Atty. Amante A. Liberato Corporation Law MARCH 2, 2019: Majority Stockholders of Ruby Industrial Corporation Vs LIM

ATTY. AMANTE A.
LIBERATO CORPORATION LAW MARCH 2, 2019
MODES OF DISSOLUTION BENHAR/RUBY Rehabilitation Plan of the majority stockholders led by Yu

Kim Giang, and the Alternative Plan of the minority stockholders represented
MAJORITY STOCKHOLDERS OF RUBY INDUSTRIAL CORPORATION vs by Miguel Lim (Lim). But the implementation of both majority plans has been
LIM enjoined by the SEC and CA. Later, the SC issued a final injunction on the
implementation.
Short Summary: This lengthy case involves the validity of the infusion of - Sept 18, 1991: Notwithstanding the injunction order, SEC issued an Order
additional capital effected by the board of directors, the questionable approving the Revised BENHAR/RUBY Plan and creating a new
issuance of shares of stock by the majority stockholders and the extension of management committee to oversee its implementation. It also dissolves the
RUBY’s corporate term. As described by the SC, the present action has been MANCOM.
instituted for the purpose of protecting the true and legitimate interests of - The Revised BENHAR/RUBY Plan had proposed the calling for subscription
Ruby against the Majority Stockholders. of unissued shares through a Board Resolution from the P11.814 million of
theP23.7 million ACS “in order to allow the long overdue program of the
RUBY has been experiencing severe liquidity problem. The majority REHAB Program.”
stockholders wanted to infuse more capital into the corporation through - Oct 2, 1991: To implement the Revised plan, RUBY’s board of directors
issuance of additional shares. Hence, the Revised BENHAR/RUBY held a special meeting and took up the capital infusion of P11.814 Million
Rehabilitation Plan of the majority stockholders proposed to call for representing the unissued and unsubscribed portion of the present ACS of
subscription of unissued shares for P11.814M. This led to the special P23.7 Million.
meeting of RUBY’s board meeting whose resolution authorized the issuance - The Board resolved that: The corporation be authorized to issue out of the
of the unissued portion of the authorized capital stocks of the corporation in unissued portion of the authorized capital stocks of the corporation in the
the form of common stocks. However, the minority stockholders contended, form of common stocks 11.8134.00 [Million] to be subscribed and paid in full
among others, that they were not given notice as required and reasonable by the present stockholders in proportion to their present stockholding in the
time to exercise their pre-emptive rights. Hence, the minority stockholders corporation on staggered basis…and that should any of the stockholders fail
wanted to nullify the acts of the majority stockholders in implementing the to exercise their rights to buy the number of shares they are qualified to buy
capital infusion. Pre-emptive right refers to the right of a stockholder of a by making the first installment payment of 25% on or before October 13,
stock corporation to subscribe to all issues or disposition of shares of any 1991, then the other stockholders may buy the same and that only when
class, in proportion to their respective shareholdings. SC ruled in favor of the none of the present stockholders are interested in the shares may there be a
minority stockholders. resort to selling them by public auction.
- The minority directors claimed they were not notified of said board meeting.
Facts: - Sept 1, 1996: Lim receive a Notice of Stockholders’ Meeting scheduled on
- Ruby Industrial Corporation (RUBY) is a domestic corporation engaged in September 3, 1996. The matters that will be taken up in said meeting include
glass manufacturing. Reeling from severe liquidity problems beginning in the extension of RUBY’s corporate term for another twenty-five (25) years
1980, RUBY filed on December 13, 1983 a petition for suspension of and election of Directors.
payments with the SEC which was granted. - Sept 3, 1996: Lim together with other minority stockholders, appeared in
- On August 10, 1984, the SEC Hearing Panel created the management order to put on record their objections on the validity of holding thereof and
committee (MANCOM) for RUBY, composed of representatives from Ruby’s the matters to be taken therein. Specifically, they questioned the percentage
creditors. One of the many task of MANCOM is study, review and evaluate of stockholders present in the meeting which the majority claimed stood at
the proposed rehabilitation plan for RUBY. 74.75%(from 59.829%) of the outstanding capital stock of RUBY. Lim argued
- Subsequently, two (2) rehabilitation plans were submitted to the SEC the that the majority stockholders claimed to have increased their shares to
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ATTY. AMANTE A. LIBERATO CORPORATION LAW MARCH 2, 2019
74.75% by subscribing to the unissued shares of the authorized capital stock waivers of the minority stockholders’ pre-emptive rights and thus it was
(ACS). Lim pointed out that such move of the majority was in implementation irregular to merely notify them of the board of directors’ meeting and ask
of the BENHAR/RUBY Plan which calls for capital infusion of P11.814 Million them to exercise their option; (3) there was an existing permanent injunction
representing the unissued and unsubscribed portion of the present ACS of against any additional capital infusion on the BENHAR/RUBY Plan, while the
P23.7 Million. CA and this Court both rejected the Revised BENHAR/RUBY Plan; (4) there
- Jan 20, 1998: the SC affirmed CA decision setting aside the SEC orders was no General Information Sheet reports made to the SEC on the alleged
approving the Revised BENHAR/RUBY Plan because it not only recognized capital infusion, as per certification by the SEC.
the void deeds of assignments entered into with some of RUBY’s creditors in
violation of the CA’s decision in CA-G.R. SP No. 18310, but also maintained CA Decision (which is cited by SC in its decision):
a financing scheme which will just make the rehabilitation plan more costly - SEC erred in not finding that the October 2, 1991 meeting held by RUBY’s
and create a worse situation for RUBY. board of directors was illegal because the MANCOM was neither involved
- Mar 17, 2000, Lim filed a Motion informing the SEC of acts being performed nor consulted in the resolution approving the issuance of additional shares of
by BENHAR and RUBY. Allegedly, the implementation of the new percentage RUBY. The CA further noted that the October 2, 1991 board meeting was
stockholdings of the majority stockholders and the calling of stockholders’ conducted on the basis of the September 18, 1991 order of the SEC Hearing
meeting and the subsequent resolution approving the extension of corporate Panel approving the Revised BENHAR/RUBY Plan, which plan was set by
life of RUBY for another twenty-five (25) years, were all done in violation of CA and SC.
the decisions of the CA and this Court, and without compliance with the legal - The CA pointed out that records confirmed the proposed infusion of
requirements under the Corporation Code. There being no valid extension of additional capital for RUBY’s rehabilitation, approved during said meeting, as
corporate term, RUBY’s corporate life had legally ceased. Consequently, Lim implementing the Revised BENHAR/RUBY Plan. Necessarily then, such
moved that the SEC: (1) declare as null and void the infusion of additional capital infusion is covered by the final injunction against the implementation
capital made by the majority stockholders and restore the capital structure of of the revised plan.
RUBY to its original structure prior to the time injunction was issued; and (2) - The CA likewise faulted the SEC in relying on the presumption of regularity
declare as null and void the resolution of the majority stockholders extending on the matter of the extension of RUBY’s corporate term through the filing of
the corporate life of RUBY for another twenty-five (25) years. amended articles of incorporation. SEC should have invalidated the
- Sept 18, 2002, the SEC overruled the objections raised by the minority resolution extending the corporate term of RUBY for another twenty-five (25)
stockholders regarding the questionable issuance of shares of stock by the years. With the expiration of the RUBY’s corporate term, the CA ruled that it
majority stockholders and extension of RUBY’s corporate term because the was error for the SEC in not commencing liquidation proceedings.
filing of the amendment of articles of incorporation by RUBY in 1996
complied with all the legal requisites and hence the the presumption of Issue: WON the additional capital infusion is valid? [No because the
regularity in the act of a government entity stands. It pointed out that Lim issuance of additional shares was done in breach of trust by the controlling
raised the issue only in the year 2000. Moreover, the SEC found that stockholders. Here, the majority sought to impose their will and, through
notwithstanding his allegations of fraud, Lim never proved the illegality of the fraudulent means, attempt to siphon off Ruby’s valuable assets to the great
additional infusion of the capitalization by RUBY so as to warrant a finding prejudice of Ruby itself, as well as the minority stockholders and the
that there was indeed an unlawful act. unsecured creditors.]
- Before the CA, Lim demonstrated the following evidence to rebut the
presumption of regularity: Ratio: A stock corporation is expressly granted the power to issue or sell
(1) it was the board of directors and not the stockholders which conducted stocks. The power to issue shares of stock in a corporation is lodged in the
the meeting without the approval of the MANCOM; (2) there was no written board of directors and no stockholders’ meeting is required to consider it
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because additional issuances of shares of stock do not need approval of the to divest the minority stockholders of their 40.172% shareholding and reduce
stockholders. What is only required is the board resolution approving the it to a mere 25.25%.
additional issuance of shares. The corporation shall also file the necessary
application with the SEC to exempt these from the registration requirements Pre-emptive right under Sec. 39 of the Corporation Code refers to the right of
under the Revised Securities Act (now the Securities Regulation Code). a stockholder of a stock corporation to subscribe to all issues or disposition of
shares of any class, in proportion to their respective shareholdings. The right
But CA found, which the Court affirmed, that: the foregoing payment may be restricted or denied under the articles of incorporation, and subject to
schedules as embodied in the said Revised plan which gives Benhar undue certain exceptions and limitations. The stockholder must be given a
advantage over the other creditors goes against the very essence of reasonable time within which to exercise their preemptive rights. Upon the
rehabilitation, which requires that no creditor should be preferred over the expiration of said period, any stockholder who has not exercised such right
other. One of the salient features of the Revised Benhar/Ruby Plan is to Call will be deemed to have waived it.
on unissued shares forP11.814 M and if minority will take up their pre-
emptive rights and dilute minority shareholdings. The validity of issuance of additional shares may be questioned if done in
breach of trust by the controlling stockholders. Thus, even if the pre-emptive
With the nullification of the Revised BENHAR/RUBY Plan by both CA and SC right does not exist, either because the issue comes within the exceptions in
on Jan 20, 1998, the legitimate concerns of the minority stockholders and Section 39 or because it is denied or limited in the articles of incorporation,
MANCOM who objected to the capital infusion which resulted in the dilution an issue of shares may still be objectionable if the directors acted in breach
of their shareholdings, the expiration of RUBY’s corporate term and the of trust and their primary purpose is to perpetuate or shift control of the
pending incidents on the void deeds of assignment of credit – all these corporation, or to “freeze out” the minority interest. In this case, the following
should have been duly considered and acted upon by the SEC when the relevant observations should have signaled greater circumspection on the
case was remanded to it for further proceedings. With the final rejection of part of the SEC -- upon the third and last remand to it pursuant to our
the courts of the Revised BENHAR/RUBY Plan, it was grave error for the January 20, 1998 decision -- to demand transparency and accountability from
SEC not to act decisively on the motions filed by the minority stockholders the majority stockholders, in view of the illegal assignments and
who have maintained that the issuance of additional shares did not help objectionable features of the Revised BENHAR/RUBY Plan, as found by the
improve the situation of RUBY except to stifle the opposition coming from the CA and as affirmed by this Court:
MANCOM and minority stockholders by diluting the latter’s shareholdings.
Worse, the SEC ignored the evidence adduced by the minority stockholders There can be no gainsaying the well-established rule in corporate
indicating that the correct amount of subscription of additional shares was not practice and procedure that the will of the majority shall govern in all
paid by the majority stockholders and that SEC official records still reflect the matters within the limits of the act of incorporation and lawfully enacted
60%-40% percentage of ownership of RUBY. by-laws not proscribed by law. It is, however, equally true that other
stockholders are afforded the right to intervene especially during critical
The SEC remained indifferent to the reliefs sought by the minority periods in the life of a corporation like reorganization, or in this case,
stockholders, saying that the issue of the validity of the additional capital suspension of payments, more so, when the majority seek to impose
infusion was belatedly raised. Even assuming the October 2, 1991 board their will and through fraudulent means, attempt to siphon off Ruby’s
meeting indeed took place, the SEC did nothing to ascertain whether indeed, valuable assets to the great prejudice of Ruby itself, as well as the
as the minority claimed: (1) the minority stockholders were not given notice minority stockholders and the unsecured creditors.
as required and reasonable time to exercise their pre-emptive rights; and (2)
the capital infusion was not for the purpose of rehabilitation but a mere ploy Certainly, the minority stockholders and the unsecured creditors are
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given some measure of protection by the law from the abuses and PROVIDENT INTERNATIONAL RESOURCES CORPORATION v JOAQUIN
impositions of the majority, more so in this case, considering the give- T. VENUS, et al.
away signs of private respondents’ perfidy strewn all over the factual G.R. No. 167041, June 17, 2008
landscape. Indeed, equity cannot deprive the minority of a remedy FACTS:
against the abuses of the majority, and the present action has been Another group, known as the Asistio group, composed of Luis A. Asistio,
instituted precisely for the purpose of protecting the true and legitimate Lazaro L. Madara, Alfredo D. Roa III, Joaquin T. Venus, and Jose Ma. Carlos
interests of Ruby against the Majority Stockholders. On this score, the L. Zumel, claimed that the Marcelo group acquired shares in PIRC as mere
Supreme Court, has ruled that: trustees for the Asistio group. The Marcelo group allegedly executed a waiver
of pre-emptive right, blank deeds of assignment, and blank deeds of transfer;
“Generally speaking, the voice of the majority of the stockholders is endorsed in blank their respective stock certificates over all of the
the law of the corporation, but there are exceptions to this rule. There outstanding capital stock registered in their names; and completed the blank
must necessarily be a limit upon the power of the majority. Without deeds in 2002 to effect transfers to the Asistio group.
such a limit the will of the majority will be absolute and irresistible The Company Registration and Monitoring Department (CRMD) of the SEC
and might easily degenerate into absolute tyranny. x x x”[67] issued a certification stating that verification made on the available records of
(Additional emphasis supplied.) PIRC showed failure to register its stock and transfer book (STB).
On August 7, 2002, the Asistio group registered PIRC's STB. Upon learning
Lamentably, the SEC refused to heed the plea of the minority stockholders of this, PIRC's assistant corporate secretary, Celedonio Escaño, Jr.,
and MANCOM for the SEC to order RUBY to commence liquidation requested the SEC for a certification of the registration in 1979 of PIRC's
proceedings, which is allowed under Sec. 4-9 of the Rules on Corporate STB. Escaño presented the 1979-registered STB bearing the SEC stamp
Recovery. Under the circumstances, liquidation was the only hope of the and the signature of the officer in charge of book registration.
minority stockholders for effecting an orderly and equitable settlement of Meanwhile, the Asistio group filed a complaint against the Marcelo group.
RUBY’s obligations, and compelling the majority stockholders to account for The Asistio group prayed that the Marcelo group be enjoined from acting as
all funds, properties and documents in their possession, and make full directors of PIRC, from physically holding office at PIRC's office, and from
disclosure on the nullified credit assignments. taking custody of PIRC's corporate records.
Then, the CRMD of the SEC issued a letter recalling the certification it had
In fine, no error was committed by the CA when it set aside the September issued on August 6, 2002 and canceling the 2002-registered STB. However,
18, 2002 Order of the SEC and declared the nullity of the acts of majority one Kennedy B. Sarmiento requested the SEC not to cancel the 2002-
stockholders in implementing capital infusion through issuance of additional registered STB. The SEC thus scheduled a conference to determine which of
shares in October 1991 and the board resolution approving the extension of the two STBs is valid.
RUBY’s corporate term for another 25 years. The Asistio group appealed to the SEC Board of Commissioners. They
claimed that the issue of which of the two STBs is valid is intra-corporate in
nature; hence, the RTC, not the SEC, has jurisdiction.
ISSUE:
Does SEC have jurisdiction to recall and cancel a stock and transfer book
(STB) which it issued?
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RULING: REHABILITATION
YES. Under Section 5 of RA No. 8799, it can be said that the SEC's
regulatory authority over private corporations encompasses a wide margin of
areas, touching nearly all of a corporation's concerns. This authority more San Jose Timber Corporation v. SEC
vividly springs from the fact that a corporation owes its existence to the G.R. No. 162196
concession of its corporate franchise from the state. Under its regulatory February 27, 2012
responsibilities, the SEC may pass upon applications for, or may suspend or
revoke (after due notice and hearing), certificates of registration of Facts:
corporations, partnerships and associations (excluding cooperatives, Petitioner Casilayan Softwood Development Corporation (CSDC) is a
homeowners' association, and labor unions); compel legal and regulatory corporation duly organized and existing under and by virtue of the laws of the
compliances; conduct inspections; and impose fines or other penalties for Republic of the Philippines and is the controlling stockholder and creditor of
violations of the Revised Securities Act, as well as implementing rules and petitioner San Jose Timber Corporation (SJTC). SJTC is primarily engaged in
directives of the SEC, such as may be warranted. the operation of a logging concession with a base camp in Western Samar by
Considering that the SEC, after due notice and hearing, has the regulatory virtue of a Timber License Agreement (TLA) No. 118, issued by the
power to revoke the corporate franchise -- from which a corporation owes its Department of Environment and Natural Resources (DENR), which is to
legal existence -- the SEC must likewise have the lesser power of merely expire in 2007. On February 8, 1989, the DENR issued a Moratorium Order
recalling and canceling a STB that was erroneously registered. (MO) suspending all logging operations in the island of Samar effective
Going to the particular facts of the instant case, the SEC has the primary February 1989 to May 30, 1989 which prompted SJTC to cease operations
competence and means to determine and verify whether the subject 1979 effective February 8, 1989 and caused it to lose all its income.
STB presented by the incumbent assistant corporate secretary was indeed
authentic, and duly registered by the SEC as early as September 1979. As Then, on August 7, 1990, SJTC and CSDC filed with the Securities
the administrative agency responsible for the registration and monitoring of and Exchange Commission (SEC) a petition for the appointment of a
STBs, it is the body cognizant of the STB registration procedures, and in rehabilitation receiver and for suspension of payments. After due hearing, the
possession of the pertinent files, records and specimen signatures of SEC Hearing Panel granted such with the condition that SJTC would
authorized officers relating to the registration of STBs. The evaluation of “resuscitate its operations and properly service its liabilities in accordance
whether a STB was authorized by the SEC primarily requires an examination with the duly approved schedule to be submitted by the Rehabilitation
of the STB itself and the SEC files. This function necessarily belongs to the Receiver within a one (1) year period. Petitioners, on February 26, 1992,
SEC as part of its regulatory jurisdiction. Contrary to the allegations of submitted their Motion to Approve Revised Rehabilitation Plan and Urgent
respondents, the issues involved in this case can be resolved without going Motion to Extend Waiting Period for Commencement of Rehabilitation. The
into the intra-corporate controversies brought up by respondents. SEC Hearing Panel extended the waiting period up to August 15, 1992 but
As the regulatory body, it is the SEC's duty to ensure that there is only one held in abeyance its approval of the revised rehabilitation plan. Also,
set of STB for each corporation. The determination of whether or not the subsequent motions filed by petitioners extended the waiting period several
1979-registered STB is valid and of whether to cancel and revoke the August times. Meanwhile, prior to the expiration of the waiting period to commence
6, 2002 certification and the registration of the 2002 STB on the ground that rehabilitation, petitioners filed their Motion for Settlement of Claims Against
there already is an existing STB is impliedly and necessarily within the Petitioner San Jose and subsequently, their Motion to Dispose of Personal
regulatory jurisdiction of the SEC. Properties which were both granted by SEC. On May 6, 2002, however, The
SEC En Banc motu propio issued its decision terminating the rehabilitation
proceedings and dismissing the petition for rehabilitation since SJTC could
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no longer be rehabilitated because the logging moratorium/ban, which was continues as a going concern than if it is immediately liquidated.
crucial for its rehabilitation, had not been lifted. Such was affirmed by the CA.
The petitioners filed a motion for reconsideration but it was denied by CA. An indispensable requirement in the rehabilitation of a distressed
Hence, this petition for review with the SC. Significantly, except for the Social corporation is the rehabilitation plan. Section 5 of the Interim Rules of
Security System (SSS), none of the creditors filed an opposition to or Procedure on Corporate Rehabilitation provides the requisites thereof:
comment on the petition. During the pendency of the petition before the SC, SEC. 5. Rehabilitation Plan. -- The rehabilitation plan shall include (a) the
DENR issued an Order allowing SJTC to resume operations and extending desired business targets or goals and the duration and coverage of
the term of its TLA up to 2021. Then, petitioners filed their Supplemental the rehabilitation; (b) the terms and conditions of such rehabilitation which
Petition. The SC gave due course to such and directed the parties to submit shall include the manner of its implementation, giving due regard to the
their respective memoranda within thirty (30) days from notice. SJTC and interests of secured creditors; (c) the material financial commitments to
CSDC filed their memorandum arguing, among others, that the SEC acted support the rehabilitation plan; (d) the means for the execution of
illegally and beyond its statutory mandate when it ordered the termination of the rehabilitation plan, which may include conversion of the debts or any
the rehabilitation proceedings. The CA, in turn, acted contrary to law when it portion thereof to equity, restructuring of the debts, dacion en pago, or sale of
upheld the SEC’s decision. Thereafter, the SEC and the SSS filed their assets or of the controlling interest; (e) a liquidation analysis that estimates
respective memoranda. Then, petitioners the proportion of the claims that the creditors and shareholders would receive
SJTC and CSDC filed their Reply Memorandum. if the debtor's properties were liquidated; and (f) such other relevant
information to enable a reasonable investor to make an informed decision on
Issue: Whether the CA erred in affirming the dissolution of SJTC when the the feasibility of the rehabilitation plan.
vast majority of the creditors had agreed to await its rehabilitation?
A successful rehabilitation usually depends on two factors: (1) a
Ruling: positive change in the business fortunes of the debtor, and (2) the willingness
No. The CA did not err in affirming the dissolution of SJTC when the of the creditors and shareholders to arrive at a compromise agreement on
vast majority of the creditors had agreed to await its rehabilitation. repayment burdens, extent of dilution, etc. The debtor must demonstrate by
convincing and compelling evidence that these circumstances exist or are
At the time of the promulgation of the CA decision, there was no likely to exist by the time the debtor submits his revised or substitute
certainty that the moratorium on logging activities in Samar would be lifted or rehabilitation plan for the final approval of the court."
a law on selective logging was forthcoming. There being no assurance, the
CA was correct in sustaining the decision of the SEC to terminate the Both the SEC and the CA had reasonable basis in deciding to
rehabilitation proceedings to protect the interest of all concerned, particularly terminate the rehabilitation proceedings of SJTC because of the lack of
the investors and the creditors. To have resolved otherwise would have been certainty that the logging ban would, in fact, be lifted. It is clear from the
prejudicial to these entities as they would be made to wait indefinitely for records that the proposed rehabilitation plan of the petitioners would depend
something the likelihood of which was quite remote. entirely on the lifting of the logging ban either by the lifting of the moratorium
on logging activities in Samar issued by the DENR, or by the enactment of a
Under the Rules of Procedure on Corporate Rehabilitation, law on selective logging. Such lifting of the logging ban is indispensable to
rehabilitation is defined as the restoration of the debtor to a position of the rehabilitation of SJTC. If it would not be lifted, the company would have
successful operation and solvency, if it is shown that its continuance of no source of income or revenues and no investor or creditor would come in to
operation is economically feasible and its creditors can recover by way of the lend a hand in its resuscitation.
present value of payments projected in the plan, more if the corporation
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that SJTC can generate sufficient income to pay all its obligations to all its
On August 15, 2005, however, an event supervened. With the lifting creditors except, as the petitioners pledged, its corporate affiliates who
of the logging moratorium in Samar, an indispensable element for the allegedly represent more than 66% of the liabilities.
possible rehabilitation of SJTC has been made a reality. Considering the
extension granted by the DENR, the TLA of SJTC will expire on 2021, or nine
(9) years from now. It appears from the proposed Adjusted Rehabilitation
Plan, that SJTC would only need a period of 24 months from the lifting of the PAL v. Sps. Sadic and Aisha Kurangking, et al.
logging moratorium within which to liquidate all of its liabilities, except those G.R. No. 146698
of its affiliates. September 24, 2002

The Court is of the considered view that SJTC should be given a Facts:
second chance to recover and pay off its creditors. The only practical way of In April 1997, respondents, all Muslim Filipinos, returned to Manila
doing it is to resume the rehabilitation of SJTC which estimated its first year from their pilgrimage to the Holy City of Mecca, Saudi Arabia, on board a
production upon resumption of operations at 29,000 cubic meters. Thereafter, Philippines Airlines (PAL) flight. Respondents claimed that they were unable
production is projected to rise to 60,000 cubic meters per year. If the to retrieve their checked-in luggages. Thus, respondents filed a complaint
estimated selling price per cubic meter as of December 31, with the Regional Trial Court (RTC) of Marawi City against PAL for breach of
1991 was P3,500.00 and between P5,000.00 and P6,000.00 in 2004, there is contract resulting in damages due to negligence in the custody of the missing
no doubt that the price has again risen. luggages.

The Court is not unaware of the issuance of Executive Order (E.O.) PAL filed it answer invoking, among others, the limitations under the
No. 23 on February 1, 2011. E.O. No. 23 declares a Moratorium on the Warsaw Convention. Before the case could be heard on pre-trial, PAL filed a
Cutting and Harvesting of Timber in the Natural and Residual Forests and petition for the approval of a rehabilitation plan and the appointment of a
Creates the Anti-Illegal Logging Task Force that will enforce the moratorium. rehabilitation receiver before the SEC, due to serious business losses
It aims mainly at the promotion of intergeneration responsibility to protect the brought by the Asian economic crisis and the massive strike of its employees,
environment. As pronounced in the DENR website, however, it does not which the SEC granted. Moreover, the SEC constituted a three-man panel to
impose a total log ban in the country. What is being protected by the oversee PAL’s rehabilitation. Then, the SEC created a management
executive order is simply the natural forests and residual forests. Section 2 committee in accordance with Sec. 6 (d) of P.D. 902, declaring the
thereof provides for a moratorium on the cutting and harvesting of timber in suspension of all actions for money claims against PAL pending before any
the natural and residual forests of the entire country. Timber companies, such court, tribunal, board or body. So PAL moved for the suspension of the
as petitioner SJTC, may still be allowed to cut trees subject to the provisions proceedings before the Marawi City RTC which the trial court denied on the
thereof. ground that the claim of respondents was only yet to be established. PAL’s
motion for reconsideration was also denied.
Thus, SJTCs rehabilitation appears highly feasible and the PAL went to the Court of Appeals via a petition for certiorari which the
proceedings thereon should be revived. It should, therefore, be given an latter denied. PAL’s motion for reconsideration was likewise denied by the CA
opportunity to be heard by the SEC to determine if it could maintain its but it added that a second motion for reconsideration before the trial
corporate existence. For said reason, the case should be remanded to the court could still be feasible inasmuch as the assailed orders of the trial court
SEC so that it could factor in the aforecited figures and claims of SJTC and were merely interlocutory in nature. Thus, PAL filed before the RTC a motion
assess whether or not SJTC could still recover. It appears from the figures for leave to file a second motion for reconsideration which the RTC denied.
MERCADO | 7
Again, PAL filed a motion for reconsideration which sought reconsideration of

the denial of the prayed leave to file a second motion for reconsideration The interim rules must likewise be read and applied along with
which was again denied. On the thesis that there was no other plain, speedy Section 6 (c) of P.D. 902-A, as so amended, directing that upon the
and adequate remedy available to it, PAL went to this Court via a petition for appointment of a management committee, rehabilitation receiver, board or
review on certiorari under Rule 45 of the Rules of Court. body pursuant to the decree, all actions for claims against the distressed
corporation pending before any court, tribunal, board or body shall be
Issue: Whether the proceedings before the trial court should have been suspended accordingly.
suspended after the court was informed that a rehabilitation receiver was
appointed over the petitioner by the Securities and Exchange Commission A claim is said to be a right to payment, whether or not it is reduced
under Section 6(c) of Presidential Decree No. 902-A? to judgment, liquidated or unliquidated, fixed or contingent, matured or
unmatured, disputed or undisputed, legal or equitable, and secured or
Ruling: unsecured. In Finasia Investments and Finance Corporation, this Court has
Yes. The proceedings before the trial court should have been defined the word claim, contemplated in Section 6(c) of P.D. 902-A, as
suspended after the court was informed that a rehabilitation receiver was referring to debts or demands of a pecuniary nature and the assertion of a
appointed over the petitioner by the Securities and Exchange Commission right to have money paid as well.
under Section 6(c) of Presidential Decree No. 902-A.
Verily, the claim of private respondents against petitioner PAL is a
While a petition for review on certiorari under Rule 45 would money claim for the missing luggages, a financial demand that the law
ordinarily be inappropriate to assail an interlocutory order, in the interest, requires to be suspended pending the rehabilitation proceedings.
however, of arresting the perpetuation of an apparent error committed below
that could only serve to unnecessarily burden the parties, the Court has
resolved to ignore the technical flaw and, also, to treat the petition, there
being no other plain, speedy and adequate remedy, as a special civil action Rizal Commercial Banking Corporation vs. Intermediate Appellate Court
for certiorari. and BF Homes
The Supreme Court, in A.M. No. 00-8-10-SC, adopted the Interim G.R. No. 74851 (December 9, 1999)
Rules of Procedure on Corporate Rehabilitation and directed to be
transferred from the SEC to Regional Trial Courts, all petitions for Facts:
rehabilitation filed by corporations, partnerships, and associations under P.D.
902-A in accordance with the amendatory provisions of Republic Act No. Petitioner RCBC is a mortgagor-creditor of the party respondent BF Homes.
8799. The rules require trial courts to issue, among other things, a stay order BF Homes, being a distressed firm, filed before the Securities and Exchange
in the enforcement of all claims, whether for money or otherwise, and Commission a Petition for Rehabilitation and for Declaration of Suspension of
whether such enforcement is by court action or otherwise, against the Payments. Consequently, RCBC requested the sheriff of Rizal to levy on
corporation under rehabilitation, its guarantors and sureties not solidarily execution the properties of party respondent, and consequently obtained
liable with it. favorable judgment. RCBC being the highest bidder during the public auction
is now seeking for the transfer certificate of titles from the Register of Deeds
The stay order is effective from the date of its issuance until the issued in its name. It is worthy to note that it was on October 26, 1984 that
dismissal of the petition or the termination of the rehabilitation proceedings. RCBC obtained favor over the execution of the respondent’s properties, and
MERCADO | 8
it was only on March 18, 1985 that a Management Committee was organized loan from banks, the company also had Php1.476 billion indebtedness to
by the SEC for BF Homes. Hero Holdings, Inc. and its trade suppliers, and other parties.
3. The region was then beset by the 1997 Asian financial crisis which
Issue: prompted banks to stop their lending activities. This severely affected
Manuela whose malls did not operate sufficiently, causing serious losses
Whether or not the Court may depart from the words of the law which clearly to the company. The adjusted interest rates on Manuela’s loans were
provides that a creditor may levy execution on a firm’s properties when such around 18% to 30%, which contributed to its liquidity problems.
execution precedes SEC’s organization of a Management Committee to act 4. The company, however, exerted all efforts to cushion the financial blow
as its receiver. by “closing down non-income generating businesses, concentrating on
its business of leasing commercial spaces, intensifying collection efforts,
Held: reducing personnel, negotiating for restructuring of loan with creditors,
and working out a viable payment scheme without giving undue
PD 209-A states that suspension of claims against a corporation under preference to any creditor.” In spite of all these initiatives, Manuela still
rehabilitation is counted or figured up only upon the appointment of a failed to pay its financial obligations.
management committee or a rehabilitation receiver. The holding that 5. This forced the company to ask the court to issue a Stay Order and
suspension of actions for claims against a corporation under rehabilitation approve its proposed Rehabilitation Plan, which if successfully
takes effect as soon as the application or a petition for rehabilitation is filed implemented will “enable it to settle its remaining obligations in an
with the SEC — may, to some, be more logical and wise but unfortunately, orderly manner, restore its financial viability, and allow it to resume its
such is incongruent with the clear language of the law. Suspension of actions normal operations.” The trial court subsequently issued the Stay Order,
for claims commences only from the time a management committee or which stated:’
receiver is appointed by the SEC. Petitioner RCBC rightfully moved for the a) a stay in the enforcement of all claims, whether for money or
extrajudicial foreclosure of its mortgage on October 26, 1984 because a otherwise and whether such enforcement is by court action or
management committee was not appointed by the SEC until March 18, 1985. otherwise, against petitioner MANUELA, its guarantors and
sureties not solidarily liable with it; …
No matter how practical and noble a reason would be, in order to depart from e) directing the payment in full of all administrative expenses
the words of the law stated in clear and unambiguous manner, would be to incurred after the issuance of this Stay Order.
encroach upon legislative prerogative to define the wisdom of the law. Such
is plainly judicial legislation. 6. The trial court appointed Marilou Adea as rehabilitation receiver. Adea
recommended the approval of Manuela’s Rehabilitation Plan and
LECA REALTY CORPORATION vs. MANUELA CORPORATION convened with Manuela’s creditors for the latter to air their concerns.
G.R. No. 166800 September 25, 2007 7. Leca Realty Corporation (Leca) filed its Comment and/or Formal Claim
FACTS: against Manuela amounting to Php193.7 million, comprised of unpaid
1. Manuela Corporation (Manuela) is a duly registered domestic rentals, security deposits, interests, and penalty charges. After Leca’s
corporation, principally engaged in the business of leasing commercial receipt of Adea’s Report and Recommendation, petitioner questioned
spaces in shopping malls to retailers. At the time, respondent owned and the reduction of Manuela’s liability, “considering its contractual nature
operated M Star One, M Star, Starmall, Metropolis Star, and Pacific Mall. which cannot be impaired during the process of rehabilitation.” The trial
2. Manuela obtained several loans from two syndicates of lenders to court eventually approved the Rehabilitation Plan. Leca’s appeal to the
finance the costs of two of its buildings. Aside from its Php2.174 billion Court of Appeals was dismissed for lack of merit.
MERCADO | 9
8. The disagreement is grounded on the fact that the rental rates agreed most of the various stakeholders in the
upon by Leca and Manuela were reduced in the Rehabilitation Plan. petitioning corporation. In the absence of clear
There was a gross discrepancy between the amounts of rent agreed coercive legal provisions, the courts of justice
upon by the parties and those provided in the Rehabilitation Plan. and much less the SEC would have no power
9. Leca filed another petition before the appellate court alleging violation of to amend or destroy the property and
its constitutional right to non-impairment contract and the Interim Rules contractual rights of private parties, much less
of Procedure on Corporate Rehabilitation. The Court of Appeals, in relieve a petitioning corporation from its
denying the petition, ruled: contractual commitments.
The pendency of the rehabilitation proceedings cannot be
interpreted to impair the contractual obligations previously entered On the other hand, Professor Concepcion stated that what is allowed in
into by the contracting parties because the automatic stay of all rehabilitation proceedings is only the suspension of payments, or the
actions is sanctioned by P.D. [No.] 902-A which provides that “all stay of all actions for claims of distressed corporations, and upon its
actions for claims against corporations, partnerships or successful rehabilitation, the claims must be settled in full.
associations under management or receivership pending before
any court, tribunal, board or body shall be suspended The Supreme Court, in agreeing with Leca, cited its ruling in The Insular
accordingly.” LifeAssurance Company, Ltd. v. Court of Appeals, which provides:
10. Thus, Leca filed a petition for review on certiorari before the Supreme
Court. When the language of the contract is explicit leaving no doubt as to
the intention of the drafters thereof, the courts may not read into it
ISSUE: any other intention that would contradict its plain import. The Court
Whether the pendency of the rehabilitation proceedings can justify would be rewriting the contract of lease between Insular and Sun
impairment of contractual obligations previously entered into by the parties? Brothers under the guise of construction were we to interpret the
HELD: ‘option to renew’ clause as Sun Brothers propounds it, despite the
No, the pendency of the rehabilitation plan can no justify the impairment of express provision in the original contract of lease and the
contractual obligations. The amount provided in the rehabilitation plan is null contracting parties’ subsequent acts. As the Court has held in
and void. Riviera Filipina, Inc. vs. Court of Appeals, ‘a court, even the
Supreme Court, has no right to make new contracts for the parties
RATIO: or ignore those already made by them, simply to avoid seeming
Petitioner, in support of its contention, cites in its Memorandum the treatises hardships. Neither abstract justice nor the rule of liberal construction
of Ateneo Law Dean Cesar L. Villanueva and former SEC Commissioner justifies the creation of a contract for the parties which they did not
Danilo L. Concepcion, both known authorities on Corporation Law. In his make themselves or the imposition upon one party to a contract of
Article which appeared in the Ateneo Law Journal, Dean Villanueva said: an obligation not assumed.
The nature and extent of the power
of the SEC to approve and enforce a The Court voided the Rehabilitation Plan insofar as it amends the rental rates
rehabilitation plan is certainly an important agreed upon by the parties. It opined that the change is not justified as the
issue. Often, a rehabilitation plan would amount of rent is an “essential condition of any lease contract;” thus, any
require a diminution, if not destruction, of alteration on the rate is tantamount to impairment of stipulation of the parties.
contractual and property rights of some, if not
M E R C A D O | 10
Metropolitan Waterworks and Sewerage System V. Hon. Reynaldo B. Issue: Whether or not the payment of the standby of letter of credit can be
Daway G.R. No. 160732. June 21, 2004 stayed by filing of a petition for rehabilitation
The prohibition under Sec 6 (b) of Rule 4 of the Interim Rules does not apply Held: No. The prohibition under Sec 6 (b) of Rule 4 of the Interim Rules does
to the the standby letter of credit issued by the bank as the former prohibition not apply to the the standby letter of credit issued by the bank as the former
is on the enforcement of claims against guarantors or sureties of the debtors prohibition is on the enforcement of claims against guarantors or sureties of
whose obligations are not solidary with the debtor. the debtors whose obligations are not solidary with the debtor.
The concept of guarantee vis-à-vis the concept of an irrevocable letter of

credit are inconsistent with each other. The guarantee theory destroys the The participating bank’s obligation under the letter of credit are solidary with
independence of the bank’s responsibility from the contract upon which it respondent Maynilad in that it is a primary, direct, definite and an absolute
was opened and the nature of both contracts is mutually in conflict with each undertaking to pay and is not conditioned on the prior exhaustion of the
other. A Standby Letter of Credit is not a guaranty because under a Standby debtors assets. These are the same characteristics of a surety or solidary
Letter of Credit, the bank undertakes a primary obligation. On the other obligor. And being solidary, the claims against them can be pursued
hand, a guarantor undertakes a collateral obligation which arises only upon separately from and independently of the rehabilitation case
the debtor’s default. A Standby Letter of Credit is a primary obligation and
not an accessory contract. Issuing banks under the letters of credit are not equivalent to guarantors. The
concept of guarantee vis-à-vis the concept of an irrevocable letter of credit
are inconsistent with each other. The guarantee theory destroys the
Facts: Maynilad obtained a 20-year concession to manage, repair, refurbish,
independence of the bank’s responsibility from the contract upon which it was
and upgrade existing Metropolitan Waterworks and Sewerage System
opened and the nature of both contracts is mutually in conflict with each
(MWSS) water delivery and sewerage services in Metro Manila’s west zone.
other. In contracts of guarantee, the guarantor’s obligation is merely collateral
Maynilad, under the concession agreement undertook to pay concession
and it arises only upon the default of the person primarily liable. On the other
fees and itsforeign loans. To secure its obligations, Maynilad was required
hand, in an irrevocable letter of credit, the bank undertakes a primary
under Section 9 of the concession contract to put up a bond, bank guarantee
obligation. We have also defined a letter of credit as an engagement by a
or other security acceptable to MWSS. Pursuant to this requirement,
bank or other person made at the request of a customer that the issuer shall
Maynilad arranged on for a three-year facility with a number of foreign banks
honor drafts or other demands of payment upon compliance with the
led by Citicorp Intl for the issuance of an irrevocable standby letter of credit
conditions specified in the credit.
(SLC) in the amount of $ 120 million in favor of MWSS for the full and prompt
payment of Maynilad’s obligations to MWSS. Due to devaluation of the peso
A Standby Letter of Credit is not a guaranty because under a Standby Letter
and other business reversals of Maynilad, MWSS filed a notice of early
of Credit, the bank undertakes a primary obligation. On the other hand, a
termination of the concession contract. Upon certification of the non
guarantor undertakes a collateral obligation which arises only upon the
performance of Maynilad obligation, the MWSS moved to collect from
debtor’s default. A Standby Letter of Credit is a primary obligation and not an
Citicorp on the standby letters of credit issued. Maynilad filed for corporate
accessory contract.
rehabilitation. Judge Daway stayed the payment of the letter of credit by
Citicorp pursuant to Sec 6 (b) of Rule 4 of the Interim Rules on Corporate
Rehabilitation. PHILIPPINE ISLANDS CORPORATION FOR TOURISM DEVELOPMENT,
INC., Petitioner, v. VICTORIAS MILLING COMPANY, INC., Respondent.
M E R C A D O | 11
Stay order equally applies to secured and unsecuted creditors. Order. The dispositive portion of the appellate court's decision reads:
On March 7, 1997, petitioner Philippine Islands Corporation for Tourism Hence, this petition.
Development, Inc. (PICTD) filed a complaint4 for collection of a sum of money
with prayer for the issuance of a writ of preliminary attachment against VMC ISSUE: WHETHER OR NOT THE COURT OF APPEALS ERRED IN NOT
before the RTC of Makati City, Branch 148. PICTD alleged that VMC EXCLUDING THE CLAIM OF PETITIONER IN CIVIL CASE NO. 97 - [483]
obtained loans from the CICM Missionaries, Inc. in the amount FROM THE STAY ORDER ISSUED BY THE SEC IN SEC CASE NO. 07-
of P3,259,988.08 and from the Congregation of the Most Holy Redeemer in 97[-]5693.
the amount of P1,211,596.00 Both loans were assigned to PICTD by way of
a deed of assignment. HELD:
When the loans matured on March 3, 1997, PICTD sought payment from In sum, the issues are (1) whether or not the proceedings of the complaint for
VMC but the latter failed to pay, prompting PICTD to file the abovementioned collection of a sum of money filed by PICTD against VMC before the RTC of
complaint. The RTC ordered the issuance of a writ of preliminary attachment Makati City should be excluded from the SEC Order suspending all actions
against VMC's properties. However, upon VMC's motion, the writ of or claims against VMC pending before any court, tribunal, office, board, body
attachment was lifted when VMC deposited a counter attachment bond. and/or commission; and (2) whether or not PICTD is guilty of forum
shopping.
Meanwhile, on July 4, 1997, VMC filed a petition 5 before the SEC to declare
itself in a state of suspension of payments, alleging that although it has PICTD argues that the Court of Appeals erred when it ruled that the order of
sufficient property to cover all of its debts, it foresees its inability to pay them suspension suspends all actions or claims against VMC without qualification
when they become due because of financial difficulties. VMC sought the as to whether the claim is secured or unsecured. It also argues that the SEC,
appointment of a management committee that would oversee the had it been objective and cognizant of the predicament of PICTD, should
implementation of its proposed rehabilitation plan so that it can continue its have lifted the order of suspension because under Section 4-10, 15 Rule IV of
operations and thus enable it to meet its obligations and satisfy its liabilities. the Rules of Procedure on Corporate Recovery of the SEC, the SEC can, on
motion or motu proprio, grant, on a case-to-case basis, a relief from the stay
On July 8, 1997, the SEC ordered the suspension of all actions or claims order issued.16
against VMC pending before any court, tribunal, office, board, body and/or
commission.6 Pursuant to said order, VMC filed before the RTC an urgent On the other hand, VMC counters that under Section 6(c) 17 of Presidential
motion to suspend proceedings in Civil Case No. 97-483. 7 The RTC, in an Decree No. 902-A18 as amended by P.D. No. 1799, all claims for actions
Order8dated September 26, 1998, granted VMC's motion and suspended against a corporation declared to be in a status of suspension of payments
proceedings in the civil case. and under a management committee are suspended. 19 VMC also argues that
PICTD's effort to distinguish itself as a secured creditor exempt from the
On December 29, 1999, PICTD filed before the SEC a motion to lift the order of suspension of proceedings will not help its cause since P.D. No. 902-
suspension of proceedings.9 In an Order dated June 20, 2002, the SEC A makes no distinction and the Order dated July 8, 1997 of the SEC
denied PICTD's motion. The SEC ruled that PICTD is merely a general suspending all actions is explicit.20
creditor who was able to seize the property of the debtor through an
attachment issued before judgment and did not have a prior security Coming to the merits of this petition, we agree to sustain the ruling of the
agreement with VMC that will ripen into a creditor's right in case of default. appellate court upholding the SEC Order suspending the proceedings of the
Thus, its claim against VMC could not take precedence over the secured collection suit filed by PICTD against VMC.
creditors.10The dispositive portion of the SEC Order states:
Section 6(c) of P.D. No. 902-A as amended by P.D. No. 1799, enumerating
PICTD then appealed to the Court of Appeals which affirmed the SEC's the powers of the SEC provides:
M E R C A D O | 12
SEC. 6. In order to effectively exercise such jurisdiction, the Commission from the suspension order, we find that the determination of such issue is an
shall possess the following powers: administrative finding that this Court will not disturb absent any showing of
grave abuse of discretion on the part of the SEC.
xxx
WHEREFORE, the petition is DENIED. The assailed Decision dated June 30,
c) To appoint one or more receivers of the property, real and personal, which 2004 and the Resolution dated March 30, 2005 of the Court of Appeals in
is the subject of the action pending before the Commission whenever CA-G.R. SP No. 79230 are AFFIRMED.
necessary in order to preserve the rights of the parties-litigants and/or protect
the interest of the investing public and creditors: Provided, finally, That upon NOTE: SECTION 4-10. Relief From, Modification, or Termination of
appointment of a management committee, rehabilitation receiver, board or Suspension Order. The Commission may, on motion or motu proprio
body, pursuant to this Decree, all actions for claims against corporations, terminate, modify, or set conditions for the continuance of the suspension
partnerships or associations under management or receivership order, or relieve a claim from the coverage thereof upon showing that (a) any
pending before any court, tribunal, board or body shall be suspended of the allegations in the petition, or any of the contents of any attachment, or
accordingly. (Emphasis supplied.) the verification thereof has ceased to be true, (b) a creditor does not have
adequate protection over property securing its claim, or (c) the debtor's
The purpose for the suspension of the proceedings is to prevent a creditor secured obligation is more than the fair market value of the property subject
from obtaining an advantage or preference over another and to protect and of the stay and such property is not necessary for the rehabilitation of the
preserve the rights of party litigants as well as the interest of the investing debtor.
public or creditors. Such suspension is intended to give enough breathing
space for the management committee or rehabilitation receiver to make the For purposes of this section, the creditor shall lack adequate protection if it
business viable again, without having to divert attention and resources to can be shown that:
litigations in various fora. The suspension would enable the management
committee or rehabilitation receiver to effectively exercise its/his powers free A. the debtor is not honoring pre-existing agreement with the creditor to keep
from any judicial or extra-judicial interference that might unduly hinder or the property insured;
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 b. the debtor is failing to take commercially reasonable steps to maintain the
defending claims against the corporation instead of being directed toward its property; or
restructuring and rehabilitation.26
c. depreciation of the property is increasing to the extent that the creditor is
We are not persuaded by PICTD's argument that it should be exempt from undersecured.
the suspension order because it is a secured creditor. Unlike the provisions in
the Insolvency Law which exempts secured creditors from the suspensive Upon showing of a lack of adequate protection, the Commission shall order
effect of the order issued by the court in an ordinary suspension of payments the debtor to (a) make arrangements to provide for the insurance or
proceedings, the provisions of P.D. No. 902-A, when it comes to the maintenance of the property, (b) to make payments or otherwise provide an
appointment of a management committee or a rehabilitation receiver, do not additional or replacement lien to the creditor to offset the extent that the
contain an exemption for secured creditors. depreciation of the property is increasing the extent that the creditor is
undersecured. Provided, however, that the Commission may deny the
We likewise find no merit in PICTD's argument that the SEC should have creditor the remedies in this paragraph if such remedies would prevent the
exempted it from the suspension order. Although the SEC may, under continuation of the debtor as a going concern or otherwise prevent the
Section 4-10, Rule IV of the Rules of Procedure on Corporate Recovery of approval and implementation of a Rehabilitation Plan.
the SEC, on motion or motu proprio, grant, on a case-to-case basis, a relief
MANUEL D. YNGSON, JR. vs PHILIPPINE NATIONAL BANK
M E R C A D O | 13
G.R. No. 171132 August 15, 2012 dissolved and placed under liquidation. SEC appointed Atty. Manuel D.
Yngson, Jr. & Associates as Liquidator for ARCAM.
Preference of secured creditors retained but enforcement is suspended
Petitioner filed with the SEC a Motion for the Issuance of a TRO and/or Writ
Digest of digest: of Preliminary Injunction to enjoin the foreclosure sale of ARCAM’s assets.
ARCAM entered into a loan with PNB secured by several property The SEC en banc issued a TRO effective for 72 hours, but said TRO lapsed
mortgages. ARCAM failed to pay hence PNB foreclosed the properties. without any writ of preliminary injunction being issued by the SEC.
Before the auction sale of the properties, SEC issued a TRO and
subsequently a writ of preliminary injunction enjoining PNB and RTC’s sheriff Consequently, on July 28, 2000, PNB resumed the proceedings for the
from proceeding with the foreclosure. 6 years had passed but ARCAM was extrajudicial foreclosure sale of the mortgaged properties. PNB emerged as
not rehabilitated because its expected investor did not push through with its the highest winning bidder in the auction sale, and certificates of sale were
promise. SEC then decreed petitioner Yngson as liquidator of ARCAM. issued in its favor.
PNB then proceeded with the foreclosure sale. After the sale, petitioner filed Petitioner filed with the SEC a motion to nullify the auction sale. Petitioner
motion to nullify the sale on the ground that all actions against companies posited that all actions against companies that are under liquidation are
under liquidation are suspended because liquidation is a continuation of the suspended because liquidation is a continuation of the petition for
suspension proceedings. SEC ruled in favor of PNB; CA also denied suspension proceedings. Petitioner argued that the prohibition against
petitioner’s appeal. Issue is whether foreclosure sale of PNB is valid. Yes, foreclosure subsisted during liquidation because payment of all of ARCAM’s
NCC and FRIA provide that a secured creditor enjoys preference over a obligations was proscribed except those authorized by the Commission.
specific mortgaged property.
SEC denied petitioner’s motion to nullify the foreclosure sale. CA denied the
Facts: appeal of petitioner mainly on procedural grounds.
ARCAM is engaged in the operation of a sugar mill in Pampanga. Between
1991 and 1993, ARCAM applied for and was granted a loan by respondent Issue:
PNB. To secure the loan, ARCAM executed a Real Estate Mortgage to its WON SEC erred in ruling that PNB was not barred from foreclosing on the
personal and real properties. mortgages
ARCAM defaulted hence PNB initiated extrajudicial foreclosure proceedings Decision:

in the Office of the Clerk of Court/Ex Officio Sheriff of the RTC of Guagua, No, PNB, as a secured creditor, enjoys preference over a specific mortgaged
Pampanga. The public auction was scheduled on December 29, 1993 for the property and has a right to foreclose the mortgage under Section 2248 of the
mortgaged real properties and December 8, 1993 for the mortgaged personal Civil Code. The creditor-mortgagee has the right to foreclose the mortgage
properties. over a specific real property whethvs bçc loler or not the debtor-mortgagor is
under insolvency or liquidation proceedings.
The SEC issued a TRO and subsequently a writ of preliminary injunction,
enjoining PNB and the Sheriff of the RTC of Guagua, Pampanga from The right to foreclose such mortgage is merely suspended upon the
proceeding with the foreclosure sale of the mortgaged properties. An interim appointment of a management committee or rehabilitation receiver or upon
management committee was also created. the issuance of a stay order by the trial court. However, the creditor-
mortgagee may exercise his right to foreclose the mortgage upon the
On February 9, 2000, the SEC ruled that ARCAM can no longer be termination of the rehabilitation proceedings or upon the lifting of the stay
rehabilitated. The SEC noted that the petition for suspension of payment was order.
filed in December 1993 and six years had passed but the potential white
knight investor had not infused the much needed capital to bail out ARCAM SEC. 114 (Rights of Secured Creditors) of the FRIA Law provides that the
from its financial difficulties. Thus, the SEC decreed that ARCAM be Liquidation Order shall not affect the right of a secured creditor to enforce his
M E R C A D O | 14
lien in accordance with the applicable contract or law.

HELD: (Yes, at whatever stage.)
PNB elected to maintain its rights under the security or lien; hence, its right to
foreclose the mortgaged properties should be respected.
The reason for the suspension of claims while the corporation undergoes
rehabilitation proceedings has been explained by the Court, thus:
PHILIPPINE AIRLINES INC vs CA and KOSCHINGER
In light of these powers, the reason for suspending actions
for claims against the corporation should not be difficult to
FACTS: Respondent Sabine Koschinger (Koschinger) filed a complaint for design discover. It is not really to enable the management committee or
infringement and damages against petitioner Philippine Airlines, Inc. (PAL) before the rehabilitation receiver to substitute the defendant in any
the Regional Trial Court (RTC) of Makati City. Koschinger claimed PAL used table pending action against it before any court, tribunal, board or
linens and placemats bearing designs substantially identical to her patented designs body. Obviously, the real justification is to enable the management
in its commercial flights without her consent or authority. committee or rehabilitation receiver to effectively exercise its/his
powers free from any judicial or extra-judicial interference that
The trial court rendered its decision in favor of Koschinger. PAL appealed might unduly hinder or prevent the rescue of the debtor
the same to the CA. company. To allow such other action to continue would only add
to the burden of the management committee or rehabilitation
Meanwhile, on June 23, 1998, the Securities and Exchange Commission receiver, whose time, effort and resources would be wasted in
(SEC) gave due course to PALs petition for the appointment of a rehabilitation defending claims against the corporation instead of being directed
receiver due to its being a distressed company, pursuant to Presidential Decree No. toward its restructuring and rehabilitation.[19]
902-A. On July 1, 1998, the SEC directed that [i]n light of the Order of the
Commission appointing an Interim Receiver all claims for payment against PAL are
deemed suspended.[5] This underlying reason applies with equal force to the appeal before the CA. The
continuation of the appeal proceedings would have unduly hindered the management
On August 3, 1998, PAL filed before the RTC a Motion for Suspension of committees task of rehabilitating the ailing corporation, giving rise precisely to the
Proceedings.[6] However, when the RTC failed to act upon the motion, PAL filed situation that the stay order sought to avoid.
before the CA a Reiteration of Motion to Suspend Proceedings[7] on May 29, 2000.
It was likewise error for the CA to have ruled that the proceedings before the RTC
Aggrieved, PAL filed the instant Petition to nullify and set aside the said could not be stopped because they had been terminated.
Resolution. PAL alleges that the CA acted with grave abuse of discretion amounting
to lack or excess of jurisdiction in issuing the disputed resolution, holding that the This Court has repeatedly held that execution is the final stage of litigation, [20] the
proceedings below could no longer be stopped because it had been terminated and fruit and end of the suit.[21] Thus, the proceedings before the RTC were not
ordering Koschinger to file her appellees brief. terminated by the filing of the appeal to the CA. The same could not be executed
hence, not yet terminated until the appeal is decided with finality. Consequently, the
The Petition is impressed with merit. proceedings before the RTC could be suspended in accordance with the SECs stay
order.
ISSUE: Whether actions against corporations under rehabilitation is suspended by
the stay order
M E R C A D O | 15
Under the Interim Rules of Procedure on Corporate Rehabilitation , a stay however, failed to heed the demand.
order defers all actions or claims against the corporation seeking rehabilitation from
the date of its issuance until the dismissal of the petition or termination of the On July 21, 1995, petitioner filed a complaint against respondent for violation of
rehabilitation proceedings.[22] Batas Pambansa (B.P.) Blg. 22 with the Office of the City Prosecutor, Pasig City. On
November 6, 1995, finding probable cause against respondent, the investigating
prosecutor filed three separate informations against him for violation of B.P. Blg. 22
Accordingly, the CA committed grave abuse of discretion in denying petitioners
before the Metropolitan Trial Court (MeTC), Pasig City, later docketed as Criminal
Motion to Suspend Proceedings and ordering respondent to file her appellees brief. Case Nos. 18521, 18522 and 18523.8
Upon petitioners motion informing it of the SECs stay order, the CA should have
immediately suspended the appeal therein. Prior thereto, MPPI and its principal stockholders, the Spouses Alfredo and Elizabeth
Co filed before the Securities and Exchange Commission (SEC), under P.D. No. 902-
Be that as it may, this Court notes that petitioner filed a Manifestation [23] on October A, a Petition for Suspension of Payments for Rehabilitation Purposes with prayer for
17, 2007 informing this Court that the SEC has approved petitioners exit from the creation of a management committee and for a temporary restraining order and/or
corporate rehabilitation through an Order[24] dated September 28, 2007. Thus, there is preliminary injunction.
now no bar to the continuation of the appeal proceedings before the CA.
The then SEC issued an Omnibus Order creating a Management Committee and
consequently suspending all actions for claims against MPPI pending before any
WHEREFORE, the foregoing premises considered, the petition is GRANTED. The court, tribunal, branch or body
Court of Appeals is ORDERED to forthwith resolve CA-G.R. CV No. 65778 with
dispatch. Meanwhile, in the criminal cases pending before the MeTC, respondent was
arraigned, and the cases were set for trial.
TIONG ROSARIO, Petitioner, v. ALFONSO CO, Respondent. Prior to initial trial, respondent filed a Motion to Suspend Proceedings.
KATAMAD HUHU Respondent prayed that the proceedings in the MeTC be suspended during the
pendency of the SEC proceedings for rehabilitation and suspension of payments of
.Petitioner Tiong Rosario is the proprietor of TR Mercantile (TRM), a single MPPI. Petitioner opposed said motion.
proprietorship engaged in the business of selling and trading paper products and
supplies of various kinds; while respondent Alfonso Co is the Chairman and Corollarilly, in an Order dated March 19, 1996, the SEC granted respondent's Motion
President of Modern Paper Products, Inc. (MPPI). to Compel Compliance and For Issuance of Orders of Suspension in the Criminal
Cases. In said order, the SEC directed the creditors of MPPI, including TRM, to
In the course of its business, MPPI purchased from TRM a variety of paper products desist from filing and/or prosecuting cases for violations of B.P. Blg. 22, Estafa or
on credit. As payment for his purchases, respondent issued China Banking other criminal cases against respondent and/or the officers of MPPI pursuant to its
Corporation checks. order dated October 3, 1995 and Sec. 6 (c) of P.D. No. 902-A.
Subsequently, on presentment for payment, Check Nos. B032101,3B0321384 and MeTC issued an Order denying respondent's motion to suspend proceedings. It held
B032122 were dishonored by the drawee bank for the reason that the payment was that the issue raised in SEC Case No. 05-95-5054 is not similar or intimately related
either stopped or that the checks were drawn against insufficient funds. to the issue involved in the criminal cases before it and therefore the elements of a
prejudicial question do not exist. Respondent filed a Motion for Reconsideration but
TRM demanded that respondent make good the checks and pay MPPI's outstanding it was denied in the Order dated October 30, 1996.
obligations within five banking days from receipt of the letter, otherwise, it would be
constrained to file both criminal and civil actions to protect its interest. Respondent,
M E R C A D O | 16
Aggrieved, respondent filed on December 19, 1996 a Petition for Certiorari19 before debtor, and only upon request by the debtor to this effect, and that, generally, from
the RTC questioning the above orders, later docketed as SCA No. 1259. the time of filing of the petition, no creditor may sue to collect his claim against the
debtor.28
In his petition, respondent admitted that he issued the subject checks as a corporate
officer of MPPI as payment for purchases made from TRM. He further claimed that Petitioner adds that under P.D. No. 902-A, the appointment of a management
he did not make good the checks upon demand because MPPI had already filed a committee, rehabilitation receiver, board or body in a petition for suspension of
petition for suspension of payments before the SEC which ordered that all actions for payments would only have the effect of suspending "all actions for claims" against
claims against MPPI be suspended. the corporation, partnership, or association under management or receivership.
Prosecution for violation of B.P. Blg. 22 is not an "action for claim" against a
On February 26, 1997, the RTC enjoined the MeTC from further proceeding with corporation but a criminal proceeding brought by the State against a violator of the
Criminal Case Nos. 18521-23 during the pendency of the action before it. 20 On April law.29
17, 1997, petitioner filed a Motion for Partial Reconsideration. 21 However, upon
agreement of the parties, resolution on the motion was held in abeyance awaiting the To buttress her claim, petitioner contends that criminal prosecution of the respondent
RTC resolution in the main case, the issues raised being identical.22 is specifically mandated by law considering that B.P. Blg. 22 states that where a
check is drawn by a corporation, company or entity, the person or persons who
On April 6, 1998, the RTC issued the assailed Resolution 23 the decretal portion of actually signed the check in behalf of such drawer shall be liable. 30 Further, P.D. No.
which reads as follows: 902-A was never intended to suspend criminal proceedings for violation of B.P. Blg.
22.
IN VIEW OF THE FOREGOING, Respondent Court is directed to suspend the
proceedings in Criminal Cases Nos. 18521-3 during the pendency of the petition in Petitioner further argues that the general rule is that injunction or prohibition does
SEC Case No. 05-95-5054.24 not lie to restrain a criminal prosecution subject to well-defined exceptions which do
not include the instant case.31
In granting the petition, the RTC ratiocinated that from the time MPPI placed itself
under the operation of P.D. No. 902-A on May 12, 1995, it was temporarily legally Petitioner maintains that a petition for suspension of payments is founded on the
restricted to pay the holder of the subject checks or make arrangements for payment inability to pay a debt when it falls due which cannot stand as a ground to suspend
in full by the drawee. To hold otherwise would lead to the inevitable conclusion that criminal prosecution, especially where the individual defendant is not the party
respondent, so as to avoid being criminally sued for the returned checks, would seeking suspension of payment but a corporation.32
personally make good the same.25
Finally, petitioner contends that respondent's petition before the RTC presented an
The issue is: issue of whether his prosecution in the MeTC should be enjoined due to the
pendency of MPPI's petition for suspension of payments in the SEC. However, the
WHETHER A CRIMINAL CASE AGAINST A CORPORATE OFFICER FOR RTC, sitting in a civil court in a civil proceeding under Rule 65 of the Rules of
VIOLATION OF BP 22 COULD BE SUSPENDED ON ACCOUNT OF THE Court, went beyond this issue and took cognizance of, and passed upon, an issue
PENDENCY OF A PETITION FOR SUSPENSION OF PAYMENTS FILED BY which could only be raised in the MeTC as a matter of defense.33
THAT OFFICER'S CORPORATION WITH THE SECURITIES AND EXCHANGE
COMMISSION.27 For his part, respondent posits that the filing and pendency of SEC Case No. 05-95-
5054 prevented him from making good the subject checks. He maintains that while
Petitioner argues that nowhere in the Insolvency Law or P.D. No. 902-A is it he could have funded the checks when demand was made by the petitioner, he could
provided that criminal prosecution of a corporate officer for violation of B.P. Blg. 22 not legally do so. Had he made arrangements for the payment of the checks
shall be suspended on account of the pendency of a petition for suspension of notwithstanding the pendency of the SEC case, such act would have had the effect of
payments. Under the Insolvency Law, the filing of a petition for suspension of the corporation paying a creditor and giving it undue preference over the others,
payments will only result in the suspension of any execution pending against the which is disallowed by law.34
M E R C A D O | 17
The petition is meritorious. committee or rehabilitation receiver to make the business viable again, without
having to divert attention and resources to litigations in various fora. 39The suspension
Stripped of the non-essentials, the issue before this Court is the propriety of the would enable the management committee or rehabilitation receiver to effectively
suspension of Criminal Case Nos. 18521, 18522, and 18523 during the pendency of exercise its/his powers free from any judicial or extrajudicial interference that might
SEC Case No. 05-95-5054. Considering that the rehabilitation proceedings result in unduly hinder or prevent the "rescue" of the debtor company. To allow such other
the suspension of all claims against a corporation, the issue of whether or not the action to continue would only add to the burden of the management committee or
suspension includes the criminal cases against the respondent must be resolved. rehabilitation receiver, whose time, effort and resources would be wasted in
defending claims against the corporation instead of being directed toward its
The resolution of the above issues hinges on the determination of the following: (1) restructuring and rehabilitation.40
the meaning of "actions for claims" against the distressed corporation; and (2) the
effectivity of the suspension. Whereas, the gravamen of the offense punished by B.P. Blg. 22 is the act of making
and issuing a worthless check; that is, a check that is dishonored upon its
Section 6 (c) of P.D. No. 902-A, as amended, provides: presentation for payment.41 It is designed to prevent damage to trade, commerce, and
banking caused by worthless checks. In Lozano v. Martinez,42 this Court declared that
it is not the nonpayment of an obligation which the law punishes. The law is not
Section 6. In order to effectively exercise such jurisdiction, the Commission shall intended or designed to coerce a debtor to pay his debt. The thrust of the law is to
possess the following powers: prohibit, under pain of penal sanctions, the making and circulation of worthless
checks. Because of its deleterious effects on the public interest, the practice is
xxx proscribed by the law. The law punishes the act not as an offense against property,
but an offense against public order. The prime purpose of the criminal action is to
c) To appoint one or more receivers of the property, real or personal, which is the punish the offender in order to deter him and others from committing the same or
subject of the action pending before the Commission in accordance with the pertinent similar offense, to isolate him from society, to reform and rehabilitate him or, in
provisions of the Rules of Court in such other cases whenever necessary in order to general, to maintain social order.43 Hence, the criminal prosecution is designed to
preserve the rights of the parties-litigants and/or protect the interest of the investing promote the public welfare by punishing offenders and deterring others.
public and creditors: ... Provided, finally, That upon appointment of a management
committee, the rehabilitation receiver, board or body, pursuant to this Decree, all Consequently, the filing of the case for violation of B.P. Blg. 22 is not a "claim" that
actions for claims against corporations, partnerships, or associations under can be enjoined within the purview of P.D. No. 902-A. True, although conviction of
management or receivership pending before any court, tribunal, board or body shall the accused for the alleged crime could result in the restitution, reparation or
be suspended accordingly.(italics supplied) 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
As early as Finasia Investment and Finance Corp. v. Court of Appeals,35this Court of B.P. Blg. 22 is a criminal action.
clarified that the word "claim" used in Sec. 6 (c) of P.D. No. 902-A, as amended,
refers to debts or demands of a pecuniary nature and the assertion of a right to have A criminal action has a dual purpose, namely, the punishment of the offender and
money paid. It is used in special proceedings like those before AN administrative indemnity to the offended party. The dominant and primordial objective of the
court on insolvency.36In Arranza v. B.F. Homes, Inc.,37 "claim" was defined as an criminal action is the punishment of the offender. The civil action is merely
action involving monetary considerations. Clearly, the suspension contemplated incidental to and consequent to the conviction of the accused. The reason for this is
under Sec. 6 (c) of P.D. No. 902-A refers only to claims involving actions which are that criminal actions are primarily intended to vindicate an outrage against the
pecuniary in nature. sovereignty of the state and to impose the appropriate penalty for the vindication of
the disturbance to the social order caused by the offender. On the other hand, the
The purpose of suspending the proceedings under P.D. No. 902-A is to prevent a action between the private complainant and the accused is intended solely to
creditor from obtaining an advantage or preference over another and to protect and indemnify the former.44
preserve the rights of party litigants as well as the interest of the investing public or
creditors.38 It is intended to give enough breathing space for the management
M E R C A D O | 18
As to when the suspension commences, as held in Rizal Commercial Banking under the category of a claim under Sec. 6 (c) of P.D. No. 902-A, considering that it
Corporation v. Intermediate Appellate Court45 : is already one for monetary or pecuniary consideration. Only to this extent can the
order of suspension be considered obligatory upon any court, tribunal, branch or
1. All claims against corporations, partnerships, or associations that are pending body where there are pending actions for claims against the distressed corporation.
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 The trend is towards vesting administrative bodies like the SEC with the power to
of a management committee, rehabilitation receiver, board, or body in accordance adjudicate matters coming under their particular specialization, to ensure a more
with the provisions of Presidential Decree No. 902-A.46 (italics supplied) knowledgeable solution of the problems submitted to them. This would also relieve
the regular courts of a substantial number of cases that would otherwise swell their
Otherwise stated, from the time a management committee, rehabilitation receiver, already clogged dockets. But as expedient as this policy may be, it should not
board or body is duly appointed pursuant to P.D. No. 902-A, all actions for claims deprive the courts of justice of their power to decide criminal cases. Otherwise, the
against a distressed corporation pending before any court, tribunal, board or body creeping take-over by the administrative agencies of the judicial power vested in the
shall be suspended accordingly. As rationalized in RCBC: courts would render the judiciary virtually impotent in the discharge of the duties
assigned to it by the Constitution.48
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 WHEREFORE, the Petition is hereby GRANTED. The Resolution of the Regional
committee or a rehabilitation receiver. The holding that suspension of actions for Trial Court, Branch 161, Pasig City in SCA No. 1259, dated April 6, 1998,
claims against a corporation under rehabilitation takes effect as soon as the is REVERSED and SET ASIDE. The Metropolitan Trial Court, Pasig City, is
application or a petition for rehabilitation is filed with the SEC - may, to some, be ordered to proceed with Criminal Case Nos. 18521, 18522 and 18523
more logical and wise but unfortunately, such is incongruent with the clear language
of the law. To insist on such ruling, no matter how practical and noble, would be to
encroach upon legislative prerogative to define the wisdom of the law - plainly
judicial legislation.47 RUBBERWORLD (PHILS), INC. v. NLRC, GR no. 126773 | 4-14-1999
Panganiban, J.:
From the sequence of events, it is apparent that Check Nos. B032101, B032138, and
B032122 were dishonored on May 11, 1995, April 6, 1995, and April 28, 1995, FACTS:
respectively. Respondent was formally notified of the dishonor when petitioner, in a  Rubberworld, Inc. (petitioner) is a domestic corporation which used to be
letter dated June 27, 1995, demanded that he make good the checks and pay MPPI's in the business of manufacturing footwear, bags and garments.
outstanding obligations within five banking days from receipt. Yet, it was only on  On 24 Nov 1994, it filed with the SEC a petition requesting that their
October 3, 1995, or more than three months after, that the SEC issued the omnibus corporation be declared in a state of suspension of payments and that
order creating the Management Committee and ordering the suspension of all their creditors be restrained from enforcing their claims against the
pending actions for claims against MPPI. Respondent was, thus, not precluded from corporation. A creation of management committee and the approval of a
making good the checks during that three-month gap when he received the letter and proposed rehabilitation plan were also prayed for.
when the SEC issued the order.  The SEC ruled in favor of the corporation. Accordingly, because of the
creation of a management committee, ALL ACTIONS FOR CLAIMS
against Rubberworld, Inc. pending before any court are hereby deemed
It must be emphasized at this point that as far as the criminal aspect of the cases is
SUSPENDED.
concerned, the provisions of Sec. 6 (c) of P.D. No. 902-A should not interfere with
 Private petitioners, on the other hand, are employees of the said
the prosecution of a case for violation of B.P. Blg. 22, even if restitution, reparation
corporation. They filed against the latter several complaints, among
or indemnification could be ordered, because an absurdity would result, i.e., one who
others: illegal dismissal, unfair labor practice, etc. (take note that these
has engaged in criminal conduct could escape punishment by the mere filing of a
are labor-related issues)
petition for rehabilitation by the corporation of which he is an officer. At any rate,
 The petitioner moved to have the complaints dismissed on the strength of
should the court deem it fit to award indemnification, such award would now fall
the SEC order (that which suspends all actions for claims against them)
M E R C A D O | 19
 The labor arbiter denied the petitioner’s motion. Petitioner then appealed Elementary stat con: when the law does not distinguish, you do not
to the NLRC but the same also dismissed their motion. distinguish. Hence, article 217 of the Labor Code should be construed in
 And now we’re here. harmony with PD 902-A in order to avoid conflict.
 NLRC contended that the SEC order does not cover labor cases because  As for the preferential right of workers and employees (article 110, LC), it
those are within their exclusive jurisdiction to hear and decide labor cases, may only be invoked ONLY upon the institution of insolvency or judicial
quoting Article 217 of the Labor Code. liquidation.
 They further contended that the right of workers and employees must be  REHABILITATION PROCEEDINGS: to enable the company to gain a new
preferred. lease on life and thereby allow creditors to be paid their claims from its
earnings.
ISSUE:  INSOLVENCY PROCEEDINGS: the company stops operating, and the
WON NLRC was correct in affirming labor arbiter’s order despite SEC’s claims of the creditors are satisfied from the assets of the insolvent
order? corporation.
 The present case involves rehabilitation and not insolvency or liquidation.
HELD:  The petition is granted. NLRC’s decision was reversed and set aside.
 No. NLRC should not have upheld decision of labor arbiter.
 The applicable law in this case PD 902-A and not the Labor Code.
LIQUIDATION
 PD 902-A will apply when the petition filed is: CARLOS GELANO and GUILLERMINA MENDOZA DE GELANO,
(1) for declaration of a state of suspension of payments due to a petitioners, vs. THE HONORABLE COURT OF APPEALS and INSULAR
recognition of the inability to pay one’s debts and liabilities, and SAWMILL, INC., respondents.
(2) where the petitioning corporation either:
a] has sufficient property to cover all its debts but foresees
the impossibility of meeting them when they fall due (solvent Facts:
but illiquid)
b] has no sufficient property (insolvent) but is under the Insular Sawmill was a corporation engaged in the general lumber and
management of a rehabilitation receiver or management sawmill business with a corporate life of fifty years, beginning Sept 17, 1945
committee. – Sept 17, 1995.
 Section 6 (c) provides that: “upon appointment of a management
committee, the rehabilitation receiver, board or body … ALL ACTIONS for To carry on the business, Insular Sawmill leased paraphernal property of
claims against corporations … shall be SUSPENDED accordingly.” petitioner Guillerma Gelano. It was while leasing the property, that the
 It is to enable the mgmt committee or any rehabilitation receiver to Guillerma, and her husband Carlos, incurred the following debts to the
effectively exercise its/his powers free from any judicial or extrajudicial corporation:
interference that might unduly hinder or prevent the rescue of the debtor
company.
1. For cash advances made by the corporation to Carlos which was
 Such claims would only pose as burden to the mgmt committee, whose
time would be severely wasted in defending claims against the supposed to be deducted from the monthly rentals being paid by the
corporation instead of focusing on rehabilitation alone. corporation
 NLRC’s contention that labor cases are not within the scope of the SEC
order was misplaced as there was no exception mentioned in the law. 2. For credit purchases of lumber materials from the company
M E R C A D O | 20
3. For credit accommodation obtained by the spouses from China Section 77 of Corp Law provides that the corporation shall "be continued as a
Banking Corporation, for which the corporation executed a promissory note in body corporate for three (3) years after the time when it would have been
favour of the bank from which the bank collected Carlos’ debt from. dissolved, for the purpose of prosecuting and defending suits by or against it.
For this reason, Sec 78 of the Corp Law authorizes the corporation, "at any
On May 22, 1959, the corporation, thru Atty. German Lee, filed a complaint time during said three years to convey all of its property to trustees for the
for collection against the spouses Gelano before CFI-Manila. Trial was held benefit of members, stockholders, creditors and other interested," evidently
and when the case was at the stage of submitting memorandum, Atty. Lee for the purpose, among others, of enabling said trustees to prosecute and
retired from active law practice and Atty. Eduardo F. Elizalde took over and defend suits by or against the corporation begun before the expiration of said
prepared the memorandum period.
While the case was pending, Insular Sawmill amended its Articles of American corporate law dictates that while there is no time limited limited
Incorporation to shorten its term of existence up to December 31, 1960 only. within which the trustees must complete a liquidation placed in their hands. It
The amended Articles of Incorporation was filed with, and approved by the is provided only that the conveyance to the trustees must be made within the
Securities and Exchange Commission, but the trial court was not notified of three-year period.
the amendment shortening the corporate existence and no substitution of
party was ever made. In this case, the SC held that the counsel who prosecuted and defended the
interest of the corporation in the instant case and who in fact appeared in
On November 20, 1964 and almost four (4) years after the dissolution of the behalf of the corporation may be considered a trustee of the corporation at
corporation, the trial court rendered a decision in favor of Insular Sawmill. least with respect to the matter in litigation only. It deemed it substantial
The CA modified the decision, holding the spouses solidarily liable. compliance under Sec 78 of the Corp Law.
After the Gelanos received a copy of the decision on August 24, 1973, they The word "trustee" as used in the corporation statute must be understood in
came to know that the Insular Sawmill Inc. was dissolved way back on its general concept which could include the counsel to whom was entrusted
December 31, 1960. Thus they filed an MD on th ground that the case was the prosecution of the suit filed by the corporation. The purpose in the
prosecuted even after dissolution of Insular Sawmill as a corporation and that transfer of the assets of the corporation to a trustee upon its dissolution is
a defunct corporation cannot maintain any suit for or against it without first more for the protection of its creditor and stockholders. Debtors like the
complying with the requirements of the winding up of the affairs of the spouses Gelano may not take advantage of the failure of the corporation to
corporation and the assignment of its property rights within the required transfer its assets to a trustee, assuming it has any to transfer which
period. petitioner has failed to show, in the first place. To sustain petitioners'
contention would be to allow them to enrich themselves at the expense of
Their MD was denied thus the present petition for review. another, which all enlightened legal systems condemn.
ISSUE: WON Insular Sawmill, a defunct corporation, complied with the WHEREFORE, with the modification that only the conjugal partnership is
requirements for winding up affairs and is entitled to the decision against the liable, the appealed decision is hereby affirmed in all other respects. Without
Gelanos? pronouncement as to costs. SO ORDERED.
LUIS C. CLEMENTE, LEONOR CLEMENTE DE ELEPAÑO, HEIRS OF
RATIO: YES ARCADIO C. OCHOA, represented by FE O. OCHOA-BAYBAY,
CONCEPCION, MARIANO, ARTEMIO, VICENTE, ANGELITA, ROBERTO,
M E R C A D O | 21
HERNANDO AND LOURDES, all surnamed ELEPAÑO, petitioners, vs. settlement of its affairs. We might invite attention to the various modes
THE HON. COURT OF APPEALS, ELVIRA PANDINCO-CASTRO AND provided by the Corporation Code for dissolving, liquidating or winding up,
VICTOR CASTRO, respondents. and terminating the life of the corporation.
G.R. No. 82407 March 27, 1995
VITUG, J.: Among the causes for such dissolution are when the corporate term has
expired or when, upon a verified complaint and after notice and hearing, the
FACTS: Petitioners sought to be declared the owners of a piece of land SEC orders the dissolution of a corporation for its continuous inactivity for at
situated in Calamba, Laguna bought by "Sociedad Popular Calambeña". The least 5 years. The corporation continues to be a body corporate for 3 years
“sociedad” was organized at the advent of the early American occupation of after its dissolution for purposes of prosecuting and defending suits by and
the Philippines. It did business and held itself out as a corporation from 1909 against it and for enabling it to settle and close its affairs, culminating in the
up to 1932. Its principal business was cockfighting or the operation and disposition and distribution of its remaining assets. It may, during the 3-year
management of a cockpit. The "Sociedad" acquired the subject parcel of land term, appoint a trustee or a receiver who may act beyond that period. If the 3-
from the Friar Lands Estate of Calamba. Patent was issued and the Real year extended life has expired without a trustee or receiver having been
Property Tax Register of the Office of the Treasurer of Calamba, Laguna expressly designated by the corporation, the board of directors (or trustees)
showed that the lot was declared and assessed for taxation purposes. itself may be permitted to so continue as "trustees" by legal implication to
complete the corporate liquidation. Still in the absence of a board of directors
Plaintiffs show that Mariano Elepaño and Pablo Clemente, now both or trustees, those having any pecuniary interest in the assets, including not
deceased, were the original stockholders of the "sociedad." Pablo only the shareholders but likewise the creditors of the corporation, acting for
Clemente's shares of stocks were later distributed and apportioned to his and in its behalf, might make proper representations with the SEC for
heirs. The "sociedad" then issued stock certificates to the heirs. On the basis working out a final settlement of the corporate concerns.
of their respective stocks certificates, they, along with the heirs of Mariano
Elepaño jointly claimed ownership over the subject parcel of land, asserting Benigno Vigilla, et al. v Philippine College of Criminology, Inc. GR No.
that their fathers being the only known stockholders of the "sociedad" they, to 200094, June 10, 2013
the exclusion of all others, are entitled to be declared owners of the lot.
Private respondents, in their answer; likewise claimed ownership of the
property by virtue of acquisitive prescription. Facts:
The trial court dismissed the complaint on the grounds of insufficiency of The petitioners work for the Philippine College of Criminology Inc. (PCCr) as
evidence and absent a corporate liquidation, it is the corporation, not the janitors, janitress and supervisor in its maintenance department. The
stockholders, which can assert, if at all, any title to the corporate assets. The petitioners were made to understand by the respondent PCCr that they are
CA sustained the dismissal of the complaint. under the Metropolitan Building Services, Inc. (MBMSI) which is a
corporation engaged in providing janitorial services. PCCr terminated the
services of MBMSI on 2009 which resulted in the dismissal of the petitioners.
ISSUE: Whether or not petitioners can be held to have succeeded in
An illegal dismissal complaint was then filed against PCCr by the petitioners
establishing for themselves a firm title to the property in question.
contending that it is their real employer and not MBMSI. Subsequently, the
PCCr submitted to the Labor Arbiter waivers, releases and quitclaims that
HELD: NO. Except in showing that they are the successors-in-interest of were executed by the petitioners in favor to MBMSI.
Elepaño and Clemente, petitioners have been unable to come up with any
evidence to substantiate their claim of ownership of the corporate asset. The Labor Arbiter and NLRC ruled in favor of the petitioner, however upon
filing the petition for review on certiorari before the Court of Appeals, the CA
If, indeed, the sociedad has long become defunct, it should behoove ruled that the quitclaims, releases and waivers executed by the petitioners in
petitioners, or anyone else who may have any interest in the corporation, to favor to MBMSI redounds to the benefit of PCCr by virtue of solidary liability
take appropriate measures before a proper forum for a peremptory under Article 1217 of the NewCivil Code. The petitioners contend that under
M E R C A D O | 22
Article 106 of the Labor Code a labor-only contractor's liability is not solidary trustees must complete a liquidation placed in their hands. What is provided
as it is the employer who should be directly responsible to the supplied in Section 122 of the Corporation Code is that the conveyance to the trustees
worker. must be made within the three-year period. But it may be found impossible to
complete the work of liquidation within the three-year period or to reduce
disputed claims to judgment. The trustees to whom the corporate assets
Petitioners further argue that MBMSI had no legal personality to incur civil have been conveyed pursuant to the authority of Section 122 may sue and
liabilities as it did not exist as a corporation on account of the fact that its be sued as such in all matters connected with the liquidation.
Certificate of Incorporation had been revoked on July 2, 2003. Petitioners ask
this Court to exempt MBMSI from its liabilities because it is no longer existing Furthermore, Section 145 of the Corporation Code clearly provides that "no
as a corporation. right or remedy in favor of or against any corporation, its stockholders,
members, directors, trustees, or officers, nor any liability incurred by any
Issue such corporation, stockholders, members, directors, trustees, or officers,
shall be removed or impaired either by the subsequent dissolution of said
Whether the petitioners are correct corporation." Even if no trustee is appointed or designated during the three-
year period of the liquidation of the corporation, the Court has held that the
Held: board of directors may be permitted to complete the corporate liquidation by
continuing as "trustees" by legal implication.30 [Emphases supplied;
On the Revocation of MBMSI’s citations omitted]
Certificate of Incorporation
The Court cannot accommodate the prayer of petitioners.

G.R. No. 176959 September 8, 2010
The executed releases, waivers and quitclaims are valid and binding
notwithstanding the revocation of MBMSI’s Certificate of Incorporation. The Metrobank vs THE BOARD OF TRUSTEES OF RIVERSIDE MILLS
revocation does not result in the termination of its liabilities. Section 122 27 of CORPORATION PROVIDENT AND RETIREMENT FUND, et al.
the Corporation Code provides for a three-year winding up period for a
corporation whose charter is annulled by forfeiture or otherwise to continue Facts:
as a body corporate for the purpose, among others, of settling and closing its
affairs.
RMC established a Provident and Retirement Plan4 (RMCPRF)
for its regular employees. In 1979, the Board of Trustees of RMCPRF
Even if said documents were executed in 2009, six (6) years after MBMSI’s
(the Board) entered into an Investment Management Agreement with the
dissolution in 2003, the same are still valid and binding upon the parties and
the dissolution will not terminate the liabilities incurred by the dissolved petitioner where the latter shall act as an agent of the Board and shall
corporation pursuant to Sections 122 and 145 28 of the Corporation Code. In hold, manage, invest and reinvest the Fund in Trust Account No. 1797 in
the case of Premiere Development Bank v. Flores, 29 the Court held that a its behalf. The Agreement shall be in force for one (1) year and shall be
corporation is allowed to settle and close its affairs even after the winding up deemed automatically renewed unless sooner terminated either by
period of three (3) years. The Court wrote: petitioner bank or by the Board.
As early as 1939, this Court held that, although the time during which the
corporation, through its own officers, may conduct the liquidation of its assets In 1984, RMC ceased business operations but the petitioner
and sue and be sued as a corporation is limited to three years from the time continued to render investment services to respondent Board. Petitioner
the period of dissolution commences, there is no time limit within which the then informed respondent Board that petitioner’s BOD had decided to
M E R C A D O | 23
apply the remaining trust assets held by it in the name of RMCPRF provided that "[i]n no event shall any part of the assets of the Fund revert
against part of the outstanding obligations of RMC. to the Company before all liabilities of the Plan have been satisfied."
Subsequently, respondent RMC Unpaid Employees Association, Employees’ trusts or benefit plans are intended to provide
Inc. (Association), representing the terminated employees of RMC, economic assistance to employees upon the occurrence of certain
learned of Trust Account No. 1797. Through counsel, they demanded contingencies, particularly, old age retirement, death, sickness, or
payment of their share. When such demand went unheeded, the disability. They give security against certain hazards to which members of
Association, along with the individual members of RMCPRF, filed a the Plan may be exposed. They are independent and additional sources
complaint for accounting against the Board and its officers as well as of protection for the working group and established for their exclusive
petitioner bank. benefit and for no other purpose.18 Here, while the Plan provides for a
reversion of the Fund to RMC, this cannot be done until all the liabilities
On June 2, 1998, during the trial, the Board passed a Resolution9 of the Plan have been paid. And when RMC ceased operations in 1984,
in court declaring that the Fund belongs exclusively to the employees of the Fund became liable for the payment not only of the benefits of
RMC. It authorized petitioner to release the proceeds of Trust Account qualified retirees at the time of RMC’s closure but also of those who were
No. 1797 through the Board, as the court may direct. The trial court separated from work as a consequence of the closure.
declared invalid the reversion and application of the proceeds of the Fund
to the outstanding obligation of RMC to petitioner bank. Unfazed, the A member who is separated for cause shall not be entitled to
petitioner brought the case to Supreme Court. withdraw the total amount representing his contribution and that of the
Company including the earned interest thereon, and the employer’s
Issue: Whether or not the proceeds of the RMCPRF may be applied to contribution shall be retained in the fund.19 (Emphasis supplied.)
satisfy RMC’s debt to Philbank.
To be sure, the cessation of business by RMC is an authorized
Held: The petition has no merit. cause for the termination of its employees. Hence, not only those
qualified for retirement should receive their total benefits under the Fund,
A trust is a "fiduciary relationship with respect to property which but those laid off should also be entitled to collect the balance of their
involves the existence of equitable duties imposed upon the holder of the account as of the last day of the month prior to RMC’s closure. In
title to the property to deal with it for the benefit of another." A trust is addition, the Plan provides that the separating member shall be paid a
either express or implied. Express trusts are those which the direct and maximum of 40% of the amount representing the Company’s contribution
positive acts of the parties create, by some writing or deed, or will, or by and its income standing to his credit. Until these liabilities shall have been
words evincing an intention to create a trust.15 settled, there can be no reversion of the Fund to RMC.
Here, the RMC Provident and Retirement Plan created an It must be stressed that the RMC Provident and Retirement Plan
express trust to provide retirement benefits to the regular employees of was primarily established for the benefit of regular and permanent
RMC. RMC retained legal title to the Fund but held the same in trust for employees of RMC. As such, the Board may not unilaterally terminate the
the employees-beneficiaries. Thus, the allocation under the Plan is Plan without due regard to any accrued benefits and rightful claims of
directly credited to each member’s account: members-employees. Besides, the Board is bound by the prohibition on
the reversion of the Fund to RMC before all the liabilities of the Plan have
been satisfied.
The trust was likewise a revocable trust as RMC reserved the
power to terminate the Plan after all the liabilities of the Fund to the
employees under the trust had been paid. Paragraph 13 of the Plan As to the contention that the functions of the Board of Trustees
M E R C A D O | 24
ceased upon with RMC’s closure, the same is likewise untenable.
Under Section 12227 of the Corporation Code, a dissolved

corporation shall nevertheless continue as a body corporate for three (3)
years for the purpose of prosecuting and defending suits by or against it
and enabling it to settle and close its affairs, to dispose and convey its
property and to distribute its assets, but not for the purpose of continuing
the business for which it was established. Within those three (3) years,
the corporation may appoint a trustee or receiver who shall carry out the
said purposes beyond the three (3)-year winding-up period. Thus, a
trustee of a dissolved corporation may commence a suit which can
proceed to final judgment even beyond the three (3)-year period of
liquidation.28
In the same manner, during and beyond the three (3)-year

winding-up period of RMC, the Board of Trustees of RMCPRF may do no
more than settle and close the affairs of the Fund. The Board retains its
authority to act on behalf of its members, albeit, in a limited capacity. It
may commence suits on behalf of its members but not continue
managing the Fund for purposes of maximizing profits. Here, the Board’s
act of issuing the Resolution authorizing petitioner to release the Fund to
its beneficiaries is still part of the liquidation process, that is, satisfaction
of the liabilities of the Plan, and does not amount to doing business.
Hence, it was properly within the Board’s power to promulgate.
M E R C A D O | 25

Atty. Amante A. Liberato Corporation Law MARCH 2, 2019: Majority Stockholders of Ruby Industrial Corporation Vs LIM

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Atty. Amante A. Liberato Corporation Law MARCH 2, 2019: Majority Stockholders of Ruby Industrial Corporation Vs LIM

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ATTY. AMANTE A.

LIBERATO CORPORATION LAW MARCH 2, 2019

MODES OF DISSOLUTION BENHAR/RUBY Rehabilitation Plan of the majority stockholders led by Yu

Again, PAL filed a motion for reconsideration which sought reconsideration of

The concept of guarantee vis-à-vis the concept of an irrevocable letter of

ARCAM defaulted hence PNB initiated extrajudicial foreclosure proceedings Decision:

lien in accordance with the applicable contract or law.

The Court cannot accommodate the prayer of petitioners.

ceased upon with RMC’s closure, the same is likewise untenable.

Under Section 12227 of the Corporation Code, a dissolved

In the same manner, during and beyond the three (3)-year

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