Chapter 7: Case 1

756 PHIL. 229

SECOND DIVISION

[ G.R. No. 178407, March 18, 2015 ]

METROPOLITAN BANK AND TRUST COMPANY, PETITIONER, VS. S.F. NAGUIAT ENTERPRISES, INC., RESPONDENT.

DECISION

LEONEN, J.:

This case calls for the determination of whether the approval and consent of the insolvency court is required under Act No. 1956,
otherwise known as the Insolvency Law, before a secured creditor like petitioner Metropolitan Bank and Trust Company can proceed
with the extrajudicial foreclosure of the mortgaged property.

This is a Petition for Review[1] under Rule 45, seeking to reverse and set aside the November 15, 2006 Decision[2] and June 14, 2007
Resolution[3] of the Court of Appeals (Sixth Division) in CA-G.R. SP No. 94968. The questioned Decision and Resolution dismissed
Metropolitan Bank and Trust Company's Petition for Certiorari and Mandamus[4] and denied its subsequent Motion for Reconsideration
and Clarification.[5]

Sometime in April 1997, Spouses Rommel Naguiat and Celestina Naguiat and S.F. Naguiat Enterprises, Inc. (S.F. Naguiat) executed a
real estate mortgage[6] in favor of Metropolitan Bank and Trust Company (Metrobank) to secure certain credit accommodations obtained
from the latter amounting to P17 million. The mortgage was constituted over the following properties:

(1) TCT No. 58676[7] - a parcel of land in the Barrio of Pulung Bulu, Angeles, Pampanga, with an area of 489 square meters; and

(2) TCT No. 310523 - a parcel of land in Marikina, Rizal, with an area of 1,200.10 square meters.[8]

On March 3, 2005, S.F. Naguiat represented by Celestina T. Naguiat, Eugene T. Naguiat, and Anna N. Africa obtained a loan[9] from
Metrobank in the amount of P1,575,000.00. The loan was likewise secured by the 1997 real estate mortgage by virtue of the
Agreement on Existing Mortgage(s)[10] executed between the parties on March 15, 2004.

On July 7, 2005, S.F. Naguiat filed a Petition for Voluntary Insolvency with Application for the Appointment of a Receiver[11] pursuant to
Act No. 1956, as amended,[12] before the Regional Trial Court of Angeles City and which was raffled to Branch 56.[13] Among the assets
declared in the Petition was the property covered by TCT No. 58676 (one of the properties mortgaged to Metrobank).[14]

Presiding Judge Irin Zenaida S. Buan (Judge Buan) issued the Order[15] dated July 12, 2005, declaring S.F. Naguiat insolvent; directing
the Deputy Sheriff to take possession of all the properties of S.F. Naguiat until the appointment of a receiver/assignee; and forbidding
payment of any debts due, delivery of properties, and transfer of any of its properties.

Pending the appointment of a receiver, Judge Buan directed the creditors, including Metrobank, to file their respective Comments on
the Petition.[16] In lieu of a Comment, Metrobank filed a Manifestation and Motion[17] informing the court of Metrobank's decision to
withdraw from the insolvency proceedings because it intended to extrajudicially foreclose the mortgaged property to satisfy its claim
against S.F. Naguiat.[18]

Subsequently, S.F. Naguiat defaulted in paying its loan.[19] On November 8, 2005, Metrobank instituted an extrajudicial foreclosure
proceeding against the mortgaged property covered by TCT No. 58676[20] and sold the property at a public auction held on December 9,
2005 to Phoenix Global Energy, Inc., the highest bidder.[21] Afterwards, Sheriff Claude B. Balasbas prepared the Certificate of
Sale[22] and submitted it for approval to Clerk of Court Vicente S. Fernandez, Jr. and Executive Judge Bernardita Gabitan-Erum
(Executive Judge Gabitan-Erum). However, Executive Judge Gabitan-Erum issued the Order[23] dated December 15, 2005 denying her
approval of the Certificate of Sale in view of the July 12, 2005 Order issued by the insolvency court. Metrobank's subsequent Motion for
Reconsideration was also denied in the Order[24] dated April 24, 2006.

Aggrieved by both Orders of Executive Judge Gabitan-Erum, Metrobank filed a Petition[25] for certiorari and mandamus before the Court
of Appeals on June 22, 2006. S.F. Naguiat filed its Manifestation[26] stating that it was not interposing any objection to the Petition and
requested that the issues raised in the Petition be resolved without objection and argument on its part.[27]

On November 15, 2006, the Court of Appeals rendered its Decision dismissing the Petition on the basis of Metrobank's failure to "obtain
the permission of the insolvency court to extrajudicially foreclose the mortgaged property."[28] The Court of Appeals declared that "a
suspension of the foreclosure proceedings is in order, until an assignee [or receiver,] is elected or appointed [by the insolvency court]
so as to afford the insolvent debtor proper representation in the foreclosure [proceedings]."[29]

Metrobank filed a Motion for Reconsideration and Clarification, which was denied by the Court of Appeals in its Resolution dated June
14, 2007.[30] The Court of Appeals held that leave of court must be obtained from the insolvency court whether the foreclosure suit was
instituted judicially or extrajudicially so as to afford the insolvent estate's proper representation (through the assignee) in such
action[31] and "to avoid the dissipation of the insolvent debtor's assets in possession of the insolvency court without the latter's
knowledge."[32]

Hence, the present Petition for Review was filed. Petitioner contends that the Court of Appeals decided questions of substance in a way
not in accord with law and with the applicable decisions of this court:

A.

By ruling that there must be a motion for leave of court to be filed and granted by the insolvency court, before the petitioner, as a
secured creditor of an insolvent, can extrajudicially foreclose the mortgaged property, which is tantamount to a judicial legislation.

B.

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Chapter 7: Case 1

By ruling that the Honorable Executive Judge Bernardita Gabitan-Erum did not abuse her discretion in refusing to perform her
ministerial duty of approving the subject certificate of sale, despite the fact that the petitioner and the designated sheriff complied with
all the requirements mandated by Act No. 3135, as amended, circulars, administrative matters and memorandums issued by the
Honorable Supreme Court.

C.

By ruling that the action of the Honorable Executive Judge Bernardita Gabitan-Erum is proper in denying the approval of the Certificate
of Sale on the grounds that the issuance of the Order dated 12 July 2005 declaring respondent insolvent and the pendency of the
insolvency proceeding forbid the petitioner, as a secured creditor, to foreclose the subject mortgaged property.[33] (Emphasis supplied)

On October 20, 2007, S.F. Naguiat filed a Manifestation[34] stating that it interposed no objection to the Petition and submitted the issues
raised therein without any argument.

On November 28, 2007, the court resolved "to give due course to the petition [and] to decide the case according to the pleadings
already filed[.]"[35]

The issues for resolution are:

First, whether the Court of Appeals erred in ruling that prior leave of the insolvency court  is necessary before a secured creditor, like
petitioner Metropolitan Bank and Trust Company, can extrajudicially foreclose the mortgaged property.

Second, whether the Court of Appeals erred in ruling that Executive Judge Gabitan-Erum did not abuse her discretion in refusing to
approve the Certificate of Sale.

Petitioner argues that nowhere in Act No. 1956 does it require that a secured creditor must first obtain leave or permission from the
insolvency court before said creditor can foreclose on the mortgaged property.[36] It adds that this procedural requirement applies only to
civil suits, and not when the secured creditor opts to exercise the right to foreclose extrajudicially the mortgaged property under Act No.
3135, as amended, because extrajudicial foreclosure is not a civil suit.[37] Thus, the Court of Appeals allegedly imposed a new condition
that was tantamount to unauthorized judicial legislation when it required petitioner to file a Motion for Leave of the insolvency court.
[38]
 Said condition, petitioner argues, defeated and rendered inutile its right or prerogative under Act No. 1956 to independently initiate
extrajudicial foreclosure of the mortgaged property.[39]

Nonetheless, petitioner contends that the filing of its Manifestation before the insolvency court served as sufficient notice of its intention
and, in effect, asked the court's permission to foreclose the mortgaged property.[40]

Petitioner further contends that "the powers and responsibilities of an Executive Judge in extrajudicial foreclosure proceedings, in line
with Administrative Order No. 6, is merely to supervise the conduct of the extra-judicial foreclosure of the property" [41] and to oversee
that the procedural requirements are faithfully complied with;[42] and when "the Clerk of Court and Sheriff concerned complied with their
designated duties and responsibilities under the [administrative] directives and under Act No. 3135, as amended, and the
corresponding filing and legal fees were duly paid, it becomes a ministerial duty on the part of the executive judge to approve the
certificate of sale."[43] Thus, Executive Judge Gabitan-Erum allegedly exceeded her authority by "exercising judicial discretion in issuing
her Orders dated December 15, 2006 and April 24, 2006 . . . despite the fact that Sheriff Balasbas complied with all the notices
requirements under Act No. 3135, [as] amended, . . . and the petitioner and the highest bidder paid all the requisite filing and legal
fees[.]"[44]

Furthermore, citing Chartered Bank v. C.A. Imperial and National Bank,[45] petitioner submits that the order of insolvency affected only
unsecured creditors and not secured creditors, like petitioner, which did not surrender its right over the mortgaged property.[46] Hence, it
contends that the Court of Appeals seriously erred in holding as proper Executive Judge Gabitan-Erum's disapproval of the Certificate
of Sale on account of the Order of insolvency issued by the insolvency court.[47]

Finally, petitioner points out that contrary to the Court of Appeals' ruling, "there is nothing more to suspend because the extrajudicial
foreclosure of the mortgaged property was already a fait accompli as the public auction sale was conducted on December 9, 2005 and
all the requisite legal fees were paid and a Certificate of Sale was already prepared."[48] "The only remaining thing to do [was] for the . . .
Executive Judge to sign the Certificate of Sale, which she . . . refused to do."[49]

The Petition has no merit.

A look at the historical background of the laws governing insolvency in this country will be helpful in resolving the questions presented
before us.

The first insolvency law, Act No. 1956, was enacted on May 20, 1909. It was derived from the Insolvency Act of California (1895), with a
few provisions taken from the United States Bankruptcy Act of 1898.[50] Act No. 1956 was entitled "An Act Providing for the Suspension
of Payments, the Relief of Insolvent Debtors, the Protection of Creditors, and the Punishment of Fraudulent Debtors." The remedies
under the law were through a suspension of payment[51] (for a debtor who was solvent but illiquid) or a discharge from debts and
liabilities through the voluntary[52] or involuntary[53] insolvency proceedings (for a debtor who was insolvent).

The objective of suspension of payments is the deferment of the payment of debts until such time as the debtor, which possesses
sufficient property to cover all its debts, is able to convert such assets into cash or otherwise acquires the cash necessary to pay its
debts. On the other hand, the objective in insolvency proceedings is "to effect an equitable distribution of the bankrupt's properties
among his creditors and to benefit the debtor by discharging[54] him from his liabilities and enabling him to start afresh with the property
set apart for him as exempt."[55]

Act No. 1956 was meant to be a complete law on insolvency,[56] and debts were to be liquidated in accordance with the order of priority
set forth under Chapter VI, Sections 48 to 50 on "Classification and Preference of Creditors"; and Sections 29 and 59 with respect to
mortgage or pledge of real or personal property, or lien thereon. Jurisdiction over suspension of payments and insolvency was vested
in the Courts of First Instance (now the Regional Trial Courts).[57]

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Chapter 7: Case 1

The Civil Code[58] (effective August 30, 1950) established a system of concurrence and preference of credits, which finds particular
application in insolvency proceedings.[59] Philippine Savings Bank v. Hon. Lantin[60] explains this scheme:

Concurrence of credits occurs when the same specific property of the debtor or all of his property is subjected to the claims of several
creditors. The concurrence of credits raises no questions of consequence where the value of the property or the value of all assets of
the debtor is sufficient to pay in full all the creditors. However, it becomes material when said assets are insufficient for then some
creditors of necessity will not be paid or some creditors will not obtain the full satisfaction of their claims. In this situation, the question of
preference will then arise, that is to say who of the creditors will be paid ahead of the others. (Caguioa, Comments and Cases on Civil
Law, 1970 ed., Vol. VI, p. 472.)[61]

The credits are classified into three general categories, namely, "(a) special preferred credits listed in Articles 2241[62] and 2242,[63] (b)
ordinary preferred credits listed in Article 2244[,][64] and (c) common credits under Article 2245."[65]

The special preferred credits enumerated in Articles 2241 (with respect to movable property) and 2242 (with respect to immovable
property) are considered as mortgages or pledges of real or personal property, or liens within the purview of Act No. 1956.[66] These
credits, which enjoy preference with respect to a specific movable or immovable property, exclude all others to the extent of the value of
the property.[67] If there are two or more liens on the same specific property, the lienholders divide the value of the property involved pro
rata, after the taxes on the same property are fully paid.[68]

"Credits which are specially preferred because they constitute liens (tax or non-tax) in turn, take precedence over ordinary preferred
credits so far as concerns the property to which the liens have attached. The specially preferred credits must be discharged first out of
the proceeds of the property to which they relate, before ordinary preferred creditors may lay claim to any part of such proceeds."[69]

"In contrast with Articles 2241 and 2242, Article 2244 creates no liens on determinate property which follow such property. What Article
2244 creates are simply rights in favor of certain creditors to have the cash and other assets of the insolvent applied in a certain
sequence or order of priority."[70]

It was held that concurrence and preference of credits can only be ascertained in the context of a general liquidation proceeding that
is in rem, such as an insolvency proceeding, where properties of the debtor are inventoried and liquidated and the claims of all the
creditors may be bindingly adjudicated.[71] The application of this order of priorities established under the Civil Code in insolvency
proceedings assures that priority of claims are respected and credits belonging to the same class are equitably treated.

Conformably, it is the policy of Act No. 1956 to place all the assets and liabilities of the insolvent debtor completely within the jurisdiction
and control of the insolvency court without the intervention of any other court in the insolvent debtor's concerns or in the administration
of the estate.[72] It was considered to be of prime importance that the insolvency proceedings follow their course as speedily as possible
in order that a discharge, if the insolvent debtor is entitled to it, should be decreed without unreasonable delay. "Proceedings of [this]
nature cannot proceed properly or with due dispatch unless they are controlled absolutely by the court having charge thereof."[73]

In 1981, Presidential Decree No. 1758 amended Presidential Decree No. 902-A, the Securities and Exchange Commission charter.
Under its terms,[74] jurisdiction regarding corporations that sought suspension of payments process was taken away from the regular
courts and given to the Securities and Exchange Commission.[75] In addition, an alternative to suspension of payments — rehabilitation
— was introduced. It enables a corporation whose assets are not sufficient to cover its liabilities to apply to the Securities and
Exchange Commission for the appointment of a rehabilitation receiver and/or management committee[76] and then to develop a
rehabilitation plan with a view to rejuvenating a financially distressed corporation. However, the procedure to avail of the remedy was
not spelled out until 20 years later when the Securities and Exchange Commission finally adopted the Rules of Procedure on Corporate
Recovery on January 4, 2000.

Shortly thereafter, with the passage of Republic Act No. 8799 or The Securities Regulation Code on July 19, 2000, jurisdiction over
corporation rehabilitation cases was reverted to the Regional Trial Courts designated as commercial courts or rehabilitation courts.
[77]
 This legal development was implemented by the Interim Rules of Procedure on Corporate Rehabilitation (made effective in
December 2000), which was later replaced by A.M. 00-8-10-SC or the Rules of Procedure on Corporate Rehabilitation of 2008.

Act No. 1956 continued to remain in force and effect until its express repeal on July 18, 2010 when Republic Act No. 10142,
[78]
 otherwise known as the Financial Rehabilitation and Insolvency Act of 2010, took effect. Republic Act No. 10142 now provides for
court proceedings in the rehabilitation or liquidation of debtors, both juridical and natural persons, in a "timely, fair, transparent, effective
and efficient"[79] manner. The purpose of insolvency proceedings is "to encourage debtors . . . and their creditors to collectively and
realistically resolve and adjust competing claims and property rights"[80] while "maintaining] certainty and predictability in commercial
affairs, preserving] and maximizing] the value of the assets of these debtors, recognizing] creditor rights and respecting] priority of
claims, and ensuring] equitable treatment of creditors who are similarly situated."[81] It has also been provided that whenever
rehabilitation is no longer feasible, "it is in the interest of the State to facilitate a speedy and orderly liquidation of [the] debtors' assets
and the settlement of their obligations."[82]

Unlike Act No. 1956, Republic Act No. 10142 provides a broad definition of the term, "insolvent":

SEC. 4. Definition of Terms. - As used in this Act, the term:

....

(p) Insolvent shall refer to the financial condition of a debtor that is generally unable to pay its or his liabilities as they fall due in the
ordinary course of business or has liabilities that are greater than its or his assets.

Republic Act No. 10142 also expressly categorizes different forms of debt relief available to a corporate debtor in financial distress.
These are out-of-court restructuring agreements;[83] pre-negotiated rehabilitation;[84] court-supervised rehabilitation;[85] and liquidation
(voluntary and involuntary).[86] An insolvent individual debtor can avail of suspension of payments,[87] or liquidation.[88]

During liquidation proceedings, a secured creditor may waive its security or lien, prove its claim, and share in the distribution of the
assets of the debtor, in which case it will be admitted as an unsecured creditor; or maintain its rights under the security or lien,[89] in
which case:

1. [T]he 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 . . . the [creditor] will be admitted ... as a creditor for the balance. If its value

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Chapter 7: Case 1

exceeds the claim . . . 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. [T]he liquidator may sell the property and satisfy the secured creditor's entire claim from the proceeds of the sale; or

3. [T]he secured creditor may enforce the lien or foreclose on the property pursuant to applicable laws.[90]

A secured creditor, however, is subject to the temporary stay of foreclosure proceedings for a period of 180 days,[91] upon the issuance
by the court of the Liquidation Order.[92]

Republic Act No. 10142 was to govern all petitions filed after it had taken effect, and all further proceedings in pending insolvency,
suspension of payments, and rehabilitation cases, except when its application "would not be feasible or would work injustice, in which
event the procedures set forth in prior laws and regulations shall apply."[93]

The relevant proceedings in this case took place prior to Republic Act No. 10142; hence, the issue will be resolved according to the
provisions of Act No. 1956.

II

Act No. 1956 impliedly requires a secured creditor to ask the permission of the insolvent court before said creditor can foreclose the
mortgaged property.

When read together, the following provisions of Act No. 1956 reveal the necessity for leave of the insolvency court:

(A) Under Section 14, "[a]n insolvent debtor, owing debts exceeding in amount the sum of one thousand pesos, may apply to be
discharged from his debts and liabilities by petition to the Court of First Instance of the province or city in which he has resided
for six months next preceding the filing of such petition. In his petition, he shall set forth his place of residence, the period of his
residence therein immediately prior to filing said petition, his inability to pay all his debts in full, his willingness to surrender all his
property, estate, and effects not exempt from execution for the benefit of his creditors, and an application to be adjudged an
insolvent. He shall annex to his petition a schedule and inventory in the form hereinafter provided. The filing of such petition shall
be an act of insolvency."
(B) Under Section 16, "[the] inventory must contain, besides the creditors, an accurate description of all the real and personal
property, estate, and effects of the [insolvent], including his homestead, if any, together with a statement of the value of each
item of said property, estate, and effects and its location, and a statement of the incumbrances thereon. All property exempt by
law from execution shall be set out in said inventory with a statement of its valuation, location, and the incumbrances thereon, if
any. The inventory shall contain an outline of the facts giving rises [sic], or which might give rise, to a right of action in favor of
the insolvent debtor."
(C) Under Section 18, upon receipt of the petition, the court shall issue an order declaring the petitioner insolvent, and directing the
sheriff to take possession of and safely keep, until the appointment of a receiver or assignee,  all the debtor's real and personal
property, except those exempt by law from execution. The order also forbids the transfer of any property by the debtor.
(D) Under Section 32, once an assignee is elected and qualified, the clerk of court shall assign and convey to the assignee all the
real and personal property of the debtor, not exempt from execution, and such  assignment shall relate back to the
commencement of the insolvency proceedings, and by operation n of law, shall vest the tide to all such property in the assignee.

With the declaration of insolvency of the debtor, insolvency courts "obtain full and complete jurisdiction over all property of the insolvent
and of all claims by and against [it.]"[94] It follows that the insolvency court has exclusive jurisdiction to deal with the property of the
insolvent.[95] Consequently, after the mortgagor-debtor has been declared insolvent and the insolvency court has acquired control of his
estate, a mortgagee may not, without the permission of the insolvency court, institute proceedings to enforce its lien. In so doing, it
would interfere with the insolvency court's possession and orderly administration of the insolvent's properties.[96]

It is true that under Section 59 of Act No. 1956, the creditor is given the option to participate in the insolvency proceedings by proving
the balance of his debt, after deducting the value of the mortgaged property as agreed upon with the receiver or determined by the
court or by a sale of the property as directed by the court; or proving his whole debt, after releasing his claim to the receiver/sheriff
before the election of an assignee, or to the assignee. However, Section 59 of Act No. 1956 proceeds to state that when "the property
is not sold or released, and delivered up, or its value fixed, the creditor [is] not allowed to prove any part of his debt,"  but the assignee
shall deliver to the creditor the mortgaged property. Hence, explicitly under Section 59 and as a necessary consequence flowing from
the exclusive jurisdiction of the insolvency court over the estate of the insolvent, the mortgaged property must first be formally delivered
by the court or the assignee (if one has already been elected) before a mortgagee-creditor can initiate proceedings for foreclosure.[97]

Here, the foreclosure and sale of the mortgaged property of the debtor, without leave of court, contravene the provisions of Act No.
1956 and violate the Order dated July 12, 2005 of the insolvency court which declared S.F. Naguiat insolvent and forbidden from
making any transfer of any of its properties to any person.

Petitioner would insist that "respondent was given the opportunity to be represented in the public auction sale conducted on December
9, 2005"[98] because it received a copy of the Notice of the Sheriffs Sale on November 11, 2005;"[99] and the Notice of Auction Sale was
published in a newspaper of general circulation.[100] However, respondent allegedly opted not to participate by not attending the public
auction sale.[101]

Such was to be expected because when the foreclosure proceeding was initiated, respondent was already declared insolvent. Indeed,
upon the adjudication of insolvency, the insolvent ceased to exist and was in effect judicially declared dead as of the filing of the
insolvency petition and by the nature of things had no further interest in the property covered by the mortgage.[102] Under Section 32 of
Act No. 1956, title to the insolvent's estate relates back to the filing of the insolvency petition upon the election of the assignee who
shall thereafter act on behalf of all the creditors. Under Section 36, the assignee has the power to redeem all valid mortgages or sell
property subject to mortgage. Thus, the extrajudicial foreclosure of the mortgaged property initiated by petitioner without leave of
insolvency court would effectively exclude the assignee's right to participate in the public auction sale of the property and to redeem the
foreclosed property[103] to the prejudice of all the other creditors of the insolvent.

Petitioner filed its Manifestation and Motion before the insolvency court on September 7, 2005,[104] praying that it would no longer file the
Comment required as it opted to exercise its right to extrajudicially foreclose the property mortgaged and that it "be allowed to
temporarily withdraw its active participation in the . . . proceeding pending the outcome of the extra-judicial foreclosure proceeding of
the mortgaged property."[105]
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Petitioner should have waited for the insolvency court to act on its Manifestation and Motion before foreclosing the mortgaged property
and its lien (assuming valid) would not be impaired or its claim in any way jeopardized by any reasonable delay. There are mechanisms
within Act No. 1956 such as Section 59 that ensure that the interests of the secured creditor are adequately protected. Parenthetically,
mortgage liens are retained in insolvency proceedings. What is merely suspended until court approval is obtained is the creditor's
enforcement of such preference.

On the other hand, to give the secured creditor a free hand in foreclosing its collateral upon the initiation of insolvency proceedings may
frustrate the basic objectives of Act No. 1956 of maximizing the value of the estate of the insolvent or obtaining the highest return
possible from its sale for the benefit of all the creditors (both secured and unsecured).

III

Executive Judge Gabitan-Erum did not unlawfully neglect to perform her duty when she refused to approve and sign the Certificate of
Sale, as would warrant the issuance of a writ of mandamus against her.

An executive judge has the administrative duty in extrajudicial foreclosure proceedings to ensure that all the conditions of Act No. 3135
have been complied with before approving the sale at public auction of any mortgaged property.[106]

"Certain requisites must be established before a creditor can proceed to an extrajudicial foreclosure, namely: first, there must have
been the failure to pay the loan obtained from the mortgagee-creditor; second, the loan obligation must be secured by a real estate
mortgage; and third, the mortgagee-creditor has the right to foreclose the real estate mortgage either judicially or extrajudicially."[107]

Furthermore, Act No. 3135 outlines the notice and publication requirements and the procedure for the extrajudicial foreclosure which
constitute a condition sine qua non for its validity. Specifically, Sections 2, 3, and 4 of the law prescribe the formalities of the
extrajudicial foreclosure proceeding:

SEC. 2. Said sale cannot be made legally outside of the province in which the property sold is situated; and in case the place within
said province in which the sale is to be made is the subject of stipulation, such sale shall be made in said place or in the municipal
building of the municipality in which the property or part thereof is situated.

SEC. 3. Notice shall be given by posting notices of the sale for not less than twenty days in at least three public places of the
municipality or city where the property is situated, and if such property is worth more than four hundred pesos, such notice shall also be
published once a week for at least three consecutive weeks in a newspaper of general circulation in the municipality or city.

SEC. 4. The sale shall be made at public auction, between the hours of nine in the morning and four in the afternoon; and shall be
under the direction of the sheriff of the province, the justice or auxiliary justice of the peace of the municipality in which such sale has to
be made, or a notary public of said municipality, who shall be entitled to collect a fee of five pesos for each day of actual work
performed, in addition to his expenses.

''Mandamus will not issue to enforce a right which is in substantial dispute or to which a substantial doubt exists."[108]

There was a valid reason for Executive Judge Gabitan-Erum to doubt the propriety of the foreclosure sale. Her verification with the
records of the Clerk of Court showed that a Petition for Insolvency had been filed and had already been acted upon by the insolvency
court prior to the application for extrajudicial foreclosure of the mortgaged properties. Among the inventoried unpaid debts and
properties attached to the Petition for Insolvency was the loan secured by the real estate mortgage subject of the application for
extrajudicial foreclosure sale.[109] With the pendency of the insolvency case, substantial doubt exists to justify the refusal by Executive
Judge Gabitan-Erum to approve the Certificate of Sale as the extrajudicial foreclosure sale without leave of the insolvency court may
contravene the policy and purpose of Act No. 1956.[110]

Act No. 3135 is silent with respect to mortgaged properties that are in custodia legis, such as the property in this case, which was
placed under the control and supervision of the insolvency court. This court has declared that "[a] court which has control of such
property, exercises exclusive jurisdiction over the same, retains all incidents relative to the conduct of such property. No court, except
one having supervisory control or superior jurisdiction in the premises, has a right to interfere with and change that possession."[111] The
extrajudicial foreclosure and sale of the mortgaged property of the debtor would clearly constitute an interference with the insolvency
court's possession of the property.

Furthermore, Executive Judge Gabitan-Erum noticed that the President of the highest bidder in the public auction sale may be related
to the owners of S.F. Naguiat Enterprises, Inc. The President of the highest bidder, Phoenix Global Energy, Inc., was a certain Eugene
T. Naguiat.[112] "Among the incorporators of S.F. Naguiat Enterprises, Inc. [the insolvent corporation] [were] Sergio F. Naguiat,
Maningning T. Naguiat, Antolin M. Tiglao, Nero F. Naguiat and Antolin T. Naguiat. Later[,] its capital was increased and the listed
subscribers [were] Celestina T. Naguiat, Rommel T. Naguiat, Antolin T. Naguiat, Sergio T. Naguiat, Jr., Alexander T. Naguiat, Coumelo
T. Naguiat, Fely Ann Breggs and Teresita Celine Quemer."[113]

Under the foregoing circumstances, the refusal of Executive Judge Gabitan-Erum to approve the Certificate of Sale was in accord with
her duty to act with prudence, caution, and attention in the performance of her functions.

WHEREFORE, the Petition is DENIED, and the Court of Appeals' Decision dated November 15, 2006 and Resolution dated June 14,
2007 are AFFIRMED.

SO ORDERED.

Carpio, (Chairperson), Velasco, Jr.,* Del Castillo, and Mendoza, JJ., concur.

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