KAIZEN BUILDERS, INC. vs. CA - Ofelia Ursais purchased from Kaizen Builders, Inc.

c. a house and lot situated in Baguio City. In 2007, the parties executed a contract to sell where
(2020) Kaizen Builders bought back from Ofelia the property for P2,700,000.00 and swapped it with another house and lot in Kingstone Ville, Camp 1,
Baguio City. Later, the parties replaced the contract to sell with another agreement where Ofelia invested the P2,200,000.00 in Kaizen Builders'
development of the Kingstone Ville project. In 2008, however, the parties rescinded the investment agreement where Ofelia received
P320,000.00 from Kaizen Builders. Kaizen defaulted. Ofelia filed a case for collection of sum of money against Kaizen in 2011. The RTC ruled in
favor of Ofelia which was appealed by Kaizen to the CA in 2013. Meanwhile, Kaizen filed before the special commercial court a petition for
corporate rehabilitation. Rehabilitation court issued a Commencement Order on August 12, 2015 which consolidated all legal proceedings by and
against Kaizen Builders and suspended all actions for the enforcement of claims against it Kaizen Builders moved to consolidate the appealed
case with the rehabilitation proceedings but the CA denied the motion on the ground that the appeal would not affect the rehabilitation case
since the two proceedings involved different parties, issues and reliefs.
ISSUE: Was CA correct in disallowing the consolidation of the complaint for sum of money with the special proceedings case?
HELD: No. Commencement/Stay Order have the effects of suspending all actions for the enforcement of claims against the debtor and
consolidating the resolution of all legal proceedings by and against it. Hence, when the Commencement Order was issued by the rehabilitation
court, its effect was to suspend the proceedings in the CA at whatever stage it may be, considering that the appeal emanated from a money claim
against a distressed corporation which is deemed stayed pending the rehabilitation case. The date when the claim arose, or when the action was
filed, has no bearing at all in deciding whether the action or claim is suspended. The Commencement Order ipso jure suspended the proceedings
in the CA at whatever stage it may be, considering that the appeal emanated from a money claim against a distressed corporation which is
deemed stayed pending the rehabilitation case. Moreover, the appeal before the CA is not one of the instances where a suspension order is
inapplicable. The stay order embraces all phases of the suit, except in those instances expressly mentioned in Section 18 of RA No. 10142. A
court-approved rehabilitation plan may include a reduction of liability
ALLIED BANKING v. EQUITABLE -On 11 September 2006, Equitable PCI Bank, Inc. (EPCIB), as creditor, filed a petition for the corporate rehabilitation of its debtor Steel Corp of
PCI (2018) the Philippines (SCP) with the RTC.
- Allied Banking Corporation (ABC) granted SCP with a revolving credit facility denominated as a letter of credit/trust receipt line in the amount of
P100 million, which SCP availed of to finance the importation of its raw materials. Pursuant to this arrangement, SCP executed a trust receipt
(TR), which authorizes ABC to charge SCP's account.
-RTC issued stay order.
-Later, petitioner applied the remaining proceeds of SCP's Current Account No. 1801-004-87-6 (subject account) in the amount of P6,750,000.00,
maintained with its Aguirre Branch, to its obligations under the TR.
- SCP filed an urgent omnibus motion alleging that petitioner violated the rehabilitation court's stay order when it applied the proceeds of its
current account to the payment of obligations covered by the stay order. Consequently, it prayed for ABC to immediately restore its current
account, credit back to said account the amount of P6,750,000.00, and honor any and all transactions of SCP in said account.
- On 2 November 2006, ABC filed an opposition, mainly contending that SCP's obligations with it had become due and demandable, rendering
legal compensation valid and proper; that petitioner did not violate the stay order, as it had no notice of its issuance at the time of the legal
compensation; and that petitioner cannot be legally compelled to extend credit to SCP against its will.
-ABC asserts that it was not yet bound by the 12 September 2006 stay order when it made the setoff on 15 September 2006 because jurisdiction
over it had not yet been acquired by the rehabilitation court; the stay order was only published on 16 September 2006.
ISSUE: Can the RTC acting as rehabilitation court nvalidate an act already consummated prior to the date that the subject order was published,
since it was only on said date that the court acquired jurisdiction over ABC?
HELD: Yes.
- The Rehabilitation Rules provides that the court shall issue a commencement order once it finds the petition for rehabilitation sufficient
in form and substance.9 This commencement order primarily contains: a declaration that the debtor is under rehabilitation, the
appointment of a rehabilitation receiver, a directive for all creditors to file their verified notices of claim, and an order staying claims
against the debtor.10 The rehabilitation proceedings shall be deemed to have commenced from the date of filing of the petition,11
which is also termed the commencement date.
- Under the same Rules, the effects of such commencement order shall retroact to the date that the petition was filed, and renders void
 any attempt to collect on or enforce a claim against the debtor or to set off any debt by the debtor's creditors, after the commencement
date.
- Rehabilitative and equitable purpose : Rehabilitation proceedings in our jurisdiction 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. 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
- Certainly, when a petition for rehabilitation is filed and subsequently granted by the court, its purpose will be defeated if the debtors are
still allowed to arbitrarily dispose of their property and pay their liabilities, outside of the ordinary course of business and what is
allowed by the court, after the filing of the said petition. Such a scenario does not promote an environment where the debtor could
regain its operational footing, contrary to the dictates of rehabilitation.
METROPOLITAN BANK AND - Metropolitan Bank extended various credit accommodations and loan facilities to Fortuna. Fortuna, was organized to manufacture special and
TRUST COMPANY vs FORTUNA craft papers from, waste and scrap materials, and which it used to sell its products principally to manufacturers of corrugated boxes, cement
PAPER MILL & PACKAGING paper bags, and other stationary paper products.In order to secure these obligations, Fortuna mortgaged to MBTC its real and movable
CORP (2018) properties as well as several pieces of realty owned by several sister companies.
- Fortuna eventually ended up defaulting on its obligations to MBTC, and failed to pay said indebtedness along with the interests and penalties
despite repeated demands on the part of MBTC. Around this same period, the Manila Electric Company (Meralco) filed a criminal complaint
against Fortuua for pilferage of electricity and cut off the latter's electrical supply.
- Fortuna filed on June 21, 2007 a Petition for Corporate Rehabilitation (Rehabilitation Petition) with the RTC of Malabon, Branch 74. Attached
therein was Fortuna's proposed Rehabilitation Plan, which consisted mainly of (i) the resumption and continuance of its business, to be made
possible by the entry of a supposed investor and a debt moratorium on principal interest, and (ii) entry into the business condominium
development. RTC issued stay order.
- MBTC argues that a corporation may petition that it be placed under rehabilitation only if it is in the financial condition of a debtor who foresees
the majority of its debts and its failure to meet them. Thus, this element of foresight is allegedly wanting where a debtor has already failed to
meet its debts that have fallen due, such as in the case of Fortuna. The unequivocal language of the provision, according to the interpretation of
MBTC, shows the manifest intent on the part of the drafters to make a distinction between debtors already in default and those who are not, to
the end that only the latter may petition to be placed under rehabilitation, and which means that no exception or condition should be introduced
save that given expressly in the law.MBTC also contends that, notwithstanding the question of eligibility of Fortuna, the CA overlooked the many
glaring and patent deficiencies of Fortuna's Rehabilitation Plan, which include the alleged absence of material financial commitments to support
it. RTC eventually terminated the rehabilitation proceeding.
ISSUE: whether or not a corporation already in debtor default may file a petition for rehabilitation?
HELD: No.Under the Interim Rules and Procedures of Corporate Rehabilitation: Sec. 1. Who May Petition. - Any debtor who foresees the
impossibility of meeting its debts when they respectively fall due, or any creditor or creditors holding at least twenty-five percent (25%) of the
debtor's total liabilities, may petition the proper Regional Trial Court to have the debtor placed under rehabilitation. (Emphasis Ours) A plain
reading of the provision shows that the Interim Rules does not make any distinction between a corporation which is already in debt and a
corporation which foresees the possibility of debt, or which would eventually yet surely fall into the same, but may at present be free from any
financial liability. Thus, a corporation already in a state of insolvency is not precluded from filing its Rehabilitation Petition to facilitate its
restoration to its former busines's stability. What is essential in case of rehabilitation is the inability of the debtor corporation to pay its dues as
they fall due. In the case herein, accepting MBTC's proposition that debtor companies already in default are unqualified to file a petition for
corporate rehabilitation not only contradicts the purpose of the law, as stated, but also advocates a limiting bar that is not found under the
pertinent provisions. Thus, the condition that triggers rehabilitation proceedings is not the maturation of a corporation's debts but the
inability of the debtor to pay these.

Professor Stephanie V. Gomez of the University of the Philippines College of Law suggests specific characteristics of an economically feasible
rehabilitation plan:
 a. The debtor has assets that can generate more cash if used in its daily operations than if sold. b. Liquidity issues can be addressed by a
practicable business plan that will generate enough cash to sustain daily operations. c. The debtor has a definite source of financing for
the proper and full implementation of a Rehabilitation Plan that is anchored on realistic assumptions and goals

This court enumerated the characteristics of a rehabilitation plan that is infeasible: 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 Court disagrees with the finding of the lower courts that the Rehabilitation Plan is one that is economically feasible for several reasons. First,
the Rehabilitation Plan is primarily premised on speculative investments and the lack of material financial commitments. This commitment may
include the voluntary undertakings of the stockholders or the would-be investors of the debtor-corporation indicating their readiness,
willingness, and ability to contribute funds or property to guarantee the continued successful operation of the debtor-corporation during the
period of rehabilitation. x x x Case law holds that nothing short of legally binding investment commitment/s from third parties is required to
qualify as a material financial commitment. x x x Here, no such binding investment was presented. It is clear from a perusal of the Rehabilitation
Plan that the process is heavily, if not completely predicated on speculative business proposals as well as the contingent entry of the potential
foreign investor, Polycity. It is emphasized that the entry of Polycity is wholly predicated on conditions imposed on Fortuna by the former, as
seen in the letter of Polycity,
PHILIPPILE BANK OF - On February 27, 2004, Basic Polyprinters, along with the eight other corporations belonging to the Limtong Group of Companies filed a joint
COMMUNICATIONS vs BASIC petition for suspension of payments with approval of the proposed rehabilitation in the RTC.
POLYPRINTER AND - The RTC issued a stay order, and eventually approved the rehabilitation plan, but the CA reversed the RTC on October 25, 2005,5 and directed
PACKAGING CORP (2014) the petitioning corporations to file their individual petitions for suspension of payments and rehabilitation in the appropriate courts.
- Basic Polyprinters brought its individual petition for corporate rehabilitation, averring therein that: (a) its business since incorporation had been
very viable and financially profitable; (b) it had obtained loans from various banks, and had owed accounts payable to various creditors; (c) the
Asian currency crisis, devaluation of the Philippine peso, and the current state of affairs of the Philippine economy, coupled with: (i) high interest
rates, penalties and charges by its creditors; (ii) low demand for gift items and cards due to the economic recession and the use of cellular
phones; (iii) direct competition from stores like SM, Gaisano, Robinson and other malls; and (iv) the fire of July 19, 2002 that had destroyed its
warehouse containing inventories worth P264,000,000.00, resulting in difficulty of meeting its obligations;
- the RTC issued the stay order. It appointed Manuel N. Cacho III as the rehabilitation receiver, and required all creditors and interested parties,
including the Securities and Exchange Commission (SEC), to file their comments. CA affirmed RTC’s commencement and stay order.
- Petitioner contends that the sole issue in corporate rehabilitation is one of liquidity; hence, the petitioning corporation should have sufficient
assets to cover all its indebtedness because it only foresees the impossibility of paying the indebtedness falling due. It claims that rehabilitation
became inappropriate because Basic Polyprinters was insolvent due to its assets being inadequate to cover the outstanding obligations.
- The petitioner next argues that Basic Polyprinters did not present any material financial commitment in the rehabilitation plan, thereby violating
Section 5, Rule 4 of the Interim Rules, the rule applicable at the time of the filing of the petition for rehabilitation. In that regard, Basic
Polyprinters made no commitment in relation to the infusion of fresh capital by its stakeholders,29 and presented only a “lopsided” protracted
repayment schedule that included the dacion en pago involving an asset mortgaged to the petitioner itself in favor of another creditor.

ISSUES: Was the approval of the corporate rehabilitation pla proper?

HELD: No because there is insufficient financial commitment. Basic Polyprinters presented financial commitments, as follow (a) Additional P10
million working capital to be sourced from the insurance claim; (b) Conversion of the directors’ and shareholders’ deposit for future subscription
to common stock; (c) Conversion of substituted liabilities, if any, to additional paid-in capital to increase the company’s equity; and (d) All
 liabilities (cash advances made by the stockholders) of the company from the officers and stockholders shall be treated as trade payables.

The commitment to add P10,000,000.00 working capital appeared to be doubtful considering that the insurance claim from which said working
capital would be sourced had already been written-off by Basic Polyprinters’s affiliate, Wonder Book Corporation.34 A claim that has been
written-off is considered a bad debt or a worthless asset,35 and cannot be deemed a material financial commitment for purposes of
rehabilitation. At any rate, the proposed additional P10,000,000.00 working capital was insufficient to cover at least half of the shareholders’
deficit that amounted to P23,316,044.00 as of June 30, 2006.

We also declared in Wonder Book Corporation v. Philippine Bank of Communications (Wonder Book)36 that the conversion of all deposits for
future subscriptions to common stock and the treatment of all payables to officers and stockholders as trade payables was hardly constituting
material financial commitments. Such “conversion” of cash advances to trade payables was, in fact, a mere re-classification of the liability entry
and had no effect on the shareholders’ deficit. On the other hand, we cannot determine the effect of the “conversion” of the directors’ and
shareholders’ deposits for future subscription to common stock and substituted liabilities on the shareholders’ deficit because their amounts
were not reflected in the financial statements contained in the rollo.

Basic Polyprinters’s rehabilitation plan likewise failed to offer any proposal on how it intended to address the low demands for their products and
the effect of direct competition from stores like SM, Gaisano, Robinsons, and other malls. Even the P245 million insurance claim that was
supposed to cover the destroyed inventories worth P264 million appears to have been written-off with no probability of being realized later on.

We observe, too, that Basic Polyprinters’s proposal to enter into the dacion en pago to create a source of “fresh capital” was not feasible because
the object thereof would not be its own property but one belonging to its affiliate, TOL Realty and Development Corporation, a corporation also
undergoing rehabilitation. Moreover, the negotiations (for the return of books and magazines from Basic Polyprinters’s trade creditors) did not
partake of a voluntary undertaking because no actual financial commitments had been made thereon.

Worthy of note here is that Wonder Book Corporation was a sister company of Basic Polyprinters, being one of the corporations that had filed
the joint petition for suspension of payments and rehabilitation in SEC Case No. 031-04 adverted to earlier. Both of them submitted identical
commitments in their respective rehabilitation plans. As a result, as the Court observed in Wonder Book,37 the commitments by Basic
Polyprinters could not be considered as firm assurances that could convince creditors, future investors and the general public of its financial and
operational viability.
Is liquidity an issue in corporate rehabilitation? NO. The basic issues in rehabilitation proceedings concern the viability and desirability of
continuing the business operations of the petitioning corporation.

What is insolvency? The term insolvent is defined in Republic Act No. 10142 as “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.

What may be included in material financial commitment? This may include the voluntary undertakings of the stockholders or the would-be
investors of the debtor-corporation indicating their readiness, willingness and ability to contribute funds or property to guarantee the continued
successful operation of the debtor corporation during the period of rehabilitation

SAN JOSE TIMBER - Petitioner CSDC is the controlling stockholder and creditor of petitioner SJTC, being the owner of more than 99% of its
CORPORATION vs SEC (2012) outstanding capital stock. Petitioner SJTC is primarily engaged in the operation of a logging concession with a base camp
in Pabanog, Wright, Western Samar. On February 8, 1989, the DENR issued a Moratorium Order (MO) suspending all
logging operations in the island of Samar effective February 1989 up to May 30, 1989.
- As a consequence, SJTC was constrained to cease operations effective February 8, 1989, despite the fact that the
expiration of the period set forth in the MO was still up to May 30, 1989. The cessation of its operations caused SJTC to
lose all its income.
- Thus, on August 7, 1990, SJTC and CSDC filed with the SEC a petition for the appointment of a rehabilitation receiver
and for suspension of payments. granted the appointment of a rehabilitation receiver and suspension of payments.
- Meanwhile, on March 4, 1996, prior to the expiration of the waiting period to commence rehabilitation, the petitioners
filed their Motion For Settlement of Claims Against Petitioner San Jose dated February 21, 1996. Considering that the
lifting of the logging moratorium in Samar did not appear to be close to fulfillment at that juncture, the petitioners
offered to either (1) pay the claims of the creditor in full provided they await the rehabilitation of SJTC; or (2)
immediately settle the claims of the creditors by paying them 30% of their substantiated claims.
- the SEC granted the motion for settlement of claims subject to certain conditions. Subsequently, the petitioners filed
their Motion to Dispose of Personal Properties dated May 7, 1997 which was granted by the SEC.
- On May 6, 2002, however, the SEC En Banc motu proprio handed down its decision terminating the rehabilitation
proceedings and dismissing the petition for rehabilitation. The SEC opined that SJTC could no longer be rehabilitated
because the logging moratorium/ban, which was crucial for its rehabilitation, had not been lifted. The only thing that
keeps petitioners interested in the instant petition is San Jose’s Timber Licensing Agreement (TLA) that is set to expire in
2007, the preservation of which appears to still be of some value to petitioners.
On March 8, 2004, the petitioners filed this petition for review before this Court on the ground that the CA erred in
affirming the dissolution of SJTC when the vast majority of the creditors had agreed to await the rehabilitation of SJTC.
They believe that the rehabilitation was still feasible considering that the TLA was still valid up to 2007 and under the
proposed revised rehabilitation plan of SJTC, the latter would only need 24 months after the lifting of the logging
moratorium to fully settle the claims of the creditors, except those of the affiliates.
- Significantly, except for the Social Security System (SSS), which incidentally had no more claims against SJTC, none of
the creditors filed an opposition to or comment on the petition.

- Meanwhile, during the pendency of the petition before the Court, the DENR issued an Order dated August 15, 2005,
allowing SJTC to resume operations and extending the term of the TLA up to 2021.
-Petitioners argued that the SEC illegally ordered the dissolution of SJTC because (1) the rehabilitation is still feasible; and
(2) the immediate dissolution is actually detrimental to the interests of the creditors.
- SEC argued that SJTC’s rehabilitation is no longer feasible and viable because it has already disposed of its properties
such as various machineries and equipment and other valuable assets which are indispensable to its logging operations.
In other words, SJTC can no longer continue its logging operations because it now lacks the necessary tools and
equipment to pursue its business operations.
- Finally, the SEC posits that liquidating SJTC would work to its advantage because the accrued interest on all its debts
would no longer accumulate. Its creditors would get a higher percentage for the settlement of their claims. Likewise, the
early liquidation of SJTC could result in a big turnout of proceeds of the sale of its assets that could satisfy all the claims
of its creditors
 ISSUE: WON petitioner should be rehabilitated?

HELD: The case was remanded to the SEC. On August 15, 2005, however, an event supervened. With the lifting of the
logging moratorium in Samar, an indispensable element for the possible rehabilitation of SJTC has been made a reality.
Considering the extension granted by the DENR, the TLA of SJTC will expire on 2021, or nine (9) years from now. It
appears from the proposed Adjusted Rehabilitation Plan,26 that SJTC would only need a period of 24 months from the
lifting of the logging moratorium within which to liquidate all of its liabilities, except those of its affiliates.
The Court is of the considered view that SJTC should be given a second chance to recover and pay off its creditors. The
only practical way of doing it is to resume the rehabilitation of SJTC which estimated its first year production upon
resumption of operations at 29,000 cubic meters.
Thus, SJTC’s rehabilitation appears highly feasible and the proceedings thereon should be revived. It should, therefore,
be given an opportunity to be heard by the SEC to determine if it could maintain its corporate existence. For said reason,
the case should be remanded to the SEC so that it could factor in the aforecited figures and claims of SJTC and assess
whether or not SJTC could still recover.

What are included in a rehabilitation plan?

ANS: Section 5 of the Interim Rules of Procedure on Corporate Rehabilitation provides the requisites thereof: SEC. 5.
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 debtor's 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.

"A successful rehabilitation usually depends on two factors: (1) a positive change in the business fortunes of the debtor,
and (2) the willingness of the creditors and shareholders to arrive at a compromise agreement on repayment burdens,
extent of dilution, etc. The debtor must demonstrate by convincing and compelling evidence that these circumstances
exist or are likely to exist by the time the debtor submits his ‘revised or substitute rehabilitation plan for the final
approval of the court. Given the high standards that the Rules require, mere unsupported assertions by the debtor that
"the parties are close to an agreement" or that "business is expected to pick up in the next several quarters" are not
sufficient.
BANK OF THE PHILIPPINE - Sarabia is a corporation duly organized and existing under Philippine laws engaged with owning, leasing, managing
ISLANDS vs SARABIA MANOR and/or operating hotels, restaurants, barber shops, beauty parlors, sauna and steam baths, massage parlors and such
HOTEL CORPORATION (2013) other businesses incident to or necessary in the management or operation of hotels.
- In 1997, Sarabia obtained a P150,000,000.00 special loan package from Far East Bank and Trust Company (FEBTC) in
order to finance the construction of a five-storey hotel building (New Building) for the purpose of expanding its hotel
business. An additional P20,000,000.00 stand-by credit line was approved by FEBTC in the same year.
- The foregoing debts were secured by real estate mortgages over several parcels of land8 owned by Sarabia and a
comprehensive surety agreement dated September 1, 1997 signed by its stockholders.9 By virtue of a merger, Bank of
the Philippine Islands (BPI) assumed all of FEBTC’s rights against Sarabia.
- Sarabia started to pay interests on its loans as soon as the funds were released in October 1997. However, largely
because of the delayed completion of the New Building, Sarabia incurred various cash flow problems. Thus, despite the
fact that it had more assets than liabilities at that time,11 it, nevertheless, filed, on July 26, 2002, a Petition12 for
corporate rehabilitation (rehabilitation petition) with prayer for the issuance of a stay order before the RTC as it foresaw
the impossibility to meet its maturing obligations to its creditors when they fall due.
- Sarabia claimed that its cash position suffered when it was forced to take-over the construction of the New Building due
to the recurring default of its contractor, Santa Ana – AJ Construction Corporation (contractor),13 and its subsequent
abandonment of the said project.14 Accordingly, the New Building was completed only in the latter part of 2000, or two
years past the original target date of August 1998, thereby skewing Sarabia’s projected revenues. In addition, it was
compelled to divert some of its funds in order to cover cost overruns. The situation became even more difficult when the
grace period for the payment of the principal loan amounts ended in 2000 which resulted in higher amortizations.
Moreover, external events adversely affecting the hotel industry, i.e., the September 11, 2001 terrorist attacks and the
Abu Sayyaf issue, also contributed to Sarabia’s financial difficulties.15 Owing to these circumstances, Sarabia failed to
generate enough cash flow to service its maturing obligations to its creditors.
- RTC issued stay order. BPI filed an opposition. Receivier found that Sarabia may be rehabilitated. RTC and CA affirmed
Sarabia’s rehabilitation.
- BPI mainly argues that the approved rehabilitation plan did not give due regard to its interests as a secured creditor in
view of the imposition of a fixed interest rate of 6.75% p.a. and the extended loan repayment period.45 It likewise avers
that Sarabia’s misrepresentations in its rehabilitation petition remain unresolved

ISSUE: Was the approval of Sarabia’s rehabilitation proper?

HELD: Yes. The determination of whether or not due regard was given to the interests of BPI as a secured creditor in the
approved rehabilitation plan partakes of a question of fact since it will require a review of the sufficiency and weight of
evidence presented by the parties – among others, the various financial documents and data showing Sarabia’s capacity
to pay and BPI’s perceived cost of money – and not merely an application of law. Therefore, given the complexion of the
issues which BPI presents, and finding none of the above-mentioned exceptions to exist, the Court is constrained to
dismiss its petition, and prudently uphold the factual findings of the courts a quo which are entitled to great weight and
respect, and even accorded with finality. This especially obtains in corporate rehabilitation proceedings wherein certain
commercial courts have been designated on account of their expertise and specialized knowledge on the subject matter,
as in this case.

Sarabia’s rehabilitation is proper; First, Sarabia has the financial capability to undergo rehabilitation. Based on the
 Receiver’s Report, Sarabia’s financial history shows that it has the inherent capacity to generate funds to repay its loan
obligations if applied through the proper financial framework. Second, Sarabia has the ability to have sustainable profits
over a long period of time.

As concluded by the Receiver, Sarabia’s projected revenues shall have a steady year-on-year growth from the time that it
applied for rehabilitation until the end of its rehabilitation plan in 2018, albeit with decreasing growth rates (growth rate
is at 26% in 2003, 5% in 2004-2007, 3% in 2008-2018). Third, the interests of Sarabia’s creditors are well-protected.

What is the cram-down clause?

ANS: Section 23, Rule 4 of the Interim Rules of Procedure on Corporate Rehabilitation 56 (Interim Rules) states
that a rehabilitation plan may be approved even over the opposition of the creditors holding a
majority of the corporation’s total liabilities if there is a showing that rehabilitation
is  feasible  and  the opposition of the creditors is manifestly unreasonable. Also known as the “cram-
down” clause, this provision, which is currently incorporated in the FRIA, 57 is necessary to curb the majority
creditors’ natural tendency to dictate their own terms and conditions to the rehabilitation, absent due regard to
the greater long-term benefit of all stakeholders. Otherwise stated, it forces the creditors to accept the terms
and conditions of the rehabilitation plan, preferring long-term viability over immediate but incomplete
recovery.

When can a creditor’s opposition to petition for rehabilitation be deemed as manifestly unreasonable?
ANS: Although undefined in the Interim Rules, it may be said that the opposition of a distressed corporation’s majority
creditor is manifestly unreasonable if it counter-proposes unrealistic payment terms and conditions which would, more
likely than not, impede rather than aid its rehabilitation. The unreasonableness becomes further manifest if the
rehabilitation plan, in fact, provides for adequate safeguards to fulfill the majority creditor’s claims, and yet the latter
persists on speculative or unfounded assumptions that his credit would remain unfulfilled. In the case, In this case, the
Court finds BPI’s opposition on the approved interest rate to be manifestly unreasonable considering that: (a) the 6.75%
p.a. interest rate already constitutes a reasonable rate of interest which is concordant with Sarabia’s projected
rehabilitation; and (b) on the contrary, BPI’s proposed escalating interest rates remain hinged on the theoretical
assumption of future fluctuations in the market, this notwithstanding the fact that its interests as a secured creditor
remain well-preserved.

FAR EAST BANK AND TRUST On September 16, 1997, the EYCO Group of Companies4 (EYCO) and its controlling stockholders, namely Eulogio O. Yutingco, Caroline Yutingco-
CO. vs UNION BANK OF THE Yao and Theresa5 T. Lao (the Yutingcos) filed with the Securities and Exchange Commission (SEC) a "Petition for the Declaration of Suspension of
PHILIPPINES (2019) Payment[s], Formation and Appointment of Rehabilitation Receiveri Committee, Approval of Rehabilitation Plan with Alternative Prayer for
Liquidation and Dissolution of Corporations" (SEC Case No. 09-97-5764).6
- On September 19, 1997, a consortium of EYCO's creditors (Consortium) composed of 22 domestic banks, including Union Bank of the Philippines
(Union Bank), convened for the purpose of deciding their options in the event that EYCO and its co-petitioners in SEC Case No. 09-97-5764 would
invoke the provisions of Presidential Decree (PD) No. 902-A, as amended. Among the matters agreed upon during said meeting were the
engagement of a lawyer to represent the creditors and composition of the management committee from seven banks with the highest
exposures.7
- However, Union Bank, without notifying the members of the Consortium, decided to break away from the group by suing EYCO and the
Yutingcos in the regular courts. In its Complaint,9 Union Bank alleged that Spouses Eulogio and Bee Kuan Yutingco (Spouses Yutingco) were its
debtors by virtue of a Continuing Surety Agreement10 dated September 12, 1996 to secure credit accommodations amounting to
P110,000,000.00 granted to Nikon Industrial Corporation, Nikolite Industrial Corporation and 2000 Industries Corporation (collectively known as
NIKON), which they owned. Upon investigation, Union Bank confirmed that majority of NIKON's assets were used to purchase real estate
properties through EYCO, purposely to shield NIKON from answering for its debts. EYCO owned condominium units and parking spaces in Tektite
Tower and the Strata 200 Building Condominium Project. On September 15, 1997, these properties were sold to herein petitioner, Far East Bank
and Trust Company (FEBTC). Union Bank claimed that the sale of the properties was fraudulent and done in bad faith to prevent them from
being levied upon; in fact, it was made a day before the Spouses Yutingco and NIKON filed a petition for suspension of payments with the SEC.
It is clear that EYCO, in collusion with the Spouses Yutingco and FEBTC, intended to transfer all or nearly all of its properties because of its
insolvency or great embarrassment financially. FEBTC, being a vendee in fraud of creditors, was deemed an implied trustee of the properties and
should hold them for the benefit of those who are entitled thereto. Union Bank, as unpaid creditor of the true owner of the property, is entitled
to nullify the sale in favor of FEBTC.
- On September 19, 1997, an Order13 was issued by the SEC enjoining the disposition of the debtor corporations' properties in any manner
except in the ordinary course of business and payment outside of legitimate business expenses during the pendency of the proceedings and
suspending all actions, claims and proceedings against EYCO until further orders from the SEC.
- Union Bank filed a petition for certiorari in the CA (CA-G.R. SP No. 45774) assailing the September 19, 1997 Order declaring the suspension of
payments for EYCO and directing the creation of the MANCOM. Union Bank contended that these issuances were premature and would render
the motion to dismiss filed before the RTC, in Civil Case No. 66477, as moot. The steering committee of the Consortium composed of the
Philippine National Bank, FEBTC, Allied Bank, Traders Royal Bank, Philippine Commercial International Bank, Bank of Commerce and Westmont
Bank, were allowed to intervene by the CA. However, in the same decision of the CA, the petition filed by Union Bank was dismissed for failure to
exhaust administrative remedies and forum shopping, prompting the latter to seek recourse in this Court
- On May 19, 1998, this Court promulgated its Decision in Union Bank of the Philippines v. Court of Appeals, et al.16 holding that the SEC's
jurisdiction on matters of suspension of payments is confined only to those initiated by corporations, partnerships or associations. Consequently,
the SEC exceeded its jurisdiction in declaring the Spouses Yutingco together with EYCO under suspension of payments. Nonetheless, based on our
previous ruling in Modern Paper Products, Inc., et al. v. Court of Appeals, et al.,17 the Rules of Court on misjoinder of parties may be applied.
Thus, the proper remedy was not to dismiss the entire petition for suspension of payments but to dismiss it only as against the party upon whom
the tribunal or court cannot acquire jurisdiction
- On December 18, 1998, the SEC issued an Order adopting the Unsolicited Rehabilitation Proposal submitted by Strategies and Alliances
Corporation (SAC) which was granted a period of six months within which to complete the groundwork for the effective implementation of the
early "all-debt payment plan."
-As described by the SEC, the SAC plan proposed to settle and extinguish all financial obligations of EYCO to its creditors, secured and unsecured,
amounting to P5.2 Billion - P4 Billion by banks and P1.2 Billion by non-banks. The repayment of principal and interest thereon on stated due dates
were guaranteed to be paid in cash by the Republic of the Philippines through the Home Insurance Guaranty Corporation (HIGC).
The SEC Order further barred all creditors from pursuing their respective claims until further orders. The Consortium appealed the December 18,
1998 Order to the SEC En Banc. On September 14, 1999, the SEC En Banc rendered its Decision20 finding the SAC plan not viable and feasible for
the rehabilitation of EYCO. Accordingly, the SAC plan and suspension of payment proceedings were ordered terminated, the committees created
dissolved and discharged. The SEC further ordered the dissolution and liquidation of the petitioning corporations. Subsequently, a Liquidator was
appointed pursuant to the provisions of the Rules of Procedure on Corporate Rehabilitation
- On October 10, 2000, the SEC issued an Order22 directing all creditors claiming against EYCO to file their formal claims with the Liquidator. It
likewise declared that all such claims shall be deemed barred if not filed within 30 days after publication of the said order in two newspapers of
general circulation in the Philippines.
- Motions to Dismiss Civil Case No. 66477. The Spouses Yutingco filed a Motion to Dismiss on the ground of pendency of the proceedings in the
SEC which had acquired prior jurisdiction over the subject matter of the case. FEBTC also filed a motion to dismiss on the ground of Union Bank's
failure to implead NIKON, which are indispensable parties. Accordingly, the court should suspend the trial until such parties are made either as
plaintiffs or defendants. M
- In its Opposition,28 Union Bank asserted that litis pendentia is not applicable in this case as it is not a party to the SEC proceedings for
suspension of payments. Also, there is no identity of causes of action since the present case is founded on Union Bank's right to effect retention
lien on the properties of EYCO pursuant to the provisions of the continuing surety agreement executed by the Spouses Yutingco. On the matter of
jurisdiction, Union Bank contended that the court has the exclusive authority to hear Civil Case No. 66477.
- In their Reply to Opposition,29 EYCO and Spouses Yutingco reiterated that NIKON are indispensable parties considering that Union Bank claimed
that the assets of said corporations were allegedly diverted to purchase real properties "under the name" of EYCO. Union Bank's theory is the
true ownership of NIKON of the properties, the same being merely registered under EYCO. NIKON, being the actual sellers, were indispensable
parties without whom no final determination of action can be had. Moreover, an action for rescission being subsidiary, cannot be instituted
except "when the party suffering damages has no other legal means to obtain reparation of the same." No allegation of unavailability of other
remedies was made by Union Bank in its complaint. Lastly, it was reiterated that it was now the SEC appointed interim receiver who was given
specific authority to take custody of all assets of the distressed corporations. Hence, Union Bank should bring its claims before the said receiver.
- RTC granted the motions to dismiss on the ground of litis pendentia. CA affirmed.
- Petitioner contends that the CA erred in not dismissing Civil Case No. 66477 in view of another pending case, SEC Case No. 09-97-5764 filed on
September 16, 1997. The issue in the SEC case is precisely the settlement of EYCO's obligations to its creditors, which include herein respondent
Union Bank. Here, Union Bank also seeks to collect from the distressed corporations of EYCO. The CA failed to consider the well settled rule that
all questions involving properties of an insolvent are properly cognizable by the insolvency court to the exclusion of all other courts. Civil Case No.
66477 is necessarily related to, and thus precluded by, the SEC Case which has exclusive jurisdiction "to decide all questions concerning the title
or right of possession" over the properties of the distressed corporation. The issue of invalidity of the conveyance of property of EYCO will
necessarily have to be threshed out in the SEC case. Further, petitioner asserts that the CA incorrectly ruled that the parties in the two cases are
different. The law does not require that there be absolute identity of parties with respect to a later case, but only substantial identity of parties.
Union Bank, as one of the creditors of NIKON, is a compulsory party in the SEC case. Thus, judgment in the SEC case will bar the proceedings in
Civil Case No. 66477 and vice-versa.
- On the third issue, petitioner argues that, insofar as the rights and interests of the creditors of corporations under a management committee,
such as Union Bank, and the judicial enforcement of said rights are concerned, they are collectively vested upon the rehabilitation receiver. With
the appointment of a MANCOM, Union Bank clearly has no legal personality to impugn the sale by EYCO to FEBTC. The proper party to institute
such an action is the rehabilitation receiver.—This is CORRECT
- On litis pendentia, respondent maintains that there is no identity of parties considering that this Court in Union Bank of the Phils. v. Court of
Appeals44 has ordered that the Spouses Yutingco be dropped as "party-defendants" in the SEC case due to lack of jurisdiction over their persons.
Petitioner's argument that NIKON are indispensable parties in Civil Case No. 66477 is unavailing, inasmuch as the creditor has the right to
proceed against the surety independent of the debtor. Here, the Continuing Surety Agreement executed by the Spouses Yutingco in favor of
Union Bank, unequivocally provides that the former bind themselves solidarity with their principal (NIKON).

Neither is there identity in causes of action considering that it is the fraudulent conveyance of properties by the Spouses Yutingco through EYCO
properties in favor of FEBTC that caused Union Bank's cause of action to accrue. Employing another test to determine the identity of causes of
action, i.e., whether the same evidence will sustain both actions, respondent points out that it will have to present evidence in the SEC case
proving the Spouses Yutingcos' obligation to it and their consequent failure to abide by the same. Such evidence, however, is not needed in the
annulment of sale case (Civil Case No. 66477).

As to petitioner's allegation that the approved Liquidation Plan is binding on the respondent, under which NIKON's obligation with Union Bank
was extinguished, respondent asserts that such does not warrant the reversal of the CA Decision. As found by the CA, Union Bank is not a party to
the SEC case and hence not bound by any order or proceeding therein.

ISSUE: Is litis pendentia applicable in the case, civil case filed by the Union Bank?
HELD: No. On the first requisite, there is no identity of parties considering that the Yutingcos were ordered dropped from SEC Case No. 09-97-
5764 pursuant to Union Bank of the Phils. v. Court of Appeals50 which was decided in 1998. This Court ruled therein that the SEC cannot acquire
jurisdiction over an individual filing a petition for suspension of payments together with a corporate entity.

In Civil Case No. 66477 filed by Union Bank, the Spouses Yutingco are being sued as sureties for the loans obtained by NIKON from Union Bank,
along with petitioner who is the present registered owner of the EYCO properties. SEC Case No. 09-97-5764 was initiated by EYCO and the
Yutingcos, seeking a suspension of payments for its financially distressed companies, which included NIKON and petitioner. Notably, NIKON is not
impleaded as defendants in Civil Case No. 09-97-5764, Union Bank having asserted that the Spouses Yutingco are the real parties in interest being
the controlling stockholders of NIKON and EYCO, and sureties of NIKON's loans with Union Bank.52 While petitioner and Union Bank are among
the creditors affected by the filing of the SEC case, the proceedings therein are not adversarial.

The second requisite is likewise absent. In Civil Case No. 66477, Union Bank sought to rescind the sale of certain properties of EYCO to petitioner,
on the theory that the Yutingcos/EYCO colluded with petitioner to divert the assets of NIKON to purchase real properties under the name
ofEYCO. Union Bank prayed that ownership of the properties be reverted to NIKON so that these can be used to pay for credit facilities extended
to it by Union Bank, pursuant to the undertaking of the Yutingcos under the Continuing Surety Agreement.

On the other hand, SEC Case No. 09-97-5764 was initiated by EYCO seeking a declaration of suspension of payments under the provisions of P.D.
No. 902-A. While it is true that EYCO's creditors have been directed to file its claims under existing contracts with the debtor-corporations - the
ultimate objective being the equitable distribution of earnings from the business under rehabilitation -- the validity of the sale to petitioner of
EYCO's properties is the principal issue in Civil Case No. 66477. Thus, it cannot be said that the rights asserted and the reliefs prayed for are the
same.53

Moreover, SEC took cognizance of the petition for suspension of payments, having been vested with exclusive jurisdiction under P.D. No. 902-A
over such recourse by financially distressed corporations. While a management committee or rehabilitation receiver may review or seek
modification of existing contracts of the debtor-corporation, this is merely an incident of the specific powers granted by law and only for the
purpose of maintaining the viability of the debtor-corporation which would ultimately benefit the creditors. The RTC, on the other hand,
unquestionably has jurisdiction to hear and decide actions incapable of pecuniary estimation, such as the suit for rescission of sale (Civil Case No.
66477).

Finally, the third element is also lacking. Any judgment in Civil Case No. 66477 will not have the effect of res judicata to the proceedings in
SECCase No. 09-97-5764, and vice versa. Any judgment or final disposition by the SEC on the claims against the debtor-corporations will not fully
resolve the issues before the trial court (i.e., validity of the sale of EYCO properties in favor of petitioner, real ownership of the properties and
damages). The rulings issued by the SEC Hearing Panel in the course of rehabilitation will not settle the issue of whether the Spouses Yutingco,
EYCO and petitioner connived to ensure that the properties of NIKON will not answer for the latter's huge loans obtained from Union Bank.
Rehabilitation proceedings are summary in nature; they do not include adjudication of claims that require full trial on the merits.55

Conversely, the trial court's decision annulling the contract of sale in favor of petitioner will not in any way determine the viability of
rehabilitation plan for EYCO, nor provide an equitable distribution of the assets of the debtor-corporations. It bears stressing that the properties
subject of Civil Case No. 66477 were never included in the properties of EYCO placed in the custody of the MANCOM and eventually the
Liquidator, for distribution to all claimants and creditors.

There being no litis pendentia or res judicata, we find Union Bank not guilty of forum shopping.
LEGAL BASIS: under the new law on corporate rehabilitation and insolvency, Republic Act No. 10142 (Financial Rehabilitation and Insolvency Act
[FRIA] of 2010), among those exempted from the coverage of a Stay Order are actions filed against sureties or persons solidarily liable with the
debtor.

SECTION. 18. Exceptions to the Stay or Suspension Order. — The Stay or Suspension Order shall not apply:cralawred

(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[.]61 (emphasis supplied)

ISSUE: Whether the legal personality to impugn the sale of EYCO properties to FEBTC is vested to the MANCOM of EYCO?

HELD: YES. Petitioner nonetheless contends that the matter of interests and rights of the creditors of the debtor-corporations are vested on the
management committee created pursuant to P.D. 902-A. With the appointment of a MANCOM, the proper party to file the action for rescission
of the sale of EYCO properties to petitioner is clearly the rehabilitation receiver appointed by SEC. Union Bank thus has no legal personality to
institute Civil Case No. 66477 involving the assets of the debtor-corporations under rehabilitation.

We find no reversible error in the CA's ruling that when Union Bank filed Civil Case No. 66477 on September 26, 1997, it still possessed the
legal capacity (not legal personality) to do so. This is because it was only on October 27, 1997 that the MANCOM was created.

The applicable law on the suspension of actions for claims against corporations is P.D. No. 902-A, which was in force
at the time EYCO filed its petition for suspension of payments with the SEC. In Rizal Commercial Banking
Corporation v. Intermediate Appellate Court, et al.,64 the Court held that 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.

In Castillo v. Uniwide Warehouse Club, Inc., et al.,65 we explained the coverage of the suspension order,
thus:cralawred

Jurisprudence is settled that the suspension of proceedings referred to in the law uniformly applies to "all actions for
claims" filed against a corporation, partnership or association under management or receivership, without
distinction, except only those expenses incurred in the ordinary course of business. In the oft-cited case of
Rubberworld (Phils.), Inc. v. NLRC, the Court noted that aside from the given exception, the law is clear and makes
no distinction as to the claims that are suspended once a management committee is created or a rehabilitation
receiver is appointed. Since the law makes no distinction or exemptions, neither should this Court. Ubi lex non
distinguit nec nos distinguere debemos. Philippine Airlines, Inc. v. Zamora declares that the automatic suspension of
an action for claims against a corporation under a rehabilitation receiver or management committee embraces all
phases of the suit, that is, the entire proceedings of an action or suit and not just the payment of claims. Thus, while
the motions to dismiss Civil Case No. 66477 should have been denied by the trial court, said case should have also
been suspended in view of the creation of the MANCOM on October 27, 1997. As borne by the records, the case did
not go beyond pre-trial stage because of the long exchange of pleadings between the parties upon the sole incident
of the motions to dismiss filed by EYCO and Yutingcos. It was only on March 22, 2005 that the trial court issued the
 order granting the motions to dismiss. Union Bank appealed to the CA, which resulted in more delays until the CA
rendered the assailed decision reversing the trial court's dismissal of the case.

Notwithstanding the CA's proper denial of the motion to dismiss Civil Case No. 66477, we hold that said case should have been suspended upon
the constitution of the MANCOM.

However, with the termination of suspension of payment proceedings in SEC Case No. 09-97-5764 on September 14,
1999, there is no more legal hindrance to the continuation of Civil Case No. 66477. Records show that the Spouses
Yutingco already filed their Answer but BPI had requested for suspension of proceedings until the present petition is
finally resolved.

PRYCE CORPORATION v. - The present case originated from a petition for corporate rehabilitation filed by petitioner Pryce Corporation on July 9,
CHINA BANKING 2004.
CORPORATION (2014) - The rehabilitation court found the petition sufficient in form and substance and issued a stay order on July 13, 2004
appointing Gener T. Mendoza as rehabilitation receiver
- On September 13, 2004, the rehabilitation court gave due course to the petition and directed the rehabilitation receiver
to evaluate and give recommendations on petitioner Pryce Corporation’s proposed rehabilitation plan attached to its
petition.3
- The rehabilitation receiver did not approve this plan and submitted instead an amended rehabilitation plan, which the
rehabilitation court approved by order dated January 17, 2005.4 In its disposition, the court found petitioner Pryce
Corporation “eligible to be placed in a state of corporate rehabilitation.”5 The disposition likewise identified the assets to
be held and disposed of by petitioner Pryce Corporation and the manner by which its liabilities shall be paid and
liquidated.6
- On February 23, 2005, respondent China Banking Corporation elevated the case to the Court of Appeals
- Respondent China Banking Corporation contended that the rehabilitation plan’s approval impaired the obligations of
contracts. It argued that neither the provisions of Presidential Decree No. 902–A nor the Interim Rules of Procedure on
Corporate Rehabilitation (Interim Rules) empowered commercial courts “to render without force and effect valid
contractual stipulations.”8 Moreover, the plan’s approval authorizing dacion en pago of petitioner Pryce Corporation’s
properties without respondent China Banking Corporation’s consent not only violated “mutuality of contract and due
process, but [was] also antithetical to the avowed policies of the state to maintain a competitive financial system.
- BPI called the attention of the court “to the non–impairment clause and the mutuality of contracts purportedly ran
roughshod by the [approved rehabilitation plan].
- CA 7th division granted respondent China Banking Corporation’s petition, and reversed and set aside the rehabilitation
court’s. With respect to BPI’s separate appeal, the Court of Appeals First (1st ) Division dismissed the petition.
- Petitioner Pryce Corporation also appealed to this court assailing the July 28, 2005 decision of the Court of Appeals
Seventh (7th ) Division granting respondent China Banking Corporation’s petition as well as the resolution denying its
motion for reconsideration. In the decision dated February 4, 2008,18 the First (1st ) Division of this court denied its
petition
- Petitioner Pryce Corporation filed an omnibus motion for (1) reconsideration or (2) partial reconsideration and (3)
referral to the court En Banc dated February 29, 2008. The First Division of this court referred this case to the En Banc en
consulta by resolution dated June 22, 2009.21 The court En Banc, in its resolution dated April 13, 2010, resolved to
accept this case.
- First, petitioner Pryce Corporation argues that the issue on the validity of the rehabilitation court orders is now res
judicata. Petitioner Pryce Corporation submits that the ruling in BPI v. Pryce Corporation docketed as G.R. No. 180316
contradicts the present case, and it has rendered the issue on the validity and regularity of the rehabilitation court orders
as res judicata.25cralawred

Second, petitioner Pryce Corporation contends that Rule 4, Section 6 of the Interim Rules of Procedure on Corporate
Rehabilitation26 does not require the rehabilitation court to hold a hearing before issuing a stay order. Considering that
the Interim Rules was promulgated later than Rizal Commercial Banking Corp. v. IAC27 that enunciated the “serious
situations” test,28 petitioner Pryce Corporation argues that the test has effectively been abandoned by the “sufficiency
in form and substance test” under the Interim Rules
- BPI v. Pryce Corporation docketed as G.R. No. 180316 rendered the issue on the validity of the rehabilitation
court’s January 17, 2005 order approving the amended rehabilitation plan as res judicata. In BPI v. Pryce
Corporation, the Court of Appeals set aside initially the January 17, 2005 order of the rehabilitation court. 30 On
reconsideration, the court set aside its original decision and dismissed the petition. 31 On appeal, this court
denied the petition filed by BPI with finality. An entry of judgment was made for BPI v. Pryce Corporation on
June 2, 2008.32 In effect, this court upheld the January 17, 2005 order of the rehabilitation court.

ISSUE: Whether or not BPI vs Pryce rendered the question on validity of rehabilitation conclusive?
ANS: Yes. respondent China Banking Corporation and BPI are creditors of petitioner Pryce Corporation and are
both questioning the rehabilitation court’s approval of the amended rehabilitation plan. Thus, there is
substantial identity of parties since they are litigating for the same matter and in the same capacity as
creditors of petitioner Pryce Corporation.

There is no question that both cases deal with the subject matter of petitioner Pryce Corporation’s
rehabilitation. The element of identity of causes of action also exists.

In separate appeals, respondent China Banking Corporation and BPI questioned the same January 17, 2005
order of the rehabilitation court before the Court of Appeals.

Since the January 17, 2005 order approving the amended rehabilitation plan was affirmed and made final in
G.R. No. 180316, this plan binds all creditors, including respondent China Banking Corporation.

In any case, the Interim Rules or the rules in effect at the time the petition for corporate rehabilitation was
filed in 2004 adopts the cram–down principle which “consists of two things: (i) approval despite opposition and
(ii) binding effect of the approved plan x x x.”43

First, the Interim Rules allows the rehabilitation court 44 to “approve a rehabilitation plan even over the
opposition of creditors holding a majority of the total liabilities of the debtor if, in its judgment, the
rehabilitation of the debtor is feasible and the opposition of the creditors is manifestly unreasonable.” 45

Second, it also provides that upon approval by the court, 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 plan or whether or not their claims have been
scheduled.”46

Thus, the January 17, 2005 order approving the amended rehabilitation plan, now final and executory resulting
from the resolution of BPI v. Pryce Corporation docketed as G.R. No. 180316, binds all creditors including
respondent China Banking Corporation.

ISSUE: whether the rehabilitation court is required to hold a hearing to comply with the “serious situations” test laid
down in Rizal Commercial Banking Corp. v. IAC before issuing a stay order.
ANS: NO. The 1999 Rizal Commercial Banking Corp. v. IAC54 case provides for the “serious situations” test in that the
suspension of claims is counted only upon the appointment of a rehabilitation receiver,55 and certain situations serious
in nature must be shown to exist before one is appointed, viz:
Furthermore, as relevantly pointed out in the dissenting opinion, a petition for rehabilitation does not 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.)

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.56ChanRoblesVirtualawlibrary
However, this case had been promulgated prior to the effectivity of the Interim Rules that took effect on December 15,
2000.

Section 6 of the Interim Rules states explicitly that “[i]f 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 (a) appointing a Rehabilitation Receiver
and fixing his bond; (b) staying enforcement of all claims x x x.”57

Compliant with the rules, the July 13, 2004 stay order was issued not later than five (5) days from the filing of the petition
on July 9, 2004 after the rehabilitation court found the petition sufficient in form and substance.

We agree that when a petition filed by a debtor “alleges all the material facts and includes all the documents required by
Rule 4–2 [of the Interim Rules],”58 it is sufficient in form and substance.

Nowhere in the Interim Rules does it require a comprehensive discussion in the stay order on the court’s findings of
sufficiency in form and substance.

The stay order and appointment of a rehabilitation receiver dated July 13, 2004 is an “extraordinary, preliminary, ex
parte remed[y].”59 The effectivity period of a stay order is only “from the date of its issuance until dismissal of the
petition or termination of the rehabilitation proceedings.”60 It is not a final disposition of the case. It is an
interlocutory order defined as one that “does not finally dispose of the case, and does not end the Court’s task of
adjudicating the parties’ contentions and determining their rights and liabilities as regards each other, but obviously
indicates that other things remain to be done by the Court.”61

Thus, it is not covered by the requirement under the Constitution that a decision must include a discussion of the facts
and laws on which it is based.62

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

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

One of the important objectives of the Interim Rules is “to promote a speedy disposition of corporate rehabilitation
cases[,] x x x apparent from the strict time frames, the non–adversarial nature of the proceedings, and the prohibition of
certain kinds of pleadings.”65 It is in light of this objective that a court with basis to issue a stay order must do so not
later than five (5) days from the date the petition was filed.

Does the Cram-down rule violate the constitutional provision on non-impairment of contracts and obligations? What
is th conomic rationale of corporate rehabilitation accdg to Justice Leonen?
ANS: No. As held in Oposa vs Factoran, the non-impairment clause must yield to the demands of the police power of the
State. The cram–down principle adopted by the Interim Rules does, in effect, dilute contracts. When it permits
the approval of a rehabilitation plan even over the opposition of creditors, 81 or when it imposes a binding effect
of the approved plan on all parties including those who did not participate in the proceedings, 82 the burden of
loss is shifted to the creditors to allow the corporation to rehabilitate itself from insolvency.

Rather than let struggling corporations slip and vanish, the better option is to allow commercial courts to come
in and apply the process for corporate rehabilitation.

This option is preferred so as to avoid what Garrett Hardin called the Tragedy of Commons. Here, Hardin
submits that “coercive government regulation is necessary to prevent the degradation of common–pool
resources [since] individual resource appropriators receive the full benefit of their use and bear only a share of
their cost.”83 By analogy to the game theory, this is the prisoner’s dilemma: “Since no individual has the right
to control or exclude others, each appropriator has a very high discount rate [with] little incentive to efficiently
manage the resource in order to guarantee future use.” 84 Thus, the cure is an exogenous policy to equitably
distribute scarce resources. This will incentivize future creditors to continue lending, resulting in something
productive rather than resulting in nothing.

In fact, these corporations exist within a market. The General Theory of Second Best holds that “correction for
one market imperfection will not necessarily be efficiency–enhancing unless [there is also] simultaneous
[correction] for all other market imperfections.”85 The correction of one market imperfection may adversely
affect market efficiency elsewhere, for instance, “a contract rule that corrects for an imperfection in the market
for consensual agreements may [at the same time] induce welfare losses elsewhere.” 86 This theory is one
justification for the passing of corporate rehabilitation laws allowing the suspension of payments so that
corporations can get back on their feet.

As in all markets, the environment is never guaranteed. There are always risks. Contracts are indeed sacred as
the law between the parties. However, these contracts exist within a society where nothing is risk–free, and
the government is constantly being called to attend to the realities of the times.
 Corporate rehabilitation is preferred for addressing social costs. Allowing the corporation room to get back on
its feet will retain if not increase employment opportunities for the market as a whole. Indirectly, the services
offered by the corporation will also benefit the market as “[t]he fundamental impulse that sets and keeps the
capitalist engine in motion comes from [the constant entry of] new consumers’ goods, the new methods of
production or transportation, the new markets, [and] the new forms of industrial organization that capitalist
enterprise creates.”87

PHILIPPINE ISLANDS - On March 7, 1997, petitioner Philippine Islands Corporation for Tourism Development, Inc. (PICTD) filed a complaint4
CORPORATION FOR TOURISM for collection of a sum of money with prayer for the issuance of a writ of preliminary attachment against VMC before the
DEVELOPMENT INC vs RTC of Makati City.
VICTORIAS MILLING COMPANY
INC. (2008) - In its complaint, PICTD alleged that VMC obtained loans from the CICM Missionaries, Inc. in the amount of
P3,259,988.08 and from the Congregation of the Most Holy Redeemer in the amount of P1,211,596.00 Both loans were
assigned to PICTD by way of a deed of assignment.
- When the loans matured on March 3, 1997, PICTD sought payment from VMC but the latter failed to pay, prompting
PICTD to file the abovementioned complaint. The RTC ordered the issuance of a writ of preliminary attachment against
VMC's properties. However, upon VMC's motion, the writ of attachment was lifted when VMC deposited a counter
attachment bond.
- Meanwhile, on July 4, 1997, VMC filed a petition5 before the SEC to declare itself in a state of suspension of payments,
alleging that although it has sufficient property to cover all of its debts, it foresees its inability to pay them when they
become due because of financial difficulties. VMC sought the appointment of a management committee that would
oversee the implementation of its proposed rehabilitation plan so that it can continue its operations and thus enable it to
meet its obligations and satisfy its liabilities.
- the SEC ordered the suspension of all actions or claims against VMC pending before any court, tribunal, office, board,
body and/or commission.6 Pursuant to said order, VMC filed before the RTC an urgent motion to suspend proceedings in
Civil Case No. 97-483.7 The RTC, in an Order8 dated September 26, 1998, granted VMC's motion and suspended
proceedings in the civil case.
- On December 29, 1999, PICTD filed before the SEC a motion to lift the suspension of proceedings.9 In an Order dated
June 20, 2002, the SEC denied PICTD's motion. The SEC ruled that PICTD is merely a general creditor who was able to
seize the property of the debtor through an attachment issued before judgment and did not have a prior security
agreement with VMC that will ripen into a creditor's right in case of default. Thus, its claim against VMC could not take
precedence over the secured creditors.
- PICTD argues that the Court of Appeals erred when it ruled that the order of suspension suspends all actions or claims
against VMC without qualification as to whether the claim is secured or unsecured. It also argues that the SEC, had it
been objective and cognizant of the predicament of PICTD, should have lifted the order of suspension because under
Section 4-10,15 Rule IV of the Rules of Procedure on Corporate Recovery of the SEC, the SEC can, on motion or motu
proprio, grant, on a case-to-case basis, a relief from the stay order issued. On the other hand, VMC counters that under
Section 6(c)17 of Presidential Decree No. 902-A18 as amended by P.D. No. 1799, all claims for actions against a
 corporation declared to be in a status of suspension of payments and under a management committee are suspended.19
VMC also argues that PICTD's effort to distinguish itself as a secured creditor exempt from the order of suspension of
proceedings will not help its cause since P.D. No. 902-A makes no distinction and the Order dated July 8, 1997 of the SEC
suspending all actions is explicit.

ISSUE: Whether or not the proceedings of the complaint for collection of a sum of money filed by PICTD against VMC
before the RTC of Makati City should be excluded from the SEC Order suspending all actions or claims against VMC
pending before any court, tribunal, office, board, body and/or commission?
HELD: NO. 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. 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.

The purpose of suspension is to 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.26

We are not persuaded by PICTD's argument that it should be exempt from the suspension order because it is a secured
creditor. Unlike the provisions in the Insolvency Law which exempts secured creditors from the suspensive effect of the
order issued by the court in an ordinary suspension of payments proceedings, the provisions of P.D. No. 902-A, when it
comes to the appointment of a management committee or a rehabilitation receiver, do not contain an exemption for
secured creditors.
BIR vs LEPANTO CERAMICS - On December 23, 2011, respondent Lepanto Ceramics, Inc. (LCI) filed a petition 4 for corporate rehabilitation pursuant to Republic Act No. (RA)
(2017) 10142, 5 otherwise known as the "Financial Rehabilitation and Insolvency Act (FRIA) of 2010.
- Essentially, LCI alleged that due to the financial difficulties it has been experiencing dating back to the Asian financial crisis, it had entered into a
state of insolvency considering its inability to pay its obligations
- Notably, LCI admitted in the annexes attached to the aforesaid Petition its tax liabilities to the national government in the amount of at least
₱6,355,368.00.6
- On January 13, 2012, the Rehabilitation Court issued a Commencement Order,7 which, inter alia: (a) declared LCI to be under corporate
rehabilitation; (b) suspended all actions or proceedings, in court or otherwise, for the enforcement of claims against LCI; (c) prohibited LCI from
making any payment of its liabilities outstanding as of even date, except as may be provided under RA 10142; and (d) directed the BIR to file and
serve on LCI its comment or opposition to the petition, or its claims against LCI. 8 Accordingly, the Commencement Order was published in a
newspaper of general circulation and the same, together with the petition for corporate rehabilitation, were personally served upon LCI's
creditors, including the BIR
- Despite the foregoing, Misajon, et al., acting as Assistant Commissioner, Group Supervisor, and Examiner, respectively, of the BIR's Large
Taxpayers Service, sent LCI a notice of informal conference10 dated May 27, 2013, informing the latter of its deficiency internal tax liabilities for
the Fiscal Year ending June 30, 2010. In response, LCI's court-appointed receiver, Roberto L. Mendoza, sent BIR a letter-reply, reminding the latter
of the pendency of LCI's corporate rehabilitation proceedings, as well as the issuance of a Commencement Order in connection therewith.
Undaunted, the BIR sent LCI a Formal Letter of Demand11 dated May 9, 2014, requiring LCI to pay deficiency taxes
- This prompted LCI to file a petition 13 for indirect contempt dated August 13, 2014 against petitioners before RTC Br. 35. In said petition, LCI
asserted that petitioners' act of pursuing the BIR's claims for deficiency taxes against LCI outside of the pending rehabilitation proceedings in
spite of the Commencement Order issued by the Rehabilitation Court is a clear defiance of the aforesaid Order. As such, petitioners must be cited
for indirect contempt in accordance with Rule 71 of the Rules of Court in relation to Section 16 of RA 10142.14
- For their part, petitioners maintained that: (a) RTC Br. 35 had no jurisdiction to cite them in contempt as it is only the Rehabilitation Court, being
the one that issued the Commencement Order, which has the authority to determine whether or not such Order was defied; (b) the instant
petition had already been mooted by the Rehabilitation Court's Order15 dated August 28, 2014 which declared LCI to have been successfully
rehabilitated resulting in the termination of the corporate rehabilitation proceedings; (c) their acts do not amount to a defiance of the
Commencement Order as it was done merely to toll the prescriptive period in collecting deficiency taxes, and thus, sanctioned by the Rules of
Procedure of the FRIA; (d) their acts of sending a Notice of Informal Conference and Formal Letter of Demand do not amount to a "legal action or
other recourse" against LCI outside of the rehabilitation proceedings; and (e) the indirect contempt proceedings interferes with the exercise of
their functions to collect taxes due to the govemment.
- the RTC Br. 35 found Misajon, et al. guilty of indirect contempt and, accordingly, ordered them to pay a fine of ₱5,000.00 each.

ISSUE: Whether or nor Misajon should be cited for indirect contempt?

HELD: Yes. Section 16 of RA 10142 provides, inter alia, that upon the issuance of a Commencement Order - which includes a Stay or Suspension
Order - all actions or proceedings, in court or otherwise, for the enforcement of "claims" against the distressed company shall be suspended.26
Under the same law, 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."27

To clarify, however, creditors of the distressed corporation are not without remedy as they may still submit their claims to the rehabilitation
court for proper consideration so that they may participate in the proceedings, keeping in mind the general policy of the law "to ensure or
maintain certainty 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."28 In other words, the creditors
must ventilate their claims before the rehabilitation court, and any "[a]ttempts to seek legal or other resource against the distressed corporation
shall be sufficient to support a finding of indirect contempt of court."29

In the case at bar, it is undisputed that LCI filed a petition for corporate rehabilitation. Finding the same to be sufficient in form and substance,
the Rehabilitation Court issued a Commencement Order30 dated January 13, 2012 which, inter alia: (a) declared LCI to be under corporate
rehabilitation; (b) suspended all actions or proceedings, in court or otherwise, for the enforcement of claims against LCI; (c) prohibited LCI from
making any payment of its outstanding liabilities as of even date, except as may be provided under RA 10142; and (d) directed the BIR to file and
serve on LCI its comment or opposition to the petition, or its claims against LCI. It is likewise undisputed that the BIR - personally and by
publication - was notified of the rehabilitation proceedings involving LCI and the issuance of the Commencement Order related thereto. Despite
the foregoing, the BIR, through Misajon, et al., still opted to send LCI: (a) a notice of informal conference31 dated May 27, 2013, informing the
latter of its deficiency internal tax liabilities for the Fiscal Year ending June 30, 2010; and (b) a Formal Letter of Demand32 dated May 9, 2014,
requiring LCI to pay deficiency taxes in the amount of P567,5 l 9,348.39, notwithstanding the written reminder coming from LCI's court-appointed
receiver of the pendency of rehabilitation proceedings concerning LCI and the issuance of a commencement order. Notably, the acts of sending a
notice of informal conference and a Formal Letter of Demand are part and parcel of the entire process for the assessment and collection of
deficiency taxes from a delinquent taxpayer,33 - an action or proceeding for the enforcement of a claim which should have been suspended
pursuant to the Commencement Order. Unmistakably, Misajon, et al. 's foregoing acts are in clear defiance of the Commencement Order.
 Petitioners' insistence that: (a) Misajon, et al. only performed such acts to toll the prescriptive period for the collection of deficiency taxes; and
(b) to cite them in indirect contempt would unduly interfere with their function of collecting taxes due to the government, cannot be given any
credence. As aptly put by the RTC Br. 35, they could have easily tolled the running of such prescriptive period, and at the same time, perform
their functions as officers of the BIR, without defying the Commencement Order and without violating the laudable purpose of RA 10142 by
simply ventilating their claim before the Rehabilitation Court. After all, they were adequately notified of the LCI's corporate rehabilitation and
the issuance of the corresponding Commencement Order. In sum, it was improper for Misajon, et al. to collect, or even attempt to collect,
deficiency taxes from LCI outside of the rehabilitation proceedings concerning the latter, and in the process, willfully disregard the
Commencement Order lawfully issued by the Rehabilitation Court. Hence, the RTC Br. 35 correctly cited them for indirect contempt
SITUS DEV. CORP vs - In 1972, the Chua Family, headed by its patriarch, Tony Chua, started a printing business and put up Color
ASIATRUST BANK (2013) Lithographic Press, Inc. (COLOR). On June 6, 1995, the Chua Family ventured into real estate development/leasing by organizing Situs
Development Corporation (SITUS) in order to build a shopping mall complex, known as Metrolane Complex (COMPLEX) at Cubao, QC. To finance
the construction of the COMPLEX, SITUS, COLOR and Tony Chua and his wife, Siok Lu Chua, obtained several loans from (1) ALLIED secured by real
estate mortgages over two lots; (2) ASIATRUST secured by a real estate mortgage over
a lot; and (3) Global Banking Corporation, now METROBANK, secured by a real estate mortgage.
The COMPLEX was built on said four (4) lots, all of which are registered in the names of Tony Chua and his wife.
- On March 21, 1996, the Chua Family expanded into retail merchandising and organized Daily Supermarket,
Inc. (DAILY). All three (3) corporations have interlocking directors and are all housed in the COMPLEX. The Chua Family also resides in the
COMPLEX, while the other units are being leased to tenants. SITUS, COLOR and DAILY obtained additional loans from ALLIED, ASIATRUST and
METROBANK and their real estate mortgages were updated and/or amended. Spouses Chua likewise executed five (5) Continuing
Guarantee/Comprehensive Surety
in favor of ALLIED to guarantee the payment of the loans of SITUS and DAILY.
- SITUS, COLOR, DAILY and the spouses Chua failed to pay their obligations as they fell due, despite demands.
On November 22, 2000, ALLIED filed with the Office of the Clerk of Court and Ex-Officio Sheriff of Quezon City an
application for extrajudicial foreclosure of the mortgage on the properties of spouses Chua. The auction sale was scheduled on February 6, 2001.
However, on February 5, 2001, SITUS, COLOR and spouses Chua filed a complaint for nullification of foreclosure proceedings, with prayer for
temporary restraining order/injunction. As no temporary restraining order was issued, the scheduled auction sale proceeded wherein ALLIED
emerged as the highest bidder in the amount of P88,958,700.00. The Certificate of Sale dated March 9, 2001 in favor of ALLIED.
- On July 26, 2001, METROBANK likewise filed an application for extrajudicial foreclosure of the mortgage on the property of spouses Chua. The
auction sale was conducted on September 18, 2001, with METROBANK as the highest bidder in the amount of P95,282,563.86.
- On May 16, 2002, ASIATRUST sent a demand letter to DAILY and COLOR for the payment of their outstanding
obligations.
- On June 11, 2002, SITUS, DAILY and COLOR, herein petitioners, filed a petition for the declaration of state of suspension of payments with
approval of proposed rehabilitation plan. Petitioners alleged that due to the 1997 Asian financial crisis, peso devaluation and high interest rate,
their loan obligations ballooned and they foresee their inability to meet their obligations as they fall due; that their loan obligations are secured
by the real properties of their major stockholder, Tony Chua; that ALLIED has already initiated foreclosure proceedings; that Global
Banking Corporation, now METROBANK, and ASIATRUST made final demands for payment of their obligations; that they foresee a very good
future ahead of them if they would be given a "breathing spell" from their obligations as they fall due; and that their assets are more than
sufficient to pay off their debts. Petitioners submitted a program of rehabilitation for the approval of creditors and the court a quo.
- A Stay Order was issued on June 17, 2002. The court a quo appointed Mr. Antonio B. Garcia as the Rehabilitation Receiver. Allied and Asiatrust
filed their opposition.
- On October 9, 2002, petitioners filed a motion for the cancellation of the certificate of sale as the same were done in violation of the Stay Order
dated June 17, 2002. A vehement opposition was filed by ALLIED arguing that the
foreclosure proceedings cannot be considered as a "claim".
- On January 8, 2003, petitioners filed a motion to admit Second Amended Rehabilitation Program of SitusDevelopment Corporation.
- On August 15, 2003, ALLIED filed a motion praying for the dismissal of the petition as no Rehabilitation Plan
was approved upon the lapse of 180 days from the date of the initial hearing on August 2, 2002.
- On August 14, 2003, the court a quo rendered an ADJUDICATION approving the Second Amended Rehabilitation Program as SITUS deserves a
sporting chance at rehabilitation. The court a quo held that while the foreclosure was conducted prior to the issuance of the Stay Order,
however, the foreclosure does not fully and effectively terminate until after the issuance of the title in the name of the creditor, such that until a
new title is issued, any action in the interregnum, judicial or not, is deemed an enforcement of the claim arising from such foreclosure, which in
this case will be in patent violation of the Stay Order.

ISSUE: Whether the dismissal of the petition for rehabilitation is proper

ANS: Yes. The Rules provide that "the petition shall be dismissed if no rehabilitation plan is approved by the court upon the lapse of one hundred
eighty (180) days from the date of the initial hearing." While the Rules expressly provide that the 180-day period may be extended, such
extension may be granted only "if it appears by convincing and compelling evidence that the debtor may successfully be rehabilitated."
In this case, the Second Amended Rehabilitation Program was approved by the trial court beyond the 180-day period counted from the date of
the initial hearing. However, the evidence on record does not support the lower court’s finding that the debtor corporations may still be
successfully rehabilitated.
The trial court’s only justification for approving the Second Amended Rehabilitation Program is that "the creditor banks are fully aware that the
real property on which the building structure of Situs Development sits is more than sufficient to answer for all the outstanding obligations of the
petitioners."
It is a fundamental principle in corporate law that a corporation is a juridical entity with a legal personality separate and distinct from the people
comprising it. Hence, the rule is that assets of stockholders may not be considered as assets of the corporation, and vice-versa. The mere fact
that one is a majority stockholder of a corporation does not make one’s property that of the corporation, since the stockholder and the
corporation are separate entities. In this case, the parcels of land mortgaged to respondent banks are owned not by petitioners, but by spouses
Chua.Applying the doctrine of separate juridical personality, these properties cannot be considered as part of the corporate assets. Thus, the
parcels of land in question cannot be included in the inventory of assets of petitioner corporations. The fact that these properties were
mortgaged to secure corporate debts is of no moment. In a third- party mortgage, the mortgaged property stands as security for the loan
obtained by the principal debtor; but until the mortgaged property is foreclosed, ownership thereof remains with the third-party mortgagor.
Since the real properties in question cannot be considered as corporate assets, the trial court’s pronouncement that petitioners were susceptible
of rehabilitation was bereft of any basis.

ISSUE: Whether the Stay order affects foreclosure proceedings involving properties mortgaged by stockholders to secure corporate debts
HELD: No. The Stay Order does not suspend the foreclosure of a mortgage constituted over the property of a third-party mortgagor.
Based on a reading of the Rules, we rule that the Stay Order cannot suspend foreclosure proceedings already commenced over properties
belonging to spouses Chua. The Stay Order can only cover those claims directed against petitioner corporations or their properties, against
petitioners’ guarantors, or against petitioners’ sureties who are not solidarily liable with them.

Spouses Chua may not be considered as "debtors." The Interim Rules on Corporate Rehabilitation (the Rules) define the term "debtor" as follows:
"Debtor" shall mean any corporation, partnership, or association, whether supervised or regulated by the Securities
and Exchange Commission or other government agencies, on whose behalf a petition for rehabilitation has been filed under these Rules.
Likewise, the enforcement of the mortgage lien cannot be considered as a claim against a guarantor or a surety not solidarily liable with the
debtor corporations. While spouses Chua executed Continuing Guaranty and Comprehensive Surety undertakings in favor of Allied Bank, the
bank did not proceed against them as individual guarantors or sureties. Rather, by initiating extrajudicial foreclosure proceedings, the bank was
directly proceeding against the property mortgaged to them by the spouses as security. The Civil Code provides that the property upon which a
mortgage is imposed directly and immediately subjected to the fulfillment of the obligation for whose security the mortgage was constituted.21
As such, a real estate mortgage is a lien on the property itself, inseparable from the property upon which it was constituted.
In this case, we find that the undertaking of spouses Chua with respect to the loans of petitioner corporations is the sale at public auction of
certain real properties belonging to them to satisfy the indebtedness of petitioner corporations in case of a default by the latter. This undertaking
is properly that of a third-party mortgagor or an accommodation mortgagor, whereby one mortgages one’s property to stand as security for the
indebtedness of
another.

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

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

Furthermore, even assuming that the properties in question fall under the ambit of the Stay Order, the issuance
thereof should not affect the execution of the Certificate of Sale. In the case at bar, the auction sale for the parcels of land covered by TCT Nos.
RT-13620 and RT-13621 and mortgaged to respondent Allied Bank was conducted on 6 February 2001, while the foreclosure sale for the parcel of
land covered by TCT No. 79916 and mortgaged to Metrobank was conducted on 18 September 2001. Clearly, the foreclosure proceedings
commenced and the auction sale was conducted before the issuance of the Stay Order and the appointment of the Rehabilitation Receiver on 17
June 2002. In fact, the public auctions took place almost a year before petitioner corporations filed the Petition for Rehabilitation with the court a
quo on 11 June 2002. Therefore, the execution of the Certificate of Sale may no longer be suspended by the trial court’s issuance of the Stay
Order, even if the questioned properties
are assumed to fall under the ambit of the Stay Order, since the foreclosure proceedings and the auction sale were conducted prior to the
appointment of the Rehabilitation Receiver.

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

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

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

YNGSON vs PHILIPPINE ARCAM & Company, Inc. (ARCAM) is engaged in the operation of a sugar mill in Pampanga.5 Between 1991 and 1993, ARCAM applied for and
NATIONAL BANK (2012) was granted a loan by respondent Philippine National Bank (PNB).6 To secure the loan, ARCAM executed a Real Estate Mortgage over a 350,004-
square meter parcel of land covered by TCT No. 340592-R and a Chattel Mortgage over various personal properties consisting of machinery,
generators, field transportation and heavy equipment.
ARCAM, however, defaulted on its obligations to PNB. Thus, on November 25, 1993, pursuant to the provisions of the Real Estate Mortgage and
Chattel Mortgage, PNB initiated extrajudicial foreclosure proceedings in the Office of the Clerk of Court/Ex Officio Sheriff of the Regional Trial

Court (RTC) of Guagua, Pampanga.7 The public auction was scheduled on December 29, 1993 for the mortgaged real properties and December 8,
1993 for the mortgaged personal properties.On December 7, 1993, ARCAM filed before the SEC a Petition for Suspension of Payments,
Appointment of a Management or Rehabilitation Committee, and Approval of Rehabilitation Plan, with application for issuance of a temporary
restraining order (TRO) and writ of preliminary injunction. The SEC issued a TRO and subsequently a writ of preliminary injunction, enjoining PNB
and the Sheriff of the RTC of Guagua, Pampanga from proceeding with the foreclosure sale of the mortgaged properties.8 An interim
management committee was also created.

On February 9, 2000, the SEC ruled that ARCAM can no longer be rehabilitated. The SEC noted that the petition for suspension of payment was
filed in December 1993 and six years had passed but the potential white knight" investor had not infused the much needed capital to bail out
ARCAM from its financial difficulties.9 Thus, the SEC decreed that ARCAM be dissolved and placed under liquidation.10 The SEC Hearing Panel
also granted PNB’s motion to dissolve the preliminary injunction and appointed Atty. Manuel D. Yngson, Jr. & Associates as Liquidator for
ARCAM.11 With this development, PNB revived the foreclosure case and requested the RTC Clerk of Court to re-schedule the sale at public
auction of the mortgaged properties.

Contending that foreclosure during liquidation was improper, petitioner filed with the SEC a Motion for the Issuance of a Temporary Restraining
Order and/or Writ of Preliminary Injunction to enjoin the foreclosure sale of ARCAM’s assets. The SEC en banc issued a TRO effective for seventy-
two (72) hours, but said TRO lapsed without any writ of preliminary injunction being issued by the SEC. Consequently, on July 28, 2000, PNB
resumed the proceedings for the extrajudicial foreclosure sale of the mortgaged properties.12 PNB emerged as the highest winning bidder in the
auction sale, and certificates of sale were issued in its favor. On November 16, 2000, petitioner filed with the SEC a motion to nullify the auction
sale.13 Petitioner posited that all actions against companies which are under liquidation, like ARCAM, are suspended because liquidation is a
continuation of the petition for suspension proceedings. Petitioner argued that the prohibition against foreclosure subsisted during liquidation
because payment of all of ARCAM’s obligations was proscribed except those authorized by the Commission. Moreover, petitioner asserted that
the mortgaged assets should be included in the liquidation and the proceeds shared with the unsecured creditors.

In its Opposition, PNB asserted that neither Presidential Decree (P.D.) No. 902-A nor the SEC rules prohibits secured creditors from foreclosing on
their mortgages to satisfy the mortgagor’s debt after the termination of the rehabilitation proceedings and during liquidation proceedings.14

On January 4, 2005, the SEC issued a Resolution15 denying petitioner’s motion to nullify the auction sale. It held that PNB was not legally barred
from foreclosing on the mortgages. Aggrieved, petitioner filed on February 28, 2005, a petition for review in the CA questioning the January 4,
2005 Resolution of the SEC.

ISSUE: whether PNB, as a secured creditor, can foreclose on the mortgaged properties of a corporation under liquidation without the
knowledge and prior approval of the liquidator or the SEC.

HELD: Yes. The Court has upheld the right of the secured creditor to foreclose the mortgages in its favor during the liquidation of a debtor
corporation. if rehabilitation is no longer feasible and the assets of the corporation are finally liquidated, secured creditors shall enjoy preference
over unsecured creditors, subject only to the provisions of the Civil Code on concurrence and preference of credits. Creditors of secured
obligations may pursue their security interest or lien, or they may choose to abandon the preference and prove their credits as ordinary claims.
Moreover, Section 2248 of the Civil Code provides: "Those credits which enjoy preference in relation to specific real property or real rights,
exclude all others to the extent of the value of the immovable or real right to which the preference refers." The creditor-mortgagee has the right
to foreclose the mortgage over a specific real property whether or not the debtor-mortgagor is under insolvency or liquidation proceedings. The
right to foreclose such mortgage is merely suspended upon the appointment of a management committee or rehabilitation receiver or upon the
issuance of a stay order by the trial court. However, the creditor-mortgagee may exercise his right to foreclose the mortgage upon the
termination of the rehabilitation proceedings or upon the lifting of the stay order.

It is worth mentioning that under Republic Act No. 10142, otherwise known as the Financial Rehabilitation and Insolvency Act (FRIA) of 2010, the
right of a secured creditor to enforce his lien during liquidation proceedings is retained. Section 114 of said law thus provides:

SEC. 114. Rights of Secured Creditors. – The Liquidation Order shall not affect the right of a secured creditor to enforce his lien in accordance with
the applicable contract or law. A secured creditor may:

(a) waive his rights 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 his 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.1âwphi1 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 secured creditor may enforce the lien or foreclose on the property pursuant to applicable laws. (Emphasis supplied)

In this case, PNB elected to maintain its rights under the security or lien; hence, its right to foreclose the mortgaged properties should be
respected, in line with our pronouncement in Consuelo Metal Corporation.

Differentiate right of first preference from lien.

ANS: A preference applies only to claims which do not attach to specific properties. A lien creates a charge on a particular property. The right of
 first preference as regards unpaid wages recognized by Article 110 of the Labor Code, does not constitute a lien on the property of the insolvent
debtor in favor of workers. It is but a preference of credit in their favor, a preference in application. It is a method adopted to determine and
specify the order in which credits should be paid in the final distribution of the proceeds of the insolvent's assets. It is a right to a first preference
in the discharge of the funds of the judgment debtor. Consequently, the right of first preference for unpaid wages may not be invoked in this case
to nullify the foreclosure sales conducted pursuant to PNB 's right as a secured creditor to enforce its lien on specific properties of its debtor,
ARCAM.
TRADE AND INVESTMENT Respondent PVB alleged that on November 23, 2011, PVB, together with other banking institutions (Series A Noteholders), entered into a Five-
DEVELOPMENT CORPORATION Year Floating Rate Note Facility Agreement5 (NF A) with debtor Philippine Phosphate Fertilizer Corporation (PhilPhos), a PEZA registered
OF THE PHILIPPINES ALSO domestic corporation situated in Leyte, up to the aggregate amount of ₱5 billion. Under the said NFA, respondent PVB committed the amount of
KNOWN AS PHILIPPINE ₱1 billion. To secure payment of the Series A Notes, petitioner TIDCORP, with the express conformity of PhilPhos, executed a Guarantee
EXPORT-IMPORT CREDIT Agreement6 dated November 23, 2011 (Guarantee Agreement) whereby petitioner TIDCORP agreed to guarantee the payment of the guaranty
AGENCY v. PHILIPPINE obligation to the extent of ninety (90%) of the outstanding Series A Notes, including interest, on a rolling successive three-month period
VETERANS BANK (2019) commencing on the first drawdown date and ending on the maturity date of the Series A Notes.

On November 8, 2013, Typhoon Yolanda made landfall in Central Visayas, which resulted in widespread devastation in the province of Leyte
where PhilPhos' manufacturing plant was situated. Due to the damage brought by said typhoon to PhilPhos' manufacturing facilities, it failed to
resume its operations. Thus, on September 17, 2015, PhilPhos filed a Petition for Voluntary Rehabilitation under the Financial Rehabilitation and
Insolvency Act of 20107 (FRIA) before the Regional Trial Court of Ormoc City, Branch 12 (Rehabilitation Court). On September 22, 2015, the
Rehabilitation Court issued a Commencement Order, which included a Stay Order. On November 5, 2015, or 45 days as provided in the
Guarantee Agreement,9 respondent PVB filed its Notice of Claim 10 with petitioner TIDCORP, which received the same on November 6, 2015. In a
Letter11 dated November 12, 2015, petitioner TIDCORP declined to give due course to respondent PVB's Notice of Claim, invoking the Stay Order
issued by the Rehabilitation Court. Despite several demands12 made by respondent PVB pursuant to the Guarantee Agreement, petitioner
TIDCORP maintained its position to deny PVB 's claim due to the issuance of the said Stay Order.

Was the Stay Order applicable to TIDCORP?

ANS: it must be noted that the Stay Order relied upon by petitioner TIDCORP merely ordered the staying and suspension of enforcement of all
claims and proceedings against the petitioner PhilPhos and not against all the other persons or entities solidarily liable with the debtor. The tenor
of the Stay Order itself belies the theory of petitioner TIDCORP. According to the Stay Order, the said order only covers "all claims, actions, or
proceedings against the petitioner [referring to debtor PhilPhos]."27

Second, Section 18(c) of the FRIA explicitly states that a stay order shall not apply "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, x x x."28

In addition, under Rule 4, Section 6 of A.M. No. 00-8-10-SC or the Interim Rules of Procedure on Corporate Rehabilitation, a stay order has the
effect of staying enforcement only with respect to claims made against the debtor, its guarantors and persons not solidarity liable with the
debtor:

Section 6. Stay Order.- If the court finds the petition to be sufficient in form and substance, it shall, not later than five (5) working days from the
filing of the petition, issue an order: (a) appointing a rehabilitation receiver and fixing his bond; (b) staying enforcement of all claims, whether for
money or otherwise and whether such enforcement is by court action or otherwise, against the debtor, its guarantors and persons not solidarily
liable with the debtor x x x.29

In Situs Dev. Corporation, et al. v. Asiatrust Bank, et al.,30 the Court held that when a stay order is issued, the rehabilitation court is only
empowered to suspend claims against the debtor, its guarantors, and sureties who are not solidarity liable with the debtor. Hence, the making of
 claims against sureties and other persons solidarily liable with the debtor is not barred by a stay order.

Thus, the question now redounds to whether the abovementioned provision of the FRIA on the non-application of a stay order with respect to
the enforcement of claims against sureties and other persons solidarily liable with the debtor applies to petitioner TIDCORP. Upon a simple
perusal of the Guarantee Agreement, to which petitioner TIDCORP readily admitted it is bound, the answer to the aforementioned question
becomes a clear and unmistakable yes. Petitioner TIDCORP indubitably engaged to be solidarily liable with PhilPhos under the Guarantee
Agreement. The Guarantee Agreement unequivocally states that petitioner TIDCORP waived its right of excussion under Article 2058 of the Civil
Code31 and that, consequently, the Series A Noteholders can claim under the Guarantee Agreement DIRECTLY against petitioner TIDCORP
without having to exhaust all the properties of PhilPhos and without need of any prior recourse against PhilPhos. In the instant case, without any
shadow of doubt, petitioner TIDCORP had expressly renounced the benefit of excussion and in no uncertain terms made itself directly and
principally liable without any qualification to the Series A Noteholders and without the need of any prior recourse to PhilPhos. In effect, the
nature of the guarantee obligation assumed by petitioner TIDCORP under the Guarantee Agreement was transformed into a suretyship.
PACIFIC WIDE REALTY AND Puerto Azul Land, Inc. (PALI) is the owner and developer of the Puerto Azul Complex situated in Ternate, Cavite. Its business involves the
DEVELOPMENT development of Puerto Azul into a satellite city with residential areas, resort, tourism and retail commercial centers with recreational areas.5 In
CORPORATION vs PUERTO order to finance its operations, it obtained loans from various banks, the principal amount of which amounted to Six Hundred Forty Million Two
AZUL LAND (2009) Hundred Twenty-Five Thousand Three Hundred Twenty-Four Pesos (P640,225,324.00). PALI and its accommodation mortgagors, i.e., Ternate
Development Corporation (TDC), Ternate Utilities, Inc. (TUI), and Mrs. Trinidad Diaz-Enriquez, secured the loans.6

In the beginning, PALI's business did very well. However, it started encountering problems when the Philippine Stock Exchange rejected the
listing of its shares in its initial public offering which sent a bad signal to the real estate market. This resulted in potential investors and real estate
buyers shying away from the business venture. The situation was aggravated by the 1997 Asian financial crisis and the decline of the real estate
market. Consequently, PALI was unable to keep up with the payment of its obligations, both current and those that were about to fall due. One
of its creditors, the Export and Industry Bank7 (EIB), later substituted by Pacific Wide Realty and Development Corporation (PWRDC), filed
foreclosure proceedings on PALI's mortgaged properties. Thrust to a corner, PALI filed a petition for suspension of payments and rehabilitation,8
accompanied by a proposed rehabilitation plan and three (3) nominees for the appointment of a rehabilitation receiver. On September 17, 2004,
after finding that the petition was sufficient in form and substance, the Regional Trial Court (RTC) issued a Stay Order10 and appointed Patrick V.
Caoile as rehabilitation receiver.

Finding the terms of the rehabilitation plan and the qualifications of the appointed rehabilitation receiver unacceptable, EIB filed with the CA a
Petition for Review under Rule 42 of the Rules of Court. The case was entitled, "Export and Industry Bank v. Puerto Azul Land, Inc." On May 17,
2007, the CA dismissed the petition. On September 21, 2004, EIB entered its appearance before the rehabilitation court and moved for the
clarification of the stay order dated September 17, 2004 and/or leave to continue the extrajudicial foreclosure of the real estates owned by PALI's
accommodation mortgagors. In opposition, PALI argued that the foreclosure sought would preempt the rehabilitation proceedings and would
give EIB undue preference over PALI's other creditors. On November 10, 2004, the RTC issued an Order,21 denying EIB's motion.22

On March 3, 2005, EIB filed an urgent motion to order PALI and/or the mortgagor TUI/rehabilitation receiver to pay all the taxes due on Transfer
Certificate of Title (TCT) No. 133164. EIB claimed that the property covered by TCT No. 133164, registered in the name of TUI, was one of the
properties used to secure PALI's loan from EIB. The said property was subject to a public auction by the Treasurer's Office of Pasay City for non-
payment of realty taxes. Hence, EIB prayed that PALI or TUI be ordered to pay the realty taxes due on TCT No. 133164.23

PALI opposed the motion, arguing that the rehabilitation court's stay order stopped the enforcement of all claims, whether for money or
otherwise, against a debtor, its guarantors, and its sureties not solidarily liable to the debtor; thus, TCT No. 133164 was covered by the stay
order. On March 31, 2005, the RTC issued an Order,25 the dispositive portion of which reads:
Accordingly, and as being invoked by the creditor movant, this Court hereby modifies the Stay Order of September 17, 2004, in such a manner
that TCT No. 133614 which is mortgaged with creditor movant Export and Industry Bank, Inc. is now excluded from the Stay Order. As such,
Export and Industry Bank, Inc. may settle the above-stated realty taxes of third party mortgagor with the local government of Pasay City. In
return, and to adequately protect the creditor movant Export and Industry Bank, Inc., the latter may foreclose on TCT No. 133614.

SO ORDERED.26

On April 12, 2005, PALI filed an urgent motion for a status quo order, praying that the stay order be maintained and that the enforcement of the
claim of Pasay City be held in abeyance pending the hearing of its motion.27 On April 13, 2005, the RTC, so as not to render moot PALI's motion,
issued an Order,28 directing EIB to refrain from taking any steps to implement the March 31, 2005 Order. The City Treasurer of Pasay City was,
likewise, directed to respect the stay order dated September 17, 2004 insofar as TCT No. 133164 was concerned, until further orders from the
court.29

On August 16, 2005, the RTC issued an Order30 addressing the April 12, 2005 urgent motion of PALI. In the said order, the rehabilitation court
maintained its March 31, 2005 Order. The court reiterated that TCT No. 133164, under the name of TUI, was excluded from the stay order. In
order to protect the interest of EIB as creditor of PALI, it may foreclose TCT No. 133164 and settle the delinquency taxes of third-party mortgagor
TUI with the local government of Pasay City.

PALI filed an urgent motion to modify the Order dated August 16, 2005. The same was denied by the RTC in an Order31 dated October 19, 2005.
Aggrieved, PALI filed with the CA a petition for certiorari under Rule 65 of the Rules of Court, ascribing grave abuse of discretion on the part of
the rehabilitation court in allowing the foreclosure of a mortgage constituted over the property of an accommodation mortgagor, to secure the
loan obligations of a corporation seeking relief in a rehabilitation proceeding. The case was entitled, "Puerto Azul Land, Inc. v. The Regional Trial
Court of Manila, Br. 24; Sheriff IV of Pasay City Virgilio F. Villar; and Export and Industry Bank, Inc." On March 16, 2007, the CA ruled that
properties covered by TCT No. 133164 are hereby DECLARED subject to and covered by the Stay Order.

In G.R. No. 180893, the rehabilitation plan is contested on the ground that the same is unreasonable and
results in the impairment of the obligations of contract. PWRDC contests the following stipulations in PALI's
rehabilitation plan: fifty percent (50%) reduction of the principal obligation; condonation of the accrued and
substantial interests and penalty charges; repayment over a period of ten years, with minimal interest of two
percent (2%) for the first five years and five percent (5%) for the next five years until fully paid, and only
upon availability of cash flow for debt service.

In G.R. No. 178768, the rehabilitation court, in its Orders dated March 31, 2005 and August 16, 2005, removed TCT No. 133164 from the coverage
of the stay order. The property covered by TCT No. 133164 is owned by TUI. TCT No. 133164 was mortgaged to PWRDC by TUI as an
accommodation mortgagor of PALI by virtue of the Mortgage Trust Indenture (MTI) dated February 1995. The MTI was executed among TDC, TUI
and Mrs. Trinidad Diaz - Enriquez, as mortgagors; PALI, as borrower; and Urban Bank, as trustee. Under Section 4.04 thereof, the mortgagors and
the borrower guaranteed to pay and discharge on time all taxes, assessments and governmental charges levied or assessed on the collateral and
immediately surrender to the trustee copies of the official receipts for such payments. It was also agreed therein that should the borrower fail to
pay such uncontested taxes, assessments and charges within sixty (60) calendar days from due date thereof, the trustee, at its option, shall
declare the mortgagors and the borrower in default under Section 6.01(d) of the MTI, or notify all the lenders of such failure.

ISSUE: Was the rehabilitation plan violative of non-impairment clause?

ANS: No. There is nothing unreasonable or onerous about the 50% reduction of the principal amount when, as found by the court a quo, a
Special Purpose Vehicle (SPV) acquired the credits of PALI from its creditors at deep discounts of as much as 85%. Meaning, PALI's creditors
accepted only 15% of their credit's value. Stated otherwise, if PALI's creditors are in a position to accept 15% of their credit's value, with more
reason that they should be able to accept 50% thereof as full settlement by their debtor. x x x.38

We also find no merit in PWRDC's contention that there is a violation of the impairment clause. Section 10, Article III of the Constitution
mandates that no law impairing the obligations of contract shall be passed.

ISSUE: whether the rehabilitation court erred when it allowed the foreclosure of the accommodation mortgagee's property and excluded the
same from the coverage of the stay order?

ANS: No. In excluding the property from the coverage of the stay order and allow PWRDC to foreclose on the mortgage and settle the realty tax
delinquency of the property with Pasay City, the rehabilitation court used as justification Section 12, Rule 4 of the Interim Rules on Corporate
Rehabilitation. The said section provides:

SEC. 12. Relief from, Modification, or Termination of Stay Order. - The court may, on motion or motu proprio, terminate, modify, or set
conditions for the continuance of the stay order, or relieve a claim from the coverage thereof upon showing that (a) any of the allegations in the
petition, or any of the contents of any attachment, or the verification thereof has ceased to be true; (b) a creditor does not have adequate
protection over property securing its claim; or (c) the debtor's secured obligation is more than the fair market value of the property subject of the
stay and such property is not necessary for the rehabilitation of the debtor.

For purposes of this section, the creditor shall 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 undersecured.

Upon showing of a lack of adequate protection, the court shall order the rehabilitation receiver to (a) make arrangements to provide for the
insurance or maintenance of the property, or (b) to make payments or otherwise provide additional or replacement security such that the
obligation is fully secured. If such arrangements are not feasible, the court shall modify the stay order to allow the secured creditor lacking
adequate protection to enforce its claim against the debtor; Provided, however, that the court may deny the creditor the remedies in this
paragraph if such remedies would prevent the continuation of the debtor as a going concern or otherwise prevent the approval and
implementation of a rehabilitation plan.

In its March 31, 2005 Order, the rehabilitation court ratiocinated that PALI violated the terms of the MTI by failing to take reasonable steps to
protect the security given to PWRDC, viz.:

It is crystal clear that Ternate Utilities, Inc. being the owner of TCT No. 133614 is the one liable to pay the realty taxes to the local government of
Pasay City. The petitioner [PALI], not being the owner of the subject land does not owe the local government of Pasay City in the same way [as]
the local government of Pasay City is not a creditor of petitioner [PALI]. The local government of Pasay City is pursuing directly the tax obligation
of Ternate Utilities, Inc. which company is not the petitioner [PALI] in this case. Hence, for all intents and purposes, the Stay Order does not cover
the tax obligations of Ternate Utilities, Inc. to the local government of Pasay City.ςηαñrοblεš νιr†υαl lαω lιbrαrÿ
 In [petitioner PALI's] Comment, it can be gleaned that neither Ternate Utilities, Inc. nor the petitioner [PALI] has the intention of paying the real
property taxes on TCT No. 133614, which inaction will naturally result in the auctioning of [the] subject land to the prejudice and damage of
creditor movant being the mortgagee thereof. Likewise, it is uncontested that the failure of the petitioner or Ternate Utilities, Inc. to pay the
realty property taxes violate[d] the pre-existing agreement of the petitioner [PALI] and Ternate Utilities, Inc. to the creditor movant.45

In the August 16, 2005 Order, the rehabilitation court reaffirmed its decision to remove TCT No. 133164 from the coverage of the stay order in
order to protect the secured claim of PWRDC, viz.: Considering that the auction sale of TCT No. 133614 by the local government of Pasay City
without the Ternate Utilities, Inc., or the petitioner [PALI] redeeming or paying the corresponding due taxes and penalties totaling to
P7,523,257.50 as indicated in the aforesaid Certificate of Sale of Delinquent Real Property, the interest of creditor EIB is greatly prejudiced.

Accordingly, the rehabilitation court committed no reversible error when it removed TCT No. 133164 from the coverage of the stay order. The
Interim Rules of Procedure on Corporate Rehabilitation is silent on the enforcement of claims specifically against the properties of
accommodation mortgagors. It only covers the suspension, during the pendency of the rehabilitation, of the enforcement of all claims against the
debtor, its guarantors and sureties not solidarily liable with the mortgagor.

Furthermore, the newly adopted Rules of Procedure on Corporate Rehabilitation has a specific provision for this special arrangement among a
debtor, its creditor and its accommodation mortgagor. Section 7(b), Rule 3 of the said Rules explicitly allows the foreclosure by a creditor of a
property not belonging to a debtor under corporate rehabilitation, as it provides:

SEC. 7. Stay 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 persons not solidarily liable with the debtor; provided, that the stay order shall not cover
claims against letters of credit and similar security arrangements issued by a third party to secure the payment of the debtor's obligations;
provided, further, that the stay order shall not cover foreclosure by a creditor of property not belonging to a debtor under corporate
rehabilitation; provided, however, that where the owner of such property sought to be foreclosed is also a guarantor or one who is not solidarily
liable, said owner shall be entitled to the benefit of excussion as such guarantor[.] Thus, there is no question that the action of the rehabilitation
court in G.R. No. 178768 was justified
PATRICIA CABRIETO DELA Respondent Primetown Property Group, Inc. is primarily engaged in holding, owning and developing real estate. Among its projects are the
TORRE, represented by Century Citadel Inn, Makati, Makati Prime Century Tower and Makati Prime City. It, likewise, expanded its real estate business in Cebu City where
it constructed two (2) condotel projects. However, the ascent of respondent was arrested and its shares were brought down by the Asian
BENIGNO T. CABRIETO, JR.
financial crisis in 1997. It experienced financial difficulties due to the devaluation of the Philippine peso, the increase in interest rates and lack of
vs. PRIMETOWN PROPERTY access to adequate credit. Thus, in 2003, respondent filed a petition for corporate rehabilitation with prayer for suspension of payments and
GROUP (2018) actions with the Regional Trial Court (RTC) of Makati City, and was raffled off to Branch 138. On August 15, 2003, the rehabilitation court issued a
Stay Order.3

On October 15, 2004, petitioner Patricia Cabrieto dela Torre filed a Motion for Leave to Intervene4 seeking judicial order for specific
performance, i.e., for respondent to execute in her favor a deed of sale covering Unit 3306, Makati Prime Citadel Condominium which she bought
from the former as she had allegedly fully paid the purchase price. Respondent opposed the motion arguing that it was filed out of time
considering that the Stay Order was issued on August 15, 2003 and under the Interim Rules of Procedure on Corporate Rehabilitation (Interim
Rules), any claimants and creditors shall file their claim before the rehabilitation court not later than ten (10) days before the date of the initial
hearing; and that since the Stay Order was issued on August 15, 2003 and the publication thereof was done in September 2003 with the initial
hearing on the petition set on September 24· 2003, the motion for intervention should have been filed on or before September 14, 2003.5

On August 24, 2011, the RTC issued an Order6 granting petitioner's motion for intervention. Respondent filed a motion for reconsideration
alleging that intervenor is still liable to pay ₱l,902,210.48 as unpaid interest and penalty charges; and it is the Housing and Land Use Regulatory
Board (HLURB) which has exclusive and original jurisdiction over the controversies involving condominium units and not the RTC. The RTC denied
the motion for reconsideration in an Order. In so ruling, the CA found that when the Stay Order was issued, the rehabilitation court is
empowered to suspend all claims against respondent whether monetary or otherwise which includes petitioner's action or claim to execute a
certificate of title in her favor. Moreso, when respondent countered that petitioner was not entitled to her prayer as she had not yet fully paid
the contract price; and that the RTC has no jurisdiction for the enforcement of the contract of sale involving a condominium unit since the
exclusive jurisdiction lies with the BLURB.

Petitioner contends that her claim against respondent was not suspended with the issuance of the Stay Order because when the order was
issued on August 15, 2003, she had long already fully paid the purchase price of the condominium unit she bought from respondent, i.e., as of
July 25, 1996, and invokes the case of Town and Country Enterprises, Inc. v. Hon. Quisumbing, Jr., et al.;11 and that claims refer to debts or
demands of pecuniary nature or the assertion that money be paid by the company under rehabilitation to its creditors, but her prayer for the
execution of a deed of absolute sale is not a claim of this character as to be covered and suspended under the Stay Order.

ANS: No. Under the Interim Rules on Corporate Rehabilitation, , it is provided that if the RTC finds the petition to be sufficient in form and
substance, it shall issue, not later than five (5) days from the filing of the petition, an Order as follows:

(a) appointing a Rehabilitation Receiver and fixing his bond;

(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;

(c) prohibiting the debtor from selling, encumbering, transferring, or disposing in any manner any of its properties except in the ordinary course
of business;

(d) prohibiting the debtor from making any payment of its liabilities outstanding as at the date of filing of the petition; xx x.

In addition, it is also stated under the same Section that all creditors and all interested parties are directed to file and serve on the debtor a
verified comment on or opposition to the petition not later than ten (10) days before the date of the initial hearing and their failure to do so will
bar them from participating in the proceedings.

In this case, respondent filed a petition for rehabilitation and suspension of payments with the RTC which issued a Stay Order on August 15, 2003.
The initial hearing was set on September 24, 2003; thus, any comment or opposition to the petition should have been filed 10 days before the
initial hearing but petitioner did not file any and already barred from participating in the proceedings. However, petitioner filed a motion for
leave to intervene on October 15, 2004, one year after, praying that respondent be ordered to execute in her favor a deed of absolute sale over
Unit 3306 of the Makati Prime Citadel Condominium, subject matter of their earlier contract to sell. It bears stressing that intervention is
prohibited under Section 1,14 Rule 3 of the Interim Rules. Hence, the RTC should not have entertained the petition for intervention at all.

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."
 Clearly, while respondent is undergoing rehabilitation, the enforcement of all claims against it is stayed. Rule 2, Section 1 of the Interim Rules
defines 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.18

Petitioner's prayer in intervention for respondent to execute the deed of sale in her favor for the condominium unit is a claim as defined under
the Interim Rules 'which is already stayed as early as August 15, 2003. In fact, the same order also prohibited respondent from selling,
encumbering, transferring or disposing in any manner of any of its properties, except in the ordinary course of business. The RTC's Order granting
petitioner's intervention and directing respondent to execute a deed of sale in her favor and to deliver the copy of the owner's duplicate copy of
the condominium certificate, with all the pertinent documents needed to effect registration of the deed of sale and issuance of a new title in
petitioner's name, is a violation of the law. And the RTC gave undue preference to petitioner over respondent's other creditors and claimants.

In contrast, petitioner's ownership of the condominium unit alleging that she had fully paid the purchase price was, however, disputed by
respondent based on their Memorandum of Agreement dated January 20, 1997 where petitioner acknowledged that she had paid the principal
obligation on the condominium unit but had yet to pay respondent for penalty charges and interest by reason of the delay in the payment of the
monthly amortizations. Consequently, when the RTC issued the Stay Order which suspended all claims against respondent, without distinction,
petitioner's prayer for the execution of a deed of sale is a claim covered by the Stay Order issued by the RTC. In fact, the parties' contentions
already require a full-blown trial on the merits which must be decided in a separate action and not by the rehabilitation court.
CHINA BANKING In 1999, respondent ASB Development Corporation applied for and was granted a credit line by petitioner China Bank in
CORPORATION v. ASB the principal amount of P35,000,000.00. The loan was secured by a real estate mortgage constituted over two
HOLDINGS, INC. (2008) contiguous lots with a combined area of 1,332.5 square meters in Grace Park, Caloocan City. In 2000, respondent ASB
Realty Corporation, an affiliate of ASB Development, obtained an omnibus credit line from petitioner China Bank in the
amount of P265,000,000.00. The loan was secured by two real estate mortgages: (1) over two parcels of land situated at
Salcedo, Legaspi Village, Makati City. Respondent corporations defaulted in the payment of the agreed loan
amortizations, interest, and other charges. Demands to pay were left unheeded. On May 2, 2000, ASB Development
Corporation and its affiliates, including ASB Realty, ASB Holdings, ASB Land, ASB Finance, Makati Hope Christian School,
Bel-Air Holdings, Winchester Trading, VYL Development, Gerick Holdings and Neighborhood Holdings, filed before the
SEC a petition for rehabilitation with prayer for suspension of actions and proceedings, pursuant to Presidential Decree
No. 902-A. In filing the petition for rehabilitation, respondents contended that while they have sufficient capitalization,
the company will be hard-pressed to service its obligations in favor of petitioner bank and its other creditors due to a glut
in the real estate market, the depreciation of the currency and decreased investor confidence in the Philippine economy.
Respondents then prayed that the SEC, after due hearing: (a) appoint an interim receiver; (b) suspend all actions against
the ASB Group for a period of sixty days subject to extension; and (c) approve a rehabilitation plan for the ASB Group and
appoint a rehabilitation receiver to monitor the implementation of the said rehabilitation plan. On May 4, 2000, the
Hearing Panel of the SEC Securities Investigation and Clearing Department, finding the petition for rehabilitation
sufficient in form and substance, issued a 60-day Suspension Order (a) suspending all actions for claims against the ASB
Group of Companies pending or still to be filed with any court, office, board, body, or tribunal; (b) enjoining the ASB
Group of Companies from disposing of their properties in any manner, except in the ordinary course of business, and
from paying their liabilities outstanding as of the date of the filing of the petition; and (c) appointing Atty. Monico V.
Jacob as interim receiver of the ASB Group of Companies. On May 22, 2000, the SEC Hearing Panel issued an order
appointing Mr. Fortunato Cruz as interim receiver of the ASB Group of Companies, replacing Atty. Monico Jacob. On
August 18, 2000, respondent ASB Development Corporation submitted the rehabilitation plan for approval of the SEC. On
April 26, 2001, the ASB rehabilitation plan was approved by the SEC.

Aggrieved, petitioner bank appealed the plan’s approval to the SEC En Banc. According to petitioner, the SEC order
compelling the bank to surrender its present collateral and accept certain properties located in Pasig City and Parañaque
City as payment of the obligations due it violates the constitutional proscription against impairment of contracts. It was
likewise argued that the value of the properties being offered by ASB via dacion en pago is insufficient to cover the
amount of its outstanding loans; and that the preference conferred by law to the bank as a secured creditor has been
rendered illusory. On June 10, 2003, the SEC En Banc denied with finality petitioner bank’s appeal.

Was the approval of rehabilitation plan impairs petitioner bank’s lien over the mortgaged property and violates the
principle of mutuality of contracts in so far as it directs the creditors to accept the dacion en pago arrangement?
ANS: No. We are not convinced that the approval of the Rehabilitation Plan impairs petitioner bank’s lien over the
mortgaged properties. By that statutory provision, it is clear that the approval of the Rehabilitation Plan and the
appointment of a rehabilitation receiver merely suspend the actions for claims against respondent corporations.
Petitioner bank’s preferred status over the unsecured creditors relative to the mortgage liens is retained, but the
enforcement of such preference is suspended. The loan agreements between the parties have not been set aside and
petitioner bank may still enforce its preference when the assets of ASB Group of Companies will be liquidated.
Considering that the provisions of the loan agreements are merely suspended, there is no impairment of contracts,
specifically its lien in the mortgaged properties.

As we stressed in Rizal Commercial Banking Corporation v. Intermediate Appellate Court, such suspension "shall not
prejudice or render ineffective the status of a secured creditor as compared to a totally unsecured creditor," for what
P.D. No. 902-A merely provides is that all actions for claims against the distressed corporation, partnership or association
shall be suspended. Likewise, there is no compulsion on the part of petitioner bank to accept a dacion en pago
arrangement of the mortgaged properties based on ASB Group of Companies’ transfer values and to condone interests
and penalties.

In a related case, Bank of the Philippine Islands v. Securities and Exchange Commission, 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

LAND BANK OF THE PHILIPPINES vs
POLILIO ISLAND PARADISE
CORPORATION (2019)
secured creditors with mortgaged properties at selling prices. In intruding into corporate affairs, the State must, at all
times, promote a wider and more meaningful equitable distribution of wealth and protect investments and the public. To
Our mind, the approval by the SEC of the rehabilitation plan of respondent corporations is a step towards that direction.
The terms of the rehabilitation plan unveil that secured creditors like petitioner bank may refuse or reject the dacion en
pago arrangements stated in it. It cannot be implemented without petitioner’s consent. Further, the approval of the plan
and the appointment of a receiver merely suspend actions and claims that may be raised against respondent bank. They
do not, in any manner, obliterate petitioner’s status as a preferred secured creditor. Questions on the viability of the
plan should likewise be laid to rest. As the CA aptly observed, majority of respondents’ obligations to creditor banks had
already been paid as early as two years upon the approval of the plan.
Respondent Polilio Island Paradise Corporation obtained a P5 Million Short Term Loan Line (STLL) with petitioner in 2000 secured by two parcels
of land covered by two Transfer Certificates of Title. The said loan was used as additional working capital of the respondent’s hotel business. On
February 13, 2001, petitioner approved the request of respondent for the conversion of its STLL into a 5-year term loan. Not only was such
request but also an additional P1.2 Million STLL was granted.
Several restructurings were had anent the account of respondent with petitioner. Despite such, however, respondent failed to pay its loan
obligation. Thus, on June 24, 2011, petitioner was constrained to file a petition for extrajudicial foreclosure of the mortgaged properties.
Subsequently, the mortgaged properties (subject properties) were sold in the amount of P11,161,047.12, wherein petitioner emerged as the
highest bidder. A Certificate of Sale9 was issued and registered before the Registry of Deeds on AUGUST 22, 2011. As the respondent failed to
redeem said properties within the redemption period, petitioner consolidated its title over the subject properties. Thus, on November 19, 2012,
the Register of Deeds of Infanta, Quezon cancelled the old Transfer Certificates of Title and, and in lieu thereof, issued new titles in the name of
petitioner.
Allegedly, respondent filed a petition for corporate rehabilitation on AUGUST 17, 2012. It asserted that its financial viability was greatly affected
as the Province of Quezon was devastated by the typhoon and flood, resulting in the cancellation of functions and decline in room occupancy;
and by the global crisis in 2008. As the decrease in financial revenues deprived it of enough cash flow to service payment of its debts, respondent
insisted that rehabilitation is the only viable option for it to continue its operations and settle its liabilities.
In an Order dated AUGUST 25, 2012, the RTC dismissed the petition for lack of merit. It took note that there is nothing left to be rehabilitated
considering that the subject properties subject of the foreclosure sale comprise the bulk of respondent's assets.
On October 12, 2012, respondent filed an amended petition for corporate rehabilitation, invoking the application of Republic Act No. 10142 or
the Financial Rehabilitation and Insolvency Act of 2010 (FRIA). After finding the petition sufficient in form and in substance, the RTC granted the
same in an Order dated January 8, 2013 and accordingly issued a Commencement/Suspension Order dated January 11, 2013.
A Stay Order was likewise issued which 1) suspends all actions or proceedings, in court or otherwise, for the enforcement of claims against the
debtor; 2) suspends all actions to enforce any judgment, attachment or other provisional remedies against the debtor; 3) prohibits the debtor
from selling, encumbering, transferring or disposing in any manner any of its properties except in the ordinary course of business; and 4)
prohibits the debtor from making any payment of its liabilities outstanding as of the commencement date except as may be provided herein.
In their comment to the RTC’s order for corporate rehabilitation and stay order, petitioner argued that petitioner is no longer a creditor of
respondent in view of the consolidation of the ownership of the subject properties in its name following the extrajudicial foreclosure sale;
therefore, relieving respondent of any liability arising from the loan it previously obtained from it. As such, the proceedings concerning the sale of
the subject properties is no longer covered by the FRIA.

The RTC denied petitioner’s position and sustained its stay order. It noted that the reckoning the date of the consolidation of ownership in
petitioner's name is the period as to when the ownership vested, the RTC explained that when such consolidation took place after the date of the
filing of the amended petition, the same and the proceedings before it are void for being violative of Section 17 of the FRIA since the ownership
of the subject properties still lies with the respondent at the time that said petition was filed. At this point, the RTC emphasized that the effects of
the Commencement Order, which prohibits or renders null and void the results of any extrajudicial activity or process to seize property after the
commencement date, can be reckoned from the date of the filing of the amended petition. Verily, the RTC maintained that the petitioner is still
considered as respondent's creditor within the purview of the law.

In their appeal, respondent insisted that the consolidation of ownership in the name of petitioner violated the FRIA because the date of the
filing of the petition for corporate rehabilitation on August 17, 2012, the reckoning point of the effects of the Commencement Order, precedes
such consolidation.

In its reply, petitioner disputed that the date of filing of the petition for corporate rehabilitation is not on August 17, 2012, but on August 22,
2012 as the petition itself bore such mark. Moreover, it alleged that even assuming that the same was filed on August 22, 2012, the reckoning
period is on October 18, 2012, which is the date of the filing of the amended petition for corporate rehabilitation. Hence, the commencement
date took place prior to the filing of the petition.

ISSUE: Does the Commencement Order issued by the RTC have the effect of rendering void the foreclosure sale of the subject properties and
the effects thereof?

ANS: No. Under the FRIA, the effects of the Commencement Order shall be reckoned from the date of the filing of the petition for corporate
rehabilitation, be it voluntary or involuntary. Emphatically, the determination of the date of the filing of the petition for rehabilitation is relevant
in ascertaining the extent of the legal effects of a Commencement Order.

In this case, it is undisputed that the Commencement Order was issued on January 11, 2013. As to the date of the filing of the petition,
petitioner claimed that the same was filed on August 17, 2012. However, the records reveal otherwise. It is apparent that it was on August 17,
2012 that the petition was prepared by petitioner's counsel, Atty. Rio T. Espiritu; but it was actually filed on August 22, 2012, as evidenced by
the rubber stamp of the RTC. Moreover, the Notice of Lis Pendens annotated in the titles of the subject properties reads that the petition for
corporate rehabilitation was filed before the RTC on August 22, 2012. In deliberately stating an erroneous fact, petitioner's counsel attempted
to mislead this Court to advocate the case of its client. Such act is, in absolute terms, a downright violation of a lawyer's duty to act at all times in
a manner consistent with the truth.

Be that as it may, petitioner still erred in considering August 2012 as the reckoning point. Significantly, the RTC already dismissed said petition on
August 25, 2012 for being bereft of substance. The October 18, 2012 Amended Petition is in reality not an amendment to the earlier petition as it
was filed only after the RTC dismissed the August 22, 2012 petition. Verily, there was nothing more to amend when the petition had already been
dismissed. Likewise, it must be emphasized that it was the October 18, 2012 petition which was granted by the RTC and initiated the
rehabilitation proceedings. Thus the commencement date is reckoned on October 18, 2012.

As the commencement date is ascertained, it is indispensable to discern the period where the extrajudicial foreclosure sale and its effects took

LA SAVOIE DEVELOPMENT CORP V.
BUENAVISTA PROPERTIES (2019)
place as Section 17 of the FRIA extends only to processes which occurred after the commencement date.
It is undisputed that Certificate of Sale was issued and registered on August 22, 2011. As such, the last day of the redemption period is on August
22, 2012. The determination of such expiration date is relevant insofar as the ownership of the subject properties is concerned. Case law dictates
that the purchaser in an extrajudicial foreclosure of real property becomes the absolute owner of the property if no redemption is made within
one year from the registration of the Certificate of Sale by those entitled to redeem.27 The consolidation of ownership in the name of the buyer
and the issuance of the new certificate of title merely entitles him to possession thereof as a matter of right. Nevertheless, upon the purchase of
the property and before the lapse of the redemption period, the buyer is already considered as the owner. In fact, he can demand possession of
the land even during the redemption period except that he has to post a bond in accordance with Section 7 of Act No. 3135, as amended.28
Hence, in this case, the ownership of the subject properties was vested upon the petitioner on August 22, 2012 as its registered owners failed to
redeem the same. Notably, such period precedes the filing of the petition for corporate rehabilitation on October 18, 2012.
The effect of such sale is to release the debtor from its outstanding obligation. In fact, petitioner issued a Certification29 stating that respondent
fully paid the same by virtue of the foreclosure sale.
As it is settled that the acquisition of absolute ownership by respondent over the subject properties on August 22, 2012 is antecedent to the
commencement date or the filing of the petition for corporate rehabilitation on October 18, 2012, the sale of the subject properties is valid.
Corollary, petitioner is no longer considered as respondent's creditor.
On May 7, 1992, Spouses Frisco and Amelia San Juan, and Spouses Felipe and Blesilda Buencamino (collectively, the landowners), through their
attorney-in-fact Delfin Cruz, Jr., entered into a Joint Venture Agreement (JVA) with La Savoie Development Corporation (petitioner) over three
parcels of land (the properties) located at San Rafael, Bulacan. Under the JVA, petitioner undertook to completely develop the properties into a
commercial and residential subdivision (project) on or before May 5, 1995. If petitioner fails to do so within the schedule, it shall pay the
landowners a penalty of P10,000.00 a day until completion of the project.6 On May 26, 1994, the landowners sold the properties to Josephine
Conde, who later assigned all her rights and interest therein to Buenavista Properties, Inc. (respondent).7 Unfortunately, petitioner did not finish
the project on time. Thus, it executed an Addendum to the JVA with respondent, extending the completion of the project until May 5, 1997.8
However, petitioner still failed to meet the deadline.
On February 28, 1998, respondent filed a complaint for termination of contract and recovery of property with damages against petitioner before
the QC RTC. The case was docketed as Civil Case No. Q-98-33682.9 Petitioner failed to appear during pre-trial, and was declared in default.10
Respondent presented its evidence ex-parte.11
Meanwhile, due to the 1997 Asian financial crisis, petitioner anticipated its inability to pay its obligations as they fall due; thus, on April 25, 2003,
it filed a petition for rehabilitation before the Regional Trial Court of Makati (Makati RTC).12 On June 4, 2003, the Makati RTC issued an Order
(Stay Order),13 staying the enforcement of all claims, whether for money or otherwise, and whether such enforcement is by court action or
otherwise, against petitioner. It appointed Rito C. Manzana as rehabilitation receiver.
Subsequently, petitioner filed a manifestation14 dated June 21, 2003 before the QC RTC. It informed the court that a Stay Order was issued by
the Makati RTC, and that respondent was included as one of the creditors in the petition for rehabilitation. It accordingly asked the QC RTC to
suspend its proceedings.
It appears, however, that the QC RTC already rendered a Decision15 on June 12, 2003 favoring the herein respondent. Meanwhile, respondent
moved for the execution of the QC RTC Decision.19 On November 21, 2007, the QC RTC issued a writ of execution to Deputy Sheriff Reynaldo
Madolaria (Sheriff Madolaria). In turn, petitioner filed before the Rehabilitation Court an extremely urgent motion for the issuance of an order to
prohibit deputy Sheriff Madolaria of the QC RTC from enforcing the writ of execution.20

In its December 28, 2007 Order,21 the Rehabilitation Court directed Sheriff Madolaria to: (a) stop the execution of the QC RTC Decision; (b)
return and restore the ejected residents of the subject property; and (c) lift the notices of garnishment and notices of levy upon personal as well
as real properties of petitioner.22 Respondent challenged this Order in its petition for certiorari before the CA docketed as CA-G.R. SP No.
102114.23

In the interim, petitioner entered into separate Compromise Agreements with two of its creditors - Home Guaranty Corporation (HGC) and
Planters Development Bank. The Rehabilitation Court approved the agreements over the opposition of respondent. Petitioner filed an Amended
Revised Rehabilitation Plan (ARRP), proposing the condonation of all past due interest, penalties and other surcharge, dacion en pago
arrangement to settle obligation with HGC, including respondent's claim against petitioner. The rehabilitation receiver filed her recommendation
with the Rehabilitation Court.24

On June 30, 2008, the Rehabilitation Court issued a Resolution25 approving the ARRP with modifications. Among others, it reduced into half the
amount of penalty stated in the QC RTC Decision. Respondent questioned the June 30, 2008 Resolution of the Rehabilitation Court in its petition
for review before the CA, docketed as CA-G.R. SP No. 104413. The CA consolidated CA-G.R. SP Nos. 102114 and 104413. The CA granted
respondent's petition under CA-G.R. SP No. 102114. It annulled the December 28, 2007 Order of the Rehabilitation Court, which enjoined Sheriff
Madolaria from implementing the writ of execution issued by the QC RTC. The CA ruled that the Rehabilitation Court does not have the power to
restrain or order a co-equal court to desist from executing its final and executory judgment because that power lies with the higher courts. It,
however, noted that the QC RTC should have exercised prudence in issuing the writ of execution since there is a standing Stay Order on all claims
against petitioner, and the judgment in Civil Case No. Q-98-33682 falls within the term "claim" as provided under Section 6(c) of Presidential
Decree No. (PD) 902-A.28 The writ of execution was thus issued in violation of the Stay Order.29

On the other hand, the CA partly granted respondent's petition under CA-G.R. SP No. 104413. The CA rejected respondent's claim that the
Rehabilitation Court lost jurisdiction when it did not act upon the petition for rehabilitation within the time provided in the 2000 Interim Rules of
Procedure on Corporate Rehabilitation (Interim Rules).30 It stated that Rule 4, Section 11 of the Interim Rules allows for extensions of time in
resolving petitions for rehabilitations. In fact, the Office of the Court Administrator favorably acted upon the extensions of time sought by the
Rehabilitation Court.31

The CA, however, agreed with respondent that the Rehabilitation Court cannot modify the final judgment of the QC RTC with respect to the
amount of penalty to be paid by petitioner. It ruled that the Rehabilitation Court could suspend the payment of the claim or provide an extended
period of payment. Further, the CA observed that respondent's claim for penalties is based on the JVA. It held that the Rehabilitation Court
cannot change the rate of penalty without impairing the stipulation between the parties. Accordingly, the CA annulled the ARRP insofar as it
reduced the amount of penalty.
Respondent submits that the QC RTC Decision had already attained finality, thus the Rehabilitation Court cannot reduce the penalty imposed. It
insists that the cram down power of the Rehabilitation Court is irrelevant and inapplicable. On the second issue, petitioner contends that the
Rehabilitation Court had the right to assert itself and enjoin the execution of the QC RTC Decision because it was rendered in violation of the Stay
Order. According to petitioner, respondent pursued the case in the QC RTC to gain illicit advantage over the other creditors of petitioner.
Petitioner avers that the CA should have instead nullified the writ of execution, or the improper levies made by Sheriff Madolaria pursuant to the
writ.

Did the Stay Order ipso jure suspend the complaint for termination of contract and recovery of property with damages? Was the judgment of

BUSTOS vs MILLIANS SHOE INC
(2017)
the RTC on the case valid?
ANS: Yes. ection 6(c) of PD 902-A, as amended, provides 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." Similarly, Section 6, Rule 4 of the Interim Rules states that if
the court finds the petition for rehabilitation to be sufficient in form and substance, it shall, not later than five days from the filing of the petition,
issue an order which, inter alia, stays the enforcement of all claims against the debtor, its guarantors and sureties not solidarity liable with the
debtor. The purpose of the suspension 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. 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.43
Here, the Rehabilitation Court issued a Stay Order on June 4, 2003 or during the pendency of Civil Case No. Q-98-33682 before the QC RTC. The
effect of the Stay Order is to ipso jure suspend the proceedings in the QC RTC at whatever stage the action may be.44 The Stay Order
notwithstanding, the QC RTC proceeded with the case and rendered judgment. The judgment became final and executory on July 31, 2007.45
Respondent relies on this alleged finality to prevent us from looking into the effect of the Stay Order on the QC RTC Decision. Respondent's
attempt fails. Hence, the judgment was null and void.
Can the Rehabilitation Court reduce liability or penalty without violating the non-impairment of contract clause of the Constitution?
ANS: Yes. The prevailing principle is that the order or judgment of the courts, not being a law, is not within the ambit of the non-impairment
clause. Further, it is more in keeping with the spirit of rehabilitation that courts are given the leeway to decide how distressed corporations can
best and fairly address their financial issues. Necessarily, a business in the red and about to incur tremendous losses may not be able to pay all its
creditors. Rather than leave it to the strongest or most resourceful amongst all of them, the state steps in to equitably distribute the
corporation's limited resources.
Can the Rehabilitation Court issue an order preventing the QC RTC from enforcing its Decision?
ANS: No. The QC RTC and the Rehabilitation Court are co-equal and coordinate courts. The doctrine of judicial stability or non-interference in the
regular orders or judgments of a co-equal court is an elementary principle in the administration of justice: no court can interfere by injunction
with the judgments or orders of another court of concurrent jurisdiction having the power to grant the relief sought by the injunction. Petitioner
cannot argue that the Rehabilitation Court, in issuing the injunction, merely aims to enforce the Stay Order that it earlier issued. No law confers
upon the Rehabilitation Court the authority to interfere with the order of a co-equal court. Only the CA or this Court, in a petition appropriately
filed for the purpose, may halt the execution of the judgment of a regional trial court.
Spouses Fernando and Amelia Cruz owned a 464-square-meter lot covered by Transfer Certificate of Title (TCT) No. N-126668.4 On 6 January
2004, the City Government of Marikina levied the prope1iy for nonpayment of real estate taxes. The Notice of Levy was annotated on the title on
8 January 2004. On 14 October 2004, the City Treasurer of Marikina auctioned off the property, with petitioner Joselito Hernand M. Bustos
emerging 'as the winning bidder. Petitioner then applied for the cancellation of TCT No. N-126668. On 13 July 2006, the Regional Trial Court,
Marikina City, Branch 273, rendered a final and executory Decision ordering the cancellation of the previous title and the issuance of a new one
under the name of petitioner. Meanwhile, notices of lis pendens were annotated on TCT No. N-126668 on 9 February 2005.6 These markings
indicated that SEC Corp. Case No. 036-04, which was filed before the RTC and involved the rehabilitation proceedings for MSI, covered the
subject property and included it in the Stay Order issued by the RTC dated 25 October 2004.7
On 26 September 2006, petitioner moved for the exclusion of the subject property from the Stay Order.8 He claimed that the lot belonged to
Spouses Cruz who were mere stockholders and officers of MSL He further argued that since he had won the bidding of the property on 14
October 2004, or before the annotation of the title on 9 February 2005, the auctioned property could no longer be part of the Stay Order. The
RTC denied the entreaty of petitioner. It ruled that because the period of redemption up to 15 October 2005 had not yet lapsed at the time of the
issuance of the Stay Order on 25 October 2004, the ownership thereof had not yet been transferred to petitioner. Petitioner moved for
reconsideration, 10 but to no avail. 11 He then filed an action for certiorari before the CA. He asserted that the Stay Order undermined the taxing
powers of the local government unit. He also reiterated his arguments that Spouses Cruz owned the property, and that the lot had already been
auctioned to him.

In the assailed Decision dated 12 June 2008, the CA brushed aside the claim that the suspension orders undermined the power to tax. As regards
petitioner's main contention, the CA ruled as follows: In the case at bar, the delinquent tax payers were the Cruz Spouses who were the
registered owners of the said parcel of land at the time of the delinquency sale. The sale was held on October 14, 2004 and the Cruz

Spouses had until October 15, 2005 within which to redeem the parcel of land. The stay order was issued on October 25, 2004 and inscribed at
the back of the title on February 9, 2005, which is within the redemption period. The Cruz Spouses were still the owners of the land at the time of
the issuance of the stay order. The said parcel of land which secured several mortgage liens for the account of MSI remains to be an asset of the
Cruz Spouses, who are the stockholders and/or officers of MSI, a close corporation. Incidentally, as an exception to the general rule, in a close
corporation, the stockholders and/or officers usually manage the business of the corporation and are subject to all liabilities of directors, i.e.
personally liable for corporate debts and obligations. Thus, the Cruz Spouses being stockholders of MSI are personally liable for the latter's debt
and obligations. Petitioner unsuccessfully moved for reconsideration. The CA maintained its ruling and even held that his prayer to exclude the
property was time-barred by the 10-day reglementary period to oppose rehabilitation petitions under Rule 4, Section 6 of the Interim Rules of
Procedure on Corporate Rehabilitation

ISSUE: Whether the CA correctly considered the properties of Spouses Cruz answerable for the obligations of MSI?
ANS: No. In finding the subject property answerable for the obligations of MSI, the CA characterized respondent spouses as stockholders of a
close corporation who, as such, are liable for its debts. This conclusion is baseless.

To be considered a close corporation, an entity must abide by the requirements laid out in Section 96 of the Corporation Code, which reads:

Sec. 96. Definition and applicability of Title. - A close corporation, within the meaning of this Code, is one whose articles of incorporation provide
that: (1) All the corporation's issued stock of all classes, exclusive of treasury shares, shall be held of record by not more than a specified number
of persons, not exceeding twenty (20); (2) all the issued stock of all classes shall be subject to one or more specified restrictions on transfer
permitted by this Title; and (3) The corporation shall not list in any stock exchange or make any public offering of any of its stock of any class.
Notwithstanding the foregoing, a corporation shall not be deemed a close corporation when at least two-thirds (2/3) of its voting stock or voting
rights is owned or controlled by another corporation which is not a close corporation within the meaning of this Code.x x x. (Emphasis supplied)

In San Juan Structural and Steel Fabricators. Inc. v. Court ol Appeals,14 this Court held that a narrow distribution of ownership does not, by itself,
make a close corporation. Courts must look into the articles of incorporation to find provisions expressly stating that (l) the number of
stockholders shall not exceed 20; or (2) a preemption of shares is restricted in favor of any stockholder or of the corporation; or (3) the listing of
the corporate stocks in any stock exchange or making a public offering of those stocks is prohibited.

Here, neither the CA nor the R TC showed its basis for finding that MSI is a close corporation. The courts a quo did not at all refer to the Articles of
Incorporation of MSI. We thus apply the general doctrine of separate juridical personality, which provides that a corporation has a legal
personality separate and distinct from that of people comprising it. 19 By virtue of that doctrine, stockholders of a corporation enjoy the principle
of limited liability: the corporate debt is not the debt of the stockholder.20 Thus, being an officer or a stockholder of a corporation does not make
one's property the property also of the corporation.21

Situs Development Corp. v. Asiatrust Bank22 is analogous to the case at bar. We held therein that the parcels of land mortgaged to creditor banks

SOBREJUANITE VS. ASB (2005)
were owned not by the corporation, but by the spouses who were its stockholders. Applying the doctrine of separate juridical personality, we
ruled that the parcels of land of the spouses could not be considered part of the corporate assets that could be subjected to rehabilitation
proceedings. Given that the true owner the subject property is not the corporation, petitioner cannot be considered a creditor of MSI but a
holder of a claim against respondent spouses.
Rule 4, Section 6 of the Interim Rules of Procedure on Corporate Rehabilitation, directs creditors of the debtor to file an opposition to petitions
for rehabilitation within 10 days before the initial hearing of rehabilitation proceedings. Since petitioner does not hold any claim over the
properties owned by MSI, the time-bar rule does not apply to him.
The antecedent facts show that on March 7, 2001, spouses Eduardo and Fidela Sobrejuanite (Sobrejuanite) filed a Complaint1 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, attorney’s 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 HLURB Board of
Commissioners3 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.
ASBDC filed an appeal5 before the Office of the President which was dismissed6 for lack of merit. Hence, ASBDC filed a petition7 under Section 1,
Rule 43 of the Rules of Court before the Court of Appeals, docketed as CA-G.R. SP No. 79420. 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 Sobrejuanite’s 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.
ISSUE: 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?
ANS: 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.

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 attorney’s fees; P50,000.00 as litigation expenses;
P1,500.00 per hearing as appearance fees; and costs of the suit.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

NOTE: 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 respondent’s 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 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. Whatever monetary awards the HLURB may impose
upon respondent are incidental matters that should be addressed to the sound discretion of the Board of Receivers charged with

NEGROS NAVIGATION vs CA (2008)
maintaining the viability of respondent as a corporation. Any controversy that may arise in that regard should then be addressed to
the SEC.
NNC is a shipping company that is primarily engaged in the business of transporting through shipping vessels, passengers and cargoes at
various ports of call in the country.4 THI, on the other hand, is engaged in the business of shipbuilding and repair.5 NNC engaged the
services of THI for the repair of its vessels. On February 9, 2004, THI filed a case for sum of money and damages with prayer for issuance of
writ of attachment against NNC before the Regional Trial Court of Cebu (Cebu RTC), docketed as Civil Case No. CEB-29899 entitled
"Tsuneishi Heavy Industries (Cebu), Inc. v. Negros Navigation Co., Inc." The action is based on the unpaid services for the repair of NNC’s
vessels, otherwise known as repairman’s lien.
On March 5, 2004, the Cebu RTC issued an Order6 granting the issuance of a writ of preliminary attachment against the properties of
NNC.7 It reasoned that based on the affidavit in support of the application for the writ, NNC committed fraud in contracting the debt or in
incurring the obligation upon which the action was brought, thus, justifying the issuance of the writ8 as mandated by Section 1(d) of Rule
57. It added that the repairman’s lien of THI constituted a superior maritime lien that is enforceable by suit in rem, as decreed by
Presidential Decree No. 1521 (PD 1521). On March 12, 2004, by virtue of the writ of preliminary attachment, Sheriff Rogelio T. Pinar levied
on one of the vessels of NNC, the M/V St. Peter the Apostle. On March 29, 2004, NNC filed a Petition for Corporate Rehabilitation with
Prayer for Suspension of Payments11 with the RTC of Manila (Manila RTC), Branch 46, which was docketed as Special Proceeding No.
0409532. The Manila RTC granted the NNC’s petition and issued a Stay Order12 on April 1, 2004.
On April 6, 2004, the Cebu RTC issued two (2) Orders. The first was an Order18 admitting the amended complaint as a matter of right since
NNC had not yet filed a responsive pleading when the same was filed. The second was an Order19 for the arrest of the vessels of NNC in
the in rem aspect of the case. On April 12, 2004, NNC’s Rehabilitation Receiver filed with the Manila RTC a Motion20 for the clarification of
the stay order. It sought to confirm whether the claim sought to be enforced by THI against the vessels of NNC is covered by the stay
order. On the same date, the Manila RTC issued an Order21 addressing the said motion. On April 13, 2004, NNC filed a Motion to Suspend
Proceedings and to Lift the Writ of Attachment and Arrest Orders23 before the Cebu RTC by virtue of the April 12, 2004 Order of the
Manila RTC. However, on April 29, 2004, the CA issued the Resolution24 assailed in what is before this Court as G.R. No. 163156, wherein
the appellate court temporarily restrained the implementation of the Orders of the Manila RTC dated April 1, 2004 and April 12, 2004. On
October 6, 2004, the CA issued the Decision27 assailed in what is now G.R. No. 166845, denying the petition of THI that sought to annul
and enjoin the enforcement and implementation of the Orders of the Manila RTC dated April 1, 2004 and April 12, 2004.
THI maintains that its maritime liens against the vessels of NNC were impaired by the issuance of the stay order. THI argues that the
issuance of the stay order by the Manila RTC, acting as rehabilitation court, was erroneous considering that maritime liens cannot be
enforced, divested, and otherwise affected or dealt with except by an admiralty court in an admiralty proceeding in rem. THI cited various
foreign jurisprudence to the effect that maritime liens are enforceable only by a suit in rem. 33 It further averred that the mere
suspension of the in rem proceedings in the admiralty case prejudiced its substantive rights under Presidential Decree (PD) 1521. THI
wishes to impress this Court that its claim for repairman’s lien is a maritime lien and, accordingly, may be enforced only in a proceeding in
rem. The Court agrees that PD 1521 is the governing law concerning its maritime lien for the services it rendered to NNC. However, when
NNC filed a petition for corporate rehabilitation and suspension of payments, and the Manila RTC found that the petition was sufficient in
form and in substance and appointed the rehabilitation receiver, the admiralty proceeding was appropriately suspended in accordance
with Section 6 of the Interim Rules on Corporate Rehabilitation.
ISSUE: Whether THI’s enforcement/the efficacy of its maritime liens against the Vessels nor the Admiralty Court’s jurisdiction over
those liens is impaired by the Stay Orders issued by the Manila RTC?
ANS: Yes. HI wishes to impress this Court that its claim for repairman’s lien is a maritime lien and, accordingly, may be enforced only in a
proceeding in rem. The Court agrees that PD 1521 is the governing law concerning its maritime lien for the services it rendered to NNC.
However, when NNC filed a petition for corporate rehabilitation and suspension of payments, and the Manila RTC found that the petition
was sufficient in form and in substance and appointed the rehabilitation receiver, the admiralty proceeding was appropriately suspended
in accordance with Section 6 of the Interim Rules on Corporate Rehabilitation.

The governing law concerning rehabilitation and suspension of actions for claims against corporations is PD 902-A, as amended. Republic
Act No. 8799 (RA 8799), otherwise known as The Securities Regulation Code, amended Section 5 of PD 902-A, thereby transferring to the
Regional Trial Courts the jurisdiction of the Securities and Exchange Commission (SEC) over cases, among others, involving petitions of
corporations, partnerships or associations to be declared in the state of suspension of payments where the corporation, partnership or
association possesses property to cover all its debts but foresees the impossibility of meeting them when they respectively fall due, or
where the corporation, partnership or association has no sufficient assets to cover its liabilities, but is under the management of a
rehabilitation receiver or a management committee.

The Court adopted the Interim Rules of Procedure on Corporate Rehabilitation on December 15, 2000, and these rules apply to petitions
for rehabilitation filed by corporations, partnerships, and associations pursuant to PD 902-A.

PD 902-A38 mandates that upon appointment of a management committee, rehabilitation receiver, board or body, all actions for claims
against corporations, partnerships or associations under management or receivership pending before any court, tribunal, board or body
shall be suspended. PD 902-A does not make any distinction as to what claims are covered by the suspension of actions for claims against
corporations under rehabilitation. No exception is made therein in favor of maritime claims. Thus, since the law does not make any
exemptions or distinctions, neither should we. Ubi lex non distinguit nec nos distinguere debemos.

The justification for the suspension of actions or claims, without distinction, pending rehabilitation proceedings is to 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 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.39

It is undisputed that THI holds a preferred maritime lien over NNC’s assets by virtue of THI’s unpaid services. The issuance of the stay
order by the rehabilitation court does not impair or in any way diminish THI’s preferred status as a creditor of NNC. The enforcement of its
claim through court action was merely suspended to give way to the speedy and effective rehabilitation of the distressed shipping
company. Upon termination of the rehabilitation proceedings or in the event of the bankruptcy and consequent dissolution of the
company, THI can still enforce its preferred claim upon NNC.

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. The stay order is effective on all
creditors of the corporation without distinction, whether secured or unsecured. 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.

Rizal Commercial Banking Corporation v. Intermediate Appellate Court,41 promulgated by the Court en banc before the effectivity of the
Interim Rules on Corporate Rehabilitation, is still valid case law up to the present. It enumerates the guidelines in the treatment of claims
involving corporations undergoing rehabilitation, viz.:

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 with 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 one

ISSUE: Did Manila RTC, in granting the stay order, divested the Cebu RTC, which is acting as an admiralty court, of its jurisdiction over
the maritime case of THI?
ANS: No. True enough, a maritime lien is not affected by bankruptcy or reorganization. However, in the instant case, we are not dealing
with bankruptcy or reorganization; rather, we are confronted with NNC’s rehabilitation. If we follow the argument of THI and allow the
continued enforcement of its claims against NNC, we would, in effect, violate provisions of PD 902-A. To reiterate, the rationale behind PD
902-A is to effect a feasible and viable rehabilitation of an ailing corporation.
The case stemmed from the administrative charge filed by PAL against its employees-herein petitioners3 after they were
allegedly caught in the act of sniffing shabu when a team of company security personnel and law enforcers raided the
PAL Technical Center’s Toolroom Section on July 24, 1995.

After due notice, PAL dismissed petitioners on October 9, 1995 for transgressing the PAL Code of Discipline,4 prompting
them to file a complaint for illegal dismissal and damages which was, by Decision of January 11, 1999,5 resolved by the
Labor Arbiter in their favor, thus ordering PAL to, inter alia, immediately comply with the reinstatement aspect of the
decision.

Prior to the promulgation of the Labor Arbiter’s decision, the Securities and Exchange Commission (SEC) placed PAL
(hereafter referred to as respondent), which was suffering from severe financial losses, under an Interim Rehabilitation
Receiver, who was subsequently replaced by a Permanent Rehabilitation Receiver on June 7, 1999.

From the Labor Arbiter’s decision, respondent appealed to the NLRC which, by Resolution of January 31, 2000, reversed
said decision and dismissed petitioners’ complaint for lack of merit.6

Petitioners’ Motion for Reconsideration was denied by Resolution of April 28, 2000 and Entry of Judgment was issued on
July 13, 2000.7
Subsequently or on October 5, 2000, the Labor Arbiter issued a Writ of Execution (Writ) respecting the reinstatement
aspect of his January 11, 1999 Decision, and on October 25, 2000, he issued a Notice of Garnishment (Notice).
Respondent thereupon moved to quash the Writ and to lift the Notice while petitioners moved to release the garnished
amount.

In a related move, respondent filed an Urgent Petition for Injunction with the NLRC which, by Resolutions of November
26, 2001 and January 28, 2002, affirmed the validity of the Writ and the Notice issued by the Labor Arbiter but
suspended and referred the action to the Rehabilitation Receiver for appropriate action.

Respondent elevated the matter to the appellate court which issued the herein challenged Decision and Resolution
nullifying the NLRC Resolutions on two grounds, essentially espousing that: (1) a subsequent finding of a valid dismissal
removes the basis for implementing the reinstatement aspect of a labor arbiter’s decision (the first ground), and (2) the
impossibility to comply with the reinstatement order due to corporate rehabilitation provides a reasonable justification
for the failure to exercise the options under Article 223 of the Labor Code (the second ground).
Later on, PAL has exited the rehabilitation proceeding.

ISSUE: Whether Whether PAL’s failure to reinstate petitioners (Labor Arbiter’s order) is justified due to its corporate
rehabilitation of PAL?
ANS: Yes. As a rule, a dismissed employee whose case was favorably decided by the Labor Arbiter is entitled to receive
wages pending appeal upon reinstatement, which is immediately executory. Unless there is a restraining order, it is ministerial
upon the Labor Arbiter to implement the order of reinstatement and it is mandatory on the employer to comply therewith. The
Court reaffirms the prevailing principle that even if the order of reinstatement of the Labor Arbiter is reversed on appeal, it is
obligatory on the part of the employer to reinstate and pay the wages of the dismissed employee during the period of appeal
until reversal by the higher court.
It is settled that upon appointment by the SEC of a rehabilitation receiver, all actions for claims before any court, tribunal or
board against the corporation shall ipso jure be suspended.31 As stated early on, during the pendency of petitioners’ complaint
before the Labor Arbiter, the SEC placed respondent under an Interim Rehabilitation Receiver. After the Labor Arbiter rendered
his decision, the SEC replaced the Interim Rehabilitation Receiver with a Permanent Rehabilitation Receiver.

Case law recognizes that unless there is a restraining order, the implementation of the order of reinstatement is ministerial and
mandatory.32 This injunction or suspension of claims by legislative fiat33 partakes of the nature of a restraining order that
constitutes a legal justification for respondent’s non-compliance with the reinstatement order. Respondent’s failure to exercise
the alternative options of actual reinstatement and payroll reinstatement was thus justified. Such being the case, respondent’s
obligation to pay the salaries pending appeal, as the normal effect of the non-exercise of the options, did not attach.

While reinstatement pending appeal aims to avert the continuing threat or danger to the survival or even the life of the
dismissed employee and his family, it does not contemplate the period when the employer-corporation itself is similarly in a
judicially monitored state of being resuscitated in order to survive. More importantly, there are legal effects arising from a
judicial order placing a corporation under rehabilitation. Respondent was, during the period material to the case, effectively
deprived of the alternative choices under Article 223 of the Labor Code, not only by virtue of the statutory injunction but also in
view of the interim relinquishment of management control to give way to the full exercise of the powers of the rehabilitation
 receiver. Had there been no need to rehabilitate, respondent may have opted for actual physical reinstatement pending appeal
to optimize the utilization of resources. Then again, though the management may think this wise, the rehabilitation receiver may
decide otherwise, not to mention the subsistence of the injunction on claims.

In sum, the obligation to pay the employee’s salaries upon the employer’s failure to exercise the alternative options under
Article 223 of the Labor Code is not a hard and fast rule, considering the inherent constraints of corporate rehabilitation.
MWSS vs DAWAY and On November 17, 2003, the Regional Trial Court (RTC) of Quezon City, Branch 90, made a determination that the Petition for Rehabilitation with
MAYNILAD (2004) Prayer for Suspension of Actions and Proceedings filed by Maynilad Water Services, Inc. (Maynilad) conformed substantially to the provisions of
Sec. 2, Rule 4 of the Interim Rules of Procedure on Corporate Rehabilitation (Interim Rules). It forthwith issued a Stay Order. Subsequently, on
November 27, 2003, public respondent, acting on two Urgent Ex Parte motions2 filed by respondent Maynilad, issued the herein questioned
Order3 which stated that it thereby: 1. DECLARES that the act of MWSS in commencing on November 24, 2003 the process for the payment by
the banks of US$98 million out of the US$120 million standby letter of credit so the banks have to make good such call/drawing of payment of
US$98 million by MWSS not later than November 27, 2003 at 10:00 P. M. or any similar act for that matter, is violative of the above-quoted sub-
paragraph 2.) of the dispositive portion of this Court’s Stay Order dated November 17, 2003. 2. ORDERS MWSS through its officers/officials to
withdraw under pain of contempt the written certification/notice of draw to Citicorp International Limited dated November 24, 2003 and
DECLARES void any payment by the banks to MWSS in the event such written certification/notice of draw is not withdrawn by MWSS and/or
MWSS receives payment by virtue of the aforesaid standby letter of credit." Aggrieved by this Order, petitioner Manila Waterworks & Sewerage
System (MWSS) filed this petition for review by way of certiorari under Rule 65 o

The antecedent facts are: On February 21, 1997, MWSS granted Maynilad under a Concession Agreement a twenty-year period to manage,
operate, repair, decommission and refurbish the existing MWSS water delivery and sewerage services in the West Zone Service Area, for which
Maynilad undertook to pay the corresponding concession fees on the dates agreed upon in said agreement5 which, among other things,
consisted of payments of petitioner’s mostly foreign loans.

To secure the concessionaire’s performance of its obligations under the Concession Agreement, Maynilad was required under Section 6.9 of said
contract to put up a bond, bank guarantee or other security acceptable to MWSS.

In compliance with this requirement, Maynilad arranged on July 14, 2000 for a three-year facility with a number of foreign banks, led by Citicorp
International Limited, for the issuance of an Irrevocable Standby Letter of Credit6 in the amount of US$120,000,000 in favor of MWSS for the full
and prompt performance of Maynilad’s obligations to MWSS as aforestated.

Sometime in September 2000, respondent Maynilad requested MWSS for a mechanism by which it hoped to recover the losses it had allegedly
incurred and would be incurring as a result of the depreciation of the Philippine Peso against the US Dollar. Failing to get what it desired,
Maynilad issued a Force Majeure Notice on March 8, 2001 and unilaterally suspended the payment of the concession fees. In an effort to salvage
the Concession Agreement, the parties entered into a Memorandum of Agreement (MOA)7 on June 8, 2001 wherein Maynilad was allowed to
recover foreign exchange losses under a formula agreed upon between them. Sometime in August 2001 Maynilad again filed another Force
Majeure Notice and, since MWSS could not agree with the terms of said Notice, the matter was referred on August 30, 2001 to the Appeals Panel
for arbitration. This resulted in the parties agreeing to resolve the issues through an amendment of the Concession Agreement on October 5,
2001, known as Amendment No. 1,8 which was based on the terms set down in MWSS Board of Trustees Resolution No. 457-2001, as amended
by MWSS Board of Trustees Resolution No. 487-2001,9 which provided inter alia for a formula that would allow Maynilad to recover foreign
exchange losses it had incurred or would incur under the terms of the Concession Agreement.

However, on November 5, 2002, Maynilad served upon MWSS a Notice of Event of Termination, claiming that MWSS failed to comply with its
obligations under the Concession Agreement and Amendment No. 1 regarding the adjustment mechanism that would cover Maynilad’s foreign
exchange losses. On December 9, 2002, Maynilad filed a Notice of Early Termination of the concession, which was challenged by MWSS. This
matter was eventually brought before the Appeals Panel on January 7, 2003 by MWSS.10 On November 7, 2003, the Appeals Panel ruled that
there was no Event of Termination as defined under Art. 10.2 (ii) or 10.3 (iii) of the Concession Agreement and that, therefore, Maynilad should
pay the concession fees that had fallen due.

The award of the Appeals Panel became final on November 22, 2003. MWSS, thereafter, submitted a written notice11 on November 24, 2003, to
Citicorp International Limited, as agent for the participating banks, that by virtue of Maynilad’s failure to perform its obligations under the
Concession Agreement, it was drawing on the Irrevocable Standby Letter of Credit and thereby demanded payment in the amount of
US$98,923,640.15.

Prior to this, however, Maynilad had filed on November 13, 2003, a petition for rehabilitation before the court a quo which resulted in the
issuance of the Stay Order of November 17, 2003 and the disputed Order of November 27, 2003. etitioner maintains that as a matter of law, the
US$120 Million Standby Letter of Credit and Performance Bond are not property of the estate of the debtor Maynilad and, therefore, not subject
to the in rem rehabilitation jurisdiction of the trial court.

Petitioner argues that a call made on the Standby Letter of Credit does not involve any asset of Maynilad but only assets of the banks.
Furthermore, a call on the Standby Letter of Credit cannot also be considered a "claim" falling under the purview of the stay order as alleged by
respondent as it is not directed against the assets of respondent Maynilad. Respondent Maynilad’s Financial Statement as of December 31, 2001
and 2002 do not show the Irrevocable Standby Letter of Credit as part of its assets or liabilities, and by respondent Maynilad’s own admission it is
not. In issuing the clarificatory order of November 27, 2003, enjoining petitioner from claiming from an asset that did not belong to the debtor
and over which it did not acquire jurisdiction, the rehabilitation court acted in excess of its jurisdiction.

Respondent Maynilad insists, however, that it is Sec. 6 (b), Rule 4 of the Interim Rules that supports its claim that the commencement of the
process to draw on the Standby Letter of Credit is an enforcement of claim prohibited by and under the Interim Rules and the order of public
respondent.

Respondent Maynilad would persuade us that the above provision justifies a leap to the conclusion that such an enforcement is prohibited by
said section because it is a "claim against the debtor, its guarantors and sureties not solidarily liable with the debtor" and that there is nothing in
the Standby Letter of Credit nor in law nor in the nature of the obligation that would show or require the obligation of the banks to be solidary
with the respondent Maynilad.

ISSUE: Did the rehabilitation court sitting as such, act in excess of its authority or jurisdiction when it enjoined herein petitioner from seeking
the payment of the concession fees from the banks that issued the Irrevocable Standby Letter of Credit in its favor and for the account of
respondent Maynilad?
ANS: Yes. The Letter of Credit is is the nature of surety where the bank is solidarily liable to the debtor. Hence, the Stay Order does not affect or
suspend its enforcement. First, the claim is not one against the debtor but against an entity that respondent Maynilad has procured to answer for
its non-performance of certain terms and conditions of the Concession Agreement, particularly the payment of concession fees.

Secondly, Sec. 6 (b) of Rule 4 of the Interim Rules does not enjoin the enforcement of all claims against guarantors and sureties, but only those
claims against guarantors and sureties who are not solidarily liable with the debtor. Respondent Maynilad’s claim that the banks are not solidarily
liable with the debtor does not find support in jurisprudence.

We held in Feati Bank & Trust Company v. Court of Appeals16 that the concept of guarantee vis-à-vis the concept of an irrevocable letter of credit
 are inconsistent with each other. The guarantee theory destroys the independence of the bank’s responsibility from the contract upon which it
was opened and the nature of both contracts is mutually in conflict with each other. In contracts of guarantee, the guarantor’s obligation is
merely collateral and it arises only upon the default of the person primarily liable. On the other hand, in an irrevocable letter of credit, the bank
undertakes a primary obligation. We have also defined a letter of credit as an engagement by a bank or other person made at the request of a
customer that the issuer shall honor drafts or other demands of payment upon compliance with the conditions specified in the credit.17

Letters of credit were developed for the purpose of insuring to a seller payment of a definite amount upon the presentation of documents18 and
is thus a commitment by the issuer that the party in whose favor it is issued and who can collect upon it will have his credit against the applicant
of the letter, duly paid in the amount specified in the letter.19 They are in effect absolute undertakings to pay the money advanced or the
amount for which credit is given on the faith of the instrument. They are primary obligations and not accessory contracts and while they are
security arrangements, they are not converted thereby into contracts of guaranty.20 What distinguishes letters of credit from other accessory
contracts, is the engagement of the issuing bank to pay the seller once the draft and other required shipping documents are presented to it.21
They are definite undertakings to pay at sight once the documents stipulated therein are presented.

Thus, The prohibition under Sec 6 (b) of Rule 4 of the Interim Rules does not apply to herein petitioner as the prohibition is on the enforcement
of claims against guarantors or sureties of the debtors whose obligations are not solidary with the debtor. The participating banks’ obligation are
solidary with respondent Maynilad in that it is a primary, direct, definite and an absolute undertaking to pay and is not conditioned on the prior
exhaustion of the debtor’s assets. These are the same characteristics of a surety or solidary obligor. Being solidary, the claims against them can
be pursued separately from and independently of the rehabilitation case, as held in Traders Royal Bank v. Court of Appeals26 and reiterated in
Philippine Blooming Mills, Inc. v. Court of Appeals,27 where we said that property of the surety cannot be taken into custody by the rehabilitation
receiver (SEC) and said surety can be sued separately to enforce his liability as surety for the debts or obligations of the debtor. The debts or
obligations for which a surety may be liable include future debts, an amount which may not be known at the time the surety is given.

VIVA SHIPPING LINES, INC., On October 4, 2005, Viva Shipping Lines, Inc. (Viva Shipping Lines) filed a Petition for Corporate Rehabilitation before the Regional Trial Court of
v. KEPPEL PHILIPPINES Lucena City.2 The Regional Trial Court initially denied the Petition for failure to comply with the requirements in Rule 4, Sections 2 and 3 of the
MINING, INC. (2016) Interim Rules of Procedure on Corporate Rehabilitation.3 On October 17, 2005, Viva Shipping Lines filed an Amended Petition.4

In the Amended Petition, Viva Shipping Lines claimed to own and operate 19 maritime vessels5 and Ocean Palace Mall, a shopping mall in
downtown Lucena City.6 Viva Shipping Lines also declared its total properties' assessed value at about P45,172,790.00.7 However, these
allegations were contrary to the attached documents in the Amended Petition.

One of the attachments, the Property Inventory List, showed that Viva Shipping Lines owned only two (2) maritime vessels: M/V Viva Penafrancia
V and M/V Marian Queen.8 The list also stated that the fair market value of all of Viva Shipping Lines' assets amounted to P447,860,000.00,9
P400 million more than what was alleged in its Amended Petition. Some of the properties listed in the Property Inventory List were already
marked as "encumbered" by its creditors;10 hence, only PI47,630,000.00 of real property and its vessels were marked as "free assets.

According to Viva Shipping Lines, the devaluation of the Philippine peso, increased competition, and mismanagement of its businesses made it
difficult to pay its debts as they became due.13 It also stated that "almost all [its] vessels were rendered unserviceable either because of age and
deterioration that [it] can no longer compete with modern made vessels owned by other operators."14

In its Company Rehabilitation Plan, Viva Shipping Lines enumerated possible sources of funding such as the sale of old vessels and commercial
lots of its sister company, Sto. Domingo Shipping Lines.15 It also proposed the conversion of the Ocean Palace Mall into a hotel, the acquisition of
two (2) new vessels for shipping operations, and the "re-operation"16 of an oil mill in Buenavista, Quezon.17
Viva Shipping Lines nominated two individuals to be appointed as rehabilitation receiver: Armando F. Ragudo, a businessman from Tayabas,
Quezon, and Atty. Calixto Ferdinand B. Dauz III, a lawyer from Lucena City.18 A day after filing the Amended Petition, Viva Shipping Lines
submitted the name of a third nominee, Former Judge Jose F. Mendoza (Judge Mendoza).19

On October 19, 2005, the Regional Trial Court found that Viva Shipping Lines' Amended Petition to be "sufficient in form and substance," and
issued a stay order. Before the initial hearing scheduled on December 5, 2005, the City of Batangas, Keppel Philippines Marine, Inc., and
Metropolitan Bank and Trust Company (Metrobank) filed their respective comments and oppositions to Viva Shipping Lines' Amended Petition.22

During the initial hearing, Pilipinas Shell Petroleum Corporation (Pilipinas Shell) moved for additional time to write its opposition to Viva Shipping
Lines' Amended Petition.23 Pilipinas Shell later filed its Comment/Opposition with Formal Notice of Claim.24

Luzviminda C. Cueto, a former employee of Viva Shipping Lines, also filed a Manifestation and Registration of Monetary Claim stating that Viva
Shipping Lines owes her P232,000.00 as separation and 13th month pay.25 The Securities and Exchange Commission filed a Comment informing
the Regional Trial Court that Viva Shipping Lines violated certain laws and rules of the Commission.26

On March 24, 2006, Judge Mendoza withdrew his acceptance of appointment as rehabilitation receiver.27 As replacement, Viva Shipping Lines
nominated Atty. Antonio Acyatan, while Metrobank nominated Atty. Rosario S. Bernaldo.28 Keppel Philippines Marine, Inc. adopted Metrobank's
nomination.29

On April 4, 2006, Metrobank filed a Motion for Production or Inspection of relevant documents relating to Viva Shipping Lines' business
operations such as board resolutions, tax returns, accounting ledgers, bank accounts, and contracts.30 Viva Shipping Lines filed its opposition.
However, the Regional Trial Court granted Metrobank's Motion.31 Viva Shipping Lines failed to comply with the Order to produce the
documents,32 as well as with the Regional Trial Court Order to submit a memorandum.33

On September 27, 2006, Viva Shipping Lines' former employees Alejandro Olit, Nida Montilla, Pio Hernandez, Eugenio Baculo, and Harlan
Bacaltos34 (Alejandro Olit, et al.) filed their comment on the Amended Petition, informing the Regional Trial Court of their pending complaint
against Viva Shipping Lines before the National Labor Relations Commission.35

In the Order dated October 30, 2006,36 the Regional Trial Court lifted the stay order and dismissed Viva Shipping Lines' Amended Petition for
failure to show the company's viability and the feasibility of rehabilitation. Regional Trial Court found that Viva Shipping Lines' assets all appeared
to be non-performing. Further, it noted that Viva Shipping Lines failed to show any evidence of consent to sell real properties belonging to its
sister company.41

Aggrieved, Viva Shipping Lines filed a Petition for Review under Rule 43 of the Rules of Court before the Court of Appeals.42 It only impleaded
Hon. Adolfo V. Encomienda, the Presiding Judge of the trial court that rendered the assailed decision. It did not implead any of its creditors, but
served copies of the Petition on counsels for Metrobank, Keppel Philippines Marine, Inc., Pilipinas Shell, City of Batangas, Province of Quezon,
and City of Lucena.43 Viva Shipping Lines neither impleaded nor served a copy of the Petition on its former employees or their counsels.

The Court of Appeals dismissed Viva Shipping Lines' Petition for Review in the Resolution dated January 5, 2007.44 It found that Viva Shipping
Lines failed to comply with procedural requirements under Rule 43,45 The Court of Appeals ruled that due to the failure of Viva Shipping Lines to
implead its creditors as respondents, "there are no respondents who may be required to file a comment on the petition, pursuant to Section 8 of
Rule 43,
ISSUE: Whether or not corporate rehabilitation was feasible/viable?
ANS: No. Corporate rehabilitation is a remedy for corporations, partnerships, and associations "who [foresee] the impossibility of meeting [their]
debts when they respectively fall due."94 A corporation under rehabilitation continues with its corporate life and activities to achieve solvency,95
or a position where the corporation is able to pay its obligations as they fall due in the ordinary course of business. Solvency is a state where the
businesses' liabilities are less than its assets.96

Corporate rehabilitation is a type of proceeding available to a business that is insolvent. In general, insolvency proceedings provide for
predictability that commercial obligations will be met despite business downturns.

The public's interest lies in the court's ability to effectively ensure that the obligations of the debtor, who has experienced severe economic
difficulties, are fairly and equitably served. The alternative might be a chaotic rush by all creditors to file separate cases with the possibility of
different; trial courts issuing various writs competing for the same assets. Rehabilitation is a means to temper the effect of a business downturn
experienced for whatever reason. In the process, it gives entrepreneurs a second chance. Not only is it a humane and equitable relief, it
encourages efficiency and maximizes welfare in the economy.

Clearly then, there are instances when corporate rehabilitation can no longer be achieved. When rehabilitation will not result in a better present
value recovery for the creditors,105 the more appropriate remedy is liquidation.106

It does not make sense to hold, suspend, or continue to devalue outstanding credits of a business that has no chance of recovery. In such cases,
the optimum economic welfare will be achieved if the corporation is allowed to wind up its affairs in an orderly manner. Liquidation allows the
corporation to wind up its affairs and equitably distribute its assets among its creditors.

The Regional Trial Court correctly dismissed petitioner's rehabilitation plan. It found that petitioner's assets are non-performing.152 Petitioner
admitted this in its Amended Petition when it stated that its vessels were no longer serviceable.153 In Wonder Book Corporation v. Philippine
Bank of Communications,154 a rehabilitation plan is infeasible if the assets are nearly fully or fully depreciated. This reduces the probability that
rehabilitation may restore and reinstate petitioner to its former position of successful operation and solvency.

Petitioner's rehabilitation plan should have shown that petitioner has enough serviceable assets to be able to continue its business. Yet, the plan
showed that the source of funding would be to sell petitioner's old vessels. Disposing of the assets constituting petitioner's main business cannot
result in rehabilitation. A business primarily engaged as a shipping line cannot operate without its ships. On the other hand, the plan to purchase
new vessels sacrifices the corporation's cash flow. This is contrary to the goal of corporate rehabilitation, which is to allow present value recovery
for creditors. The plan to buy new vessels after selling the two vessels it currently owns is neither sound nor workable as a business plan.

The other part of the rehabilitation plan entails selling properties of petitioner's sister company. As pointed out by the Regional Trial Court, this
plan requires conformity from the sister company. Even if the two companies have the same directorship and ownership, they are still two
separate juridical entities.

Whether or not the CA correctly dismiss the petition for failure to follow procedural rules regarding rehabilitation proceedings?
ANS: Yes. Petitioner did not comply with some of these requirements. First, it did not implead its creditors as respondents. Instead, petitioner
only impleaded the Presiding Judge of the Regional Trial Court, contrary to Section 6(a) of Rule 43. Second, it did not serve a copy of the Petition
on some of its creditors, specifically, its former employees. Finally, it did not serve a copy of the Petition on the Regional Trial Court. Petitioner
justified its failure to furnish its former employees with copies of the Petition by stating that the former employees were late in filing their
opposition before the trial court.126 It also stated that its failure to furnish the Regional Trial Court with a copy of the Petition was unintentional.
The Court of Appeals correctly dismissed petitioner's Rule 43 Petition as a consequence of non-compliance with procedural rules.
The Rules of Court requires petitioner to implead respondents as a matter of due process. Under the Constitution, "[n]o person shall be deprived
of life, liberty or property without due process of the law."134 An appeal to a corporate rehabilitation case may deprive creditor-stakeholders of
property. Due process dictates that these creditors be impleaded to give n them an opportunity to protect the property owed to them. Creditors
are indispensable parties to a rehabilitation case, even if a rehabilitation case is non-adversarial. A corporate rehabilitation case cannot be
decided without the creditors' participation. The court's role is to balance the interests of the corporation, the creditors, and the general public.
Impleading creditors as respondents on appeal will give them the opportunity to present their legal arguments before the appellate court.

The next procedural rule that petitioner pleaded to suspend is the rule requiring it to furnish all parties with copies of the Rule 43 Petition.
Petitioner admitted its failure to furnish its former employees with copies of the Petition because they belatedly filed their claims before the
Regional Trial Court.

Petitioner also pleaded to be excused from the requirement under Rule 6, Section 5 of the Rules of Court to serve a copy of the Petition on the
originating court. Again, petitioner's excuse is unacceptable. Petitioner had 15 days to file a Rule 43 petition, which should include the proof of
service to the originating court. Rushing the compilation of the pleading with the annexes has nothing to do with being able to comply with the
requirement to submit a proof of service of the copy of the petition for review to the originating court. If at all, it further reflects the
unprofessional way that petitioner and its counsel treated our rules.

NOTE: Liberality in corporate rehabilitation procedure only generally refers to the trial court, not to the proceedings before the appellate court.
The Interim Rules of Procedure on Corporate Rehabilitation covers petitions for rehabilitation filed before the Regional Trial Court. Thus, Rule 2,
Section 2 of the Interim Rules of Procedure on Corporate Rehabilitation, which refers to liberal construction, is limited to the Regional Trial Court.
The liberality was given "to assist the parties in obtaining a just, expeditious, and inexpensive disposition of the case." 139

Differentiate liquidation from rehabilitation.

ANS: Liquidation allows the corporation to wind up its affairs and equitably distribute its assets among its creditors.107

Liquidation is diametrically opposed to rehabilitation. Both cannot be undertaken at the same time.108 In rehabilitation, corporations have to
maintain their assets to continue business operations. In liquidation, on the other hand, corporations preserve their assets in order to sell them.
Without these assets, business operations are effectively discontinued. The proceeds of the sale are distributed equitably among creditors, and
surplus is divided or losses are re-allocated.

NOTE: Professor Stephanie V. Gomez of the University of the Philippines College of Law suggests specific characteristics of an economically
feasible rehabilitation plan:

1. The debtor has assets that can generate more cash if used in its daily operations than if sold.
2. Liquidity issues can be addressed by a practicable business plan that will generate enough cash to sustain daily operations.
3. The debtor has a definite source of financing for the proper and full implementation of a Rehabilitation Plan that is anchored on realistic
assumptions and goals.147 (Emhasis supplied)

On the other hand, this court enumerated the characteristics of a rehabilitation plan that is infeasible:

(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.