Topic: Liquidation – Right of Secured Creditors
Metrobank vs. S.F. Naguiat Enterprises, Inc. (G.R. No. 178407, 18 March 2015)
Doctrines:
• 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.
• 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.]"
It follows that the insolvency court has exclusive jurisdiction to deal with the property of
the insolvent. 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.
FACTS: The case involves Metropolitan Bank and Trust Company (Metrobank) and S.F.
NaguiatEnterprises, Inc. (S.F. Naguiat). In April 1997, Spouses Rommel and Celestina Naguiat
and S.F. Naguiat executed a real estate mortgage in favor of Metrobank to secure credit
accommodations amounting to PHP 17 million. The mortgaged properties included parcels of land
in Angeles, Pampanga, and Marikina, Rizal. On March 3, 2005, S.F. Naguiat obtained an
additional loan of PHP 1,575,000 from Metrobank, secured by the same 1997 mortgage. On July
7, 2005, S.F. Naguiat filed a Petition for Voluntary Insolvency with the Regional Trial Court of
Angeles City, Branch 56. The court declared S.F. Naguiat insolvent on July 12, 2005, and directed
the Deputy Sheriff to take possession of all its properties. Metrobank filed a Manifestation and
Motion to withdraw from the insolvency proceedings intending to extrajudicially foreclose the
mortgaged property. S.F. Naguiat defaulted on its loan, leading Metrobank to initiate an
extrajudicial foreclosure proceeding on November 8, 2005. The property was sold at a public
auction on December 9, 2005, to Phoenix Global Energy, Inc., the highest bidder. Executive
Judge Bernardita Gabitan-Erum denied the approval of the Certificate of Sale due to the
insolvency court's order. Metrobank's subsequent motions were also denied, prompting them to
file a Petition for Certiorari and Mandamus with the Court of Appeals, which was dismissed. The
Court of Appeals ruled that Metrobank needed the insolvency court's permission to foreclose the
property.
Metrobank then filed a Petition for Review with the Supreme Court.
Issues:
1. Is the approval and consent of the insolvency court required before a secured creditor like
Metrobank can proceed with the extrajudicial foreclosure of the mortgaged property?
2. Did Executive Judge Gabitan-Erum abuse her discretion in refusing to approve the
Certificate of Sale?
Ruling:
1. Yes, the Supreme Court ruled that the approval and consent of the insolvency court are
indeed required before a secured creditor can proceed with the extrajudicial foreclosure
of the mortgaged property.
2. No, the Supreme Court ruled that Executive Judge Gabitan-Erum did not abuse her
discretion in refusing to approve the Certificate of Sale.
The Supreme Court's decision was based on the provisions of Act No. 1956, the
Insolvency Law, which impliedly requires a secured creditor to seek the permission of the
insolvency court before foreclosing on mortgaged property. The court emphasized that the
insolvency court has exclusive jurisdiction over the insolvent debtor's estate, and any
action to enforce a lien without the court's permission would interfere with the orderly
administration of the estate. The court noted that the insolvency court's control ensures
that the interests of all creditors, both secured and unsecured, are adequately protected.
The court found that Executive Judge Gabitan-Erum acted within her administrative duty
to ensure compliance with the conditions of Act No. 3135 before approving the sale at
public auction. Her refusal to approve the Certificate of Sale was justified due to the
substantial doubt arising from the pending insolvency case and the potential conflict of
interest involving the highest bidder. The Supreme Court affirmed the Court of Appeals'
decision, denying Metrobank's petition and upholding the requirement for insolvency court
approval in foreclosure proceedings involving insolvent debtors.
