DE BARRETO, ET. AL. v. VILLANUEVA, ET. AL.
, (1961) Article 2242 of the new Civil Code enumerates the claims, mortgage
Facts:
Rosario Cruzado sold all her right, title, and interest and that of her
children in the house and lot herein involved to Villanueva for P19K.
The purchaser paid P1,500 in advance, and executed a promissory
note for the balance. However, the buyer could only pay P5,500 On
account of the note, for which reason the vendor obtained judgment
for the unpaid balance. In the meantime, the buyer Villanueva was
able to secure a clean certificate of title and mortgaged the property
to appellant Barretto to secure a loan of P30K, said mortgage having
been duly recorded.
Villanueva defaulted on the mortgage loan in favor of Barretto. The
latter foreclosed the mortgage in her favor, obtained judgment, and
upon its becoming final asked for execution. Cruzado filed a motion
for recognition for her "vendor's lien" invoking Articles 2242, 2243,
and 2249 of the new Civil Code. After hearing, the court below
ordered the "lien" annotated on the back of the title, with the proviso
that in case of sale under the foreclosure decree the vendor's lien
and the mortgage credit of appellant Barretto should be paid pro rata
from the proceeds.
Appellants insist that:
1. The vendor's lien, under Articles 2242 and 2243 of the new,
Civil Code of the Philippines, can only become effective in the event
of insolvency of the vendee, which has not been proved to exist in
the instant case; and .
2. That the Cruzado is not a true vendor of the foreclosed
property.
Daniel Carlo M. Benipayo
11685352
and liens that constitute an encumbrance on specific immovable
property, and among them are:
(2) For the unpaid price of real property sold, upon the immovable
sold; and
(5) Mortgage credits recorded in the Registry of Property."
Article 2249 of the same Code provides that "if there are two or more
credits with respect to the same specific real property or real rights,
they shall be satisfied pro-rata after the payment of the taxes and
assessment upon the immovable property or real rights.
Held:
Application of the above-quoted provisions to the case at bar would
mean that the herein appellee Rosario Cruzado as an unpaid vendor
of the property in question has the right to share pro-rata with the
appellants the proceeds of the foreclosure sale.
Issue: Appellant’s argument: inasmuch as the unpaid vendor's lien in
this case was not registered, it should not prejudice the said
appellants' registered rights over the property.
Held:
There is nothing to this argument. Note must be taken of the fact that
article 2242 of the new Civil Code enumerating the preferred claims,
mortgages and liens on immovables, specifically requires that. Unlike
the unpaid price of real property sold. mortgage credits, in order to
be given preference, should be recorded in the Registry of Property.
If the legislative intent was to impose the same requirement in the
case of the vendor's lien, or the unpaid price of real property sold,
the lawmakers could have easily inserted the same qualification
which now modifies the mortgage credits. The law, however, does
not make any distinction between registered and unregistered
vendor's lien, which only goes to show that any lien of that kind
enjoys the preferred credit status.

As to the point made that the articles of the Civil Code on

concurrence and preference of credits are applicable only to the
insolvent debtor, suffice it to say that nothing in the law shows any
such limitation. If we are to interpret this portion of the Code as
intended only for insolvency cases, then other creditor-debtor
relationships where there are concurrence of credits would be left
without any rules to govern them, and it would render purposeless
the special laws on insolvency.

Daniel Carlo M. Benipayo

11685352
DBP v. CA, 363 SCRA 307 (2001) mortgage, upon the things pledged or mortgaged, up to the value
thereof;
Rule
Held:
Directors of insolvent corporation, who are creditors of the company,
cannot secure to themselves any preference or advantage over other Although Barretto involved specific immovable property, the ruling
creditors in the payment of their claims. The governing body of therein should apply equally in this case where specific movable
officers thereof are charged with the duty of conducting its affairs property is involved. As the extra-judicial foreclosure instituted by
strictly in the interest of its existing creditors, and it would be a PNB and DBP is not the liquidation proceeding contemplated by the
breach of such trust for them to undertake to give any one of its Civil Code, Remington cannot claim its pro rata share from DBP.
members any advantage over any other creditors in securing the
payment of his debts in preference to all others. The legal principle
prevents directors of an insolvent corporation from giving themselves
a preference over outside creditors.

There exists in Remington’s favor a “lien” on the unpaid purchases of

Marinduque Mining, and as transferee of these purchases, DBP
should be held liable for the value thereof. In the absence of
liquidation proceedings, however, the claim of Remington cannot be
enforced against DBP. Article 2241 of the Civil Code provides:

Article 2241. With reference to specific movable property of the

debtor, the following claims or liens shall be preferred:

xxx

(3) Claims for the unpaid price of movables sold, on said movables,
so long as they are in the possession of the debtor, up to the value of
the same; and if the movable has been resold by the debtor and the
price is still unpaid, the lien may be enforced on the price; this right is
not lost by the immobilization of the thing by destination, provided it
has not lost its form, substance and identity, neither is the right lost
by the sale of the thing together with other property for a lump sum,
when the price thereof can be determined proportionally;

(4) Credits guaranteed with a pledge so long as the things pledged

are in the hands of the creditor, or those guaranteed by a chattel

Daniel Carlo M. Benipayo

11685352
J.L. BERNARDO CONSTRUCTION v. CA, (2000) petitioners herein actually stand in the position of unpaid contractors
and are entitled to invoke the contractor’s lien granted under Article
There is no contractor’s lien in favor of petitioners. 2242, such lien cannot be enforced in the present action for there is
no way of determining whether or not there exist other preferred
Articles 2241 and 2242 of the Civil Code enumerates certain credits
creditors with claims over the San Antonio Public Market. The
which enjoy preference with respect to specific personal or real
records do not contain any allegation that petitioners are the only
property of the debtor. Specifically, the contractor’s lien claimed by
creditors with respect to such property. The fact that no third party
petitioners is granted under the third paragraph of Article 2242 which
claims have been filed in the trial court will not bar other creditors
provides that the claims of contractors engaged in the construction,
from subsequently bringing actions and claiming that they also have
reconstruction or repair of buildings or other works shall be preferred
preferred liens against the property involved.
with respect to the specific building or other immovable property
constructed.

However, Article 2242 only finds application when there is a

concurrence of credits, i.e. when the same specific property of the
debtor is subjected to the claims of several creditors and the value of
such property of the debtor is insufficient to pay in full all the
creditors. In such a situation, the question of preference will arise,
that is, there will be a need to determine which of the creditors will be
paid ahead of the others. Fundamental tenets of due process will
dictate that this statutory lien should then only be enforced in the
context of some kind of a proceeding where the claims of all the
preferred creditors may be bindingly adjudicated, such as insolvency
proceedings.

This is made explicit by Article 2243 which states that the claims and
liens enumerated in articles 2241 and 2242 shall be considered as
mortgages or pledges of real or personal property, or liens within the
purview of legal provisions governing insolvency.

Held:

The action filed by petitioners in the trial court does not partake of the
nature of an insolvency proceeding. It is basically for specific
performance and damages. Thus, even if it is finally adjudicated that

Daniel Carlo M. Benipayo

11685352
CORDOVA v. REYES DAWAY LIM BERNARDO LINDO ROSALES
LAW OFFICES, (2007)
Common Credits, Art. 2245, Art. 2251
The Civil Code provisions on concurrence and preference of credits
are applicable to the liquidation proceedings.
Issue:
Was petitioner a preferred or ordinary creditor under these
provisions?
(1) Petitioner argues that he was a preferred creditor because
private respondents illegally withdrew his shares from the custodian
banks and sold them without his knowledge and consent and without
authority from the SEC. He quotes Article 2241 (2) of the Civil Code:
With reference to specific movable property of the debtor, the
following claims or liens shall be preferred:
(2) Claims arising from misappropriation, breach of trust, or
malfeasance by public officials committed in the performance of their
duties, on the movables, money or securities obtained by them;
Ø He asserts that, as a preferred creditor, he was entitled to the
entire monetary value of his shares.
Held:
Petitioner’s argument is incorrect. Article 2241 refers only to specific
movable property. His claim was for the payment of money, which is
Daniel Carlo M. Benipayo
11685352
generic property and not specific or determinate. Petitioner’s CSPI
shares were specific or determinate movable properties. But after
they were sold, the money raised from the sale became generic and
were commingled with the cash and other assets of Philfinance.
Unlike shares of stock, money is a generic thing. It is designated
merely by its class or genus without any particular designation or
physical segregation from all others of the same class. This means
that once a certain amount is added to the cash balance, one can no
longer pinpoint the specific amount included which then becomes
part of a whole mass of money.
Considering that petitioner did not fall under any of the provisions
applicable to preferred creditors, he was deemed an ordinary creditor
under Article 2245:
Credits of any other kind or class, or by any other right or title not
comprised in the four preceding articles, shall enjoy no preference.
This being so, Article 2251 (2) states that:
Common credits referred to in Article 2245 shall be paid pro rata
regardless of dates.
Like all the other ordinary creditors or claimants against Philfinance,
he was entitled to a rate of recovery of only 15% of his money claim.
PDIC v. Bereau of Internal Revenue (2013)
Facts:
The Monetary Board of the BSP prohibited the Rural Bank of Tuba
(Benguet), Inc. (RBTI) from doing business in the Philippines, placed
it under receivership and designated the PDIC as receiver. PDIC
conducted an evaluation of RBTI’s financial condition and
determined that RBTI remained insolvent. Monetary Board issued
Resolution directing PDIC to proceed with the liquidation of RBTI.
Issue:
Whether a bank placed under liquidation has to secure a tax
clearance from the BIR before the project of distribution of the assets
of the bank can be approved by the liquidation court.
Held:
NO. Section 52(C) of the Tax Code of 1997 is not applicable to
banks ordered placed under liquidation by the Monetary Board, and
a tax clearance is not a prerequisite to the approval of the project of
distribution of the assets of a bank under liquidation by the PDIC.
Thus, this Court has held that the RTC, acting as liquidation court
under Section 30 of the New Central Bank Act, commits grave abuse
of discretion in ordering the PDIC, as liquidator of a bank ordered
closed by the Monetary Board, to first secure a tax clearance from
the appropriate BIR Regional Office, and holding in abeyance the
approval of the project of distribution of the assets of the closed bank
by virtue thereof. Three reasons have been given.
Daniel Carlo M. Benipayo
11685352
First, Section 52(C) of the Tax Code of 1997 pertains only to a
regulation of the relationship between the SEC and the BIR with
respect to corporations contemplating dissolution or reorganization.
On the other hand, banks under liquidation by the PDIC as ordered
by the Monetary Board constitute a special case governed by the
special rules and procedures provided under Section 30 of the New
Central Bank Act, which does not require that a tax clearance be
secured from the BIR.
Second, only a final tax return is required to satisfy the interest of the
BIR in the liquidation of a closed bank, which is the determination of
the tax liabilities of a bank under liquidation by the PDIC. In view of
the timeline of the liquidation proceedings under Section 30 of the
New Central Bank Act, it is unreasonable for the liquidation court to
require that a tax clearance be first secured as a condition for the
approval of project of distribution of a bank under liquidation.
To our mind, what the BIR should have requested from the RTC, and
what was within the discretion of the RTC to grant, is not an order for
PDIC, as liquidator of RBBI, to secure a tax clearance; but, rather, for
it to submit the final return of RBBI. The first paragraph of Section
30(C) of the Tax Code of 1997, read in conjunction with Section 54 of
the same Code, clearly imposes upon PDIC, as the receiver and
liquidator of RBBI, the duty to file such a return.
The filing by PDIC of a final tax return, on behalf of RBBI, should
already address the supposed concern of the BIR and would already
enable the latter to determine if RBBI still had outstanding tax
liabilities.
The unreasonableness and impossibility of requiring a tax clearance
before the approval by the RTC of the Project of Distribution of the
assets of the RBBI becomes apparent when the timeline of the
proceedings is considered.
The BIR can only issue a certificate of tax clearance when the
taxpayer had completely paid off his tax liabilities. The certificate of
tax clearance attests that the taxpayer no longer has any outstanding
tax obligations to the Government.
Should the BIR find that RBBI still had outstanding tax liabilities,
PDIC will not be able to pay the same because the Project of
Distribution of the assets of RBBI remains unapproved by the RTC;
and, if RBBI still had outstanding tax liabilities, the BIR will not issue
a tax clearance; but, without the tax clearance, the Project of
Distribution of assets, which allocates the payment for the tax
liabilities, will not be approved by the RTC. It will be a chicken-and-
egg dilemma.
Third, it is not for this Court to fill in any gap, whether perceived or
evident, in current statutes and regulations as to the relations among
the BIR, as tax collector of the National Government; the BSP, as
regulator of the banks; and the PDIC, as the receiver and liquidator
of banks ordered closed by the BSP. It is up to the legislature to
address the matter through appropriate legislation, and to the
executive to provide the regulations for its implementation.
2242(1) of the same Code. However, with reference to the other real
and personal property of the debtor, sometimes referred to as "free
property," the taxes and assessments due the National Government,
other than those in Articles 2241(1) and 2242(1) of the Civil Code,
such as the corporate income tax, will come only in ninth place in the
order of preference. On the other hand, if the BIR’s contention that a
tax clearance be secured first before the project of distribution of the
assets of a bank under liquidation may be approved, then the tax
liabilities will be given absolute preference in all instances, including
those that do not fall under Articles 2241(1) and 2242(1) of the Civil
Code. In order to secure a tax clearance which will serve as proof
that the taxpayer had completely paid off his tax liabilities, PDIC will
be compelled to settle and pay first all tax liabilities and deficiencies
of the bank, regardless of the order of preference under the pertinent
provisions of the Civil Code.

There is another reason. The position of the BIR, insisting on prior

compliance with the tax clearance requirement as a condition for the
approval of the project of distribution of the assets of a bank under
liquidation, is contrary to both the letter and intent of the law on
liquidation of banks by the PDIC.

The law expressly provides that debts and liabilities of the bank
under liquidation are to be paid in accordance with the rules on
concurrence and preference of credit under the Civil Code. Duties,
taxes, and fees due the Government enjoy priority only when they
are with reference to a specific movable property, under Article
2241(1) of the Civil Code, or immovable property, under Article

Daniel Carlo M. Benipayo

11685352
RCBC v. IAC, (1999)
Facts:
BF Homes filed a “Petition for Rehabilitation and for Declaration of
Suspension of Payments” (SEC Case No. 002693) with the SEC.
One of the creditors listed in its inventory of creditors and liabilities
was RCBC. RCBC requested the Provincial Sheriff of Rizal to extra-
judicially foreclose its REM on some properties of BF Homes. In the
auction sale, RCBC was the highest bidder.
RCBC argued that the SEC Case No. 2693 cannot be invoked to
suspend the extra-judicial foreclosure of the REM in petitioner’s
favor, as these do not constitute actions against private respondent
contemplated under Section 6(c) of PD 902-A.
Majority opinion
Whenever a distressed corporation asks the SEC for rehabilitation
and suspension of payments, preferred creditors may no longer
assert such preference, but . . . stand on equal footing with other
creditors. Foreclosure shall be disallowed so as not to prejudice
other creditors, or cause discrimination among them. If foreclosure is
undertaken despite the fact that a petition for rehabilitation has been
filed, the certificate of sale shall not be delivered pending
rehabilitation. Likewise, if this has also been done, no transfer of title
shall be effected also, within the period of rehabilitation. The
rationale behind PD 902-A, as amended, is to effect a feasible and
viable rehabilitation. This cannot be achieved if one creditor is
preferred over the others.
In this connection, the prohibition against foreclosure attaches as
soon as a petition for rehabilitation is filed. Were it otherwise, what is
to prevent the petitioner from delaying the creation of a Management
Committee and in the meantime dissipate all its assets. The sooner
Daniel Carlo M. Benipayo
11685352
the SEC takes over and imposes a freeze on all the assets, the
better for all concerned.
DISSENTING OPINION
The dissent maintain that Section 6 (c) of PD 902-A is clear and
unequivocal that, claims against the corporations, partnerships, or
associations shall be suspended only upon the appointment of a
management committee, rehabilitation receiver, board or body.
Thus, in the case under consideration, only upon the appointment of
the Management Committee for BF Homes should the suspension of
actions for claims against BF Homes have taken effect and not
earlier.
Motion for Reconsideration
In support of its motion for reconsideration, RCBC contends:
Petitioner, being a mortgage creditor, is entitled to rely solely on its
security and to refrain from joining the unsecured creditors in SEC
Case No. 002693, the petition for rehabilitation filed by private
respondent.
Issue: WON preferred creditors of distressed corporations stand on
equal footing with all other creditors. YES.
Held:
We find the motion for reconsideration meritorious.
The issue gains relevance and materiality only upon the appointment
of a management committee, rehabilitation receiver, board, or body.
Insofar as petitioner RCBC is concerned, the provisions of PD No.
902-A are not yet applicable and it may still be allowed to assert its
preferred status because it foreclosed on the mortgage prior to the
appointment of the management committee. The Court, therefore,
grants the motion for reconsideration on this score.
Section 6(c) of PD 902-A, provides:
Sec. 6. In order to effectively exercise such jurisdiction, the
Commission shall possess the following powers:
c) To appoint one or more receivers of the property, real and
personal, which is the subject of the action pending before the
Commission in accordance with the pertinent provisions of the Rules
of Court in such other cases whenever necessary to preserve the
rights of the parties-litigants to and/or protect the interest of the
investing public and creditors; Provided, however, that the
Commission may, in appropriate cases, appoint a rehabilitation
receiver of corporations, partnerships or other associations not
supervised or regulated by other government agencies who shall
have, in addition to the powers of a regular receiver under the
provisions of the Rules of Court, such functions and powers as are
provided for in the succeeding paragraph (d) hereof: Provided,
finally, That upon appointment of a management committee,
rehabilitation receiver, board or body, pursuant to this Decree, all
actions for claims against corporations, partnerships or associations
under management or receivership pending before any court,
tribunal, board or body shall be suspended accordingly. (As
amended by PDs No. 1673, 1758 and by PD No. 1799)
Rules
· It is thus adequately clear that suspension of claims against a
corporation under rehabilitation is counted or figured up only upon
the appointment of a management committee or a rehabilitation
receiver.
· The holding that suspension of actions for claims against a
corporation under rehabilitation takes effect as soon as the
application or a petition for rehabilitation is filed with the SEC – may,
to some, be more logical and wise but unfortunately, such is
incongruent with the clear language of the law.
Daniel Carlo M. Benipayo
11685352
· Furthermore, 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, 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.)
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.
Petitioner additionally argues in its motion for reconsideration that,
being a mortgage creditor, it is entitled to rely on its security and that
it need not join the unsecured creditors in filing their claims before
the SEC-appointed receiver. To support its position, petitioner cites
the Court’s ruling in the case of Philippine Commercial International
Bank vs. Court of Appeals, (172 SCRA 436 [1989]) that an order of
suspension of payments as well as actions for claims applies only to
claims of unsecured creditors and cannot extend to creditors holding
a mortgage, pledge, or any lien on the property.
The majority opinion relied upon BF Homes, Inc. vs. CA held that
“when a corporation threatened by bankruptcy is taken over by a
receiver, all the creditors should stand on an equal footing. Not
anyone of them should be given preference by paying one or some
of them ahead of the others. This is precisely the reason for the
suspension of all pending claims against the corporation under
receivership. Instead of creditors vexing the courts with suits
against the distressed firm, they are directed to file their claims with
the receiver who is a duly appointed officer of the SEC.
The following rules of thumb shall are laid down:
1. All claims against corporations, partnerships, or associations
that are pending before any court, tribunal, or board, without
distinction as to whether or not a creditor is secured or unsecured,
shall be suspended effective upon the appointment of a
management committee, rehabilitation receiver, board, or body in
accordance 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 ones.
In other words, once a management committee, rehabilitation
receiver, board or body is appointed pursuant to P.D. 902-A, all
actions for claims against a distressed corporation pending before
any court, tribunal, board or body shall be suspended accordingly.
Daniel Carlo M. Benipayo
11685352
This suspension shall not prejudice or render ineffective the status of
a secured creditor as compared to a totally unsecured creditor.
However, in the event that rehabilitation is no longer feasible and
claims against the distressed corporation would eventually have to
be settled, the secured creditors shall enjoy preference over the
unsecured creditors (still maintaining PCIB ruling), subject only to the
provisions of the Civil Code on Concurrence and Preferences of
Credit.
All claims of both a secured or unsecured creditor, without distinction
on this score, are suspended once a management committee is
appointed. Secured creditors, in the meantime, shall not be allowed
to assert such preference before the SEC. It may be stressed,
however, that this shall only take effect upon the appointment of a
management committee, rehabilitation receiver, board, or body, as
opined in the dissent.
In fine, the Court grants the motion for reconsideration for the cogent
reason that suspension of actions for claims commences only from
the time a management committee or receiver is appointed by the
SEC. Petitioner RCBC, therefore, could have rightfully, as it did,
move for the extrajudicial foreclosure of its mortgage because a
management committee was not appointed by the SEC until.
SUBREJUANITE v. ASB DEVELOPMENT CORPORATION, (2005)
Facts:
In their complaint, Sobrejuanite pray for the rescission of the
contract and the refund their total payments to ASBDC; damages
and costs. In the decision of the HLURB arbiter, ASBDC was ordered
to pay. 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. 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.
Daniel Carlo M. Benipayo
11685352
Petitioners’ reliance on Arranza v. B.F. Homes, Inc. 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. In this case,
under the complaint for specific performance before the HLURB,
petitioners do not aim to enforce a pecuniary demand. Their claim
for reimbursement. The HLURB, not the SEC, is equipped with the
expertise to deal with that matter.
Purpose for the suspension of the proceedings
· 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.
· 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.
· 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.
In order to resolve whether the proceedings before the HLURB Incidentally, although the petition for rehabilitation with prayer for
should be suspended, it is necessary to determine whether the suspension of actions and proceedings was filed before the SEC or
complaint for rescission of contract with damages is a claim within prior to the effectivity of the interim rules, the same would still apply
the contemplation of PD No. 902-A. pursuant to Section 1, Rule 1 thereof which provides:

Definition of “claim” as used in Sec. 6(c) of PD 902-A Section 1. Scope – These Rules shall apply to petitions for
rehabilitation filed by corporations, partnerships, and associations
Ø refer only to debts or demands pecuniary in nature pursuant to Presidential Decree No. 902-A, as amended.

Ø claim as used in Sec. 6(c) of P.D. 902-A refers to debts or Held:

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 Clearly then, the complaint filed by Sobrejuanite is a claim as defined
administrative court, on insolvency.” under the Interim Rules of Procedure on Corporate Rehabilitation.
Even under our rulings in Finasia Investments and Finance Corp. v.
Ø Right to payment, whether or not such right is reduced to CA and Arranza v. B.F. Homes, Inc., the complaint for rescission with
judgment, liquidated, unliquidated, fixed, contingent, matured, damages would fall under the category of claim considering that it is
unmatured, disputed, undisputed, legal, equitable, secured, or for pecuniary considerations.
unsecured; or right to an equitable remedy for breach of performance
if such breach gives rise to a right to payment, whether or not such
right to an equitable remedy is reduced to judgment, fixed,
contingent, matured, unmatured, disputed, undisputed, secured,
unsecured. In conflicts of law, a receiver may be appointed in any
state which has jurisdiction over the defendant who owes a claim.

Ø In Arranza v. B.F. Homes, Inc., claim is defined as referring to

actions involving monetary considerations.

Note: Finasia Investments and Finance Corp. v. CA and Arranza v.

B.F. Homes, Inc. were promulgated prior to the effectivity of the
Interim Rules of Procedure on Corporate Rehabilitation on December
15, 2000. The interim rules define a claim as referring to all claims or
demands, of whatever nature or character against a debtor or its
property, whether for money or otherwise. The definition is all-
encompassing as it refers to all actions whether for money or
otherwise. There are no distinctions or exemptions.

Daniel Carlo M. Benipayo

11685352
TOWN AND COUNTRY ENTERPRISES, INC. v. QUISUMBING,
2012
Corporate rehabilitation contemplates a continuance of corporate life
and activities in an effort to restore and reinstate the corporation to
its former position of successful operation and solvency.
Purpose: to enable the company to gain a new lease on life and
allow its creditors to be paid their claims out of its earnings.
Principal feature: the Stay Order which defers all actions or claims
against the corporation seeking corporate rehabilitation from the date
of its issuance until the dismissal of the petition or termination of the
rehabilitation proceedings.
Under Section 24, Rule 4 of the Interim Rules of Procedure on
Corporate Rehabilitation, the approval of the rehabilitation plan also
produces the following results:
a. The 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;
b. The debtor shall comply with the provisions of the plan and
shall take all actions necessary to carry out the plan;
c. Payments shall be made to the creditors in accordance with
the provisions of the plan;
d. Contracts and other arrangements between the debtor and its
creditors shall be interpreted as continuing to apply to the extent that
they do not conflict with the provisions of the plan; and
Daniel Carlo M. Benipayo
11685352
e. Any compromises on amounts or rescheduling of timing of
payments by the debtor shall be binding on creditors regardless of
whether or not the plan is successfully implemented.
Facts: In addition to the issuance of the Stay Order, petitioners call
attention to the fact that the Rehabilitation Court approved TCEI’s
rehabilitation plan in the Order. Considering that orders issued by the
Rehabilitation Court are immediately executory, petitioners argue
that the subject properties were placed in custodia legis upon
approval of TCEI’s rehabilitation plan and that the grant of the writ of
possession in favor of Metrobank was tantamount to taking said
properties away from the rehabilitation receiver. Petitioners maintain
that the rehabilitation receiver, as an officer of the court empowered
to take possession, control and custody of the debtor’s assets,
should have been considered a third person whose possession of
the foreclosed properties was an exception to the rule that the grant
of a writ of possession is ministerial. For these reasons, petitioners
claim that the writ of possession issued in favor of Metrobank is
invalid and unenforceable.
The dearth of merit in petitioners’ position is, however, evident from
the fact that, Metrobank had already acquired ownership over the
subject realties when TCEI commenced its petition for corporate
rehabilitation. Viewed in the foregoing light, the CA cannot be faulted
for upholding the RTC’s grant of a writ of possession in favor of
Metrobank. An essential function of corporate rehabilitation is,
admittedly, the Stay Order which is a mechanism of suspension of all
actions and claims against the distressed corporation upon the due
appointment of a management committee or rehabilitation receiver.
The Stay Order issued by the Rehabilitation Court cannot, however,
apply to the mortgage obligations owing to Metrobank which had
already been enforced even before TCEI’s filing of its petition for
corporate rehabilitation.
Rules (Case Laws)
ü The writ of possession procured by the creditor is valid despite the who is appointed for the protection of the interests of the corporate
subsequent issuance of a stay order in the rehabilitation proceedings investors and creditors. It has been ruled that there is nothing in the
instituted by the debtor. concept of corporate rehabilitation that would ipso facto deprive the
officers of a debtor corporation of control over its business or
ü In RCBC, we upheld the extrajudicial foreclosure sale of the properties.
mortgage properties of BF Homes wherein RCBC emerged as the
highest bidder as it was done before the appointment of the
management committee. Noteworthy to mention was the fact that the
issuance of the certificate of sale in RCBC’s favor, the consolidation
of title, and the issuance of the new titles in RCBC’s name had also
been upheld notwithstanding that the same were all done after the
management committee had already been appointed and there was
already a suspension of claims. Since the foreclosure of respondent
DNG's mortgage and the issuance of the certificate of sale in
petitioner EPCIB's favor were done prior to the appointment of a
Rehabilitation Receiver and the Stay Order, all the actions taken with
respect to the foreclosed mortgage property which were subsequent
to the issuance of the Stay Order were not affected by the Stay
Order.

Held:

A similar dearth of merit may be said of TCEI’s claim that the subject
properties were in custodia legis upon the issuance of the Stay Order
and the approval of the rehabilitation plan fails to persuade.
Metrobank acted well-within its rights in applying for a writ of
possession, the issuance of which has consistently been held to be a
ministerial function which cannot be hindered by an injunction or an
action for the annulment of the mortgage or the foreclosure itself.
While it is true that the function ceases to be ministerial where the
property is in the possession of a third party claiming a right adverse
to that of the judgment debtor, the rehabilitation receiver’s power to
take possession, control and custody of TCEI’s assets is far from
adverse to the latter. A rehabilitation receiver is an officer of the court

Daniel Carlo M. Benipayo

11685352
SITUS DEVELOPMENT CORP., ET. AL. v. ASIATRUST BANK not the properties subject of the third-party mortgage are used by the
debtor corporation or are necessary for its operation is of no
G.R. No. 180036, (2013) moment, as the Interim Rules do not make a distinction. To repeat,
when the Stay Order was issued, the rehabilitation court was only
Petitioners incorrectly argue that the properties belonging to their
empowered to suspend claims against the debtor, its guarantors, and
majority stockholders may be included in the rehabilitation plan,
sureties not solidarily liable with the debtor. Thus, it was beyond the
because these properties were mortgaged to secure petitioners’
jurisdiction of the rehabilitation court to suspend foreclosure
loans. Under the FRIA, the Stay Order may now cover third-party or
proceedings against properties of third-party mortgagors.
accommodation mortgages, in which the "mortgage is necessary for
the rehabilitation of the debtor as determined by the court upon The third issue, therefore, is immaterial.1âwphi1 Whether or not
recommendation by the rehabilitation receiver." The FRIA likewise respondent banks had acquired ownership of the subject properties
provides that its provisions may be applicable to further proceedings at the time of the issuance of the Stay Order, the same conclusion
in pending cases, except to the extent that, in the opinion of the will still be reached. The subject properties will still fall outside the
court, their application would not be feasible or would work injustice. ambit of the Stay Order issued by the rehabilitation court. Since the
subject properties are beyond the reach of the Stay Order, and since
Sec. 146 of the FRIA, which makes it applicable to "all further
foreclosure and consolidation of title may no longer be stalled,
proceedings in insolvency, suspension of payments and
petitioners’ rehabilitation plan is no longer feasible. We therefore
rehabilitation cases x x x except to the extent that in the opinion of
affirm our earlier finding that the dismissal of the Petition for the
the court their application would not be feasible or would work
Declaration of State of Suspension of Payments with Approval of
injustice," still presupposes a prospective application. The wording of
Proposed Rehabilitation Plan is in order.
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." 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. that the issuance of a Stay Order cannot
suspend the foreclosure of accommodation mortgages. Whether or

Daniel Carlo M. Benipayo

11685352
MWSS v. DAWAY AND MAYNILAD WATER SERVICES, INC.,
(2004)
III

Respondent Maynilad argues that by commencing the process for

I payment under the Standby Letter of Credit, petitioner violated an
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.
immediately executory order of the court and, therefore, comes to
Court with unclean hands and should therefore be denied any relief.
It is true that the stay order is immediately executory. It is also true,
however, that the Standby Letter of Credit and the banks that issued
it were not within the jurisdiction of the rehabilitation court. The call
on the Standby Letter of Credit, therefore, could not be considered a
violation of the Stay Order.

II

Sec. 5, Rule 3 of the Interim Rules would preclude any other

effective remedy questioning the orders of the rehabilitation court
since they are immediately executory and a petition for review or an
appeal therefrom shall not stay the execution of the order unless
restrained or enjoined by the appellate court.”

It is not enough that a remedy is available to prevent a party from

making use of the extraordinary remedy of certiorari but that such
remedy be an adequate remedy which is equally beneficial, speedy
and sufficient, not only a remedy which at some time in the future
may offer relief but a remedy which will promptly relieve the petitioner
from the injurious acts of the lower tribunal. It is the inadequacy -- not
the mere absence -- of all other legal remedies and the danger of
failure of justice without the writ, that must usually determine the
propriety of certiorari.

Daniel Carlo M. Benipayo

11685352
PANLILIO ET AL., v. REGIONAL TRIAL COURT, (2011)
Principal feature of corporate rehabilitation is the suspension of
claims against the distressed corporation. Section 6 (c) of
Presidential Decree No. 902-A, as amended, provides for
suspension of claims against corporations undergoing rehabilitation,
to wit:
Section 6 (c). x x x Provided, finally, that upon appointment of a
management committee, rehabilitation receiver, board or body,
pursuant to this Decree, all actions for claims against corporations,
partnerships or associations under management or receivership
pending before any court, tribunal, board or body, shall be
suspended accordingly.
In November 21, 2000, this Court En Banc promulgated the Interim
Rules of Procedure on Corporate Rehabilitation, Section 6, Rule 4 of
which provides a stay order on all claims against the corporation,
thus:
Stay Order. - If the court finds the petition to be sufficient in form and
substance, it shall, not later than five (5) days from the filing of the
petition, issue an Order x x x; (b) staying enforcement of all claims,
whether for money or otherwise and whether such enforcement is by
court action or otherwise, against the debtor, its guarantors and
sureties not solidarily liable with the debtor; x x x
Issue:
Does the suspension of “all claims” as an incident to a corporate
rehabilitation also contemplate the suspension of criminal charges
filed against the corporate officers of the distressed corporation? NO.
In Rosario v. Co (Rosario), a case of recent vintage, the issue
resolved by this Court was whether or not during the pendency of
Daniel Carlo M. Benipayo
11685352
rehabilitation proceedings, criminal charges for violation of Batas
Pambansa Bilang 22 should be suspended, was disposed of as
follows:
The filing of the case for violation of B.P. Blg. 22 is not a "claim" that
can be enjoined within the purview of P.D. No. 902-A. True, although
conviction of the accused for the alleged crime could result in the
restitution, reparation or indemnification of the private offended party
for the damage or injury he sustained by reason of the felonious act
of the accused, nevertheless, prosecution for violation of B.P. Blg. 22
is a criminal action.
Facts:
Rosario is at fours with the case at bar. Petitioners are charged with
violations of Section 28 (h) of the SSS law, in relation to Article 315
(1) (b) of the Revised Penal Code, or Estafa. The SSS law clearly
“criminalizes” the non-remittance of SSS contributions by an
employer to protect the employees from unscrupulous employers.
Therefore, public interest requires that the said criminal acts be
immediately investigated and prosecuted for the protection of
society.
Held:
The rehabilitation of SIHI and the settlement of claims against the
corporation is not a legal ground for the extinction of petitioners’
criminal liabilities. There is no reason why criminal proceedings
should be suspended during corporate rehabilitation, more so, since
the prime purpose of the criminal action is to punish the offender in
order to deter him and others from committing the same or similar
offense, to isolate him from society, reform and rehabilitate him or, in
general, to maintain social order. As correctly observed in Rosario, it
would be absurd for one who has engaged in criminal conduct could
escape punishment by the mere filing of a petition for rehabilitation
by the corporation of which he is an officer.
The prosecution of the officers of the corporation has no bearing on (g) any criminal action against individual debtor or owner, partner,
the pending rehabilitation of the corporation, especially since they director or officer of a debtor shall not be affected by any proceeding
are charged in their individual capacities. Such being the case, the commenced under this Act.
purpose of the law for the issuance of the stay order is not
compromised, since the appointed rehabilitation receiver can still
fully discharge his functions as mandated by law. It bears to stress
that the rehabilitation receiver is not charged to defend the officers of
the corporation. If there is anything that the rehabilitation receiver
might be remotely interested in is whether the court also rules that
petitioners are civilly liable. Such a scenario, however, is not a
reason to suspend the criminal proceedings, because as aptly
discussed in Rosario, should the court prosecuting the officers of the
corporation find that an award or indemnification is warranted, such
award would fall under the category of claims, the execution of which
would be subject to the stay order issued by the rehabilitation court.
The penal sanctions as a consequence of violation of the SSS law, in
relation to the revised penal code can therefore be implemented if
petitioners are found guilty after trial. However, any civil indemnity
awarded as a result of their conviction would be subject to the stay
order issued by the rehabilitation court. Only to this extent can the
order of suspension be considered obligatory upon any court,
tribunal, branch or body where there are pending actions for claims
against the distressed corporation.

On a final note, this Court would like to point out that Congress has
recently enacted Republic Act No. 10142, or the Financial
Rehabilitation and Insolvency Act of 2010. Section 18 thereof
explicitly provides that criminal actions against the individual officer
of a corporation are not subject to the Stay or Suspension Order in
rehabilitation proceedings, to wit:

The Stay or Suspension Order shall not apply:

xxxx

Daniel Carlo M. Benipayo

11685352
BPI v. SEC, (2007) for approval of the Rehabilitation Plan, was acting as a quasi-judicial
body and thus, its order approving the plan cannot constitute an
impairment of the right and the freedom to contract.

The ASB Group filed a petition for rehabilitation and suspension of

payments before the SEC. The Rehabilitation Plan provides a dacion
en pago by the ASB Group to BPI of one of the properties mortgaged Besides, the mere fact that the Rehabilitation Plan proposes a
to the latter at the ASB Group. The dacion would constitute full dacion en pago approach does not render it defective on the ground
payment of the entire obligation due to BPI because the balance was of impairment of the right to contract. Dacion en pago is a special
then to be considered waived, as per the Rehabilitation Plan. BPI mode of payment where the debtor offers another thing to the
opposed the Rehabilitation Plan and moved for the dismissal of the creditor who accepts it as equivalent of payment of an outstanding
ASB Group’s petition for rehabilitation. BPI argued that the Order debt. The undertaking really partakes in a sense of the nature of
constituted an arbitrary violation of BPI’s freedom and right to sale, that is, the creditor is really buying the thing or property of the
contract since the Rehabilitation Plan compelled BPI to enter into a debtor, the payment for which is to be charged against the debtor’s
dacion en pago agreement with the ASB Group. debt. As such, the essential elements of a contract of sale, namely;
consent, object certain, and cause or consideration must be present.
Being a form of contract, the dacion en pago agreement cannot be
perfected without the consent of the parties involved.
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 rationale of
P.D. No. 902-A, as amended, is to “effect a feasible and viable
rehabilitation,” by preserving a foundering business as going
concern, because the assets of a business are often more valuable
when so maintained than they would be when liquidated.

The Court reiterates that the SEC’s approval of the Rehabilitation

Plan did not impair BPI’s right to contract. As correctly contended by
private respondents, the non-impairment clause is a limit on the
exercise of legislative power and not of judicial or quasi-judicial
power. The SEC, through the hearing panel that heard the petition

Daniel Carlo M. Benipayo

11685352
BPI v. SARABIA MANOR HOTEL CORP., G.R. NO. 175844 JULY implementation, and anchored on realistic assumptions and goals.
29, 2013 This remedy should be denied to corporations whose insolvency
appears to be irreversible and whose sole purpose is to delay the
enforcement of any of the rights of the creditors, which is rendered
obvious by the following: (a) the absence of a sound and workable
Cram-down clause
business plan; (b) baseless and unexplained assumptions, targets
Among other rules that foster the foregoing policies, Section 23, Rule and goals; (c) speculative capital infusion or complete lack thereof for
4 of the Interim Rules of Procedure on Corporate Rehabilitation the execution of the business plan; (d) cash flow cannot sustain daily
(Interim Rules) states that a rehabilitation plan may be approved operations; and (e) negative net worth and the assets are near full
even over the opposition of the creditors holding a majority of the depreciation or fully depreciated.
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, 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.

i. Feasibility of Sarabia’s rehabilitation.

If the results of the financial examination and analysis clearly indicate

that there lies no reasonable probability that the distressed
corporation could be revived and that liquidation would, in fact, better
subserve the interests of its stakeholders, then it may be said that a
rehabilitation would not be feasible. In such case, the rehabilitation
court may convert the proceedings into one for liquidation.

Rehabilitation is x x x available to a corporation [which], while illiquid,

has assets that can generate more cash if used in its daily operations
than sold. Its liquidity issues can be addressed by a practicable
business plan that will generate enough cash to sustain daily
operations, has a definite source of financing for its proper and full

Daniel Carlo M. Benipayo

11685352
VICTORIO-AQUINO v. PACIFIC PLANS INC. (2014)
Facts:
Respondent Pacific Plans, Inc. (now “APEC”) is engaged in the
business of selling pre-need plans and educational plans, including
traditional open-ended educational plans (PEPTrads). PEPTrads are
educational plans where respondent guarantees to pay the
planholder, without regard to the actual cost at the time of enrolment,
the full amount of tuition and other school fees of a designated
beneficiary.
Petitioner is a holder of two (2) units of respondent’s PEPTrads. On
April 7, 2005, foreseeing the impossibility of meeting its obligations to
the availing planholders as they fall due, respondent filed a Petition
for Corporate Rehabilitation with the Regional Trial Court, praying
that it be placed under rehabilitation and suspension of payments. At
the time of filing of the Petition for Corporate Rehabilitation,
respondent had more or less 34,000 outstanding PEPTrads.
On April 12, 2005, the Rehabilitation Court issued a Stay Order,
directing the suspension of payments of the obligations of
respondent and ordering all creditors and interested parties to file
their comments/oppositions, respectively, to the Petition for
Corporate Rehabilitation. The same Order also appointed
respondent Marcelo as the rehabilitation receiver.
Pursuant to the prevailing rules on corporate rehabilitation,
respondent submitted to the Rehabilitation Court its proposed
rehabilitation plan. Under the terms thereof, respondent proposed
the implementation of a “Swap,” which will essentially give the
planholder a means to exit from the PEPTrads at terms and
conditions relative to a termination value that is more advantageous
than those provided under the educational plan in case of voluntary
termination.
Daniel Carlo M. Benipayo
11685352
The rehabilitation receiver submitted an Alternative Rehabilitation
Plan and was approved by the Court. However due to the fact that
the value of the Philippine Peso strengthened and appreciated, the
rehabilitation receiver submitted a Modified Rehabilitation Plan.
Issue:
Whether or not the Rehabilitation Court has the authority to sanction
a rehabilitation plan, or the modification thereof, even when the
essential feature of the plan involves forcing creditors to reduce their
claims against respondent.
Held:
Yes. The Court upheld the “cram-down” power of the Rehabilitation
Court pursuant to Sec. 23 of FRIA which states that the court may
approve a rehabilitation plan 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.
Moreover, notwithstanding the rejection of the Rehabilitation Plan by
the creditors, the court may confirm the Rehabilitation Plan if all of
the following circumstances are present:
The Rehabilitation Plan complies with the requirements specified in
this Act;
The rehabilitation receiver recommends the confirmation of the
Rehabilitation Plan;
The shareholders, owners or partners of the juridical debtor lose at
least their controlling interest as a result of the Rehabilitation Plan;
and the Rehabilitation Plan would likely provide the objecting class of
creditors with compensation which has a net present value greater
than that which they would have received if the debtor were under
liquidation.
BIR ASST. COMISSIONER v. LEPANTO CERAMICS (2017)
Facts:
Lepanto Ceramics, Inc. (LCI) filed a petition for corporate
rehabilitation under RA 10142 with the RTC in Calamba City. Aside
from financial difficulties, the petition for rehab also alleged LCI's tax
liability at 6.3 million pesos. The Rehabilitation (Rehab Court) issued
a Commencement Order (Order).
The Order declared LCI under rehab and suspended all actions or
proceedings, in court or otherwise, for the enforcement of claims
against LCI. It also directed the BIR to file and serve on LCI its
comment or opposition to the petition, or its claims against LCI.
Despite this, petitioners, acting as Assistant Commissioner, Group
Supervisor, and Examiner, sent LCI a notice of informal conference,
informing the latter of its tax liabilities for the fiscal year ending June
30, 2010. Despite receiving LCI's letter-reply regarding the pendency
of a rehab proceeding, the BIR sent LCI a Formal Letter of Demand.
A petition for indirect contempt of court was filed by LCI against
petitioners for defying the Order. In their defense, petitioners insist
that the issue has already become moot and academic because, in
the meantime, LCI had already been declared rehabilitated. Also,
petitioners argue that 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, that 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 that the indirect contempt
proceedings interferes with the exercise of their functions to collect
taxes due to the govenment.
Daniel Carlo M. Benipayo
11685352
Issue:
Are petitioners guilty of indirect contempt for issuing a notice of
informal conference despite the fact that they simple wanted to toll
the prescriptive period and considering the lifeblood doctrine?
Held:
Yes, they are guilty of indirect contempt.
According to RA 10142, upon the issuance of a commencement
order, the distressed corporation shall be temporarily immune from
the enforcement of all claims against it, including all claims of the
government, whether national or local, including taxes, tariffs and
customs duties.
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.
Petitioners' act of issuing a notice of informal conference and later a
formal letter of demand, all despite the written reminder by LCI
regarding the pendency of the rehab proceeding, is in clear defiance
of the Commencement Order.
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.
PUERTO AZUL v. EXPORT INDUSTRY BANK (2017) Those credits which enjoy preference in relation to specific real
property or real rights, exclude all others to the extent of the value of
Facts: the immovable or real right to which the preference refers.

Held:

CONSUELO METAL CORP v. PLANTERS DEVELOPMENT BANK
& MANINGAS, (2008)
While the SEC has jurisdiction to order the dissolution of a
corporation,[16]jurisdiction over the liquidation of the corporation now
pertains to the appropriate regional trial courts. This is the reason
why the SEC, in its 29 November 2000 Omnibus Order, directed that
“the proceedings on and implementation of the order of liquidation be
commenced at the Regional Trial Court to which this case shall be
transferred.” This is the correct procedure because the liquidation of
a corporation requires the settlement of claims for and against the
corporation, which clearly falls under the jurisdiction of the regular
courts. The trial court is in the best position to convene all the
creditors of the corporation, ascertain their claims, and determine
their preferences.
In this case, Planters Bank, as a secured creditor, enjoys preference
over a specific mortgaged property and has a right to foreclose the
mortgage under Section 2248 of the Civil Code. 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.

Rules

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:

Daniel Carlo M. Benipayo

11685352
YNGSON v. PNB, G.R. NO.171132, AUGUST 15, 2012 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

Issue: property pursuant to applicable laws.

Whether PNB, as a secured creditor, can foreclose on the mortgaged Held:

properties of a corporation under liquidation without the knowledge
and prior approval of the liquidator or the SEC. YES. In this case, PNB elected to maintain its rights under the security or
lien; hence, its right to foreclose the mortgaged properties should be
It is worth mentioning that under RA 10142, otherwise known as the respected, in line with our pronouncement in Consuelo Metal
Financial Rehabilitation and Insolvency Act (FRIA) of 2010, the right Corporation.
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. 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;

Daniel Carlo M. Benipayo

11685352