob was later replaced by Atty.
Fortunato Cruz as interim receiver. On the onset, the consortium of creditor banks prayed for
the dismissal of the petition. the ASB Group submitted a rehabilitation plan to enable it to
 108

meet all of its obligations. The consortium of creditor banks moved for its disapproval on
the ground that it is not viable; the proposals are unrealistic; and it collides with the
freedom of contract and the constitutional right against non-impairment of contracts,
particularly the release of portions of mortgaged properties and waiver of interest,
penalties, and other charges. The banks further asserted that the Rehabilitation Plan does
not explain the basis of the selling values and the net realizable values of the properties; it
irregularly nets out inter-corporation transactions and offsets the receivables amounting to
PhP 5.23 billion from Roxas; and it shows that the ASB Group is insolvent and should be
subjected to liquidation proceedings. The banks opposed the extension of the suspension
order sought by the ASB Group. The consortium also prayed for the early resolution of their
opposition to the petition. The SEC Hearing Panel denied the opposition of the banks and
allowed the filing of the petition for rehabilitation. Since he ASB Group foresees its inability
to meet its obligations within one year, it was considered technically insolvent and, thus,
qualified for rehabilitation under Sec. 4-1 of the Rules of Procedure on Corporate Recovery.
The panel also held that suspension of payment is necessarily an effect of the filing of the
petition. Upon motion by the ASB Group, the suspension period was extended through an
order dated October 27, 2000. The creditor banks appealed the October 10 and 27, 2000
orders by filing before the SEC en banc a Petition for Review on Certiorari with application
for a temporary restraining order .Subsequently, the Hearing Panel approved the
Rehabilitation Plan. The creditors filed a Supplemental Petition for Review on Certiorari with
the SEC en banc to question the foregoing order but the SEC en banc dismissed the petition.
Petitioners went to the CA via a petition for certiorari under Rule 65, alleging grave abuse of
discretion on the part of the SEC in dismissing the creditors petition for review on the
ground that 54% of the total obligations of the ASB Group with creditor banks have been
settled. Petitioners also questioned the remedy availed of by the ASB Group since a solvent
corporation cannot file a petition for rehabilitation nor be placed under receivership. They
maintained that the SEC should not have approved the Rehabilitation Plan over the
objection of the consortium of creditor banks. The CA upheld the ruling of the SEC en banc
and explained that the Rules does not preclude a solvent corporation, like the ASB Group,
to file a petition for rehabilitation instead of just a petition for suspension of payments
because such temporary inability to pay obligations may extend beyond one year or the
corporation may become insolvent in the interim. It stated that the determination of the
sufficiency of the petition and the question of propriety of the petition filed by the ASB
Group are matters within the technical competence and administrative discretion of the
SEC. Hence, this present petition.
ISSUE:
Is the filing of a petition for suspension of payments necessary before a corporation which is
technically insolvent may file a petition for rehabilitation?

HELD:
The petition is denied.
RATIO:
The Court affirms the ruling of the appellate court. In cases of technical insolvency, a
petition for rehabilitation and suspension of payments can be filed without previously filing a
petition for suspension of payments since these refer to different reliefs under the Rules.
The correct interpretation of these rules are the following:
(1) A corporation which has sufficient assets to cover its liabilities but foresees its inability to
pay its obligations as they fall due may file a petition for suspension of payments under Rule
III of the Rules (Sec. 3-1);
(2) If the SEC finds that the corporations inability to pay will last more than one year from
the filing of the petition for suspension of payments, that is, the corporation becomes
technically insolvent, the petition shall be dismissed (Sec. 3-12);
(3) If the corporation is shown or actually becomes technically insolvent anytime during the
pendency of the proceedings (supervening technical insolvency), the SEC may either
terminate the proceedings or it may, upon motion, treat the petition as one for rehabilitation
(Sec. 3-13); and
(4) If from the start, a corporation which has enough assets foresees its inability to meet its
obligations for more than one year,
i.e., existing technical insolvency, it may file a petition for rehabilitation under Rule IV, Sec.
4-1.
A reading of Sec. 4-1 shows that there are two kinds of insolvency contemplated in it: (1)
actual insolvency, i.e., the corporations assets are not enough to cover its liabilities; and (2)
technical insolvency defined under Sec. 3-12, i.e., the corporation has enough assets but it
foresees its inability to pay its obligations for more than one year.
In the case at bar, the ASB Group filed with the SEC a petition for rehabilitation with prayer
for suspension of actions and proceedings pending rehabilitation. Contrary to petitioners
arguments, the mere fact that the ASB Group averred that it has sufficient assets to cover
 109

its obligations does not make it solvent enough to prevent it from filing a petition for
rehabilitation. A corporation may have considerable assets but if it foresees the
impossibility of meeting its obligations for more than one year, it is considered as technically
insolvent. Thus, at the first instance, a corporation may file a petition for rehabilitationa
remedy provided under Sec. 4-1.
When Sec. 4-1 mentioned technical insolvency under Sec. 3-12, it was referring to the
definition of technical insolvency in the said section; it was not requiring a previous filing of
a petition for suspension of payments which petitioners would have us believe.
Petitioners harp on the SECs failure to examine whether the ASB Group is technically
insolvent. They contend that the SEC should wait for a year after the filing of the petition for
suspension of payments when technical insolvency may or may not arise. This is
erroneous. The period mentioned under Sec. 3-12, longer than one year from the filing of
the petition, does not refer to a year-long waiting period when the SEC can finally say that
the ailing corporation is technically insolvent to qualify for rehabilitation. The period
referred to the corporations inability to pay its obligations; when such inability extends
beyond one year, the corporation is considered technically insolvent. Said inability may be
established from the start by way of a petition for rehabilitation, or it may be proved during
the proceedings for suspension of payments, if the latter was the first remedy chosen by the
ailing corporation. If the corporation opts for a direct petition for rehabilitation on the
ground of technical insolvency, it should show in its petition and later prove during the
proceedings that it will not be able to meet its obligations for longer than one year from the
filing of the petition.

De Barreto vs. Villanueva G.R. L-14938

Facts:
Cruzado sold land (which was foreclosed by RFC but later resold to Cruzado) to Villanueva with a stipulation that
Villanueva will continue payment to RFC (for the reselling price). Villanueva mortgaged the land to De Barreto when it obtained a
loan from the latter. Villanueva failed to pay both Cruzado and De Barreto. On the one hand, De Barreto sued for foreclosure and
won. On the other hand, Cruzado filed a motion in that foreclosure proceeding for the recognition of his vendors lien.
RTC: granted Cruzados motion that his lien be satisfied by the foreclosure proceeds.
SC: affirmed RTC. But on MFR, reversed RTC ruling.

Held:
The question as to whether the Civil Code and the Insolvency Law can be harmonized is settled by Article 2243, Civil
Code. The preferences named in Articles 2241 and 2242 are to be enforced in accordance with the Involvency Law.

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
 110

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.

DBP vs. Secretary of Labor G.R. 79351

Facts:
Difontorum and other co-employees obtained a favorable judgment against RMC for
illegal dismissal, ULP, etc. A writ of execution was not satisfied (in 1984). In 1983, DBP
foreclosed RMCs premises. Thus, Difontorum et al. filed with the Minister of Labor and
Employment a motion for delivery of properties of RMC in possession of DBP to MOLE for
proper disposition pursuant to Art. 110 of the Labor Code which gives employees 1st
preference over properties of the employer.

Held:
SC: It is clear from the wording of the law that the preferential right accorded to
employees and workers under Article 110 may be invoked only during bankruptcy or judicial
liquidation proceedings against the employer. The law is unequivocal and admits of no other
construction.
There is no first automatic lien. What Article 110 of the Labor Code establishes is
not a lien, but a preference of credit in favor of employees. This simply means that during
bankruptcy, insolvency or liquidation proceedings involving the existing properties of the
 111

employer, the employees have the advantage of having their unpaid wages satisfied ahead
of certain claims which may be proved therein.

J.L. Bernardo Construction, et al. vs. CA G.R. 105827

Facts:
The Municipality of San Antonio failed to pay petitioners for the latters construction
of the public market of San Antonio. Petitioners then sued the municipality for breach of
contract, specific performance, etc. with a prayer for the enforcement of contractors lien
(based on Art. 2242 of the Civil Code).
RTC granted petitioners motion and awarded possession and use of the building to
them. CA reversed RTC.
SC: affirmed CA

Held:
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
 112

is, there will be a need to determine which of the creditors will be paid ahead of the others.
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.
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.
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. Thus, even if it is finally adjudicated that petitioners herein actually
stand in the position of unpaid contractors and are entitled to invoke the
contractor's 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.

Union Bank of the Philippines vs. Spouses Ong G.R. 152347

Facts:
BMC (a corporation 70% of which is owned by Spouses Ong) obtained a Php 40M
credit line facility from Union Bank wherein the Ongs assumed a solidary liability
undertaking. On Oct. 22, 1991, Spouses Ong sold to Lee their house and lot in Greenhills. On
Nov. 22, 1991, BMC filed a petition for rehabilitation with the SEC.
Petitioner avers that the Ong-Lee sales contract partakes of a fraudulent transfer
and is null and void in contemplation of the aforequoted provision, the sale having
occurred on October 22, 1991 or within thirty (30) days before BMC filed a petition for
suspension of payments on November 22, 1991.

Held:
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Petitioner's reliance on the afore-quoted provision is misplaced for the following

reasons:
First, SEC 70 of the Insolvency Law specifically makes reference to
conveyance of properties made by a debtor or by an insolvent who filed a
petition, or against whom a petition for insolvency has been filed. Respondent
spouses Ong have doubtlessly not filed a petition for a declaration of their own insolvency.
Neither has one been filed against them. It was never proven that respondent spouses are
likewise insolvent.
It may be that BMC had filed a petition for rehabilitation and suspension of payments
with the SEC. The nagging fact, however is that BMC is a different juridical person from the
respondent spouses. Accordingly, the alleged insolvency of BMC cannot, as petitioner
postulates, extend to the respondent spouses such that transaction of the latter comes
within the purview of SEC 70 of the Insolvency Law.
Second, the real debtor of petitioner bank in this case is BMC. The fact that the
respondent spouses bound themselves to answer for BMCs indebtedness under the surety
agreement referred to at the outset is not reason enough to conclude that the spouses are
themselves debtors of petitioner bank.
Third, SEC 70 of the Insolvency Law considers transfers made within a
month after the date of cleavage void, except those made in good faith and for
valuable pecuniary consideration. The twin elements of good faith and valuable
and sufficient consideration have been duly established. Given the validity and
the basic legitimacy of the sale in question, there is simply no occasion to apply
SEC 70 of the Insolvency Law to nullify the transaction subject of the instant case.

Republic of the Philippines v. Hon. Peralta G.R. No. L-56568 May 20,
1987
Facts:
The Republic of the Philippines seeks the review on certiorari on the order of the Court of
First Instance of Manila in the voluntary insolvency case of Quality Tobacco Corporation (the
Insolvent). The trial court held that the claims of the labor unions (i.e. USTC Association of
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Employees and Federacion de la Industria Tabaquera y Otros Trabajadores de Filipinas) 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
Bureau of Internal Revenue for customs duties and inspection fees relying on Article 110 of
the Labor Code. Said Article 110 reads, Worker preference in case of bankruptcyIn 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.

Issue:
Whether or not separation pays are preferred liabilities over taxes in insolvency cases

Held:
The Supreme Court ruled on the negative. 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. Articles 2241 and 2242 jointly with Articles 2246 to 2249,
all of the Civil Code, 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.
Under Section 1204 of the Tariff and Customs Code, 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. 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.
With respect the claims for tobacco inspection fees, under Section 315 of the National
Internal Revenue Code ("old Tax Code"), later reenacted in Identical terms as Section 301 of
the Tax Code of 1977, 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." The claim of the Bureau of Internal Revenue for unpaid tobacco
inspection fees constitutes a claim for unpaid internal revenue taxes 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.
Article 110 of the Labor Code did not sweep away the 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 assumedsimpliciter 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
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"other creditors" a linguistically unlimited scope that would embrace the universe of
creditors save only unpaid employees.
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. 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, 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.