METROPOLITAN BANK AND TRUST COMPANY vs Protection of Creditors, and the Punishment of

S.F. NAGUIAT ENTERPRISES (G.R. NO. 178407) Fraudulent Debtors.) – first insolvency law in the
Philippines, derived from the Insolvency Act of
FACTS: Spouses Rommel Nagyiat and Celestina California, with a few provisions derived from the
Neguiat and S.F. Naguiat Enterprises Inc. executed a United States Bankruptcy Act on 1898. The objective
real estate mortgage in favor of Metrobank to secure of suspension of payments is the deferment of the
credit line amounting to 17 million pesos. They payments of debt until such time as the debtor,
mortgaged 2 parcels of land in Pampanga and which possesses sufficient property to coverall its
Marikina to secure it. Thereafter on March 3, 2005, debts, is able to convert such assets into cash or
they obtain a loan amounting to 1,575,000, using otherwise acquires the cash necessary to pay its
the said property. On July 7, 2005, S.F. Naguiat filed debts. On the other hand, the objective in
a Petition for Voluntary Insolvency with Application insolvency proceedings is to effect an equitable
for the Appointment of a Receiver pursuant to Act distribution of the bankrupt’s properties among his
No. 1956, before the RTC of Angeles City. The creditors and to benefit the debtor by charging him
Presiding Judge direct the Deputy Sheriff to take from his liabilities and enabling hm to start afresh
possession of all the properties of S.F. Naguiat until with the property set apart for him as exempt.
the appointment of a receiver/assignee; and
forbidding payment of any debts due, delivery of The Civil Code, effective August 30, 1950,
properties and transfer of any of its properties. established a system of concurrence and preference
Pending the appointment of receiver, Judge also ask of credits, which finds particular application in
respective Comments on the Petition. Metrobank insolvency proceedings. The credits are classified
filed a manifestation to withdraw from the into three general categories, namely: (a) special
insolvency proceeding and pursue the foreclosure of preferred credit listed in Article 2241 (with respect
the mortgaged property. Subsequently, S.F. Naguiat to movable property) and 2242 (with respect to
defaulted in paying its loan and Metrobank immovable property); and (b) ordinary preferred
instituted an extrajudicial foreclosure proceeding credits listed in Article 2242; and (3) common credits
against the mortgaged property and sold the under Article 2245.
property at a public auction to Phoenix Global
Energy Inc, as the highest bidder. *PD 902-A placed under the jurisdiction of SEC the
suspension of payment process.
However, herein Judge issued an order denying the
approval of the Certificate of Sale in view of the *RA 10142 provides for court proceedings in the
Order issued by the insolvency court. Aggrieved, rehabilitation or liquidation of debtors, both
petitioner filed a petitioner for certiorari and juridical and natural person. Purpose is to
mandamus before the Court of Appeals. The encourage debtors and their creditors to
appellate court dismissed the petitioner as they collectively and realistically resolve and adjust
failed to secure approval from the insolvency court competing claims and property rights while
to the extrajudicial foreclosure of the mortgaged maintaining certainty and predictability in
property. commercial affairs, preserving and maximizing the
value of the assets of these debtors, ensuring
ISSUE: Whether the Certificate of Sale shall not be equitable treatment of creditors who are similarly
allowed. situated.

HELD: HEART OF THE CASE

HISTORY OF INSOLVENCY LAW The policy of Act No. 1956 place all the assets and
liabilities of the insolvent debtor completely within
*Act No. 1956 (An Act Providing for Suspension of the jurisdiction and control of the insolvency court
Payments, the Relief of Insolvent Debtors, and the without the intervention of any other court in the
insolvent debtor’s concerns or in the administration already submitted to adhere with the 2008 Rules on
of the estate. Corporate Rehabilitation and because there was still
no Implementing Rules and Regulations created for
FRIA.
BANCO DE ORO UNIBANK, INC. vs INTERNATIONAL
COPRA EXPORT CORPORATION (G.R. NO. 218485- BDO, on the other hand, argued that the Court of
86, April 28, 2021) Appeals erred in remanding the case to the
rehabilitation court and it insists that it should have
FACTS: The International Copra Export Corporation, declined the amended rehabilitation plan.
Interco Manufacturing, and Kimee Corporation filed
a Petition for Suspension of Payments and ISSUE: Whether FRIA shall be applied in this case.
Rehabilitation before the RTC of Zamboanga City.
They cited as reason the unforeseen regional and HELD: Yes, FRIA shall be applied in this case. The
global recession and worldwide economic Court ruled that all laws are presumed to be valid
meltdown, high financial costs for short term loans, and the absence of IRR does not make it inoperative.
increases in fuel costs and costs of production.
The Court also discussed the development of
The court found the petition sufficient in form and Insolvency Laws in the Philippines by citing Act No.
substance, thereafter appointed Atty. Elamparo as 1956, which allowed an insolvent debtor to file a
the rehabilitation receiver. The RTC declared that the petition for suspension of payments, provided that
proceedings shall be governed by the 2008 Rules on it has sufficient property to cover all its debts.
Corporate Rehabilitation and then directed the Presidential Decree No. 1758 which transferred the
oppositors and claimants to file their respective jurisdiction of the said case to SEC and introduced
rejoinders and comments. In the recommendation the remedy of rehabilitation, which allowed
submitted by Atty. Elamparo, he stated that the corporate debts with insufficient assets to apply for
rehabilitation of Interco et al. is very viable. the appointment of a rehabilitation receiver or
Meanwhile, Allied Bank and PNB moved to amend management committee.
the Staye Order. DBP, on the other hand, moved to
modify the rehabilitation plan. RA No. 8799, which moved the jurisdiction
rehabilitation cases back to regular courts. The
The RTC granted the rehabilitation plan instead. A Interim Rules of Procedure on Corporate
motion for reconsideration was filed by BDO, but Rehabilitation which granted “group of companies”
such was declined. to file a joint petition for rehabilitation. Lastly, RA
10142 or FRIA, which lapsed into law on August 31,
During the pendency of appeal before the Court of 2010, but its IRR was just promulgated on August 27,
Appeals of the denial of their motion for 2013.
reconsideration. The rehabilitation granted the
request of the receiver to sell non-core assets of the Here, the case was already filed after FRIA was
companies. By such, a petition for certiorari was filed passed into a law. Hence, the rehabilitation court has
against the rehabilitation court for the alleged grave correctly applied it. The policy of the state in
abuse of discretion amounting to lack or excess in creating FRIA is to encourage debtors to collectively
jurisdiction. resolve their competing claims. FRIA now allows
debtors to initiate the voluntary proceeding for
The appellate court resolved the matter remanding rehabilitation when they foresee the impossibility of
back the case to the rehabilitation court for failure meeting their debts. 2/3 of the outstanding capital
to comply with Sec. 64 of FRIA. stock or 2/3 of the members may file the said
petition.
Both parties appealed. Interco et al. argued that
FRIA is not applicable in the case at hand since they
When the rehabilitation court found sufficiency in FACTS: Petitioner is a domestic corporation engaged
form and substance on the petition, it shall issue the in the manufacture and distribution of cold-rolled
stay order. Thereafter, it shall appoint a and galvanized steel sheets and coils. It obtained
rehabilitation receiver, and suspend all the claims loans from several creditors and, as security,
against the insolvent business. mortgaged its assets in their favor. Petitioner
entered a Mortgage Trust Indenture with BPI. Under
Contrary to the claim that the imposition of FRIA the said MTI, the insurance policies were to be made
violates the constitutional guarantee of non- payable to BPI.
interference of the State in purely private
transactions, the Court ruled that the said Petitioner suffered financial difficulties and one of its
constitutional right is not absolute and may be creditors, BDO, filed a petition to place petitioner
regulated by police power. under corporate rehabilitation which was thereafter
granted. A receiver was also assigned by the
Successful rehabilitation of a distressed corporation rehabilitation court. In 2008, a fire broke out at SCP’s
will benefit its debtors, creditors, employees, and plant damaging its machineries. Invoking its right
the economy in general. The court may approve a under the MTI, BPI demanded and received from the
rehabilitation plan even over the opposition of insurers $450,000 insurance proceeds. In 2009, SCP
creditors holding a majority of the total liabilities of filed with the RTC a motion to direct BPI to turn over
the debtor if, in its judgment, the rehabilitation of the insurance proceeds for them to repair and
the debtor is feasible and the opposition of the replace the equipment that was burnt.
creditors
RTC, thereafter ordered the release of the proceeds
The Court ruled that the Court of Appeals correctly to SPC’s contractors. BPI filed an appeal under Rule
ruled the remanding of case to the rehabilitation 65 which was denied by the appellate court.
court to ensure compliance with Sec. 64 of the FRIA, However, the said decision was eventually reversed
where the creditors are allowed to vote for the declaring RTC’s decision null and void. SCP appealed
approval of the rehabilitation plan. to SC through Rule 45 but such was denied.

However, the rehabilitation court may overrule the In 2009, a fire again broke out SPC’s plant damaging
said voting in case the (a) rehabilitation plan its cold rolling mill and other machineries. This was
complies with the requirements specified in this Act; soon after it entered to an insurance agreement with
(b) the rehabilitation receiver recommends the the above-mentioned insurance respondents. SCP
confirmation of the Rehabilitation Plan; (c) the filed with RTC a motion to direct respondent insurets
shareholders, owners or partners of the juridical to pay the amount of $28,000,000 and property
debtor lose at least their controlling interest as a damage of $8,000,0000.
result of the Rehabilitation Plan; and (d) the
Rehabilitation Plan would likely provide the Respondent questioned the jurisdiction of the
objecting class of creditors with compensation rehabilitation court. They argued that the case shall
which has a net present value greater than which be filed separately and calls for a full blown trial.
they would have received if the debtor were under However, such was declined by the Court.
liquidation.
Court of Appeals upheld the jurisdiction of the
Wherefore, the petitions are partially granted. The rehabilitation court being a court of general
revised rehabilitation plan is reinstated. jurisdiction. Hence, this petition.

STEEL CORPORATION OF THE PHILIPPINES vs ISSUE: Whether the rehabilitation court may take
MAPFRE INSULAR INSURANCE CORPORATION (G.R. cognizance of the case.
NO. 201199, OCTOBER 16, 2013)
HELD: No, the Court ruled that the RTC, acting as of general circulation in the Philippines once a week
rehabilitation court, has no jurisdiction over the for a period of 2 consecutive weeks.
subject matter of the insurance claim of SCP against
respondent insures. Under RA 10142, rehabilitation On 15 September 2006, petitioner applied the
proceedings are summary and non -adversarial. remaining proceeds of SCP’s current account
They do not include adjudication of claims that amounting to Php6,750,000, to its obligation in the
require full trial on the merits, like SCP’s insurance trust receipt. SCP filed an omnibus motion alleging
claim against respondent insurers. that petitioner violated the rehabilitation’s court’s
stay order when it applied the proceeds of its
Moreover, the claim involved herein does not fall current account to the payment of obligations
within the nomenclature of the term “claim” in the covered by the stay order. ABC filed on opposition
Rules of Corporate Rehabilitation, which is only contending that the SCP’s obligation became due
pertains to all claims or demands of whatever nature and demandable, thus legal compensation is valid
or character against a debtor or its property whether and proper. RTC issued a resolution favoring SCP’s
for money or otherwise. position. Aggrieved, ABC filed a petition for review
under Rule 43 with the Court of Appeals. The
appellate court affirmed the decision of the trial
ALLIED BANKING CORPORATION vs IN THE MATTER court.
OF THE PETITION TO HAVE STEEL CORPORATION OF
THE PHILIPPINES PLACED UNDER CORPORATE On the petition made before the Supreme Court,
REHABILITATION (G.R. NO. 191939, MARCH 14, petitioner is arguing that the Stay Order is still not
2018) prevailing on September 12 2006 since publication
was not yet made when they set off the said
FACTS: Due to the onslaught of the 1997 Asian obligation on September 15 2006. The petitioner is
Financial Crisis, SCP began experiencing a downward claiming that it just set to an effect on September 16,
trend in its financial condition. On September 11, 2006 when it was already published.
2006, Equitable PCI Bank (EPCIB), as one of SCP’s
creditors, filed a petition for the corporate ISSUE: Whether petitioner’s contention is tenable.
rehabilitation of SCP with the RTC. This was after the
latter failed to pay their obligation. After finding the HELD: No, the contention is untenable.
petition to be complete in substance and form on
September 12, 2006, the Court assigned a The petition was filed by EPCIB when the Rules of
rehabilitation receiver and issued a Stay Order. Thus, Procedure on Corporate Rehabilitation (Interim) was
SCP is prohibited from selling, encumbering, still prevailing. However, the implementation of
transferring or disposing in any manner of its assets Financial Rehabilitation Rules of Procedure
and properties. (Rehabilitation Rules) on August 27, 2013, provides
that it shall have retroactive effect to pending cases
Apart from the said agreement, herein petitioner, in court, except to the extent that, in the opinion of
Allied Banking Corporation (ABC) granted SCP with a the court, its application would not be feasible or
credit facility in the amount of 100 million. In return, would work injustice, in which even the procedures
SCP executed a trust receipt which authorizes ABC to originally applicable shall continue to govern.
charge SCP’s account its possession under instances
of bankruptcy, insolvency, etc. The said trust receipt The Rehabilitation Rules states that rehabilitation
gives ABC to authority to examine its books and proceedings shall be deemed to have commenced
charge their account to sell SCP’s properties. from the date of filing of the petition which is also
termed the commencement date. Under the same
When the said petition was approved, they were rules, the effects of such commencement order shall
ordered to publish the court’s order in a newspaper retroact to the date that the petition was filed, and
renders void any attempt to collect on or enforce a
claim against the debtor or to set off any debt by FACTS: Herein respondents Shoppers Realty and
the debtor’s creditors, after the commencement Development Corporation (SPRDC) and Shoppers
date. Paradise FTI Corporation (SPFC), filed a petition for
rehabilitation before the RTC of Makati. The reason
The Court emphasized that it shall be understood for the petition was caused by the 1997 Asian
that the purpose of rehabilitation is to enable the Financial Crisis. The nature of respondents’ business
company to gain a new lease on life and thereby is more on construction, development,
allow creditors to be paid their claims from its maintenance, and lease of commercial buildings.
earnings. Certainly, when a petition for
rehabilitation is filed and subsequently granted by When the petition was allowed by the Court, herein
the court, its purpose will be defeated if the petitioner, City Government of Taguig, being one of
debtors are still allowed to arbitrary dispose of the creditors, claimed that respondents failed to pay
their property and pay their liabilities, outside the their realty taxes.
ordinary course of business and what is allowed by
the court, after the filing of the said petition. RTC of Makati thereafter issued an order directing
CGT to issue individual tax declarations for each of
Accordingly, the Court finds that application of the Sunshine Plaza Mall’s stall owners, constituting
Rehabilitation Rules is proper to the case at bar. them as taxpayers, but with SPRDC and SPFC made
Such application promotes a just and sound jointly and severally liable for payment of such taxes.
resolution to the present controversy, bearing in
mind the inherent purpose of rehabilitation. A Revised Rehabilitation Plan was submitted by
respondents and was thereafter approve by the RTC,
It shall also be noted that the Interim Rules provide wherein it created a scheme to source funds to pay
the immediate effectivity of the Stay Order under their financial obligations from lease rentals of
Sec. 11. Thus, in this case there is no doubt the available units at the two malls. A Memorandum of
rehabilitation court was correct in holding that the Agreement was thereafter made between
Stay Order is effective on September 12 2006. respondents and CGT where the former allowed the
lease of some stalls in Sunshine mall to be used by
The publication requirement both in the Interim and the latter as Pamantasan ng Lungsod ng Taguig and
Rehabilitation Rules is merely to acquire jurisdiction its canteen. Accordingly, the said rents will be used
over all persons affected. to offset their unpaid realty tax.

Also, the Court cited in this jurisprudence that there Apart from that, respondents allowed the lease of
was no impairment of the contracts. It is a basic some other stalls to be used by CGT as One-Stop
principle that the law is deemed written into every Local Government Centers. However, unlike the first
contract, such that while a contract is the law lease they undergone, this is not secured by a MOA.
between the parties, the provisions of positive law Instead, the said transaction was merely proofed by
which regulate contracts shall limit and govern their the Booking Term Sheet signed by Pagsisihan.
relations. At the time the Trust Receipt Agreement
law expressly allowed corporations to be declared in Years later and believing that the realty tax
state of suspension of payments under specific delinquencies had already been offset by accrued
instances. Clearly, the principle on inviolability of rentals from the above arrangement. SPGC sent a
contract was not violated. letter to the OIC of CGT City Treasurer invoking the
MOA’s stipulation. They also asserted the BTS.
CITY GOVERNMENT OF TAGUIG vs SHOPPERS
PARADISE REALTY & DEVELOPMENT CORPORATION The City Treasury responded that the offset features
(G.R. NO. 246179, JULY 14, 2021) only applied to unpaid realty taxes but not those
incurred thereafter. The CGT also mentioned that
Pagisishan has no authority to execute such BTS. The
case was brought to the Rehabilitation Court, who FACTS: The Petitioner Spouses entered a Contract to
decided against the CGT and ordered reconciliation. Sell with ASBDC over a condominium unit and a
However, CGT did not submit on the said order and parking space in the BSA Twin Tower- B
filed a petition for Certiorari before the Court of Condominium in Mandaluyong City.
Appeals. The Appellate Court affirmed the decision
of the rehabilitation court. When the Spouses were able to deliver full payment
and demands, ASBDC failed to deliver the property
On their petition before the Supreme Court, it on the agreed date. Thus, they file an action before
argued that the rehabilitation court has no authority HLURB praying for the rescission of the contact and
to resolve claims of such nature, being a summary refund of payments amounting to Php2,674,637.10;
and non- adversarial court, following the ration in payment of moral and exemplary damages,
the case of Steel Corporation vs Morfe. attorney’s fees, litigation expenses, appearance fees
and costs of the suit.
Issue: Whether petitioner’s contention is tenable.
ASBDC filed a motion to dismiss or suspend
HELD: No, the Court ruled that a rehabilitation court proceedings in view of the approval of SEC of their
is empowered to issue orders necessary to carry out rehabilitation plan. However, the HLURB arbiter
the Rehabilitation of the Insolvent Debtor. denied the motion and ordered the continuation of
the proceedings. The HLURB decided in favor of the
Indeed, Rehabilitation Courts are in rem in nature Spouses. ASBDC appealed before the Office of the
and conducted in a summary and non-adversarial President by such was dismissed.
manner, however due to its commercial nature,
rehabilitation proceedings must be resolved On appeal before the Court of Appeals, the decision
expeditiously for the benefit of all the parties of the Office of the President is hereby Reversed and
concerned and the economy in general. Set Aside. Hence, this petition. The Court of Appeals
ruled that the claim of the Spouses is part of the
Considering that the issue involved herein is relate rehabilitation plan.
to the Revised Rehabilitation Plan, which was
envisioned to source its funds to pay those financial ISSUE: Whether the Court of Appeals is correct.
obligations from lease rentals of available units in
SPGC malls, the Court said that the rehabilitation HELD: Yes, the Court sustained the ruling of the
court has jurisdiction over the matter. appellate court stating that the said claim is within
the Interim Rules of Procedure on Corporate
Contrary to petitioner’s claim that the doctrine in Rehabilitation. Under the Interim Rules, ‘claim’ a
Steel Corporation case shall be applied in this case. claim refers to all claims or demands of whatever
The Court ruled that the case shall not be applied in nature or character against a debtor or its property,
this case since in the said case the claim of SCP was whether for money or otherwise. The definition is
made against their debtors. The Court clarified that all-encompassing as it refers to all actions whether
in a rehabilitation proceeding, the court’s for money or otherwise.
jurisdiction is not over claims by the debtor against
third parties, pointing out that a claim under FRIA Hence, it shall suspend the action of the petitioners
refers to claims by the creditors against the debtor considering the application of rehabilitation, which
under rehabilitation. was purposely made to give the debtor ample time
to breathe and rehabilitate its business.
Hence, petition is denied.
Wherefore, the petition is denied.
SPOUSES EDUARDO SOBREJUANITE vs ASB
DEVELOPMENT CORPORATION