MAGDALENA C. DE BARRETO, ET AL.

--- versus ---

JOSE G. VILLANUEVA, ET AL

On May 10, 1948, Rosario Cruzado, obtained from the defunct Rehabilitation Finance Corporation (hereinafter referred to as the RFC a loan in the amount of P11,000.00. To secure payment thereof, she mortgaged the land. As she failed to pay certain installments on the loan, the mortgage was foreclosed and the RFC acquired the property for P11,000.00, subject to her rights as mortgagor to re-purchase the same. On July 26, 1951, upon her application, the land was sold back to her conditionally for the amount of P14,269.03, payable in seven years. About two years thereafter Rosario Cruzado, as guardian of her minor children in Special Proceedings was authorized by the court, to sell with the previous consent of the RFC the land in question together with the improvements thereon for a sum not less than P19,000. Pursuant to such authority and with the consent of the RFC, she sold to Pura L. Villanueva for P19,000.00. Having paid in advance the sum of P500.00, Pura L. Villanueva, the vendee, in consideration of the aforesaid sale, executed in favor of the vendor Rosario Cruzado a promissory note dated March 9, 1953, undertaking to pay the balance of P17,500.00 in monthly installments. On April 22, 1953, she made an additional payment of P5,500.00 on the promissory note. She was, subsequently, able to secure in her name Transfer Certificate of Title No. 32526 covering the house and lot above referred to, and on July 10, 1953, she mortgaged the said property to Magdalena C. Barretto as security for a loan the amount of P30,000.00. As said Pura L. Villanueva had failed to pay the remaining installments on the unpaid balance of P12,000.00 her promissory note for the sale of the property in question, a complaint for the recovery of the same from her and her husband was filed on September 21, 1963 by Rosario Cruzado. Pending trial of the case, a lien was constituted upon the property in the nature of a levy in attachment in favor of the Cruzados said lien being annotated at the back of Transfer Certificate of Title. After trial, decision was rendered ordering Pura Villanueva and her husband, jointly and severally, to pay Rosario Cruzado the sum of P12,000.00, with legal interest thereon from the date of the filing of the complaint until fully paid plus the sum of P1,500.00 as attorney's fees. Pura Villanueva having, likewise, failed to pay her indebtedness of P30,000.00 to Magdalena C. Barretto, the latter, jointly with her husband, instituted against the Villanueva spouses an action for foreclosure of mortgage, impleading Rosario Cruzado and her children as parties defendants. On November 11, 1956, decision was rendered in the case absolving the Cruzados from the complaint and sentencing the Villanuevas to pay the Barrettos, jointly and severally, the sum of P30,000.00, with interest thereon at the rate of 12% per annum from January 11, 1954 plus the sum of P4,000.00 as attorney's fees. Upon the finality of this decision, the Barrettos filed a motion for the issuance of a writ of execution which was granted by the lower court on July 31, 1958. On August 14, 1958, the Cruzados filed their "Vendor's Lien" in the amount of P12,000.00, plus legal interest, over the real property subject of the foreclosure suit, the said amount representing the unpaid balance of the purchase price of the said property. Giving due course to the line, the court on August 18, 1958 ordered the same annotated in Transfer Certificate of Title No. 32526 of the Registry of Deeds of Manila, decreeing that should the realty in question be sold at public auction in the foreclosure proceedings, the Cruzados shall be credited with their pro-rata share in the proceeds thereof, "pursuant to the provision of articles 2248 and 2249 of the new Civil Code in relation to Article 2242, paragraph 2 of the same Code." The Barrettos filed a motion for reconsideration on September 12, 1958, but on that same date, the sheriff of Manila, acting in pursuance of the order of the court granting the writ of execution, sold at public auction the property in question. As highest bidder, the Barrettos themselves acquired the properties for the sum of P49,000.00. On October 4, 1958, 'the Court of First Instance issued an order confirming the aforesaid sale and directing the Register of Deeds of the City of Manila to issue to the Barrettos the corresponding certificate of title, subject, however, to the order of August 18, 1958 concerning,. the vendor's lien. On the same date, the motion of the Barettos seeking reconsideration of the order of the court giving due course to the said vendor's lien was denied. From this last order, the Barretto spouses interposed the present appeal. The appeal is devoid of merit. In claiming that the decision of the Court, of First Instance of Manila in Civil Case No. 20075 . awarding the amount of P12,000.00 in favor of Rosario Cruzado and her minor children . cannot constitute a basis for the vendor's lien filed by the appellee Rosario Cruzado, appellants allege that the action in said civil case was merely to recover the balance of a promissory note. But while, apparently, the action was to recover the remaining obligation of promissor Pura Villanueva on the note, the fact remains that Rosario P. Cruzado as guardian of her minor children, was an unpaid vendor., of the realty in question, and the promissory note, was, precisely, for the unpaid balance of the price of the property bought by, said Pura Villanueva. Article 2242 of the new Civil, Code enumerates the claims, mortgage and liens that constitute an encumbrance on specific immovable property, and among them are: . (2) For the unpaid price of real property sold, upon the immovable sold; and (5) Mortgage credits recorded in the Registry of Property."

Article 2249 of the same Code provides that "if there are two or more credits with respect to the same specific real property or real rights, they shall be satisfied pro-rata after the payment of the taxes and assessment upon the immovable property or real rights. Application of the above-quoted provisions to the case at bar would mean that the herein appellee Rosario Cruzado as an unpaid vendor of the property in question has the right to share pro-rata with the appellants the proceeds of the foreclosure sale. The appellants, however, argue that inasmuch as the unpaid vendor's lien in this case was not registered, it should not prejudice the said appellants' registered rights over the property. There is nothing to this argument. Note must be taken of the fact that article 2242 of the new Civil Code enumerating the preferred claims, mortgages and liens on immovables, specifically requires that . unlike the unpaid price of real property sold . mortgage credits, in order to be given preference, should be recorded in the Registry of Property. If the legislative intent was to impose the same requirement in the case of the vendor's lien, or the unpaid price of real property sold, the lawmakers could have easily inserted the same qualification which now modifies the mortgage credits. The law, however, does not make any distinction between registered and unregistered vendor's lien, which only goes to show that any lien of that kind enjoys the preferred credit status. Appellants also argue that to give the unrecorded vendor's lien the same standing as the registered mortgage credit would be to nullify the principle in land registration system that prior unrecorded interests cannot prejudice persons who subsequently acquire interests over the same property. The Land Registration Act itself, however, respects without reserve or qualification the paramount rights of lien holders on real property. Thus, section 70 of that Act provides that . Registered land, and ownership therein shall in all respects be subject to the same burdens and incidents attached by law to unregistered land. Nothing contained in this Act shall in any way be construed to relieve registered land or the owners thereof from any rights incident to the relation of husband and wife, or from liability to attachment on mesne process or levy, on execution, or from liability to any lien of any description established by law on land and the buildings thereon, or the interest of the owners of such land or buildings, or to change the laws of descent, or the rights of partition between co-owners, joint tenants and other co-tenants or the right to take the same by eminent domain, or to relieve such land from liability to be appropriated in any lawful manner for the payment of debts, or to change or affect in any other way any other rights or liabilities created by law and applicable to unregistered land, except as otherwise expressly provided in this Act or in the amendments thereof, (Emphasis supplied) As to the point made that the articles of the Civil Code on concurrence and preference of credits are applicable only to the insolvent debtor, suffice it to say that nothing in the law shows any such limitation. If we are to interpret this portion of the Code as intended only for insolvency cases, then other creditordebtor relationships where there are concurrence of credits would be left without any rules to govern them, and it would render purposeless the special laws an insolvency. Premises considered, the order appealed from is hereby affirmed. Costs against the appellants. --------------------------------------------------------RESOLUTION ON MOTION TO RECONSIDER December 29, 1962

Appellants, spouses Barretto, have filed a motion vigorously urging, for reason to be discussed in the course of this resolution, that our decision of 28 January 1961 be reconsidered and set aside, and a new one entered declaring that their right as mortgagees remain superior to the unrecorded claim of herein appellee for the balance of the purchase price of her rights, title, and interests in the mortgaged property. It will be recalled that, with Court authority, Rosario Cruzado sold all her right, title, and interest and that of her children in the house and lot herein involved to Pura I. Villanueva for P19,000.00. The purchaser paid Pl,500 in advance, and executed a promissory note for the balance of P17,506.00. However, the buyer could only pay P5,500 On account of the note, for which reason the vendor obtained judgment for the unpaid balance. In the meantime, the buyer Villanueva was able to secure a clean certificate of title (No. 32626), and mortgaged the property to appellant Magdalena C. Barretto, married to Jose C. Barretto, to secure a loan of P30,000.03, said mortgage having been duly recorded. Pura Villanueva defaulted on the mortgage loan in favor of Barretto. The latter foreclosed the mortgage in her favor, obtained judgment, and upon its becoming final asked for execution on 31 July 1958. On 14 August 1958, Cruzado filed a motion for recognition for her "vendor's lien" in the amount of Pl2,000.00, plus legal interest, invoking Articles 2242, 2243, and 2249 of the new Civil Code. After hearing, the court below ordered the "lien" annotated on the back of Certificate of Title No. 32526, with the proviso that in case of sale under the foreclosure decree the vendor's lien and the mortgage credit of appellant Barretto should be paid pro rata from the proceeds. Our original decision affirmed this order of the Court of First Instance of Manila. Appellants insist that:

(1) The vendor's lien, under Articles 2242 and 2243 of the new, Civil Code of the Philippines, can only become effective in the event of insolvency of the vendee, which has not been proved to exist in the instant case; and . (2) That the appellee Cruzado is not a true vendor of the foreclosed property. We have given protracted and mature consideration to the facts and law of this case, and have reached the conclusion that our original decision must be reconsidered and set aside, for the following reasons: A. The previous decision failed to take fully into account the radical changes introduced by the Civil Code of the Philippines into the system of priorities among creditors ordained by the Civil Code of 1889. Pursuant to the former Code, conflicts among creditors entitled to preference as to specific real property under Article 1923 were to be resolved according to an order of priorities established by Article 1927, whereby one class of creditors could exclude the creditors of lower order until the claims of the former were fully satisfied out of the proceeds of the sale of the real property subject of the preference, and could even exhaust proceeds if necessary. Under the system of the Civil Code of the Philippines however, only taxes enjoy a similar absolute preference. All the remaining thirteen classes of preferred creditors under Article 2242 enjoy no priority among themselves, but must be paid pro-rata i.e., in proportion to the amount of the respective credits. Thus, Article 2249 provides: If there are two or more credits with respect to the same specific real property or real rights, they, shall be satisfied pro-rata after the payment of the taxes and assessments upon the immovable property or real rights." But in order to make this prorating fully effective, the preferred creditors enumerated in Nos. 2 to 14 of Article 2242 (or such of their, as have credits outstanding) must necessarily be convened, and the import of their claims ascertained. It is thus apparent that the full, application (of Articles 2249 and 2242 demands that there must be first some proceedings where the claims of all the preferred creditors may be bindingly adjudicated, such as insolvency, the settlement of decedents estate under Rule 87 of the Rules of Court, or other liquidation proceedings of similar import. This explains the rule of Article 2243 of the new Civil Code that The claims or credits enumerated in the two preceding articles" shall be considered as mortgages or pledges of real or personal property, or liens within the purview of legal provisions governing insolvency . . . (Emphasis supplied), And the rule is further clarified in he Report of the Code Commission, as follows: The question as to whether the Civil Code and the insolvency Law can be harmonized is settled by this Article (2243). The preferences named in Articles 2261 and 2262 (now 2241 and 2242) are to be enforced in accordance with the Insolvency Law." (Emphasis supplied) . Thus, it becomes evident that one preferred creditor's third-party claim to the proceeds of a foreclosure sale (as in the case now before us) is not the proceeding contemplated by law for the enforcement of preferences under Article 2242, unless the claimant were enforcing a credit for taxes that enjoy absolute priority. If none of the claims is for taxes, a dispute between two creditors will not enable the Court to ascertain the pro-ratadividend corresponding to each, because the rights of the other creditors likewise" enjoying preference under Article 2242 can not be ascertained. Wherefore, the order of the Court of First Instance of Manila now appealed from, decreeing that the proceeds of the foreclosure sale be apportioned only between appellant and appellee, is incorrect, and must be reversed. In the absence of insolvency proceedings (or other equivalent general liquidation of the debtor's estate), the conflict between the parties now before us must be decided pursuant to the well established principle concerning registered lands; that a purchaser in good faith and for value (as the appellant concededly is) takes registered property free from liens and encumbrances other than statutory liens and those recorded in the certificate of title. There being no insolvency or liquidation, the claim of the appellee, as unpaid vendor, did not require the character and rank of a statutory lien co-equal to the mortgagee's recorded encumbrance, and must remain subordinate to the latter. We are understandably loathed (absent a clear precept of law so commanding) to adopt a rule that would undermine the faith and credit to be accorded to registered Torrens titles and nullify the beneficient objectives sought to be obtained by the Land Registration Act. No argument is needed to stress that if a person dealing with registered land were to be held to take it in every instance subject to all the fourteen preferred claims enumerate in Article 2242 of the new Civil Code, even if the existence and import thereof can not be ascertained from the records, all confidence in Torrens titles would be destroyed, and credit transactions on the faith of such titles would be hampered, if not prevented, with incalculable results. Loans on real estate security would become aleatory and risky transactions, for no, prospective lender could accurately estimate the hidden liens on the property offered as security, unless he indulged in complicated, tedious investigations, . The logical result might well be a contraction of credit unforeseeable proportions that could lead to economic disaster.

Upon the other hand, it does not appear excessively burdensome to require the privileged creditors to cause their claims to be recorded in the books of the Register of deeds should they desire to protect their rights even outside of insolvency or liquidation proceedings. B. The close study of the facts disclosed by the records lasts strong doubt on the proposition that appellees Cruzados should be regarded as unpaid vendors of the property( land, buildings, and improvements ) involved in the case at bar so as to be entitled to preference under Article 2242. The record on appeal, specially the final decision of the Court of First Instance of Manila in the suit of the ,Cruzados against Villanueva, clearly establishes that after her husband's death, and with due court authority, Rosario Cruzado, for herself and as administratrix of her husband's state, mortgaged the property to the Rehabilitation Finance Corporation (RFC) to secure payment of a loan of P11,000, installments, but that the debtor failed to pay some of the installments; wherefore the RFC, on 24 August 1949, foreclosed the mortgage, and acquired the property, subject to the debtor's right to redeem or repurchase the said property; and that on 25 September 1950, the RFC consolidated its ownership, and the certificate of title of the Cruzados was cancelled and a new certificate issued in the name of the RFC. While on 26 July 1951 the RFC did execute a deed selling back the property to the erstwhile mortgagors and former owners Cruzados in installments, subject to the condition (among others) that the title to the property and its improvements "shall remain in the name of Corporation (RFC) until after said purchase price, advances and interests shall have been fully paid", as of 27 September 1952, Cruzado had only paid a total of P1,360, and had defaulted on six monthly amortizations; for which reason the RFC rescinded the sale, and forfeited the payments made, in accordance with the terms of the contract of 26 July 1951. It was only on 10 March 1953 that the Cruzados sold to Pura L. Villanueva all "their rights, title, interest and dominion on and over" the property, lot, house, and improvements for P19,000.00, the buyer undertaking to assume payment of the obligation to the RFC, and by resolution of 30 April 1953, the RFC approved "the transfer of the rights and interest of Rosario P. Cruzado and her children in their property herein above-described in favor of Pura L. Villanueva"; and on 7 May 1953 the RFC executed a deed of absolute sale of the property to said party, who had fully paid the price of P14,269.03. Thereupon, the spouses Villanueva obtained a new Transfer Certificate of Title No. 32526 in their name. On 10 July 1953, the Villanuevas mortgaged the property to the spouses Barretto, appellants herein. It is clear from the facts above-stated that ownership of the property had passed to the Rehabilitation Finance Corporation since 1950, when it consolidated its purchase at the foreclosure sale and obtained a certificate of title in its corporate name. The subsequent contract of resale in favor of the Cruzados did not revest ownership in them, since they failed to comply with its terms and conditions, and the contract itself provided that the title should remain in the name of the RFC until the price was fully paid. Therefore, when after defaulting in their payments due under the resale contract with the RFC the appellants Cruzados sold to Villanueva "their rights, title, interest and dominion" to the property, they merely assigned whatever rights or claims they might still have thereto; the ownership of the property rested with the RFC. The sale from Cruzado to Villanueva, therefore, was not so much a sale of the land and its improvements as it was a quit-claim deed in favor of Villanueva. In law, the operative sale was that from the RFC to the latter, and it was the RFC that should be regarded as the true vendor of the property. At the most, the Cruzados transferred to Villanueva an option to acquire the property, but not the property itself, and their credit, therefore, can not legally constitute a vendor's lien on the corpus of that property that should stand on an equal footing with the mortgaged credit held by appellant Barretto. In view of the foregoing, the previous decision of this Court, promulgated on 28 January 1961, is hereby reconsidered and set aside, and a new one entered reversing the judgment appealed from and declaring the appellants Barretto entitled to full satisfaction of their mortgaged credit out of the proceeds of the foreclosure sale in the hands of the Sheriff of the City of Manila. No costs. J.L. BERNARDO CONSTRUCTION, SANTIAGO R. SUGAY, EDWIN A. SUGAY and FERNANDO S. A. ERANA, -- versus -- COURT OF APPEALS and MAYOR JOSE L. SALONGA This petition for certiorari under Rule 65 seeks to annul and set aside the following: 1. Decision dated February 6, 1992 issued by the Eleventh Division of the Court of Appeals in CA-G.R. No. 26336 which nullified the order of the Regional Trial Court of Cabanatuan City in Civil Case No. 1016AF granting plaintiffs (petitioners herein) a writ of attachment and a contractors lien upon the San Antonio Public Market; and 2. Resolution dated June 10, 1992 issued by the former Eleventh Division of the Court of Appeals in CAG.R. No. 26336 denying the motions for reconsideration filed by both parties. The factual antecedents of this case, as culled from the pleadings, are as follows:

Sometime in 1990, the municipal government of San Antonio, Nueva Ecija approved the construction of the San Antonio Public Market. The construction of the market was to be funded by the Economic Support Fund Secretariat (ESFS), a government agency working with the USAID. Under ESFS "grant-loan-equity" financing program, the funding for the market would be composed of a (a) grant from ESFS, (b) loan extended by ESFS to the Municipality of San Antonio, and (c) equity or counterpart funds from the Municipality. It is claimed by petitioners Santiago R. Sugay, Edwin A. Sugay, Fernando S.A. Erana and J.L. Bernardo Construction, a single proprietorship owned by Juanito L. Bernardo, that they entered into a business venture for the purpose of participating in the bidding for the public market. It was agreed by petitioners that Santiago Sugay would take the lead role and be responsible for the preparation and submission of the bid documents, financing the entire project, providing and utilizing his own equipment, providing the necessary labor, supplies and materials and making the necessary representations and doing the liaison work with the concerned government agencies. On April 20, 1990, J.L. Bernardo Construction, thru petitioner Santiago Sugay, submitted its bid together with other qualified bidders. After evaluating the bids, the municipal pre-qualification bids and awards committee, headed by respondent Jose L. Salonga (then incumbent municipal mayor of San Antonio) as Chairman, awarded the contract to petitioners. On June 8, 1990, a Construction Agreement was entered into by the Municipality of San Antonio thru respondent Salonga and petitioner J.L. Bernardo Construction. It is claimed by petitioners that under this Construction Agreement, the Municipality agreed to assume the expenses for the demolition, clearing and site filling of the construction site in the amount of P1,150,000 and, in addition, to provide cash equity of P767,305.99 to be remitted directly to petitioners. Petitioners allege that, although the whole amount of the cash equity became due, the Municipality refused to pay the same, despite repeated demands and notwithstanding that the public market was more than ninety-eight percent (98%) complete as of July 20, 1991. Furthermore, petitioners maintain that Salonga induced them to advance the expenses for the demolition, clearing and site filling work by making representations that the Municipality had the financial capability to reimburse them later on. However, petitioners claim that they have not been reimbursed for their expenses. [1] On July 31, 1991, J.L. Bernardo Construction, Santiago Sugay, Edwin Sugay and Fernando Erana, with the latter three bringing the case in their own personal capacities and also in representation of J.L. Bernardo Construction, filed a complaint for breach of contract, specific performance, and collection of a sum of money, with prayer for preliminary attachment and enforcement of contractors lien against the Municipality of San Antonio, Nueva Ecija and Salonga, in his personal and official capacity as municipal mayor. After defendants filed their answer, the Regional Trial Court held hearings on the ancillary remedies prayed for by plaintiffs.[2] On September 5, 1991, the Regional Trial Court issued the writ of preliminary attachment prayed for by plaintiffs. It also granted J.L. Bernardo Construction the right to maintain possession of the public market and to operate the same. The dispositive portion of the decision provides: IN VIEW OF THE FOREGOING DISQUISITION, the Court finds the auxiliary reliefs of attachment prayed for by the plaintiffs to be well-taken and the same is hereby GRANTED. Conformably thereto, let a writ of preliminary attachment be issued upon the filing by the plaintiffs of a bond in the amount of P2,653,576.84 to answer for costs and damages which the defendants may suffer should the Court finally adjudged (sic) that the plaintiffs are not entitled to the said attachment, and thereafter, the Deputy Sheriff of this court is hereby ordered to attach the properties of the defendants JOSE LAPUZ SALONGA and the MUNICIPALITY OF SAN ANTONIO, NUEVA ECIJA which are not exempt from execution. CORROLARILY, the Court grants the plaintiffs J.L. BERNARDO CONSTRUCTION, represented by SANTIAGO R. SUGAY, EDWIN A. SUGAY and FERNANDO S.A. ERANA, the authority to hold on to the possession of the public market in question and to open and operate the same based on fair and reasonable guidelines and other mechanics of operation to be submitted by plaintiffs within fifteen (15) days from their receipt of this Order which shall be subject to Courts approval and to deposit the income they may derive therefrom to the Provincial Treasurer of Nueva Ecija after deducting the necessary expenses for the operation and management of said market, subject to further orders from this Court. SO ORDERED. The trial court gave credence to plaintiffs claims that defendants were guilty of fraud in incurring their contractual obligations as evidenced by the complaint and the affidavits of plaintiffs Santiago Sugay and Erana. The court ruled that defendants acts of "obtaining property, credit or services by false representations as to material facts made by the defendant to the plaintiff with intent to deceive constitutes fraud warranting attachment" and that " a debt is considered fradulently contracted if at the time of contracting it, the debtor entertained an intention not to pay." With regards to the contractors lien, the trial court held that since plaintiffs have not been reimbursed for the cash equity and for the demolition, clearing and site filling expenses, they stand in the position of an unpaid contractor and as such are entitled, pursuant to articles 2242 and 2243 of the Civil Code, to a lien

in the amount of P2,653,576.84 (as of August 1, 1991), excluding the other claimed damages, attorneys fees and litigation expenses, upon the public market which they constructed. It was explained that, although the usual way of enforcing a lien is by a decree for the sale of the property and the application of the proceeds to the payment of the debt secured by it, it is more practical and reasonable to permit plaintiffs to operate the public market and to apply to their claims the income derived therefrom, in the form of rentals and goodwill from the prospective stallholders of the market, as prayed for by plaintiffs. The trial court made short shrift of defendants argument that the case was not instituted in the name of the real parties-in-interest. It explained that the plaintiff in the cause of action for money claims for unpaid cash equity and demolition and site filling expenses is J.L. Bernardo Construction, while the plaintiffs in the claim for damages for violation of their rights under the Civil Code provisions on human relations are plaintiffs Santiago Sugay, Edwin Sugay and Erana. [3] The defendants moved for reconsideration of the trial courts order, to which the plaintiffs filed an opposition. On October 10, 1991 the motion was denied. The following day, the trial court approved the guidelines for the operation of the San Antonio Public Market filed by plaintiffs. Respondent Salonga filed a motion for the approval of his counterbond which was treated by the trial court in its October 29, 1991 order as a motion to fix counterbond and for which it scheduled a hearing on November 19, 1991. On October 21, 1991, during the pendency of his motion, respondent Salonga filed with the Court of Appeals a petition for certiorari under Rule 65 with prayer for a writ of preliminary injunction and temporary restraining order which case was docketed as CA-G.R. SP No. 26336. [4] Petitioners opposed the petition, claming that respondent had in fact a plain, speedy and adequate remedy as evidenced by the filing of a motion to approve counter-bond with the trial court. [5] On February 6, 1992, the Court of Appeals reversed the trial courts decision and ruled in favor of Salonga. The dispositive portion of its decision states FOR ALL THE FOREGOING, the petition is hereby granted as follows: 1. The respondent judges ORDER dated September 5, 1991 for the issuance of a writ of attachment and for the enforcement of a contractors lien, is hereby NULLIFIED and SET ASIDE; the writ of attachment issued pursuant thereto and the proceedings conducted by the Sheriffs assigned to implement the same are, as a consequence, also hereby NULLIFIED and SET ASIDE; 2. The respondent judges ORDER dated October 11, 1991 further enforcing the contractors lien and approving the guidelines for the operation of the San Antonio Public Market is also NULLIFIED and SET ASIDE. Petitioners prayers for the dismissal of Civil Case No. 1016 (now pending before respondent judge) and for his deletion from said case as defendant in his private capacity are, however, DENIED. The respondent judge may now proceed to hearing of Civil Case No. 1016 on the merits. SO ORDERED. The appellate court reasoned that since the Construction Agreement was only between Juanito Bernardo and the Municipality of San Antonio, and since there is no sworn statement by Juanito Bernardo alleging that he had been deceived or misled by Mayor Salonga or the Municipality of San Antonio, it is apparent that the applicant has not proven that the defendants are guilty of inceptive fraud in contracting the debt or incurring the obligation, pursuant to Rule 57 of the Rules of Court, and therefore, the writ of attachment should be struck down for having been improvidently and irregularly issued. The filing of a motion for the approval of counter-bond by defendants did not, according to the Court of Appeals, render the petition for certiorari premature. The appellate court held that such motion could not cure the defect in the issuance of the writ of attachment and that, moreover, the defendants motion was filed by them "without prejudice to the petition for certiorari." As to the contractors lien, the appellate court ruled that Articles 2242 of the Civil Code finds application only in the context of insolvency proceedings, as expressly stated in Article 2243. Even if it is conceded that plaintiffs are entitled to retain possession of the market under its contractors lien, the appellate court held that the same right cannot be expanded to include the right to use the building. Therefore, the trial courts grant of authority to plaintiffs to operate the San Antonio Public Market amounts to a grave abuse of discretion. With regard to the allegations of defendants that plaintiffs are not the proper parties, the Court of Appeals ruled that such issue should be assigned as an error by defendants later on should the outcome of the case be adverse to the latter. [6] Petitioners are now before this Court assailing the appellate courts decision. In their petition, they make the following assignment of errors: 1. THE DECISION IS CONTRARY TO LAW IN THAT THE COURT OF APPEALS OVERLOOKED AND/OR DISREGARDED THE FUNDAMENTAL REQUIREMENT AND ESTABLISHED SUPREME COURT DECISIONS IN ACTIONS FOR CERTIORARI CONSIDERING THAT THE FILING OF THE

PETITION BY RESPONDENT SALONGA WITH THE COURT OF APPEALS IS OBVIOUSLY PREMATURE AND IMPROPER SINCE THERE ADMITTEDLY EXISTS A PLAIN, SPEEDY AND ADEQUATE REMEDY AVAILABLE TO RESPONDENT SALONGA WHICH IS HIS UNRESOLVED "MOTION TO APPROVE COUNTERBOND" PENDING WITH THE TRIAL COURT. 2. IN COMPLETE DISREGARD OF ESTABLISHED JURISPRUDENCE, THE COURT OF APPEALS HAS SKIRTED AND/OR FAILED TO CONSIDER/DISREGARDED THE EQUALLY CRUCIAL ISSUE THAT THE QUESTIONED ORDERS ARE CLEARLY AND ADMITTEDLY INTERLOCUTORY IN NATURE AND THEREFORE THEY CANNOT BE THE PROPER SUBJECT OF AN ACTION FOR CERTIORARI; PROOF THAT THE ORDERS ASSAILED BY RESPONDENT SALONGA ARE INTERLOCUTORY IN CHARACTER IS THE DISPOSITIVE PORTION OF THE DECISION WHEN THE COURT OF APPEALS SAID "THE RESPONDENT JUDGE MAY NOW PROCEED TO HEARING OF SAID CIVIL CASE NO. 1016 ON THE MERITS"; PETITION FILED BY RESPONDENT SALONGA WITH THE COURT OF APPEALS SHOULD HAVE BEEN DISMISSED OUTRIGHTLY AS SOUGHT BY HEREIN PETITIONERS IN THEIR VARIOUS UNACTED PLEADINGS. 3. THE DECISION IS BASED ON FINDINGS OF FACTS AND CONCLUSIONS WHICH ARE NOT ONLY GROSSLY ERRONEOUS BUT ARE SQUARELY CONTRADICTED BY THE EVIDENCE ON RECORD. 4. THE COURT OF APPEALS HAS CLEARLY MISAPPRECIATED, MISREAD AND DISREGARDED HEREIN PETITIONERS CAUSES OF ACTION AGAINST RESPONDENT SALONGA AND HIS CORESPONDENT MUNICIPALITY OF SAN ANTONIO, NUEVA ECIJA. 5. THE COURT OF APPEALS HAS MADE ERRONEOUS AND CONTRADICTORY CONCLUSIONS AND FINDINGS ON THE ISSUE OF "REAL PARTY IN INTEREST" IN COMPLETE DISREGARD OF THE POWERS AND AUTHORITY GRANTED BY JUANITO L. BERNARDO CONSTRUCTION TO HEREIN PETITIONERS. 6. THE COURT OF APPEALS HAS SKIRTED THE IMPORTANT ISSUE OF "AGENCY COUPLED WITH AN INTEREST." 7. THE COURT OF APPEALS WENT BEYOND THE ISSUES OF THE CERTIORARI CASE AND ITS FINDINGS AND CONCLUSIONS ON ISSUES NOT RELATED TO THE CASE FOR CERTIORARI ARE CONTRARY TO THE PLEADINGS AND DO NOT CONFORM TO THE EVIDENCE ON RECORD. 8. THE COURT OF APPEALS HAS LIKEWISE DISREGARDED THE PRECEPT THAT CONCLUSIONS AND FINDINGS OF FACT OF THE TRIAL COURT ARE ENTITLED TO GREAT WEIGHT ON APPEAL AND SHOULD NOT BE DISTURBED SINCE THERE IS NO STRONG AND COGENT REASON WHATSOVER TO OVERCOME THE WELL-WRITTEN AND DETAILED AND ESTABLISHED FACTUAL FINDINGS OF THE TRIAL COURT. 9. PETITIONERS HAVE STRONG REASONS TO BELIEVE THAT THE DECISION OF THE COURT OF APPEALS WAS ISSUED WITH SERIOUS INJUSTICE AND AGAINST THE TENETS OF FAIR PLAY SINCE THE DECISION HAD BEEN KNOWN TO AS IT WAS OPENLY AND PUBLICLY ANNOUNCED BY RESPONDENT SALONGA LONG BEFORE IT WAS "PROMULGATED" BY THE COURT OF APPEALS. The various issues raised by petitioners may be restated in a more summary manner as 1. Whether or not the Court of Appeals correctly assumed jurisdiction over the petition for certiorari filed by respondents herein assailing the trial courts interlocutory orders granting the writ of attachment and the contractors lien? 2. Whether or not the Court of Appeals committed reversible errors of law in its decision? A petition for certiorari may be filed in case a tribunal, board or officer exercising judicial or quasi-judicial functions has acted without or in excess of jurisdiction, or with grave abuse of discretion amounting to lack or excess of jurisdiction, and there is no appeal, or any plain, speedy, and adequate remedy in the ordinary course of law.[7] The office of a writ of certiorari is restricted to truly extraordinary cases wherein the act of the lower court or quasi-judicial body is wholly void. [8] We held in a recent case that certiorari may be issued "only where it is clearly shown that there is a patent and gross abuse of discretion as to amount to an evasion of positive duty or to virtual refusal to perform a duty enjoined by law, or to act at all in contemplation of law, as where the power is exercised in an arbitrary and despotic manner by reason of passion or personal hostility."[9] As a general rule, an interlocutory order is not appealable until after the rendition of the judgment on the merits for a contrary rule would delay the administration of justice and unduly burden the courts. [10] However, we have held that certiorari is an appropriate remedy to assail an interlocutory order (1) when the tribunal issued such order without or in excess of jurisdiction or with grave abuse of discretion and (2) when the assailed interlocutory order is patently erroneous and the remedy of appeal would not afford adequate and expeditious relief.[11]

We hold that the petition for certiorari filed by Salonga and the Municipality with the Court of Appeals questioning the writ of attachment issued by the trial court should not have been given due course for they still had recourse to a plain, speedy and adequate remedy - the filing of a motion to fix the counter-bond, which they in fact filed with the trial court, the grant of which would effectively prevent the issuance of the writ of attachment. Moreover, they could also have filed a motion to discharge the attachment for having been improperly or irregularly issued or enforced, or that the bond is insufficient, or that the attachment is excessive.[12] With such remedies still available to the Municipality and Salonga, the filing of a petition for certiorari with the Court of Appeals insofar as it questions the order of attachment was clearly premature. However, with regards to the contractors lien, we uphold the appellate courts ruling reversing the trial courts grant of a contractors lien in favor of petitioners. Articles 2241 and 2242 of the Civil Code enumerates certain credits which enjoy preference with respect to specific personal or real property of the debtor. Specifically, the contractors lien claimed by petitioners is granted under the third paragraph of Article 2242 which provides that the claims of contractors engaged in the construction, reconstruction or repair of buildings or other works shall be preferred with respect to the specific building or other immovable property constructed. [13] However, Article 2242 only finds application when there is a concurrence of credits, i.e. when the same specific property of the debtor is subjected to the claims of several creditors and the value of such property of the debtor is insufficient to pay in full all the creditors. In such a situation, the question of preference will arise, that is, there will be a need to determine which of the creditors will be paid ahead of the others.[14] Fundamental tenets of due process will dictate that this statutory lien should then only be enforced in the context of some kind of a proceeding where the claims of all the preferred creditors may be bindingly adjudicated, such as insolvency proceedings. [15] This is made explicit by Article 2243 which states that the claims and liens enumerated in articles 2241 and 2242 shall be considered as mortgages or pledges of real or personal property, or liens within the purview of legal provisions governing insolvency. [16] The action filed by petitioners in the trial court does not partake of the nature of an insolvency proceeding. It is basically for specific performance and damages. [17] Thus, even if it is finally adjudicated that petitioners herein actually stand in the position of unpaid contractors and are entitled to invoke the contractors lien granted under Article 2242, such lien cannot be enforced in the present action for there is no way of determining whether or not there exist other preferred creditors with claims over the San Antonio Public Market. The records do not contain any allegation that petitioners are the only creditors with respect to such property. The fact that no third party claims have been filed in the trial court will not bar other creditors from subsequently bringing actions and claiming that they also have preferred liens against the property involved.[18] Our decision herein is consistent with our ruling in Philippine Savings Bank v. Lantin,[19] wherein we also disallowed the contractor from enforcing his lien pursuant to Article 2242 of the Civil Code in an action filed by him for the collection of unpaid construction costs. It not having been alleged in their pleadings that they have any rights as a mortgagee under the contracts, petitioners may only obtain possession and use of the public market by means of a preliminary attachment upon such property, in the event that they obtain a favorable judgment in the trial court. Under our rules of procedure, a writ of attachment over registered real property is enforced by the sheriff by filing with the registry of deeds a copy of the order of attachment, together with a description of the property attached, and a notice that it is attached, and by leaving a copy of such order, description, and notice with the occupant of the property, if any. [20] If judgment be recovered by the attaching party and execution issue thereon, the sheriff may cause the judgment to be satisfied by selling so much of the property as may be necessary to satisfy the judgment. [21] Only in the event that petitioners are able to purchase the property will they then acquire possession and use of the same. Clearly, the trial courts order of September 5, 1991 granting possession and use of the public market to petitioners does not adhere to the procedure for attachment laid out in the Rules of Court. In issuing such an order, the trial court gravely abused its discretion and the appellate courts nullification of the same should be sustained. At this stage of the case, there is no need to pass upon the question of whether or not petitioners herein are the real parties-in-interest. In the event that judgment is rendered against Salonga and the Municipality, this issue may be assigned as an error in their appeal from such judgment. WHEREFORE, we UPHOLD the Court of Appeals Decision dated February 6, 1992 in CA-G.R. SP No. 26336 insofar as it nullifies the contractors lien granted by the trial court in favor of petitioners in its September 5, 1991 Order. Consequently, we also UPHOLD the appellate courts nullification of the trial courts October 11, 1991 Order approving the guidelines for the operation of the San Antonio Public Market. However, we REVERSE the appellate courts order nullifying the writ of attachment granted by the trial court.

No pronouncement as to costs. SO ORDERED. DEVELOPMENT BANK OF THE PHILIPPINES INDUSTRIAL SALES CORP vs. COURT OF APPEALS and REMINGTON

Before the Court is a petition for review on certiorari under Rule 45 of the Rules of Court, seeking a review of the Decision of the Court of Appeals dated October 6, 1995 and the Resolution of the same court dated August 29, 1996. The facts are as follows: Marinduque Mining-Industrial Corporation (Marinduque Mining), a corporation engaged in the manufacture of pure and refined nickel, nickel and cobalt in mixed sulfides; copper ore/concentrates, cement and pyrite conc., obtained from the Philippine National Bank (PNB) various loan accommodations. To secure the loans, Marinduque Mining executed on October 9, 1978 a Deed of Real Estate Mortgage and Chattel Mortgage in favor of PNB. The mortgage covered all of Marinduque Mining's real properties, located at Surigao del Norte, Sipalay, Negros Occidental, and at Antipolo, Rizal, including the improvements thereon. As of November 20, 1980, the loans extended by PNB amounted to P4 Billion, exclusive of interest and charges.1 On July 13, 1981, Marinduque Mining executed in favor of PNB and the Development Bank of the Philippines (DBP) a second Mortgage Trust Agreement. In said agreement, Marinduque Mining mortgaged to PNB and DBP all its real properties located at Surigao del Norte, Sipalay, Negros Occidental, and Antipolo, Rizal, including the improvements thereon. The mortgage also covered all of Marinduque Mining's chattels, as well as assets of whatever kind, nature and description which Marinduque Mining may subsequently acquire in substitution or replenishment or in addition to the properties covered by the previous Deed of Real and Chattel Mortgage dated October 7, 1978. Apparently, Marinduque Mining had also obtained loans totaling P2 Billion from DBP, exclusive of interest and charges.2 On April 27, 1984, Marinduque Mining executed in favor of PNB and DBP an Amendment to Mortgage Trust Agreement by virtue of which Marinduque Mining mortgaged in favor of PNB and DBP all other real and personal properties and other real rights subsequently acquired by Marinduque Mining. 3 For failure of Marinduque Mining to settle its loan obligations, PNB and DBP instituted sometime on July and August 1984 extrajudicial foreclosure proceedings over the mortgaged properties. The events following the foreclosure are narrated by DBP in its petition, as follows: In the ensuing public auction sale conducted on August 31, 1984, PNB and DBP emerged and were declared the highest bidders over the foreclosed real properties, buildings, mining claims, leasehold rights together with the improvements thereon as well as machineries [sic] and equipments [sic] of MMIC located at Nonoc Nickel Refinery Plant at Surigao del Norte for a bid price of P14,238,048,150.00 [and] [o]ver the foreclosed chattels of MMIC located at Nonoc Refinery Plant at Surigao del Norte, PNB and DBP as highest bidders, bidded for P170,577,610.00 (Exhs. "5" to "5-A", "6", "7" to "7-AA-" PNB/DBP). For the foreclosed real properties together with all the buildings, major machineries & equipment and other improvements of MMIC located at Antipolo, Rizal, likewise held on August 31, 1984, were sold to PNB and DBP as highest bidders in the sum of P1,107,167,950.00 (Exhs. "10" to "10-X"-PNB/ DBP). At the auction sale conducted on September 7, 1984[,] over the foreclosed real properties, buildings, & machineries/equipment of MMIC located at Sipalay, Negros Occidental were sold to PNB and DBP, as highest bidders, in the amount of P2,383,534,000.00 and P543,040.000.00 respectively (Exhs. "8" to "8BB", "9" to "90-GGGGGG"-PNB/DBP). Finally, at the public auction sale conducted on September 18, 1984 on the foreclosed personal properties of MMIC, the same were sold to PNB and DBP as the highest bidder in the sum of P678,772,000.00 (Exhs. "11" and "12-QQQQQ"-PNB). PNB and DBP thereafter thru a Deed of Transfer dated August 31, 1984, purposely, in order to ensure the continued operation of the Nickel refinery plant and to prevent the deterioration of the assets foreclosed, assigned and transferred to Nonoc Mining and Industrial Corporation all their rights, interest and participation over the foreclosed properties of MMIC located at Nonoc Island, Surigao del Norte for an initial consideration of P14,361,000,000.00 (Exh. "13"-PNB).

Likewise, thru [sic] a Deed of Transfer dated June 6, 1984, PNB and DBP assigned and transferred in favor of Maricalum Mining Corp. all its rights, interest and participation over the foreclosed properties of MMIC at Sipalay, Negros Occidental for an initial consideration of P325,800,000.00 (Exh. "14"-PNB/DBP). On February 27, 1987, PNB and DBP, pursuant to Proclamation No. 50 as amended, again assigned, transferred and conveyed to the National Government thru [sic] the Asset Privatization Trust (APT) all its existing rights and interest over the assets of MMIC, earlier assigned to Nonoc Mining and Industrial Corporation, Maricalum Mining Corporation and Island Cement Corporation (Exh. "15" & "15-A" PNB/DBP).4 In the meantime, between July 16, 1982 to October 4, 1983, Marinduque Mining purchased and caused to be delivered construction materials and other merchandise from Remington Industrial Sales Corporation (Remington) worth P921,755.95. The purchases remained unpaid as of August 1, 1984 when Remington filed a complaint for a sum of money and damages against Marinduque Mining for the value of the unpaid construction materials and other merchandise purchased by Marinduque Mining, as well as interest, attorney's fees and the costs of suit. On September 7, 1984, Remington's original complaint was amended to include PNB and DBP as codefendants in view of the foreclosure by the latter of the real and chattel mortgages on the real and personal properties, chattels, mining claims, machinery, equipment and other assets of Marinduque Mining.5 On September 13, 1984, Remington filed a second amended complaint to include as additional defendant, the Nonoc Mining and Industrial Corporation (Nonoc Mining). Nonoc Mining is the assignee of all real and personal properties, chattels, machinery, equipment and all other assets of Marinduque Mining at its Nonoc Nickel Factory in Surigao del Norte.6 On March 26, 1986, Remington filed a third amended complaint including the Maricalum Mining Corporation (Maricalum Mining) and Island Cement Corporation (Island Cement) as co-defendants. Remington asserted that Marinduque Mining, PNB, DBP, Nonoc Mining, Maricalum Mining and Island Cement must be treated in law as one and the same entity by disregarding the veil of corporate fiction since: 1. Co-defendants NMIC, Maricalum and Island Cement which are newly created entities are practically owned wholly by defendants PNB and DBP, and managed by their officers, aside from the fact that the aforesaid co-defendants NMIC, Maricalum and Island Cement were organized in such a hurry and in such suspicious circumstances by co-defendants PNB and DBP after the supposed extrajudicial foreclosure of MMIC's assets as to make their supposed projects assets, machineries and equipment which were originally owned by co-defendant MMIC beyond the reach of creditors of the latter. 2. The personnel, key officers and rank-and-file workers and employees of co-defendants NMIC, Maricalum and Island Cement creations of co-defendants PNB and DBP were the personnel of codefendant MMIC such that . . . practically there has only been a change of name for all legal purpose and intents 3. The places of business not to mention the mining claims and project premises of co-defendants NMIC, Maricalum and Island Cement likewise used to be the places of business, mining claims and project premises of co-defendant MMIC as to make the aforesaid co-defendants NMIC, Maricalum and Island Cement mere adjuncts and subsidiaries of co-defendants PNB and DBP, and subject to their control and management. On top of everything, co-defendants PNB, DBP NMIC, Maricalum and Island Cement being all corporations created by the government in the pursuit of business ventures should not be allowed to ignore, x x x or obliterate with impunity nay illegally, the financial obligations of x x x MMIC whose operations co-defendants PNB and DBP had highly financed before the alleged extrajudicial foreclosure of defendant MMIC's assets, machineries and equipment to the extent that major policies of co-defendant MMIC were being decided upon by co-defendants PNB and DBP as major financiers who were represented in its board of directors forming part of the majority thereof which through the alleged extrajudicial foreclosure culminated in a complete take-over by co-defendants PNB and DBP bringing about the organization of their co-defendants NMIC, Maricalum and Island Cement to which were transferred all the assets, machineries and pieces of equipment of co-defendant MMIC used in its nickel mining project in Surigao del Norte, copper mining operation in Sipalay, Negros Occidental and cement factory in Antipolo, Rizal to the prejudice of creditors of co-defendant MMIC such as plaintiff Remington Industrial Sales Corporation whose stockholders, officers and rank-and-file workers in the legitimate

pursuit of its business activities, invested considerable time, sweat and private money to supply, among others, co-defendant MMIC with some of its vital needs for its operation, which co-defendant MMIC during the time of the transactions material to this case became x x x co-defendants PNB and DBP's instrumentality, business conduit, alter ego, agency (sic), subsidiary or auxiliary corporation, by virtue of which it becomes doubly necessary to disregard the corporation fiction that co-defendants PNB, DBP, MMIC, NMIC, Maricalum and Island Cement, six (6) distinct and separate entities, when in fact and in law, they should be treated as one and the same at least as far as plaintiff's transactions with co-defendant MMIC are concerned, so as not to defeat public convenience, justify wrong, subvert justice, protect fraud or confuse legitimate issues involving creditors such as plaintiff, a fact which all defendants were as (sic) still are aware of during all the time material to the transactions subject of this case. 7 On April 3, 1989, Remington filed a motion for leave to file a fourth amended complaint impleading the Asset Privatization Trust (APT) as co-defendant. Said fourth amended complaint was admitted by the lower court in its Order dated April 29, 1989. On April 10, 1990, the Regional Trial Court (RTC) rendered a decision in favor of Remington, the dispositive portion of which reads: WHEREFORE, judgment is hereby rendered in favor of the plaintiff, ordering the defendants Marinduque Mining & Industrial Corporation, Philippine National Bank, Development Bank of the Philippines, Nonoc Mining and Industrial Corporation, Maricalum Mining Corporation, Island Cement Corporation and Asset Privatization Trust to pay, jointly and severally, the sum of P920,755.95, representing the principal obligation, including the stipulated interest as of June 22, 1984, plus ten percent (10%) surcharge per annum by way of penalty, until the amount is fully paid; the sum equivalent to 10% of the amount due as and for attorney's fees; and to pay the costs. 8 Upon appeal by PNB, DBP, Nonoc Mining, Maricalum Mining, Island Cement and APT, the Court of Appeals, in its Decision dated October 6, 1995, affirmed the decision of the RTC. Petitioner filed a Motion for Reconsideration, which was denied in the Resolution dated August 29, 1996. Hence, this petition, DBP maintaining that Remington has no cause of action against it or PNB, nor against their transferees, Nonoc Mining, Island Cement, Maricalum Mining, and the APT. On the other hand, private respondent Remington submits that the transfer of the properties was made in fraud of creditors. The presence of fraud, according to Remington, warrants the piercing of the corporate veil such that Marinduque Mining and its transferees could be considered as one and the same corporation. The transferees, therefore, are also liable for the value of Marinduque Mining's purchases. In Yutivo Sons Hardware vs. Court of Tax Appeals ,9 cited by the Court of Appeals in its decision, 10 this Court declared: It is an elementary and fundamental principle of corporation law that a corporation is an entity separate and distinct from its stockholders and from other corporations to which it may be connected. However, when the notion of legal entity is used to defeat public convenience, justify wrong, protect fraud, or defend crime, the law will regard the corporation as an association of persons or in case of two corporations, merge them into one". (Koppel [Phils.], Inc., vs. Yatco, 71 Phil. 496, citing 1 Fletcher Encyclopedia of Corporation, Permanent Ed., pp. 135-136; U.S. vs. Milwaukee Refrigeration Transit Co., 142 Fed., 247, 255 per Sanborn, J.). x x x. In accordance with the foregoing rule, this Court has disregarded the separate personality of the corporation where the corporate entity was used to escape liability to third parties. 11 In this case, however, we do not find any fraud on the part of Marinduque Mining and its transferees to warrant the piercing of the corporate veil. It bears stressing that PNB and DBP are mandated to foreclose on the mortgage when the past due account had incurred arrearages of more than 20% of the total outstanding obligation. Section 1 of Presidential Decree No. 385 (The Law on Mandatory Foreclosure) provides: It shall be mandatory for government financial institutions, after the lapse of sixty (60) days from the issuance of this decree, to foreclose the collateral and/or securities for any loan, credit accommodation, and/or guarantees granted by them whenever the arrearages on such account, including accrued interest and other charges, amount to at least twenty percent (20%) of the total outstanding obligations, including interest and other charges, as appearing in the books of account and/or related records of the financial institution concerned. This shall be without prejudice to the exercise by the government financial institution

of such rights and/or remedies available to them under their respective contracts with their debtors, including the right to foreclose on loans, credits, accommodations and/or guarantees on which the arrearages are less than twenty (20%) percent. Thus, PNB and DBP did not only have a right, but the duty under said law, to foreclose upon the subject properties. The banks had no choice but to obey the statutory command. The import of this mandate was lost on the Court of Appeals, which reasoned that under Article 19 of the Civil Code, "Every person must, in the exercise of his rights and in the performance of his duties, act with justice, give everyone his due, and observe honesty and good faith." The appellate court, however, did not point to any fact evidencing bad faith on the part of the Marinduque Mining and its transferees. Indeed, it skirted the issue entirely by holding that the question of actual fraudulent intent on the part of the interlocking directors of DBP and Marinduque Mining was irrelevant because: As aptly stated by the appellee in its brief, "x x x where the corporations have directors and officers in common, there may be circumstances under which their interest as officers in one company may disqualify them in equity from representing both corporations in transactions between the two. Thus, where one corporation was 'insolvent and indebted to another, it has been held that the directors of the creditor corporation were disqualified, by reason of self-interest, from acting as directors of the debtor corporation in the authorization of a mortgage or deed of trust to the former to secure such indebtedness x x x" (page 105 of the Appellee's Brief). In the same manner that "x x x when the corporation is insolvent, its directors who are its creditors can not secure to themselves any advantage or preference over other creditors. They can not thus take advantage of their fiduciary relation and deal directly with themselves, to the injury of others in equal right. If they do, equity will set aside the transaction at the suit of creditors of the corporation or their representatives, without reference to the question of any actual fraudulent intent on the part of the directors , for the right of the creditors does not depend upon fraud in fact, but upon the violation of the fiduciary relation to the directors." x x x (page 106 of the Appellee's Brief) We also concede that "x x x directors of insolvent corporation, who are creditors of the company, can not secure to themselves any preference or advantage over other creditors in the payment of their claims. It is not good morals or good law. The governing body of officers thereof are charged with the duty of conducting its affairs strictly in the interest of its existing creditors, and it would be a breach of such trust for them to undertake to give any one of its members any advantage over any other creditors in securing the payment of his debts in preference to all others. When validity of these mortgages, to secure debts upon which the directors were indorsers, was questioned by other creditors of the corporation, they should have been classed as instruments rendered void by the legal principle which prevents directors of an insolvent corporation from giving themselves a preference over outside creditors. x x x" (page 106-107 of the Appellee's Brief.)12 The Court of Appeals made reference to two principles in corporation law. The first pertains to transactions between corporations with interlocking directors resulting in the prejudice to one of the corporations. This rule does not apply in this case, however, since the corporation allegedly prejudiced (Remington) is a third party, not one of the corporations with interlocking directors (Marinduque Mining and DBP). The second principle invoked by respondent court involves "directors x x x who are creditors" which is also inapplicable herein. Here, the creditor of Marinduque Mining is DBP, not the directors of Marinduque Mining. Neither do we discern any bad faith on the part of DBP by its creation of Nonoc Mining, Maricalum and Island Cement. As Remington itself concedes, DBP is not authorized by its charter to engage in the mining business.13The creation of the three corporations was necessary to manage and operate the assets acquired in the foreclosure sale lest they deteriorate from non-use and lose their value. In the absence of any entity willing to purchase these assets from the bank, what else would it do with these properties in the meantime? Sound business practice required that they be utilized for the purposes for which they were intended. Remington also asserted in its third amended complaint that the use of Nonoc Mining, Maricalum and Island Cement of the premises of Marinduque Mining and the hiring of the latter's officers and personnel also constitute badges of bad faith. Assuming that the premises of Marinduque Mining were not among those acquired by DBP in the foreclosure sale, convenience and practicality dictated that the corporations so created occupy the premises where these assets were found instead of relocating them. No doubt, many of these assets are

heavy equipment and it may have been impossible to move them. The same reasons of convenience and practicality, not to mention efficiency, justified the hiring by Nonoc Mining, Maricalum and Island Cement of Marinduque Mining's personnel to manage and operate the properties and to maintain the continuity of the mining operations. To reiterate, the doctrine of piercing the veil of corporate fiction applies only when such corporate fiction is used to defeat public convenience, justify wrong, protect fraud or defend crime. 14 To disregard the separate juridical personality of a corporation, the wrongdoing must be clearly and convincingly established. It cannot be presumed.15 In this case, the Court finds that Remington failed to discharge its burden of proving bad faith on the part of Marinduque Mining and its transferees in the mortgage and foreclosure of the subject properties to justify the piercing of the corporate veil. The Court of Appeals also held that there exists in Remington's favor a "lien" on the unpaid purchases of Marinduque Mining, and as transferee of these purchases, DBP should be held liable for the value thereof. In the absence of liquidation proceedings, however, the claim of Remington cannot be enforced against DBP. Article 2241 of the Civil Code provides: ARTICLE 2241. With reference to specific movable property of the debtor, the following claims or liens shall be preferred: (3) Claims for the unpaid price of movables sold, on said movables, so long as they are in the possession of the debtor, up to the value of the same; and if the movable has been resold by the debtor and the price is still unpaid, the lien may be enforced on the price; this right is not lost by the immobilization of the thing by destination, provided it has not lost its form, substance and identity, neither is the right lost by the sale of the thing together with other property for a lump sum, when the price thereof can be determined proportionally; (4) Credits guaranteed with a pledge so long as the things pledged are in the hands of the creditor, or those guaranteed by a chattel mortgage, upon the things pledged or mortgaged, up to the value thereof; In Barretto vs. Villanueva,16 the Court had occasion to construe Article 2242, governing claims or liens over specific immovable property. The facts that gave rise to the case were summarized by this Court in its resolution as follows: x x x Rosario Cruzado sold all her right, title, and interest and that of her children in the house and lot herein involved to Pura L. Villanueva for P19,000.00. The purchaser paid P1,500 in advance, and executed a promissory note for the balance of P17,500.00. However, the buyer could only pay P5,500 on account of the note, for which reason the vendor obtained judgment for the unpaid balance. In the meantime, the buyer Villanueva was able to secure a clean certificate of title (No. 32626), and mortgaged the property to appellant Magdalena C. Barretto, married to Jose C. Baretto, to secure a loan of P30,000.03, said mortgage having been duly recorded. Pura Villanueva defaulted on the mortgage loan in favor of Barretto. The latter foreclosed the mortgage in her favor, obtained judgment, and upon its becoming final asked for execution on 31 July 1958. On 14 August 1958, Cruzado filed a motion for recognition for her "vendor's lien" in the amount of P12,000.00, plus legal interest, invoking Articles 2242, 2243, and 2249 of the new Civil Code. After hearing, the court below ordered the "lien" annotated on the back of Certificate of Title No. 32526, with the proviso that in case of sale under the foreclosure decree the vendor's lien and the mortgage credit of appellant Barretto should be paid pro rata from the proceeds. Our original decision affirmed this order of the Court of First Instance of Manila. In its decision upholding the order of the lower court, the Court ratiocinated thus: Article 2242 of the new Civil Code enumerates the claims, mortgages and liens that constitute an encumbrance on specific immovable property, and among them are: "(2) For the unpaid price of real property sold, upon the immovable sold"; and "(5) Mortgage credits recorded in the Registry of Property."

Article 2249 of the same Code provides that "if there are two or more credits with respect to the same specific real property or real rights, they shall be satisfied pro-rata, after the payment of the taxes and assessments upon the immovable property or real rights." Application of the above-quoted provisions to the case at bar would mean that the herein appellee Rosario Cruzado as an unpaid vendor of the property in question has the right to share pro-rata with the appellants the proceeds of the foreclosure sale. As to the point made that the articles of the Civil Code on concurrence and preference of credits are applicable only to the insolvent debtor, suffice it to say that nothing in the law shows any such limitation. If we are to interpret this portion of the Code as intended only for insolvency cases, then other creditordebtor relationships where there are concurrence of credits would be left without any rules to govern them, and it would render purposeless the special laws on insolvency. 17 Upon motion by appellants, however, the Court reconsidered its decision. Justice J.B.L. Reyes, speaking for the Court, explained the reasons for the reversal: A. The previous decision failed to take fully into account the radical changes introduced by the Civil Code of the Philippines into the system of priorities among creditors ordained by the Civil Code of 1889. Pursuant to the former Code, conflicts among creditors entitled to preference as to specific real property under Article 1923 were to be resolved according to an order of priorities established by Article 1927, whereby one class of creditors could exclude the creditors of lower order until the claims of the former were fully satisfied out of the proceeds of the sale of the real property subject of the preference, and could even exhaust proceeds if necessary. Under the system of the Civil Code of the Philippines, however, only taxes enjoy a similar absolute preference. All the remaining thirteen classes of preferred creditors under Article 2242 enjoy no priority among themselves, but must be paid pro rata, i.e., in proportion to the amount of the respective credits. Thus, Article 2249 provides: "If there are two or more credits with respect to the same specific real property or real rights, they shall be satisfied pro rata, after the payment of the taxes and assessments upon the immovable property or real rights." But in order to make this prorating fully effective, the preferred creditors enumerated in Nos. 2 to 14 of Article 2242 (or such of them as have credits outstanding) must necessarily be convened, and the import of their claims ascertained. It is thus apparent that the full application of Articles 2249 and 2242 demands that there must be first some proceeding where the claims of all the preferred creditors may be bindingly adjudicated, such as insolvency, the settlement of decedent's estate under Rule 87 of the Rules of Court, or other liquidation proceedings of similar import . This explains the rule of Article 2243 of the new Civil Code that "The claims or credits enumerated in the two preceding articles shall be considered as mortgages or pledges of real or personal property, or liens within the purview of legal provisions governing insolvency x x x (Italics supplied). And the rule is further clarified in the Report of the Code Commission, as follows "The question as to whether the Civil Code and the Insolvency Law can be harmonized is settled by this Article (2243). The preferences named in Articles 2261 and 2262 (now 2241 and 2242) are to be enforced in accordance with the Insolvency Law." (Italics supplied) Thus, it becomes evident that one preferred creditor's third-party claim to the proceeds of a foreclosure sale (as in the case now before us) is not the proceeding contemplated by law for the enforcement of preferences under Article 2242, unless the claimant were enforcing a credit for taxes that enjoy absolute priority. If none of the claims is for taxes, a dispute between two creditors will not enable the Court to ascertain the pro rata dividend corresponding to each, because the rights of the other creditors likewise enjoying preference under Article 2242 can not be ascertained . Wherefore, the order of the Court of First Instance of Manila now appealed from, decreeing that the proceeds of the foreclosure sale be apportioned only between appellant and appellee, is incorrect, and must be reversed. [Emphasis supplied]

The ruling in Barretto was reiterated in Phil. Savings Bank vs. Hon. Lantin, Jr., etc., et al .,18 and in two cases both entitled Development Bank of the Philippines vs. NLRC. Although Barretto involved specific immovable property, the ruling therein should apply equally in this case where specific movable property is involved. As the extrajudicial foreclosure instituted by PNB and DBP is not the liquidation proceeding contemplated by the Civil Code, Remington cannot claim its pro rata share from DBP. WHEREFORE, the petition is GRANTED. The decision of the Court of Appeals dated October 6, 1995 and its Resolution promulgated on August 29, 1996 is REVERSED and SET ASIDE. The original complaint filed in the Regional Trial Court in CV Case No. 84-25858 is hereby DISMISSED. SO ORDERED. RUBY INDUSTRIAL CORPORATION and BENHAR INTERNATIONAL, INC. ----- versus ---COURT OF APPEALS, MIGUEL LIM, ALLIED LEASING and FINANCE CORPORATION, and THE MANAGEMENT COMMITTEE OF RUBY INDUSTRIAL CORPORATION. Petitioners seek the reversal of the Court of Appeals Decision, 1 setting aside the Orders of the Securities and Exchange Commission (SEC), dated July 30, 1993 and October 15, 1993, which approved the Revised Rehabilitation Plan of Ruby Industrial Corporation (RUBY) and appointed Benhar International, Inc. (BENHAR) as member of RUBY's Management Committee. The facts: Petitioner Ruby Industrial Corporation (RUBY) is a domestic corporation engaged in glass manufacturing, while petitioner Benhar International, Inc. (BENHAR) is a domestic corporation engaged in importation and sale of vehicle spare parts. BENHAR is wholly-owned by the Yu family and headed by Henry Yu who is also a director and majority stockholder of RUBY. In 1983, RUBY suffered severe liquidity problems. Thus, on December 13, 1983, it filed a Petition for Suspension of Payments with the Securities and Exchange Commission (SEC). 2 On December 20, 1983, the SEC issued an Order 3 declaring RUBY under suspension of payments. Pending hearing of its petition, the SEC enjoined RUBY from disposing its property, except insofar as necessary in its ordinary operations. It also enjoined RUBY from making payments outside of the necessary or legitimate expenses of its business. On August 10, 1984, the SEC Hearing Panel 4 created a management committee 5 for RUBY to: (1) undertake the management of RUBY; (2) take custody of and control over all existing assets and liabilities of RUBY; (3) evaluate RUBY's existing assets and liabilities, earnings and operations; (4) determine the best way to salvage and protect the interest of its investors and creditors; and (5) study, review and evaluate the proposed rehabilitation plan for RUBY. 6 Subsequently, at RUBY's special stockholders meeting, its majority stockholders led by Yu Kim Giang presented the BENHAR/RUBY Rehabilitation Plan to be submitted to SEC. Under the plan, BENHAR shall lend its P60 million credit line in China Bank to RUBY, payable within ten (10) years. Moreover, BENHAR shall purchase the credits of RUBY's creditors and mortgage RUBY's properties to obtain credit facilities for RUBY. 7 Upon approval of the rehabilitation plan, BENHAR shall control and manage RUBY'S operations. For its service, BENHAR shall receive a management fee equivalent to 7.5% of RUBY's net sales. 8 Some 40% of the stockholders opposed the BENHAR/RUBY Plan, including private respondent MIGUEL LIM, a minority shareholder of RUBY. Private respondent Allied Leasing and Finance Corporation, the biggest unsecured creditor of RUBY and chairman of the management committee, also objected to the plan as it would transfer RUBY's assets beyond the reach and to the prejudice of its unsecured creditors. Despite the oppositions, the majority stockholders still submitted the BENHAR/RUBY Plan to the SEC for approval. Upon the other hand, RUBY's minority stockholders, represented by private respondent Lim, submitted their own rehabilitation plan (the ALTERNATIVE PLAN) to the SEC where they proposed to: (1) pay all RUBY'S creditors without securing any bank loan; (2) run and operate RUBY without charging management fees; (3) buy-out the majority shares or sell their shares to the majority stockholders; (4) rehabilitate RUBY's two plants; and (5) secure a loan at 25% interest, as against the 28% interest charged in the loan under the BENHAR/RUBY Plan. 9 Both plans were endorsed by the SEC to RUBY's management committee for evaluation.

On October 28, 1988, the SEC Hearing Panel approved the BENHAR/RUBY Plan. 10 The minority stockholders, thru private respondent Lim, appealed the approval to the SEC en banc. On November 15, 1988, the SEC en banc temporarily enjoined the implementation of the BENHAR/RUBY Plan. On December 20, 1988, after the expiration of the TRO, the SEC en banc granted the writ of preliminary injunction against the enforcement of the BENHAR/RUBY Plan. 11 Thereafter, BENHAR and Henry Yu, later joined by RUBY and Yu Kim Clang, appealed to the Court of Appeals (CA-G.R. SP No. 16798) questioning the issuance of the writ. Their appeal was denied. 12 BENHAR and company elevated the matter to this Court. In a minute Resolution, 13 dated February 28, 1990, we denied the petition and upheld the injunction against the implementation of the BENHAR/RUBY Plan. However, it appears that before the SEC Hearing Panel approved the BENHAR/RUBY Plan on October 28, 1988, BENHAR had already implemented part of the plan by paying off Far East Bank & Trust Company (FEBTC), one of RUBY's secured creditors. Thus, by May 30, 1988, FEBTC had already executed a deed of assignment of credit and mortgage rights in favor of BENHAR. Moreover, despite the SEC en banc's TRO and injunction, BENHAR still paid RUBY's other secured creditors who, in turn, assigned their credits in favor of BENHAR. Hence, RUBY's biggest unsecured creditor, Allied Leasing and Finance Corporation, and private respondent Lim moved to nullify the deeds of assignment executed in favor of BENHAR and cite the parties thereto in contempt for willful violation of the December 20, 1983 SEC Order enjoining RUBY from disposing its properties and making payments pending the hearing of its petition for suspension of payments. Private respondents Lim and Allied Leasing charged that in paying off FEBTC's credits, FEBTC was given undue preference over the other creditors of RUBY. Acting on private respondents' motions, the SEC Hearing Panel nullified the deeds of assignment executed by RUBY's creditors in favor of BENHAR and declared the parties thereto guilty of indirect contempt. 14 Petitioners appealed to the SEC en banc. Their appeal was denied. 15 It was ruled that, pending approval of the BENHAR/RUBY plan, BENHAR had no authority to pay off FEBTC, one of RUBY's creditors. In prematurely implementing the BENHAR/RUBY plan, BENHAR defied the SEC Order declaring RUBY under suspension of payments and directing the management committee to preserve its assets. Petitioners RUBY and BENHAR, joined by Henry Yu and Yu Kim Giang, appealed to the Court of Appeals (CA-G.R. SP No. 18310). On August 29, 1990, the Court of Appeals affirmed the SEC ruling nullifying the deeds of assignment. 16 It also declared that its decision is final and executory as to RUBY and Yu Kim Giang for their failure to file their pleadings within the reglementary period. This Court affirmed the Court of Appeals' decision in G.R. No. 96675. 17 Earlier, on May 29, 1990, after the SEC en banc enjoined the implementation of BENHAR/RUBY Plan, RUBY filed with the SEC en banc an ex-parte petition to create a new management committee and to approve its revised rehabilitation plan (Revised BENHAR/RUBY Plan). Under the revised plan, BENHAR shall receive P34.068 Million of the P60.437 Million credit facility to be extended to RUBY, as reimbursement for BENHAR's payment to some of RUBY's creditors. The SEC en banc directed RUBY to submit the Revised BENHAR/RUBY Plan to its creditors for comment and approval. The petition for the creation of a new management committee was remanded for further proceedings to the SEC Hearing Panel. The Alternative Plan of RUBY's minority stockholders was also forwarded to the hearing panel for evaluation. On April 26, 1991, over ninety (90%) percent of RUBY's creditors objected to the Revised BENHAR/RUBY Plan and the creation of a new management committee. Instead, they endorsed the minority stockholders' Alternative Plan. At the hearing of the petition for the creation of a new management committee, three (3) members of the original management committee 18 opposed the Revised BENHAR/RUBY Plan on the following grounds: (1) the Revised BENHAR/RUBY Plan would legitimize the entry of BENHAR, a total stranger, to RUBY as BENHAR would become the biggest creditor of RUBY;

(2) the revised plan would put RUBY's assets beyond the reach of the unsecured creditors and the minority stockholders; and, (3) the revised plan was not approved by RUBY's stockholders in a meeting called for the purpose. However, on September 18, 1991, despite the objections of over 90% of RUBY's creditors and three (3) members of the management committee, the SEC Hearing Panel approved the revised plan and dissolved the existing management committee. It also created a new management committee and appointed BENHAR as one of its members. 19 In addition to the powers originally conferred to the management committee under P.D. No. 902-A, the new management committee was tasked to oversee the implementation by the Board of Directors of the revised rehabilitation plan for RUBY. Consequently, the original management committee, Lim, and the Allied Leasing Corporation appealed to the SECen banc. On July 30, 1993, the SEC En Banc affirmed the approval of the Revised BENHAR/RUBY Plan and the creation of a new management committee. 20 To avoid any group from controlling the management of RUBY, the SEC appointed SEC lawyers Ruben C. Ladia and Teresita R. Siao as additional members of the new management committee. Further, it declared that BENHAR's membership in the new management committee is subject to the condition that BENHAR will extend its credit facilities to RUBY without using the latter's assets as security or collateral. Private respondents Lim, Allied Leasing Corporation and the original management committee moved for reconsideration. Petitioners, on the other hand, asked the SEC to reconsider the portion of its Order prohibiting BENHAR from utilizing RUBY's assets as collateral. On October 15, 1993, the SEC denied private respondents' motions for reconsideration. However, it granted petitioners' motion and allowed BENHAR to use RUBY's assets as collateral for loans, subject to the approval of the majority of all the members of the new management committee. 21 On appeal by private respondents, the Court of Appeals set aside 22 SEC's approval of the Revised BENHAR/RUBY plan and remanded the case to the SEC for further proceedings. It ruled that the revised plan circumvented its earlier decision (CA-G.R. SP No. 18310) nullifying the deeds of assignment executed by RUBY's creditors in favor of BENHAR. Under the revised plan, BENHAR was to receive P34.068 Million of the P60.437 Million credit facility to be extended to RUBY, as settlement for its advance payment to RUBY's seven (7) secured creditors. In effect, the payments made by BENHAR under the void Deeds of Assignment were recognized as payable to BENHAR under the revised plan. Petitioners' motion for reconsideration was denied.23 Hence, this petition where petitioners aver that: I. THE COURT OF APPEALS COMMITTED A REVERSIBLE ERROR, GRAVELY ABUSED ITS DISCRETION AND EXCEEDED ITS JURISDICTION WHEN IT WENT AGAINST THE FACTS AS FOUND BY THE SEC AND, THEREAFTER, SUBSTITUTED ITS JUDGMENT FOR THAT OF THE SEC. II. THE COURT OF APPEALS COMMITTED AN ERROR REVIEWABLE ON APPEAL AND ALSO A PROPER SUBJECT OF CERTIORARI WHEN IT ALLOWED PRIVATE RESPONDENTS TO FILE SEPARATE PETITIONS PREPARED BY LAWYERS REPRESENTING THEMSELVES AS BELONGING TO DIFFERENT LAW FIRMS. We find no merit in the petition. Petitioners first contend that, in reversing the SEC's approval of the Revised BENHAR/RUBY Plan, the Court of Appeals exceeded its jurisdiction and disregarded the SEC's expertise in resolving corporate controversies. The settled doctrine is that factual findings of an administrative agency are accorded respect and, at times, finality for they have acquired the expertise inasmuch as their jurisdiction is confined to specific matters. 24Nonetheless, these doctrines do not apply when the board or official has gone beyond his statutory authority, exercised unconstitutional powers or clearly acted arbitrarily and without regard to his duty or with grave abuse of discretion. 25 In Leongson vs. Court of Appeals, 26 we held: "once the actuation of the administrative official or administrative board or agency is tainted by a failure to abide by the command of the law, then it is incumbent on the courts of justice to set matters right, with this Tribunal having the last say on the matter."

We hold that the SEC acted arbitrarily when it approved the Revised BENHAR/RUBY Plan. As found by the Court of Appeals, the plan contained provisions which circumvented its final decision 27 in CA-G.R. SP No. 18310, nullifying the deeds of assignment of credits and mortgages executed by RUBY's creditors in favor of BENHAR, as well as this Court's resolution in G.R. No. 96675, affirming said Court of Appeals' decision. Specifically, the Revised BENHAR/RUBY Plan considered as valid the advance payments made by BENHAR in favor of some of RUBY'S creditors. The nullity of BENHAR's unauthorized dealings with RUBY's creditors is settled. The deeds of assignment between BENHAR and RUBY's creditors had been categorically declared void by the SEC Hearing Panel in two (2) orders issued on January 12, 1989 and March 15, 1989. 28 The dispositive portion of the Order, dated January 12, 1989, held: WHEREFORE, the motion for reconsideration of the Order dated October 7, 1988, insofar as it relates to the motion of Allied Leasing and Finance Corporation to cite for contempt and to annul deed of assignment is hereby GRANTED. . . . The Deed of Assignment of Receivables and Mortgages, Rights, Credits and Interest Without Recourse having been executed in violation of the Order dated December 20, 1988 is hereby declared NULL and VOID. SO ORDERED. The dispositive portion of the Order dated March 15, 1989, similarly provided: WHEREFORE, Mr. Yu Kim Giang and others are hereby found guilty of indirect contempt and a penalty of P500.00 each is hereby imposed on them. The Deed of Assignment of Receivables and Mortgages, Rights, Credits and Interest Without Recourse, in favor of Benhar International, Inc., by Florence Danon, Philippine Bank of Communication, Philippine Commercial International Bank, Philippine Trust Company and PCI Leasing and Finance Incorporated, having been executed in violation of the Order dated December 20, 1988 are hereby declared NULL and VOID. These orders were upheld by the SEC en banc 29 and the Court of Appeals. 30 In CA-GR SP No. 18310, the Court of Appeals ruled as follows: 1) . . . when the Deed of Assignment was executed on May 30, 1988 by and between Ruby Industrial Corp., Benhar International Inc., and FEBTC, the Rehabilitation Plan proposed by petitioner Ruby Industrial Corp. for Benhar International Inc. to assume all petitioner's obligation has not been approved by the SEC. The Rehabilitation Plan was not approved until October 28, 1988. There was a willful and blatant violation of the SEC order dated December 1983 on the part of petitioner Ruby Industrial Corp., represented by Yu Kim Giang, by Benhar International Inc., represented by Henry Yu and by FEBTC . . . . 2) The magnitude and coverage of the transactions involved were such that Yu Kim Giang and the other signatories cannot feign ignorance or pretend lack of knowledge thereto in view of the fact that they were all signatories to the transaction and privy to all the negotiations leading to the questioned transactions. In executing the Deeds of Assignments, the petitioners totally disregarded the mandate contained in the SEC order not to dispose the properties of Ruby Industrial Corp. in any manner whatsoever pending the approval of the Rehabilitation Plan and rendered illusory the SEC efforts to rehabilitate the petitioner corporation to the best interests of all the creditors. 3) The assignments were made without prior approval of the Management Committee created by the SEC in an Order dated August 10, 1984. Under Section 6, par. d, sub. par. (2) of P.D. 902-A as amended by P.D. 1799, the Management Committee, rehabilitation receiver, board or body shall have the power to take custody and control over all existing assets of such entities under management notwithstanding any provision of law, articles of incorporation or by-law to the contrary. The SEC therefore has the power and authority, through a Management Committee composed of petitioner's creditors or through itself directly, to declare all assignment of assets of the petitioner Corporation declared under suspension of payments, null and void, and to conserve the same in order to effect a fair, equitable and meaningful rehabilitation of the insolvent corporation. 4) . . . . The acts for which petitioners were held in indirect contempt by the SEC arose from the failure or willful refusal by petitioners to obey the lawful order of the SEC not to dispose of any of its properties in any manner whatsoever without authority or approval of the SEC. The execution of the Deeds of Assignment tend to defeat or obstruct the administration of justice . Such acts are offenses against the SEC because they are calculated to embarrass, hinder and obstruct the tribunal in the administration of justice or lessen its authority. In view of the foregoing conclusion which has now been reached, it is not necessary to discuss at length or to determine other questions which are presented on record. It is sufficient to say that the facts as

established by the evidence on records warrant a finding that petitioners are guilty of indirect contempt. The Order of the SEC is hereby AFFIRMED. This petition is DISMISSED with costs against the petitioners. SO ORDERED. (emphasis ours) Petitioners insist that the Court of Appeals did not make a categorical statement in the dispositive portion of its decision in CA-G.R. SP No. 18310 that it was nullifying the deeds of assignment in favor of BENHAR. Allegedly, it merely stated that it is affirming the decision of the SEC. Petitioners cite Olac vs. Court of Appeals 31 where we held that the dispositive portion or the fallo constitutes the court's resolution in a given case, while the discussion in the body of the decision merely expresses the court's opinion. The contention has no merit. The principle laid down in Olac applies only when there is a conflict between the dispositive part (fallo) and the opinion of the court contained in the decision. Hence, in the execution of the court's judgment, the fallo should be considered as the final disposition of the case before it. Such conflict does not exist in the Court of Appeals' decision in CA-G.R. SP No. 18310. It is crystal clear that what the Court of Appeals affirmed in CA-GR SP No. 18310 was the nullity of the deeds of assignment in favor of BENHAR. In a minute resolution in G.R. No. 96675, we even sustained the Court of Appeals' decision in CA-GR SP No. 18310.32 In any event, petitioners actively participated in the proceedings before the SEC and the Court of Appeals when private respondents sought the nullification of the subject deeds. Petitioners are, therefore, estopped from questioning anew the validity of the deeds of assignment executed by RUBY 's creditors in favor of BENHAR. Petitioners should know that it is not for a party to participate in the proceedings, submit his case for decision, accept the judgment if it is favorable to him but attack it for any reason when it is adverse. 33 Even the SEC en banc, in its July 30, 1993 Order affirming the approval of the Revised BENHAR/RUBY Plan, has acknowledged the invalidity of the subject deeds of assignment. However, to justify its approval of the plan and the appointment of BENHAR to the new management committee, it gave the lame excuse that BENHAR became RUBY's creditor for having paid RUBY's debts. We quote the relevant portion of the SEC's ruling, thus: Anent the contention that BENHAR should not take an active participation in the management of petitioner corporation, the same deserves scant consideration. While the Deeds of Assignment executed by creditors of Ruby in favor of Benhar were all declared null and void, the Revised Rehabilitation plan, as herein approved by the Commission, shows that Benhar will assign its credit lines/loan proceeds or will act as financier whereby it re-lends the contracted loan to Ruby thereby converting Benhar as a creditor of the petitioner corporation once the Rehabilitation Plan is implemented. In fact, as of March 31, 1990, it appears that Benhar had made some advance payments to some creditors of Ruby further strengthening its status as a creditor. We cannot, therefore, see any reason why Benhar should not sit in the management team to oversee the implementation of the Plan. For its part, the Court of Appeals noted that the approved Revised BENHAR/RUBY Plan gave undue preference to BENHAR. The records, indeed, show that BENHAR's offer to lend its credit facility in favor of RUBY is conditioned upon the payment of the amount it advanced to RUBY's creditors, thus: FUND SOURCING 1.1. Deed of Assignment of Credit Facility (or Loan Proceeds) to be executed by Benhar in favor of Ruby, under pre-arrangement with China Banking Corporation or by any other creditor-banks, and upon payment by Ruby of such amount already advanced by Benhar. In fact, BENHAR shall receive P34.068 Million out of the P60.437 Million credit facility to be extended to RUBY for the latter's rehabilitation. Rehabilitation contemplates a continuance of corporate life and activities in an effort to restore and reinstate the corporation to its former position of successful operation and solvency. 34 When a distressed company is placed under rehabilitation, the appointment of a management committee follows to avoid collusion between the previous management and creditors it might favor, to the prejudice of the other creditors. All assets of a corporation under rehabilitation receivership are held in trust for the equal benefit of all creditors to preclude one from obtaining an advantage or preference over another by the expediency

of attachment, execution or otherwise. As between the creditors, the key phrase is equality in equity. Once the corporation threatened by bankruptcy is taken over by a receiver, all the creditors ought to stand on equal footing. Not any one of them should be paid ahead of the others. This is precisely the reason for suspending all pending claims against the corporation under receivership. 35 Parenthetically, BENHAR is a domestic corporation engaged in importing and selling vehicle spare parts with an authorized capital stock of thirty million pesos. Yet, it offered to lend its credit facility in the amount of sixty to eighty millions pesos to RUBY. It is to be noted that BENHAR is not a lending or financing corporation and lending its credit facilities, worth more than double its authorized capitalization, is not one of the powers granted to it under its Articles of Incorporation. Significantly, Henry Yu, a director and a majority stockholder of RUBY is, at the same time, a stockholder of BENHAR, a corporation owned and controlled by his family. These circumstances render the deals between BENHAR and RUBY highly irregular. To justify its appointment in the new management committee and to dispute that it will become a creditor of RUBY only on account of the proposed assignment of its credit facility to RUBY, BENHAR avers that as early as December 27, 1988, it already lent one million pesos (P1,000,000.00) to RUBY for the latter's working capital. The submission deserves scant consideration. To start with, this argument was raised by BENHAR for the first time in its motion for reconsideration before the Court of Appeals. The settled rule is that issues not raised in the court a quo cannot be raised for the first time on appeal in this case, in a motion for reconsideration for being offensive to the basic rules of fair play, justice and due process. 36 Moreover, when RUBY initiated its petition for suspension of payments with the SEC, BENHAR was not listed as one of RUBY's creditors. BENHAR is a total stranger to RUBY. If at all, BENHAR only served as a conduit of RUBY. As aptly stated in the challenged Court of Appeals decision: 37 Benhar's role in the Revised Benhar/Ruby Plan, as envisioned by the majority stockholders, is to contract the loan for Ruby and, serving the role of a financier, relend the same to Ruby. Benhar is merely extending its credit line facility with China Bank, under which the bank agrees to advance funds to the company should the need arise. This is unlikely a loan in which the entire amount is made available to the borrower so that it can be used and programmed for the benefit of the company's financial and operational needs. Thus, it is actually China Bank which will be the source of the funds to be relent to Ruby. Benhar will not shell out a single centavo of its own funds. It is the assets of Ruby which will be mortgaged in favor of Benhar. Benhar's participation will only make the rehabilitation plan more costly and, because of the mortgage of its (Ruby's) assets to a new creditor, will create a situation which is worse than the present. . . .. We need not say more. On the second issue, petitioners charge that private respondents are guilty of forum-shopping. It appears that the three (3) private respondents filed separate petitions before the Court of Appeals upon receipt of the adverse ruling of the SEC en banc. Private respondent Miguel Lim commenced CA-G. R. SP No. 32404, thru its counsel Romulo Mabanta Beunaventura Sayoc and De los Angeles. For their part, private respondent Allied Leasing and the original management committee of RUBY, represented by Attorney Waiter T. Young, commenced CA-G.R. SP No. 32483 and CA-G.R. SP No. 32469, respectively. In CA-G. R. SP No. 32483, Atty. Young signed for and in behalf of the law firm Ocampo Quiroz Pesayco and Associates, while in CA-G.R. SP No. 32469, Atty. Young signed for the law firm Quiroz and Young. In both petitions, he used the same business address Allied Bank Center, 6754 Ayala Avenue, Makati City. We hold that private respondents are not guilty of forum-shopping. In Ramos, Sr. vs. Court of Appeals, 38 we ruled: The private respondents can be considered to have engaged in forum shopping if all of them, acting as one group, filed identical special civil actions in the Court of Appeals and in this Court. There must be identity of parties or interests represented, rights asserted and relief sought in different tribunals. In the case at bar, two groups of private respondents appear to have acted independently of each other when they sought relief from the appellate court. Both group sought relief from the same tribunal. It would not matter even if there are several divisions in the Court of Appeals. The adverse party can always ask for the consolidation of the two cases. . . .

In the case at bar, private respondents represent different groups with different interests the minority stockholders' group, represented by private respondent Lim; the unsecured creditors group, Allied Leasing & Finance Corporation; and the old management group. Each group has distinct rights to protect. In line with our ruling in Ramos , the cases filed by private respondents should be consolidated. In fact, BENHAR and RUBY did just that in their urgent motions filed on December 1, 1993 and December 6, 1993, respectively, they prayed for the consolidation of the cases before the Court of Appeals. IN VIEW OF THE FOREGOING, the instant petition is DISMISSED for lack of merit. The Court of Appeals' Decision, dated March 31, 1995, and its Resolution, dated March 12, 1996, in CA-G.R. SP Nos. 32404, 42469 and 32483 are AFFIRMED. The case is remanded to the Securities and Exchange Commission for further proceedings. Costs against petitioners. SO ORDERED. RUBBERWORLD (PHILS.), INC., or JULIE YAP ONG - versus - NATIONAL LABOR RELATIONS COMMISSION, Presidential Decree 902-A, as amended, provides that "upon the appointment of a management committee, rehabilitation receiver, board or body pursuant to this Decree, all actions for claims against corporations, partnerships, or associations under management or receivership pending before any court, tribunal, board or body shall be suspended accordingly. 1 Such suspension is intended to give enough breathing space for the management committee or rehabilitation receiver to make the business viable again, without having to divert attention and resources to litigations in various fora. Among the actions suspended are those for money claims before labor tribunals, like the National Labor Relations Commission (NLRC) and the labor arbiters. Statement of the Case The foregoing summarizes this Court's grant of the Petition for Certiorari under Rule 65 of the Rules of Court, assailing the April 26, 1996 Resolution 2 promulgated by the NLRC 3 which upheld the labor arbiter's refusal to suspend proceedings involving monetary claims of the petitioner's employees. Petitioner likewise assails the June 20, 1996 NLRC Resolution 4 which denied its Motion for Reconsideration. On November 20, 1996, this Court issued a temporary restraining order, signed by then Chief Justice Andres R. Narvasa, "restraining the public respondents from further conducting proceedings in the aforesaid cases effective immediately . . . The Facts The facts are undisputed. They are narrated by the Office of the Solicitor general as follows:

Petitioner . . . is a domestic corporation which used to be in the business of manufacturing footwear, bags and garments. It filed with the Securities and Exchange Commission on November 24, 1994 a petition for suspension of payments praying that it be declared in a state of suspension of payments and that the SEC accordingly issue an order restraining its creditors from enforcing their claims against petitioner corporation. It further prayed for the creation of a management committee as well as for the approval of the proposed rehabilitation plan and memorandum of agreement between petitioner corporation and its creditors. In an order dated December 28, 1994, the SEC favorably ruled on the petition for suspension of payments thusly: Accordingly, with the creation of the Management Committee, all actions for claims against Rubberworld Philippines, Inc. pending before any court, tribunal, office, board, body Commission of Sheriff are hereby deemed SUSPENDED. Consequently, all pending incidents for preliminary injunctions, writ of attachments ( sic), foreclosures and the like are hereby rendered moot and academic. Private respondents, who claim to be employees of petitioner corporation, filed against petitioners [from] April to July 1995 their respective complaints for illegal dismissal, unfair labor practice, damages and payment of separation pay, retirement benefits, 13th month pay and service incentive pay. Petitioners moved to suspend the proceedings in the above labor cases on the strength of the SEC Order dated December 28, 1994. Likewise, petitioners cited the rulings of BF Homes vs. Court of Appeals (190 SCRA 262), Alemar's Sibal & Sons. Inc., vs. Elbinias (186 SCRA 94) and Bank of Philippine Islands

vs. Court of Appeals (229 SCRA 223) to support their motion to suspend the proceedings in the labor cases. In an Order dated September 25, 1995, the Labor Arbiter denied the aforesaid motion holding that the injunction contained in the SEC Order applied only to the enforcement of established rights and did not include the suspension of proceedings involving claims against petitioner which have yet to be ascertained. The Labor Arbiter further held that the order of the SEC suspending all actions for claims against petitioners does not cover the claims of private respondents in the labor cases because said claims and the concomitant liability of petitioners still had to be determined, thus carrying no dissipation of the assets of petitioners.1wphi1.nt Petitioners appealed the adverse order of the Labor Arbiter to public respondent which, in a Resolution dated April 26, 1996, dismissed the appeal for lack of merit and, instead, sustained the rulings of the Labor Arbiter. The motion for reconsideration of petitioners fared no better and was denied by public respondent in a Resolution dated June 20, 1996. Hence, this petition.

The Issue : Petitioner raises only one issue: Whether or not the Respondent NLRC acted without or in excess of jurisdiction or with grave abuse of discretion amounting to lack of jurisdiction in affirming the order of Labor Arbiter Voltaire A. Balitaan denying petitioners' motion to suspend proceedings despite the Order of the Securities and Exchange Commission under Sec. 6 (c) of P.D. 902-A directing the suspension of all actions against a company under the first stages of insolvency proceedings. 7 This Court's Ruling : The petition is meritorious. Sole Issue: Suspension of Proceedings Jurisprudence teaches us: where the petition filed is one for declaration of a state of suspension of payments due to a recognition of the inability to pay one's debts and liabilities, and 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 but illiquid) or (b) has no sufficient property (insolvent) but is under the management of a rehabilitation receiver or a management committee, the applicable law is P.D. 902-A pursuant to Sec. 5 par. (d) thereof. However, if the petitioning corporation has no sufficient assists to cover its liabilities and is not under a rehabilitation receiver or a management committee created under P.D. 902-A and does not seek merely to have the payments of its debts suspended, but seeks a declaration of insolvency . . . the applicable law is Act 1956 [The Insolvency Law] on voluntary Insolvency, ... In the case at bar, Petitioner Rubberworld filed before the SEC a Petition for Declaration of Suspension of Payments, as well as a proposed rehabilitation plan. On December 28, 1994, the SEC ordered the creation of a management committee and the suspension of all actions for claims against Rubberworld. Clearly, the applicable law is PD 902-A, as amended, the relevant provisions of which read: Sec. 5. In addition to the regulatory adjudicative functions of the Commission over corporations, partnerships and other forms of associations registered with it as expressly granted under existing laws and decrees, it shall have original and exclusive jurisdiction to hear and decide cases involving: d) Petitions of corporations, partnerships or associations to be declared in the state of payments in cases where the corporation, partnership or association possesses sufficient property to cover all its debts regulatory but foresees the impossibility of meeting them when they respectively fall due or in cases where the corporation, partnership or association has no sufficient assets to cover its liabilities, but is under the management of a rehabilitation receiver or management committee created pursuant to this Decree. Sec. 6. In order to effectively exercise such jurisdiction, the Commission shall possess the following powers:

c) To appoint one or more receivers of the property, real or personal, which is the subject of the action pending before the Commission in accordance with the pertinent provisions of the Rules of Court in such other cases whenever necessary 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 appointment of a management committee, the rehabilitation receiver, board or body, pursuant to this Decree, all actions for claims against corporations, partnerships, or associations under management or receivership pending before any court, tribunal, board or body shall be suspended accordingly. It is plain from the foregoing provisions of law that "upon the appointment [by the SEC] of a management committee or a rehabilitation receiver," all actions for claims against the corporation pending before any court, tribunal or board shall ipso jure be suspended. 9 The justification for the automatic stay of all pending actions for claims "is to enable the management committee or the rehabilitation receiver to effectively exercise its/his powers free from any judicial or extra-judicial interference that might unduly hinder or prevent the "rescue" of the debtor company. To allow such other actions to continue would only add to the burden of the management committee or rehabilitation receiver, whose time, effort and resources would be wasted in defending claims against the corporation instead of being directed toward its restructuring and rehabilitation. 10 Parenthetically, the rehabilitation of a financially distressed corporation benefits its employees, creditors, stockholders and, in a larger sense, the general public, And in considering whether to rehabilitate or not, the SEC gives preference to the interest of creditors, including employees. The reason its that shareholders can recover their investments only upon liquidation of the corporation, and only if there are assets remaining after all corporate creditors are paid. 11 Labor Claims Included in Suspension Order The solicitor general, representing Public Respondent NLRC, argues that the rationale for an automatic stay will not be frustrated even if the NLRC proceeds with the disposition of these labor cases, because any favorable obtained by the private respondents would only establish their rights as creditors. The solicitor general also contends that the assailed Resolutions of the NLRC will not result in an undue preference for the assets of Rubberworld, as the private respondents will still present their claims before the management committee. 12 We disagree. The law is clear: upon the creation of a management committee or the appointment of a rehabilitation receiver, all claims for actions "shall be suspended accordingly." No exception in favor of labor claims is mentioned in the law. Since the law makes no distinction or exemptions, neither should this Court. Ubi lex non distinguit nec nos distinguere debemos . 13 Allowing labor cases to proceed clearly defeats the purpose of the automatic stays and severally encumbers the management committee's and resources. The said committee would need to defend against these suits, to the detriment of its primary and urgent duty to work towards rehabilitating the corporation and making it viable again. The rule otherwise would open the floodgates to other similarly situated claimants and forestall if not defeat the rescue efforts. Besides, even if the NLRC awards the claims of private respondents, as it did, its ruling could not be enforced as long as the petitioner is under the management committee. 14 In Chua v. National Labor Relations Commission, 15 we ruled that labor claims cannot proceed independently of a bankruptcy liquidation proceeding, since these claims "would spawn needless controversy, delays, and confusion." 16 With more reason, allowing labor claims to continue in spite of a SEC suspension order in a rehabilitation case would merely lead to such results. The solicitor general insists that since Article 217 of the Labor Code 17 vested [public respondent with jurisdiction to hear and decide these labor cases, the NLRC did not exceed its jurisdiction when it refused to suspend the proceeding therein. 18 The Court is not persuaded. Article 217 of the Labor Code should be construed not in isolation but in harmony with PD 902-A, according to the basic rule in statutory construction that implied repeals are not favored. 19 Indeed, it is axiomatic that each and every statute must be construed in a way that would avoid conflict with existing laws. 20 true, the NLRC has the power to hear and decide labor disputes, but such authority is deemed suspended when PD 902-A is put into effect by the Securities and Exchange Commission. Preference in Favor of Workers inCase of Bankruptcy or Liquidation

The private respondents contend that automatic stay under PD 902-A is not applicable to the instant case; otherwise, the preference granted to workers by Article 110 of the Labor Code would be rendered ineffective.21 This contention is misleading. The preferential right of workers and employees under Article 110 of the Labor code may be invoked only upon the institution of insolvency or judicial liquidation proceeding. 22 Indeed, it is well-settled that "a declaration of bankruptcy or a judicial liquidation must be present before preferences over various money claims may be enforced." 23 But debtors resort to preference of credit giving preferred creditors the rights to have their claims paid ahead of those of other claimants only when their assets are insufficient to pay their debts fully.24 The purpose of rehabilitation proceedings is precisely to enable the company to gain a new lease on life and thereby allow creditors to be paid their claims from its earnings. In insolvency proceedings, on the other hand, the company stops operating, and the claims of creditors are satisfied from the assets of the insolvent corporation. The present case involves the rehabilitation, not the liquidation, of petitioner-corporation. Hence, the preference of credit granted to workers or employees under Article 110 of the Labor Code is not applicable. Duration of Automatic : Stay Under PD 902-A Finally, private respondents posit that under Section 6 of the Insolvency Law, the December 28, 1994 Order of the SEC suspending all actions for claims against Rubberworld should have expired after three months, in the absence of an agreement between the company and the corporate creditors. 25 Private respondents also accuse the SEC of abusing its power by "allowing said suspension order to remain pending for many years without resolving and approving any rehabilitation plan." 26 They contend that "[t]his is fatal to the instant petition for it had been a party to the abuse by the SEC of its suspension order." 27 This Court notes that PD 902-A itself does not provide for the duration of the automatic stay. Neither does the Order 28 of the SEC. Hence, the suspensive effect has no time limit and remains in force as long as reasonably necessary to accomplish the purpose of the Order. 29 On the other hand, the attack against the SEC's alleged "abuse of power" is misplaced. Under review in this Petition for Certiorari are Resolutions of the NLRC, nor of the SEC. The scope of this review is thus limited to whether the NLRC gravely abused or exceeded its jurisdiction in refusing to heed the SEC Order of Suspension and in issuing its challenged Resolutions. In any event, the bare allegation of inaction is insufficient to condemn the Securities and Exchange Commission and the management committee where, it should be noted, all affected parties, including the labor union in the company, are represented. WHEREFORE, the petition is hereby GRANTED. The assailed Resolutions of the NLRC dated April 26, 1996, and June 20, 1996, are REVERSED and SET ASIDE. No costs. SO ORDERED

LECA REALTY CORPORATION - versus -

MANUELA CORPORATION

These are consolidated petitions for review on certiorari filed by Leca Realty Corporation (LECA), petitioner, assailing the separate related Decisions of the Court of Appeals in CA-G.R. SP No. 87185 and CA-G.R. SP No. 80861. G.R. No. 168924 : In a petition for review on certiorari under Rule 45 of the 1997 Rules of Civil Procedure, as amended, petitioner LECA assails the Decision of the Court of Appeals (Special 8th Division) dated April 28, 2005 and its Resolution of July 15, 2005 in CA-G.R. SP No. 87185. In its Decision, the Court of Appeals sustained the Rehabilitation Plan of Manuela Corporation (Manuela), respondent. Petitioner now contends that the Rehabilitation Plan has impaired its contract of lease with respondent over a tract of land consisting of almost three (3) hectares. Petitioner is the owner of the property situated on Shaw Boulevard, Mandaluyong City. G.R. No. 166800 : This is a petition for review on certiorari under the same Rule questioning the Decision dated September 30, 2004 of the Court of Appeals (17th Division) and its Resolution dated January 25, 2005 in CA-G.R. SP No. 80861. In its Decision, the Court of Appeals affirmed the trial courts Order denying petitioners motion for extension of time to file its Record on Appeal in Civil Case No. LP-02-0028, entitled In the Matter of the Petition for Rehabilitation of Manuela Corporation. As found by the Court of Appeals in CA-G.R. SP No. 87185, the antecedent facts, common to both petitions, are:

On January 31, 2002, respondent filed with the Regional Trial Court (RTC), Branch 253, Las Pias City, a Petition for Rehabilitation, docketed as Civil Case No. LP-02-0028. The petition alleges inter alia that respondent is a corporation duly organized and existing under the laws of the Republic of the Philippines, primarily engaged in the business of leasing to retailers commercial spaces in shopping malls. Its principal office address is Alabang-Zapote Road, Pamplona, Las Pias City. Respondent is the owner and operator of the following malls strategically located in Metro Manila: a) M Star One b) M Star c) Starmall d) Metropolis Star e) Pacific Mall Respondent has assets valued at P12.43 billion and total liabilities of P4.87 billion as of December 31, 2001. However, due to reasons that shall be discussed below, respondent is now having severe cash flow problems which prevent it from paying its debts as they fall due. In order to finance the costs of building the Metropolis Star and the Pacific Mall, respondent obtained several loans from two syndicates of lenders. The first syndicate is composed of Bank of Philippine Islands, BPI Family Bank, Metropolitan Bank and Trust Company, Allied Bank, and Bank of Commerce; the second syndicate is composed of Allied Bank, Bank of Commerce, Philippine National Bank, and Equitable PCI Bank. Respondents loans are governed by the Loan Agreement dated July 5, 1995 and the Syndicated Loan Agreement dated December 16, 1996. Respondents total outstanding loan from the syndicates (e.g., principal plus interest) is P2.174 billion as of December 31, 2001. These loans are secured by a mortgage over M Star One and M Star, both located in Las Pias City. Respondent also has liabilities to the Hero Holdings, Inc. and its trade suppliers and other parties in the sum of P1.476 billion as of December 31, 2001. At the onset of the Asian financial crisis in 1997, the banks stopped their lending activities to borrowers, including respondent. This event took its toll upon respondent since its malls failed to operate sufficiently resulting in heavy losses. Matters finally came to a head in 1997 when respondent could no longer pay its trade suppliers for maturing obligations. Neither could it pay its creditor banks. The adjusted interest rates on its outstanding loans, as a result of the Asian financial crisis, were between 18% to 30% which added to respondents liquidity problems. Nonetheless, respondent has been acting in good faith and has exerted earnest efforts to avert its worsening financial problems. It closed down non-income generating businesses, concentrated on its business of leasing commercial spaces, intensified collection efforts, reduced personnel, negotiated for restructuring of loans with creditors, and worked out a viable payment scheme without giving undue preference to any creditor. Despite its efforts, respondent could no longer pay its suppliers and the maturing interests on its loans. The petition further alleges that respondent can only be brought back to its financial viability if its proposed Rehabilitation Plan is approved and that it is given a respite from its creditors demands through the issuance of a Stay Order. The successful implementation of the proposed Rehabilitation Plan will enable it to settle its remaining obligations in an orderly manner, restore its financial viability, and allow it to resume its normal operations. On February 5, 2002, the trial court issued a Stay Order,[1] thus: a) a stay in the enforcement of all claims, whether for money or otherwise and whether such enforcement is by court action or otherwise, against petitioner MANUELA, its guarantors and sureties not solidarily liable with it; b) prohibiting MANUELA from selling, encumbering, transferring or disposing in any manner any of its properties except in the ordinary course of business; c) prohibiting MANUELA from making any payment of its liabilities outstanding as of the filing of the instant petition; d) prohibiting MANUELAs suppliers of goods and services from withholding supply of goods and services in the ordinary course of business as long as MANUELA makes payments for the goods and services supplied after the issuance of this Stay Order; and e) directing the payment in full of all administrative expenses incurred after the issuance of this Stay Order.[2]

In the same Stay Order, the trial court appointed Marilou Adea, also a respondent, as Rehabilitation Receiver. On February 12, 2002, respondent Adea accepted her appointment.In its Order dated May 21, 2002, the trial court referred the petition to respondent Adea for evaluation and recommendation. On September 28, 2002, she submitted to the trial court her Report and Recommendation finding respondent Manuelas Rehabilitation Plan viable and feasible and recommending its approval. Respondent Adea then held several consultative meetings with respondent Manuelas creditors to discuss their respective concerns and suggestions relative to its rehabilitation. For their part, the creditors filed their various comments/oppositions to respondent Manuelas Petition for Rehabilitation and Rehabilitation Plan. On July 31, 2002, petitioner filed with the trial court its Comment and/or Formal Claim with Leave of Court against respondent Manuela amounting to P193,724,262.34 as of February 28, 2002, representing unpaid rentals, security deposits, interests, and penalty charges. On September 30, 2002, respondent Adea issued a Notice informing all creditors, claimants, suppliers, lot and/or house buyers, counsels, oppositors, and other parties that copies of her Report and Recommendation on respondent Manuelas Petition for Rehabilitation are available and on file with the trial court for distribution to all parties concerned. On October 22, 2002, petitioner filed its comment on respondent Adeas Report and Recommendation. Petitioner opposed her recommendation to reduce respondent Manuelas liability, considering its contractual nature which cannot be impaired during the process of rehabilitation. On July 28, 2003, the trial court issued an Order approving the Rehabilitation Plan, the dispositive portion of which reads: WHEREFORE, the Rehabilitation Plan submitted by the Rehabilitation Receiver, pp. 120 to 165 of the Report and Recommendation on Manuela Corporation (Manuela)s Petition for Rehabilitation revised June 9, 2003, is APPROVED. Petitioner is strictly enjoined to abide by its terms and conditions and the Rehabilitation Receiver shall, unless directed otherwise, submit a quarterly report on the progress of the implementation of the Rehabilitation Plan. Aggrieved, petitioner filed with the trial court its Notice of Appeal with Motion for Extension of Time to File Record on Appeal. However, the trial court issued an Order denying the Motion for Extension of Time to File Record on Appeal, thus: Before the Court is a Notice of Appeal with Motion forExtension of Time filed by creditor Leca Realty Corporation praying for a period of thirty (30) days from August 21, 2003 to September 20, 2003 to file its intended record on appeal. However, under Rule 3, Section 1 of the Interim Rules of Procedure on Corporate Rehabilitation, a motion for extension is a prohibited pleading. WHEREFORE, the subject motion is DENIED. SO ORDERED. Petitioner then elevated the case to the Court of Appeals through a Petition for Certiorari and Mandamus, docketed as CA-G.R. SP No. 80861 and assigned to the 17thDivision. On September 30, 2004, the Court of Appeals rendered a Decision dismissing the petition for lack of merit. Petitioner then filed a motion for reconsideration but it was denied by the appellate court in its Resolution dated January 25, 2005. Hence, the instant petition for review on certiorari, docketed as G.R. No. 166800. G.R. No. 168924 : In the meantime, petitioner seasonably filed with the Court of Appeals a petition for review under Rule 43 of the 1997 Rules of Civil Procedure, as amended, alleging that the RTC erred in approving respondent Manuelas Rehabilitation Plan as it violates its (petitioners) constitutional right to non-impairment of contract and the Interim Rules of Procedure on Corporate Rehabilitation. On April 28, 2005, the Court of Appeals (Special 8th Division) promulgated its Decision denying the petition, holding that: The pendency of the rehabilitation proceedings cannot be interpreted to impair the contractual obligations previously entered into by the contracting parties because the automatic stay of all actions is sanctioned by P.D. 902-A which provides that all actions for claims against corporations, partnerships or associations under management or receivership pending before any court, tribunal, board or body shall be suspended accordingly [Rubberworld (Phils.), Inc. v. NLRC, 391 Phil. 318 (2000)].

On May 20, 2005, petitioner filed with the Court of Appeals a motion for reconsideration but it was denied in its Resolution dated July 15, 2005. Hence, petitioner filed with this Court a Petition for Review on Certiorari, docketed as G.R. No. 168924. In view of the identity of parties and the inter-relationship of the issues involved in G.R. No. 166800 and G.R. No. 168924, we resolved to consolidate the two petitions. The issue posed before us in G.R. No. 166800 for certiorari and mandamus is whether the trial court erred in ruling that a motion for extension of time to file record on appeal is a prohibited pleading under Section 1 of the Interim Rules of Procedure on Corporate Rehabilitation which provides: Section 1. Nature of Proceedings. Any proceeding initiated under these Rules shall be considered in rem. Jurisdiction over all those affected by the proceedings shall be considered as acquired upon publication of the notice of the commencement of the proceedings in any newspaper of general circulation in the Philippines in the manner prescribed by these Rules. The proceedings shall also be summary and non-adversarial in nature. The following pleadings are prohibited: a. b. c. d. e. f. g. h. i. j. Motion to Dismiss; Motion for Bill of Particulars; Motion for New Trial or For Reconsideration; Petition for Relief; Motion for Extension; Memorandum; Motion for Postponement; Reply or Rejoinder; Third Party Complaint; Intervention;

The prohibited pleadings enumerated above are those filed in the rehabilitation proceedings. Once the trial court decides the case and an aggrieved party appeals, the procedure to be followed is that prescribed by the Rules of Court as mandated by Section 5, Rule 3, of the same Interim Rules, thus: The review of any order or decision of the court or on appeal therefrom shall be in accordance with the Rules of Court.In this connection, Section 11, Rule 11, of the Rules of Court (now the 1997 Rules of Civil Procedure, as amended), states: Extension of time to plead. Upon motion and on such terms as may be just, the court may extend the time to plead provided in these Rules. The court may also, upon like terms, allow an answer or other pleading to be filed after the time fixed by these Rules. Verily, the trial court erred in denying petitioners motion for extension of time to file record on appeal. At any rate, this petition has become moot considering that the Court of Appeals gave due course to LECAs petition for review (CA-G.R. SP No. 80861) which eventually reached this Court via a petition for review on certiorari, docketed as G.R. No. 168924. In G.R. No. 168924, petitioner ascribes to the Court of Appeals the following assignment of errors: 1. THE COURT OF APPEALS GRIEVOUSLY ERRED IN RULING THAT THE PENDENCY OF THE REHABILITATION PROCEEDINGS CANNOT BE INTERPRETED TO IMPAIR THE CONTRACTUAL OBLIGATIONS PREVIOUSLY ENTERED INTO BY THE CONTRACTING PARTIES BECAUSE THE AUTOMATIC STAY OF ALL ACTIONS IS SANCTIONED BY P.D. 902-A WHICH PROVIDES THAT ALL ACTIONS FOR CLAIMS AGAINST CORPORATIONS, PARTNERSHIPS OR ASSOCIATIONS UNDER MANAGEMENT OR RECEIVERSHIP PENDING BEFORE ANY COURT, TRIBUNAL, BOARD OR BODY SHALL BE SUSPENDED ACCORDINGLY, CITING RUBBERWORLD (PHILS.), INC. V. NLRC, G.R. NO. 128003,JULY 26, 2000, 336 SCRA 433. 2. THE COURT OF APPEALS ERRED IN SUSTAINING THE LOWER COURTS APPROVAL OF RESPONDENT MANUELAS REHABILITATION PLAN EVEN IF SUCH PLAN IS NOT VIABLE OR FEASIBLE BECAUSE RESPONDENT MANUELA CORPORATION COULD NOT EVEN COMPLY WITH THE TERMS AND PROVISIONS OF THE COURT-APPROVED REHABILITATION PLAN.

3. THE COURT OF APPEALS ALSO ERRED IN NOT ADDRESSING THE ISSUE OF THE LOWER COURTS FAILURE TO ACT, THAT IS, APPROVE OR DISAPPROVE, THE REHABILITATION PLAN OF MANUELA CORPORATION WITHIN EIGHTEEN MONTHS AFTER THE FILING OF THE PETITION FOR REHABILITATION. Petitioner contends that the approved Rehabilitation Plan drastically altered the terms of its lease contract with respondent Manuela, hence, should be declared void. The contract of lease between petitioner and respondent Manuela[7] for twenty-five years, from August 1, 1995 to July 31, 2020, stipulates that the rates of rental on the leased parcel of land are as follows: Year Rent/Sq. M. Monthly Rent Yearly 14 146.22 3,917,233.80 Rent 47,006,805.60 1 60.00 1,607,400.00 Year Rent/Sq. M. Monthly Rent 19,288,800.00 Rent 2 64.20 1,719,918.00 15 155.90 4,176,561.00 20,639,016.00 50,118,732.00 3 68.40 1,832,436.00 16 174.60 4,677,534.00 21,989,232.00 56,130,408.00 4 72.60 1.944,954.00 17 193.30 5,178,507.00 23,339,448.00 62,142,084.00 5 76.80 2,057,472.00 18 212.00 5,679,480.00 24,689,664.00 68,153,760.00 6 82.94 2,221,962.00 19 230.70 6,180,453.00 26,663,551.20 74,165,436.00 7 89.08 2,386,453.20 28,637,438.40 Year Rent/Sq. M. Monthly Rent Year Rent/Sq. M. Monthly Rent Yearly Rent Rent 20 260.69 6,983,885.10 8 95.23 2,552,211.70 83,806,621.20 30,614,540.40 21 290.68 7,787,317.20 9 101.37 2,715,702.30 93,447,806.40 32,588,427.60 22 320.67 8,590,749.30 10 107.52 2,880,460.80 103,088,991.60 34,565,529.60 23 365.56 9,793,352.40 11 117.19 3,139,520.10 117,520,288.80 37,674,241.20 24 410.45 10,995,955.50 12 126.87 3,398,847.30 131,951,466.00 40,786,167.60 25 455.34 12,198,558.60 13 136.54 3,657,906.60 146,382,703.20 43,894,879.20 On the other hand, the Rehabilitation Plan prescribes the following rental rates:

Yearly

Yearly

Year Yearly Rent Year Yearly Rent 1st year 2003-2004 RENT FREE 6th year 2008-2009 20,639,016.00 2nd year 2004-2005 P 5,000,000.00 7th year 2009-2010 21,639,016.00 3rd year 2005-2006 5,000,000.00 8th year 2010-2011 23,339,445.00 4th year 2006-2007 5,000,000.00 9th year 2011-2012 24,689,664.00 5th year 2007-2008 19,288,800.00 10th year 2012-2013 26,663,544.00 Clearly, there is a gross discrepancy between the amounts of rent agreed upon by the parties and those provided in the Rehabilitation Plan. In its Decision, the Court of Appeals rejected petitioners contention that the approved Rehabilitation Plan impairs the obligation of contract, ratiocinating that theautomatic stay of all actions is sanctioned by Section 5 (c) of Presidential Decree (P.D.) No. 902-A which provides that all actions for claims against corporations, partnerships or associations under management or receivership pending before any court, tribunal, board or body shall be suspended accordingly. Petitioner, in support of its contention, cites in its Memorandum the treatises of Ateneo Law Dean Cesar L. Villanueva and former SEC Commissioner Danilo L. Concepcion, both known authorities on Corporation Law. In his Article which appeared in the Ateneo Law Journal, Dean Villanueva said:

The nature and extent of the power of the SEC to approve and enforce a rehabilitation plan is certainly an important issue. Often, a rehabilitation plan would require a diminution, if not destruction, of contractual and property rights of some, if not most of the various stakeholders in the petitioning corporation. In the absence of clear coercive legal provisions, the courts of justice and much less the SEC would have no power to amend or destroy the property and contractual rights of private parties, much less relieve a petitioning corporation from its contractual commitments. On the other hand, Professor Concepcion stated that what is allowed in rehabilitation proceedings is only the suspension of payments, or the stay of all actions for claims of distressed corporations, and upon its successful rehabilitation, the claims must be settled in full. We agree with petitioner. In The Insular Life Assurance Company, Ltd., v. Court of Appeals, et al., we held: 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 any other intention that would contradict its plain import. The Court would be rewriting the contract of lease between Insular and Sun Brothers under the guise of construction were we to interpret the option to renew clause as Sun Brothers propounds it, despite the express provision in the original contract of lease and the contracting parties subsequent acts. As the Court has held in Riviera Filipina, Inc. vs. Court of Appeals, a court, even the Supreme Court, has no right to make new contracts for the parties or ignore those already made by them, simply to avoid seeming hardships. Neither abstract justice nor the rule of liberal construction justifies the creation of a contract for the parties which they did not make themselves or the imposition upon one party to a contract of an obligation not assumed. The amount of rental is an essential condition of any lease contract. Needless to state, the change of its rate in the Rehabilitation Plan is not justified as it impairs the stipulation between the parties. We thus rule that the Rehabilitation Plan is void insofar as it amends the rental rates agreed upon by the parties. It must be emphasized that there is nothing in Section 5 (c) of P.D. No. 902-A authorizing the change or modification of contracts entered into by the distressed corporation and its creditors. Moreover, the Stay Order issued by the trial court directed respondent Manuela to pay in full, after the issuance of such Order, all administrative expenses incurred. Administrative expenses are costs associated with the general administration of an organization and include such items as utilities, rents, salaries, postages, furniture, and housekeeping charges. Inasmuch as rents are considered administrative expenses and considering that the Stay Order directed respondent Manuela to pay the rents in full, then it must comply at the rates agreed upon. Respondent Manuela, therefore, must update its payment of rental arrears and continue to pay current rentals at the rate stipulated in the lease contract. The rentals shall incur interest at the legal rate of 6% per annum. Upon finality of this Decision, the legal rate shall be 12% per annum, pursuant to the following rulings of this Court: 1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or forbearance of money, the interest due should be that which may have been stipulated in writing. Furthermore, the interest due shall itself earn legal interest from the time it is judicially demanded. In the absence of stipulation, the rate of interest shall be 12% per annum to be computed from default, i.e., from judicial or extrajudicial demand under and subject to the provisions of Article 1169 of the Civil Code. 2. When an obligation, not constituting a loan or forbearance of money, is breached, an interest on the amount of damages awarded may be imposed at the discretion of the court at the rate of 6% per annum. No interest, however, shall be adjudged on unliquidated claims or damages except when or until the demand can be established with reasonable certainty. Accordingly, where the demand is established with reasonable certainty, the interest shall begin to run from the time the claim is made judicially or extrajudicially (Art. 1169, Civil Code) but when such certainty cannot be so reasonably established at the time the demand is made, the interest shall begin to run only from the date the judgment of the court is made (at which time the quantification of damages may be deemed to have been reasonably ascertained). The actual base for the computation of legal interest shall, in any case, be on the amount finally adjudged. 3. When the judgment of the court awarding a sum of money becomes final and executory, the rate of legal interest, whether the case falls under paragraph 1 or paragraph 2, above, shall be 12% per annum

from such finality until its satisfaction, this interim period being deemed to be by then an equivalent to a forbearance of credit. WHEREFORE, we GRANT the Petition for Review in G.R. No. 168924. The assailed Decision of the Court of Appeals in CA-G.R. SP No. 87185 is AFFIRMED with MODIFICATION. The Rehabilitation Plan, insofar as it modifies the rental rates agreed upon by petitioner LECA and respondent Manuela, is declared VOID. Respondent Manuela is ordered to pay the rentals and all arrearages at the rates stipulated in the lease contract with interest at 6% per annum. Upon the finality of this Decision, the interest shall be 12% per annum until fully paid. The Petition for Review on Certiorari in G.R. No. 166800 is DENIED for being moot. It has been overtaken by events. No costs. SO ORDERED. CHAS REALTY AND DEVELOPMENT CORPORATION, vs. HON. TOMAS B. TALAVERA and ANGEL D. CONCEPCION, SR Petitioner Chas Realty and Development Corporation (CRDC) is a domestic corporation engaged in property development and management. It is the owner and developer of a three-hectare shopping complex, also known as the Megacenter Mall (Megacenter), in Cabanatuan City. The construction of Megacenter commenced in January 1996, but by the time of its so-called soft opening in July 1998, it was only partly completed due to lack of funds, said to have been brought about by construction overages due to the massive devaluation of the peso during the economic crisis in 1997, low occupancy, and rental arrearages of tenants. The opening of the upper ground floor and the second floor of the building followed, respectively, in August 1998 and towards the end of 1998. Eventually, Megacenter opened its third floor in 1999. Purportedly on account of factors beyond the control of CRDC, such as high interest rates on its loans, unpaid rentals of tenants, low occupancy rate, sluggishness of the economy and the freezing of its bank account by its main creditor, the Land Bank of the Philippines, CRDC encountered difficulty in paying its obligations as and when they fell due and had to contend with collection suits and related cases. On 04 June 2001, CRDC filed a petition for rehabilitation attaching thereto a proposed rehabilitation plan, accompanied by a secretarys certificate, consonantly with paragraph 2(k), Section 2, Rule 4, of the Interim Rules of Procedure on Corporate Rehabilitation. CRDC claimed that it had sufficient assets and a workable rehabilitation plan both of which showed that the continuance of its business was still feasible. It alleged that, prior to the filing of the petition for rehabilitation, a special meeting of its stockholders was held on 18 April 2001 during which the majority of the outstanding capital stock of CRDC approved the resolution authorizing the filing of a petition for rehabilitation. On 08 June 2001, the Regional Trial Court, Branch 28, of Cabanatuan City, to which the petition was assigned, issued an order staying all claims against CRDC and prohibited it from making any payment on its outstanding obligations and selling, or otherwise disposing or encumbering, its property. Forthwith, the court appointed a rehabilitation receiver. On 20 July 2001, Angel D. Concepcion, Sr., herein private respondent, filed a complaint in intervention opposing the appointment of CRDCs nominee for the post of rehabilitation receiver. He belied CRDCs factual allegations and claimed that the predicament of the corporation was due to serious mismanagement, fraud, embezzlement, misappropriation and gross/evident violation of the fiduciary duties of CHAS officers. Concepcion moved to dismiss and/or to deny the petition for rehabilitation on the ground that there was no approval by the stockholders representing at least two-thirds (2/3) of the outstanding capital stock which, according to him, would be essential under paragraph 2(k), Section 2, Rule 4, of the Interim Rules on Corporate Rehabilitation. Concepcion further asserted that the supposed approval of the directors of the filing of the petition for rehabilitation was inaccurate considering that the membership of petitioner CRDCs board of directors was still then being contested and pending final resolution. On 10 August 2001, CRDC submitted its opposition ex abundante cautelam contending that the complaint in intervention was a prohibited pleading and that there was no need for it to secure the irrevocable consent and approval of its stockholders representing at least two-thirds (2/3) of its outstanding capital stock because the petition did not include in its plan for rehabilitation acts that would need any amendment of its articles of incorporation and/or by-laws, increase or decrease in the authorized capital stock, issuance of bonded indebtedness, or the like, where such two-thirds (2/3) vote would be required. The trial court issued an order, dated 15 October 2001, the decretal portion of which was to the following effect; viz: WHEREFORE, premises considered, in the absence of any showing that the petitioner has complied with the certification required under Section 2, Rule 4(K) of the Interim Rules of Procedure on Corporate

Rehabilitation, the petitioner is hereby given a period of 15 days from receipt of a copy of this order to secure from its directors and stockholders the desired certification and submit the same to this Court in accordance with the above-mentioned provision of the Interim Rules of Procedure on Corporate Rehabilitation. With respect to the other oppositions to the petition for rehabilitation including the opposition to the appointment of the rehabilitation receiver, opposition filed by the land bank and the EEI, Inc., the resolution of the same is hereby held in abeyance till after the period given to the petitioner to comply with this order as it may become moot and academic after the expiration of the period given to the petitioner. [1] On 29 October 2001, CRDC filed before the Court of Appeals a petition for certiorari, with prayer for temporary restraining order and/or preliminary injunction, which sought to have the 15 th October 2001 order of the trial court set aside. The Court of Appeals rendered a decision on 18 January 2002 and held: WHEREFORE, the foregoing premises considered, the petition for certiorari, with prayer for temporary restraining order and/or writ of preliminary injunction, is DENIED for lack of merit. Hence, the instant petition on the following grounds: I . Public respondent acted with grave abuse of discretion amounting to lack and/or excess of jurisdiction in issuing the assailed order considering that: A. The petition for rehabilitation and the proposed rehabilitation plan do not require extraordinary corporate actions. B. Since no extraordinary corporate actions are required or even contemplated as necessary and desirable for the rehabilitation of CRDC, the requirements of the corporation code for the approval of such actions cannot be complied with. C. The rehab rules and the corporation code do not allow or intend blind blanket approvals of extraordinary corporate actions. D. To require 2/3 stockholders approval for corporate actions requiring only a majority violates the right of the majority stockholders. II.Public respondent acted with grave abuse of discretion amounting to lack and/or excess of jurisdiction in requiring CRDCs compliance with paragraph 2(k), Section 2, Rule 4 of the Rehab rules when CRDC already complied therewith. Rule 4, Section 2(k), of the Interim Rules on Corporate Rehabilitation provides: Sec. 2. Contents of the Petition. The petition filed by the debtor must be verified and must set forth with sufficient particularity all the following material facts: (a) the name and business of the debtor; (b) the nature of the business of the debtor; (c) the history of the debtor; (d) the cause of its inability to pay its debts; (e) all the pending actions or proceedings known to the debtor and the courts or tribunals where they are pending; (f) threats or demands to enforce claims or liens against the debtor; and (g) the manner by which the debtor may be rehabilitated and how such rehabilitation may benefit the general body of creditors, employees, and stockholders. The petitioner shall be accompanied by the following documents: k. A Certificate attesting, under oath, that (a) the filing of the petition has been duly authorized; and (b) the directors and stockholders have irrevocably approved and/or consented to, in accordance with existing laws, all actions or matters necessary and desirable to rehabilitate the debtor including, but not limited to, amendments to the articles of incorporation and by-laws or articles of partnership; increase or decrease in the authorized capital stock; issuance of bonded indebtedness; alienation, transfer, or encumbrance of assets of the debtor; and modification of shareholders rights. [4] Rule 4, Section 2(k), distinctly provides that, first, under letter (a), the filing of the petition has been duly authorized; and, second, under letter (b), the directors and stockholders have irrevocably approved and/or consented to, in accordance with existing laws, all actions or matters necessary and desirable to rehabilitate the debtor including, but not limited to, amendments to the articles of incorporation and bylaws or articles of partnership; increase or decrease in the authorized capital stock; issuance of bonded indebtedness, alienation, transfer, or encumbrance of assets of the debtor; and modification of shareholders rights. Observe that Rule 4, Section 2(k), prescribes the need for a certification; one, to state that the filing of the petition has been duly authorized, and two, to confirm that the directors and stockholders have irrevocably approved and/or consented to, in accordance with existing laws , all actions or matters necessary and desirable to rehabilitate the corporate debtor, including, as and when called for, such extraordinary corporate actions as may be marked out. The phrase, in accordance with existing laws, obviously would refer to that which is, or to those that are, intended to be done by the corporation in the pursuit of its plan for rehabilitation. Thus, if any extraordinary corporate action (mentioned in Rule 4, Section 2(k), of the Interim Rules on Corporate Rehabilitation) are to be done under the proposed rehabilitation plan, the petitioner would be bound to make it known that it has received the approval of a majority of the directors and the affirmative votes of stockholders representing at least two-thirds (2/3) of the outstanding capital stock of the corporation. Where no such extraordinary corporate acts (or one that

under the law would call for a two-thirds (2/3) vote) are contemplated to be done in carrying out the proposed rehabilitation plan, then the approval of stockholders would only be by a majority, not necessarily a two-thirds (2/3), vote, as long as, of course, there is a quorum [5] a fact which is not here being disputed. The trial court and appellate court, unfortunately, have taken an inaccurate understanding of the memorandum to the Supreme Court of Justice Reynato S. Puno, the committee chair on the draft of the rules on corporate rehabilitation, still then being proposed; the memorandum reads, in part, thusly: 3. Rule 4. Rehabilitation : The following are the principal deviation from the SEC Rules: a) The proposed Rules now require, as an attachment to the petition, a Certificate attesting, among others, that the governing body and owners of the petitioning debtor have approved and consented to whatever is necessary or desirable (including but not limited to increasing or decreasing the authorized capital stock of the company and modification of stockholders right) to rehabilitate the debtor (Sec. 2, par. (k), Rule 4). This is to avoid a situation where a rehabilitation plan, after being developed for years, cannot be implemented because of the refusal of shareholders to approve the arrangements necessary for its implementation.[6] Nowhere in the aforequoted paragraph can it be inferred that an affirmative vote of stockholders representing at least two-thirds (2/3) of the outstanding stock is invariably necessary for the filing of a petition for rehabilitation regardless of the corporate action that the plan envisions. Just to the contrary, it only requires in the filing of the petition that the corporate actions therein proposed have been duly approved or consented to by the directors and stockholders in consonance with existing laws. The requirement is designed to avoid a situation where a rehabilitation plan, after being developed and judicially sanctioned, cannot ultimately be seen through because of the refusal of directors or stockholders to cooperate in the full implementation of the plan. In fine, a certification on the approval of stockholders is required but the question, whether such approval should be by a majority or by a two-thirds (2/3) vote of the outstanding capital stock, would depend on the existing law vis--vis the corporate act or acts proposed to be done in the rehabilitation of the distressed corporation. The rehabilitation plan[7] submitted by petitioner merely consists of a repayment or re-structuring scheme of CRDCs bank loans to Land Bank of the Philippines and Equitable-PCI Bank and of leasing out most of the available spaces in the Megacenter, including the completion of the construction of the fourth floor, to increase rental revenues. None of the proposed corporate actions would require a vote of approval by the stockholders representing at least two-thirds (2/3) of the outstanding capital stock. Relative to the contention that a motion for reconsideration is required prior to bringing up the petition for certiorari (with the Court of Appeals), it should suffice to say that the filing of a motion for reconsideration before availing of the remedy of certiorari is not always sine qua non such as when the issue raised is one purely of law, or where the error is patent or the questions raised on certiorari are exactly the same as those already squarely presented to and passed upon by the court a quo.[8] WHEREFORE, the instant petition is GRANTED and the questioned decision of the Court of Appeals, dated 18 January 2002, and the order of the Regional Trial Court, Branch 28, Cabanatuan City, dated 15 October 2001, in Civil Case No. 4036-AF, are REVERSED and SET ASIDE. The Regional Trial Court is directed to give due course to the Petition for Rehabilitation and conduct with dispatch the necessary proceedings still required thereon. No costs. SO ORDERED. RIZAL COMMERCIAL BANKING CORPORATION COURT AND BF HOMES, INC -- versus -INTERMEDIATE APPELLATE

On September 14, 1992, the Court passed upon the case at bar and rendered its decision, dismissing the petition of Rizal Commercial Banking Corporation (RCBC), thereby affirming the decision of the Court of Appeals which canceled the transfer certificate of title issued in favor of RCBC, and reinstating that of respondent BF Homes. This will now resolve petitioner's motion for reconsideration which, although filed in 1992 was not deemed submitted for resolution until in late 1998. The delay was occasioned by exchange of pleadings, the submission of supplemental papers, withdrawal and change of lawyers, not to speak of the case having been passed from one departing to another retiring justice. It was not until May 3, 1999, when the case was re-raffled to hereinponente, but the record was given to him only sometime in the late October 1999. By way of review, the pertinent facts as stated in our decision are reproduced herein, to wit: On September 28, 1984, BF Homes filed a "Petition for Rehabilitation and for Declaration of Suspension of Payments" (SEC Case No. 002693) with the Securities and Exchange Commission (SEC). One of the creditors listed in its inventory of creditors and liabilities was RCBC. On October 26, 1984, RCBC requested the Provincial Sheriff of Rizal to extra-judicially foreclose its real estate mortgage on

some properties of BF Homes. A notice of extra-judicial foreclosure sale was issued by the Sheriff on October 29, 1984, scheduled on November 29, 1984, copies furnished both BF Homes (mortgagor) and RCBC (mortgagee). On motion of BF Homes, the SEC issued on November 28, 1984 in SEC Case No. 002693 a temporary restraining order (TRO), effective for 20 days, enjoining RCBC and the sheriff from proceeding with the public auction sale. The sale was rescheduled to January 29, 1985. On January 25, 1985, the SEC ordered the issuance of a writ of preliminary injunction upon petitioner's filing of a bond. However, petitioner did not file a bond until January 29, 1985, the very day of the auction sale, so no writ of preliminary injunction was issued by the SEC. Presumably, unaware of the filing of the bond, the sheriffs proceeded with the public auction sale on January 29, 1985, in which RCBC was the highest bidder for the properties auctioned. On February 5, 1985, BF Homes filed in the SEC a consolidated motion to annul the auction sale and to cite RCBC and the sheriff for contempt. RCBC opposed the motion. Because of the proceedings in the SEC, the sheriff withheld the delivery to RCBC of a certificate of sale covering the auctioned properties. On February 13, 1985, the SEC in Case No. 002693 belatedly issued a writ of preliminary injunction stopping the auction sale which had been conducted by the sheriff two weeks earlier. On March 13, 1985, despite SEC Case No. 002693, RCBC filed with the Regional Trial Court, Br. 140, Rizal (CC 10042) an action for mandamus against the provincial sheriff of Rizal and his deputy to compel them to execute in its favor a certificate of sale of the auctioned properties. In answer, the sheriffs alleged that they proceeded with the auction sale on January 29, 1985 because no writ of preliminary injunction had been issued by SEC as of that date, but they informed the SEC that they would suspend the issuance of a certificate of sale to RCBC. On March 18, 1985, the SEC appointed a Management Committee for BF Homes. On RCBC's motion in the mandamus case, the trial court issued on May 8, 1985 a judgment on the pleadings, the dispositive portion of which states: WHEREFORE, petitioner's Motion for Judgment on the pleadings is granted and judgment is hereby rendered ordering respondents to execute and deliver to petitioner the Certificate of the Auction Sale of January 29, 1985, involving the properties sold therein, more particularly those described in Annex "C" of their Answer." (p. 87,Rollo.) On June 4, 1985, B.F. Homes filed an original complaint with the IAC pursuant to Section 9 of B.P. 129 praying for the annulment of the judgment, premised on the following: . . .: (1) even before RCBC asked the sheriff to extra-judicially foreclose its mortgage on petitioner's properties, the SEC had already assumed exclusive jurisdiction over those assets, and (2) that there was extrinsic fraud in procuring the judgment because the petitioner was not impleaded as a party in the mandamus case, respondent court did not acquire jurisdiction over it, and it was deprived of its right to be heard. (CA Decision, p. 88, Rollo). On April 8, 1986, the IAC rendered a decision, setting aside the decision of the trial court, dismissing the mandamus case and suspending issuance to RCBC of new land titles, "until the resolution of case by SEC in Case No. 002693," disposing as follows: WHEREFORE, the judgment dated May 8, 1985 in Civil Case No. 10042 is hereby annulled and set aside and the case is hereby dismissed. In view of the admission of respondent Rizal Commercial Banking Corporation that the sheriff's certificate of sale has been registered on BF Homes' TCT's . . . (here the TCTs were enumerated) the Register of Deeds for Pasay City is hereby ordered to suspend the issuance to the mortgagee-purchaser, Rizal Commercial Banking Corporation, of the owner's copies of the new land titles replacing them until the matter shall have been resolved by the Securities and Exchange Commission in SEC Case No. 002693. On June 18, 1986, RCBC appealed the decision of the then Intermediate Appellate to this Court, arguing that:

1. Petitioner did not commit extrinsic fraud in excluding private respondent as party defendant in Special Civil Case No. 10042 as private respondent was not indispensable party thereto, its participation not being necessary for the full resolution of the issues raised in said case. 2. SEC Case No. 2693 cannot be invoked to suspend Special Civil Case No. 10042, and for that matter, the extra-judicial foreclosure of the real estate mortgage in petitioner's favor, as these do not constitute actions against private respondent contemplated under Section 6(c) of Presidential Decree No. 902-A. 3. Even assuming arguendo that the extra-judicial sale constitute an action that may be suspended under Section 6(c) of Presidential Decree No. 902-A, the basis for the suspension thereof did not exist so as to adversely affect the validity and regularity thereof. 4. The Regional Trial court had jurisdiction to take cognizable of Special Civil Case No. 10042. 5. The Regional Trial court had jurisdiction over Special Civil Case No. 10042. On November 12, 1986, the Court gave due course to the petition. During the pendency of the case, RCBC brought to the attention of the Court an order issued by the SEC on October 16, 1986 in Case No. 002693, denying the consolidated Motion to Annul the Auction Sale and to cite RCBC and the Sheriff for Contempt, and ruling as follows: WHEREFORE, the petitioner's "Consolidated Motion to Cite Sheriff and Rizal Commercial Banking Corporation for Contempt and to Annul Proceedings and Sale," dated February 5, 1985, should be as is, hereby DENIED. While we cannot direct the Register of Deeds to allow the consolidation of the titles subject of the Omnibus Motion dated September 18, 1986 filed by the Rizal Commercial Banking Corporation, and therefore, denies said Motion, neither can this Commission restrain the said bank and the Register of Deeds from effecting the said consolidation. SO ORDERED. By virtue of the aforesaid order, the Register of Deeds of Pasay City effected the transfer of title over subject pieces of property to petitioner RCBC, and the issuance of new titles in its name. Thereafter, RCBC presented a motion for the dismissal of the petition, theorizing that the issuance of said new transfer certificates of title in its name rendered the petition moot and academic. In the decision sought to be reconsidered, a greatly divided Court (Justices Gutierrez, Nocon, and Melo concurred with the ponente, Justice Medialdea; Chief Justice Narvasa, Justices Bidin, Regalado, and Bellosillo concurred only in the result; while Justice Feliciano dissented and was joined by Justice Padilla, then Justice, now Chief Justice Davide, and Justice Romero; Justices Grio-Aquino and Campos took no part) denied petitioner's motion to dismiss, finding basis for nullifying and setting aside the TCTs in the name of RCBC. Ruling on the merits, the Court upheld the decision of the Intermediate Appellate Court which dismissed the mandamuscase filed by RCBC and suspended the issuance of new titles to RCBC. Setting aside RCBC's acquisition of title and nullifying the TCTs issued to it, the Court held that: . . . whenever a distressed corporation asks the SEC for rehabilitation and suspension of payments, preferred creditors may no longer assert such preference, but . . . stand on equal footing with other creditors. Foreclosure shall be disallowed so as not to prejudice other creditors, or cause discrimination among them. If foreclosure is undertaken despite the fact that a petition, for rehabilitation has been filed, the certificate of sale shall not be delivered pending rehabilitation. Likewise, if this has also been done, no transfer of title shall be effected also, within the period of rehabilitation. The rationale behind PD 902-A, as amended to effect a feasible and viable rehabilitation. This cannot be achieved if one creditor is preferred over the others. In this connection, the prohibition against foreclosure attaches as soon as a petition for rehabilitation is filed. Were it otherwise, what is to prevent the petitioner from delaying the creation of a Management Committee and in the meantime dissipate all its assets. The sooner the SEC takes over and imposes a freeze on all the assets, the better for all concerned. Then Justice Feliciano (joined by three other Justices), dissented and voted to grant the petition. He opined that the SEC acted prematurely and without jurisdiction or legal authority in enjoining RCBC and the sheriff from proceeding with the public auction sale. The dissent maintain that Section 6 (c) of Presidential Decree 902-A is clear and unequivocal that, claims against the corporations, partnerships, or associations shall be suspended only upon the appointment of a management committee, rehabilitation receiver, board or body. Thus, in the case under consideration, only upon the appointment of the Management Committee for BF Homes on March 18, 1985, should the suspension of actions for claims against BF Homes have taken effect and not earlier. In support of its motion for reconsideration, RCBC contends: The restraining order and the writ of preliminary injunction issued by the Securities and Exchange Commission enjoining the foreclosure sale of the properties of respondent BF Homes were issued without or in excess of its jurisdiction because it was violative of the clear provision of Presidential Decree No. 902-A, and are therefore null and void; and

Petitioner, being a mortgage creditor, is entitled to rely solely on its security and to refrain from joining the unsecured creditors in SEC Case No. 002693, the petition for rehabilitation filed by private respondent. We find the motion for reconsideration meritorious. The issue of whether or not preferred creditors of distressed corporations stand on equal footing with all other creditors gains relevance and materiality only upon the appointment of a management committee, rehabilitation receiver, board, or body. Insofar as petitioner RCBC is concerned, the provisions of Presidential Decree No. 902-A are not yet applicable and it may still be allowed to assert its preferred status because it foreclosed on the mortgage prior to the appointment of the management committee on March 18, 1985. The Court, therefore, grants the motion for reconsideration on this score. The law on the matter, Paragraph (c), Section 6 of Presidential Decree 902-A, provides: Sec. 6. In order to effectively exercise such jurisdiction, the Commission shall posses the following powers: c) To appoint one or more receivers of the property, real and personal, which is the subject of the action pending before the Commission in accordance with the pertinent provisions of the Rules of Court in such other cases whenever necessary to preserve the rights of the parties litigants to and/or protect the interest of the investing public and creditors; Provided, however, that the Commission may, in appropriate cases, appoint a rehabilitation receiver of corporations, partnerships or other associations not supervised or regulated by other government agencies who shall have, in addition to the powers of a regular receiver under the provisions of the Rules of Court, such functions and powers as are provided for in the succeeding paragraph (d) hereof: Provided, finally, That upon appointment of a management committee rehabilitation receiver, board or body, pursuant to this Decree, all actions for claims against corporations, partnerships or associations under management or receivership, pending before any court, tribunal, board or body shall be suspended accordingly. It is thus adequately clear that suspension of claims against a corporation under rehabilitation is counted or figured up only upon the appointment of a management committee or a rehabilitation receiver. The holding that suspension of actions for claims against a corporation under rehabilitation takes effect as soon as the application or a petition for rehabilitation is filed with the SEC may, to some, be more logical and wise but unfortunately, such is incongruent with the clear language of the law. 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. It bears stressing that the first and fundamental duty of the Court is to apply the law. When the law is clear and free from any doubt or ambiguity, there is no room for construction or interpretation. As has been our consistent ruling, where the law speaks in clear and categorical language, there is no occasion for interpretation; there is only room for application. Where the law is clear and unambiguous, it must be taken to mean exactly what it says and the court has no choice but to see to it that its mandate is Only when the law is ambiguous or of doubtful meaning may the court interpret or construe its true intent. Ambiguity is a condition of admitting two or more meanings, of being understood in more than one way, or of referring to two or more things at the same time. A statute is ambiguous if it is admissible of two or more possible meanings, in which case, the Court is called upon to exercise one of its judicial functions, which is to interpret the law according to its true intent. Furthermore, as relevantly pointed out in the dissenting opinion, a petition for rehabilitation does nor always result in the appointment of a receiver or the creation of a management committee. The SEC has to initially determine whether such appointment is appropriate and necessary under the circumstances. Under Paragraph (d), Section 6 of Presidential Decree No. 902-A, certain situations must be shown to exist before a management committee may be created or appointed, such as; 1. when there is imminent danger of dissipation, loss, wastage or destruction of assets or other properties; or 2. when there is paralization of business operations of such corporations or entities which may be prejudicial to the interest of minority stockholders, parties-litigants or to the general public. On the other hand, receivers may be appointed whenever: 1. necessary in order to preserve the rights of the parties-litigants; and/or 2. protect the interest of the investing public and creditors. These situations are rather serious in nature, requiring the appointment of a management committee or a receiver to preserve the existing assets and property of the corporation in order to protect the interests of

its investors and creditors. Thus, in such situations, suspension of actions for claims against a corporation as provided in Paragraph (c) of Section 6, of Presidential Decree No. 902-A is necessary, and here we borrow the words of the late Justice Medialdea, "so as not to render the SEC management Committee irrelevant and inutile and to give it unhampered "rescue efforts" over the distressed firm". Otherwise, when such circumstances are not obtaining or when the SEC finds no such imminent danger of losing the corporate assets, a management committee or rehabilitation receiver need not be appointed and suspension of actions for claims may not be ordered by the SEC. When the SEC does not deem it necessary to appoint a receiver or to create a management committee, it may be assumed, that there are sufficient assets to sustain the rehabilitation plan and, that the creditors and investors are amply protected. Petitioner additionally argues in its motion for reconsideration that, being a mortgage creditor, it is entitled to rely on its security and that it need not join the unsecured creditors in filing their claims before the SEC appointed receiver. To support its position, petitioner cites the Court's ruling in the case of Philippine Commercial International Bank vs. Court of Appeals , (172 SCRA 436 [1989]) that an order of suspension of payments as well as actions for claims applies only to claims of unsecured creditors and cannot extend to creditors holding a mortgage, pledge, or any lien on the property. Ordinarily, the Court would refrain from discussing additional matters such as that presented in RCBC's second ground, and would rather limit itself only to the relevant issues by which the controversy may be settled with finality. In view, however, of the significance of such issue, and the conflicting decisions of this Court on the matter, coupled with the fact that our decision of September 14, 1992, if not clarified, might mislead the Bench and the Bar, the Court resolved to discuss further. It may be recalled that in the herein en banc majority opinion (pp. 256-275, Rollo, also published as RCBC vs. IAC, 213 SCRA 830 [1992]), we held that: . . . whenever a distressed corporation asks the SEC for rehabilitation and suspension of payments, preferred creditors may no longer assert such preference, but . . . stand on equal footing with other creditors. Foreclosure shall be disallowed so as not to prejudice other creditors, or cause discrimination among them. If foreclosure is undertaken despite the fact that a petition for rehabilitation has been filed, the certificate of sale shall not be delivered pending rehabilitation. Likewise, if this has also, been done, no transfer of title shall be effected also, within the period of rehabilitation. The rationale behind PD 902-A, as amended, is to effect a feasible and viable rehabilitation. This cannot be achieved if one creditor is preferred over the others. In this connection, the prohibition against foreclosure attaches as soon as a petition for rehabilitation is filed. Were it otherwise, what is to prevent the petitioner from delaying the creation of a Management Committee and in the meantime dissipate all its assets. The sooner the SEC takes over and imposes a freeze on all the assets, the better for all concerned. The foregoing majority opinion relied upon BF Homes, Inc. vs. Court of Appeals (190 SCRA 262 [1990] per Cruz, J.: First Division) where it held that "when a corporation threatened by bankruptcy is taken over by a receiver, all the creditors should stand on an equal footing. Not anyone of them should be given preference by paying one or some of them ahead of the others. This is precisely the reason for the suspension of all pending claims against the corporation under receivership. Instead of creditors vexing the courts with suits against the distressed firm, they are directed to file their claims with the receiver who is a duly appointed officer of the SEC (pp. 269-270; emphasis in the original). This ruling is a reiteration of Alemar's Sibal & Sons, Inc. vs. Hon. Jesus M. Elbinias (pp. 99-100; 186 SCRA 94 [1991] per Fernan, C.J.: Third Division). Taking the lead from Alemar's Sibal & Sons, the Court also applied this same ruling in Araneta vs. Court of Appeals .All the foregoing cases departed from the ruling of the Court in the much earlier case of PCIB vs. Court of Appeals (172 SCRA 436 [1989] per Medialdea, J.: First Division) where the Court categorically ruled that: SEC's order for suspension of payments of Philfinance as well as for all actions of claims against Philfinance could only be applied to claims of unsecured creditors . Such order can not extend to creditors holding a mortgage, pledge or any lien on the property unless they give up the property, security or lien in favor of all the creditors of Philfinance . . .

Thus, in BPI vs. Court of Appeals (229 SCRA 223 [1994] per Bellosilio, J.: First Division) the Court explicitly stared that ". . . the doctrine in the PCIB Case has since been abrogated. In Alemar's Sibal & Sons v. Elbinias,BF Homes, Inc. v. Court of Appeals, Araneta v. Court of Appeals and RCBC v. Court of Appeals, we already ruled that whenever a distressed corporation asks SEC for rehabilitation and suspension of payments, preferred creditors may no longer assert such preference, but shall stand on equal footing with other creditors. . ." (pp. 227-228). It may be stressed, however, that of all the cases cited by Justice Bellosillo in BPI, which abandoned the Court's ruling in PCIB, only the present case satisfies the constitutional requirement that "no doctrine or principle of law laid down by the court in a decision rendered en banc or in division may be modified or reversed except by the court sitting en banc" (Sec 4, Article VIII, 1987 Constitution). The rest were division decisions. It behooves the Court, therefore, to settle the issue in this present resolution once and for all, and for the guidance of the Bench and the Bar, the following rules of thumb shall are laid down: 1. All claims against corporations, partnerships, or associations that are pending before any court, tribunal, or board, without distinction as to whether or not a creditor is secured or unsecured, shall be suspended effective upon the appointment of a management committee, rehabilitation receiver, board, or body in accordance which the provisions of Presidential Decree No. 902-A. 2. Secured creditors retain their preference over unsecured creditors, but enforcement of such preference is equally suspended upon the appointment of a management committee, rehabilitation receiver, board, or body. In the event that the assets of the corporation, partnership, or association are finally liquidated, however, secured and preferred credits under the applicable provisions of the Civil Code will definitely have preference over unsecured ones. In other words, once a management committee, rehabilitation receiver, board or body is appointed pursuant to P.D. 902-A, all actions for claims against a distressed corporation pending before any court, tribunal, board or body shall be suspended accordingly. This suspension shall not prejudice or render ineffective the status of a secured creditor as compared totally unsecured creditor P.D. 902-A does not state anything to this effect. What it merely provides is that all actions for claims against the corporation, partnership or association shall be suspended. This should give the receiver a chance to rehabilitate the corporation if there should still be a possibility of doing so. (This will be in consonance with Alemar's BF Homes, Araneta, and RCBC insofar as enforcing liens by preferred creditors are concerned.) However, in the event that rehabilitation is no longer feasible and claims against the distressed corporation would eventually have to be settled, the secured creditors shall enjoy preference over the unsecured creditors (still maintaining PCIB ruling), subject only to the provisions of the Civil Code on Concurrence and Preferences of Credit (our ruling in State Investment House, Inc. vs. Court of Appeals, 277 SCRA 209 [1997]). The Majority ruling in our 1992 decision that preferred creditors of distressed corporations shall, in a way, stand an equal footing with all other creditors, must be read and understood in the light of the foregoing rulings. All claims of both a secured or unsecured creditors, without distinction on this score, are suspended once a management committee is appointed. Secured creditors, in the meantime, shall not be allowed to assert such preference before the Securities and Exchange Commission. It may be stressed, however, that this shall only take effect upon the appointment of a management committee, rehabilitation receiver, board, or body, as opined in the dissent. In fine, the Court grants the motion for reconsideration for the cogent reason that suspension of actions for claims commences only from the time a management committee or receiver is appointed by the SEC. Petitioner RCBC, therefore, could have rightfully, as it did, move for the extrajudicial foreclosure of its mortgage on October 26, 1984 because a management committee was not appointed by the SEC until March 18, 1985. WHEREFORE, petitioner's motion for reconsideration is hereby GRANTED. The decision, dated September 14, 1992 is vacated, the decision of Intermediate Appellate Court in AC-G.R. No. SP-06313 REVERSED and SET ASIDE, and the judgment of the Regional Trial Court National Capital Judicial Region, Branch 140, in Civil Case No. 10042 REINSTATED. SO ORDERED.

SPOUSES SOBREJUANITE and FIDELA SOBREJUANITE DEVELOPMENT CORPORATION

---- versus ----

ASB

This petition for review on certiorari assails the June 29, 2004 Decision of the Court of Appeals in CA-G.R. SP No. 79420 which reversed and set aside the Decision of the Office of the President; and its October 18, 2004 Resolution denying reconsideration thereof. The antecedent facts show that on March 7, 2001, spouses Eduardo and Fidela Sobrejuanite (Sobrejuanite) filed a Complaint for rescission of contract, refund of payments and damages, against ASB Development Corporation (ASBDC) before the Housing and Land Use Regulatory Board (HLURB). Sobrejuanite alleged that they entered into a Contract to Sell with ASBDC over a condominium unit and a parking space in the BSA Twin Tower-B Condominum located at Bank Drive, Ortigas Center, Mandaluyong City. They averred that despite full payment and demands, ASBDC failed to deliver the property on or before December 1999 as agreed. They prayed for the rescission of the contract; refund of payments amounting to P2,674,637.10; payment of moral and exemplary damages, attorneys fees, litigation expenses, appearance fee and costs of the suit. ASBDC filed a motion to dismiss or suspend proceedings in view of the approval by the Securities and Exchange Commission (SEC) on April 26, 2001 of the rehabilitation plan of ASB Group of Companies, which includes ASBDC, and the appointment of a rehabilitation receiver. The HLURB arbiter however denied the motion and ordered the continuation of the proceedings. The arbiter found that under the Contract to Sell, ASBDC should have delivered the property to Sobrejuanite in December 1999; that the latter had fully paid their obligations except the P50,000.00 which should be paid upon completion of the construction; and that rescission of the contract with damages is proper. The dispositive portion of the Decision reads: WHEREFORE, in view of the foregoing judgment is rendered ordering the rescission of the contracts to sell between the parties, and further ordering the respondent [ASBDC] to pay the complainants [Sobrejuanite] the following: a) all amortization payments by the complainants amounting to P2,674,637.10 plus 12% interest from the date of actual payment of each amortization; b) moral damages amounting to P200,000.00; c) exemplary damages amounting to P100,000.00; d) attorneys fees amounting to P100,000.00; e) litigation expenses amounting to P50,000.00.

All other claims and all counter-claims are hereby dismissed. IT IS SO ORDERED. The HLURB Board of Commissioners[3] affirmed the ruling of the arbiter that the approval of the rehabilitation plan and the appointment of a rehabilitation receiver by the SEC did not have the effect of suspending the proceedings before the HLURB. The board held that the HLURB could properly take cognizance of the case since whatever monetary award that may be granted by it will be ultimately filed as a claim before the rehabilitation receiver. The board also found that ASBDC failed to deliver the property to Sobrejuanite within the prescribed period. The dispositive portion of the Decision reads: Wherefore the petition for review is denied and the decision of the office below is affirmed. It shall be understood that all monetary awards shall still be filed as claims before the rehabilitation receiver. ASBDC filed an appeal[5] before the Office of the President which was dismissed [6] for lack of merit. Hence, ASBDC filed a petition[7] under Section 1, Rule 43 of the Rules of Court before the Court of Appeals, docketed as CA-G.R. SP No. 79420. On June 29, 2004, the Court of Appeals rendered its assailed Decision, [8] the dispositive portion of which reads: WHEREFORE, premises considered, the instant petition is GRANTED. The impugned decision dated June 27, 2003 of the Office of the President is hereby REVERSED AND SET ASIDE. No pronouncement as to costs. SO ORDERED. The Court of Appeals held that the approval by the SEC of the rehabilitation plan and the appointment of the receiver caused the suspension of the HLURB proceedings. The appellate court noted that Sobrejuanites complaint for rescission and damages is a claim under the contemplation of Presidential Decree (PD) No. 902-A or the SEC Reorganization Act and A.M. No. 00-8-10-SC or the Interim Rules of Procedure on Corporate Rehabilitation, because it sought to enforce a pecuniary demand. Therefore, jurisdiction lies with the SEC and not HLURB. It also ruled that ASBDC was obliged to deliver the property in December 1999 but its financial reverses warranted the extension of the period. Sobrejuanites motion for reconsideration was denied [10] hence the instant petition which raises the following issues: 1. THE COURT OF APPEALS COMMITTED REVERSIBLE ERROR AND GRAVELY ABUSED ITS DISCRETION IN RULING THAT THE SEC, NOT THE HLURB, HAS JURISDICTION OVER PETITIONERS COMPLAINT, IN CONTRAVENTION TO LAW AND THE RULING OF THIS HONORABLE COURT IN THE ARRANZA CASE. 2. THE COURT OF APPEALS COMMITTED REVERSIBLE ERROR AND GRAVELY ABUSED ITS DISCRETION WHEN IT RULED THAT THE APPROVAL OF THE CORPORATE REHABILITATION PLAN AND THE APPOINTMENT OF A RECEIVER HAD THE EFFECT OF SUSPENDING THE PROCEEDING IN THE HLURB, AND THAT THE MONETARY AWARD GIVEN BY THE HLURB COULD NOT [BE] FILED IN THE SEC FOR PROPER DISPOSITION, NOT BEING IN ACCORDANCE WITH LAW AND JURISPRUDENCE. 3. THE COURT OF APPEALS COMMITTED REVERSIBLE ERROR AND GRAVELY ABUSED ITS DISCRETION IN RULING THAT RESPONDENT IS JUSTIFIED IN EXTENDING THE AGREED DATE OF DELIVERY BY INVOKING AS GROUND THE FINANCIAL CONSTRAINTS IT EXPERIENCED, BEING CONTRARY TO LAW AND IN EEFECT AN UNLAWFUL NOVATION OF THE AGREEMENT OF THE DATE OF DELIVERY ENTERED INTO BY PETITIONERS AND RESPONDENT. The petition lacks merit. Section 6(c) of PD No. 902-A empowers the SEC: c) To appoint one or more receivers of the property, real and personal, which is the subject of the action pending before the Commission whenever 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 appointment of a management committee, rehabilitation receiver, board or body, pursuant to this Decree, all actions for claims against corporations, partnerships or associations under management or receivership pending before any court, tribunal, board or body shall be suspended accordingly. The purpose for the suspension of the proceedings is to prevent a creditor from obtaining an advantage or preference over another and to protect and preserve the rights of party litigants as well as the interest of the investing public or creditors. Such suspension is intended to give enough breathing space for the management committee or rehabilitation receiver to make the business viable again, without having to

divert attention and resources to litigations in various fora. The suspension would enable the management committee or rehabilitation receiver to effectively exercise its/his powers free from any judicial or extra-judicial interference that might unduly hinder or prevent the rescue of the debtor company. To allow such other action to continue would only add to the burden of the management committee or rehabilitation receiver, whose time, effort and resources would be wasted in defending claims against the corporation instead of being directed toward its restructuring and rehabilitation. Thus, in order to resolve whether the proceedings before the HLURB should be suspended, it is necessary to determine whether the complaint for rescission of contract with damages is a claim within the contemplation of PD No. 902-A. In Finasia Investments and Finance Corp. v. Court of Appeals ,[15] we construed claim to refer only to debts or demands pecuniary in nature. Thus: [T]he word claim as used in Sec. 6(c) of P.D. 902-A refers to debts or demands of a pecuniary nature. It means the assertion of a right to have money paid. It is used in special proceedings like those before administrative court, on insolvency. The word claim is also defined as: Right to payment, whether or not such right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured, or unsecured; or right to an equitable remedy for breach of performance if such breach gives rise to a right to payment, whether or not such right to an equitable remedy is reduced to judgment, fixed, contingent, matured, unmatured, disputed, undisputed, secured, unsecured. In conflicts of law, a receiver may be appointed in any state which has jurisdiction over the defendant who owes a claim. As used in statutes requiring the presentation of claims against a decedents estate, claim is generally construed to mean debts or demands of a pecuniary nature which could have been enforced against the deceased in his lifetime and could have been reduced to simple money judgments; and among these are those founded upon contract. In Arranza v. B.F. Homes, Inc., claim is defined as referring to actions involving monetary considerations. Finasia Investments and Finance Corp. v. Court of Appeals and Arranza v. B.F. Homes, Inc. were promulgated prior to the effectivity of the Interim Rules of Procedure on Corporate Rehabilitation on December 15, 2000. The interim rules define a claim as referring to all claims or demands, of whatever nature or character against a debtor or its property, whether for money or otherwise. The definition is all-encompassing as it refers to all actions whether for money or otherwise. There are no distinctions or exemptions. Incidentally, although the petition for rehabilitation with prayer for suspension of actions and proceedings was filed before the SEC on May 2, 2000, [17] or prior to the effectivity of the interim rules, the same would still apply pursuant to Section 1, Rule 1 thereof which provides: Section 1. Scope These Rules shall apply to petitions for rehabilitation filed by corporations, partnerships, and associations pursuant to Presidential Decree No. 902-A, as amended. Clearly then, the complaint filed by Sobrejuanite is a claim as defined under the Interim Rules of Procedure on Corporate Rehabilitation. Even under our rulings inFinasia Investments and Finance Corp. v. Court of Appeals and Arranza v. B.F. Homes, Inc., the complaint for rescission with damages would fall under the category ofclaim considering that it is for pecuniary considerations. In their complaint, Sobrejuanite pray for the rescission of the contract and the refund of P2,674,637.10 representing their total payments to ASBDC; P200,000.00 as moral damages; P100,000.00 as exemplary damages; P100,000.00 as attorneys fees; P50,000.00 as litigation expenses; P1,500.00 per hearing as appearance fees; and costs of the suit. In the decision of the HLURB arbiter, ASBDC was ordered to pay P2,674,637.10 plus 12% interest from the date of actual payment of each amortization, representing the refund of all the amortization payments made by Sobrejuanite; P200,000.00 as moral damages; P100,000.00 as exemplary damages; P100,000.00 as attorneys fees; and P50,000.00 as litigation expenses. As such, the HLURB arbiter should have suspended the proceedings upon the approval by the SEC of the ASB Group of Companies rehabilitation plan and the appointment of its rehabilitation receiver. By the suspension of the proceedings, the receiver is allowed to fully devote his time and efforts to the rehabilitation and restructuring of the distressed corporation.

It is well to note that even the execution of final judgments may be held in abeyance when a corporation is under rehabilitation.[18] Hence, there is more reason in the instant case for the HLURB arbiter to order the suspension of the proceedings as the motion to suspend was filed soon after the institution of the complaint. By allowing the proceedings to proceed, the HLURB arbiter unwittingly gave undue preference to Sobrejuanite over the other creditors and claimants of ASBDC, which is precisely the vice sought to be prevented by Section 6(c) of PD 902-A. Thus: As between creditors, the key phrase is equality is equity. When a corporation threatened by bankruptcy is taken over by a receiver, all the creditors should stand on equal footing. Not anyone of them should be given any preference by paying one or some of them ahead of the others. This is precisely the reason for the suspension of all pending claims against the corporation under receivership. Instead of creditors vexing the courts with suits against the distressed firm, they are directed to file their claims with the receiver who is a duly appointed officer of the SEC. [19] Petitioners reliance on Arranza v. B.F. Homes, Inc.[20] is misplaced. In that case, we held that the HLURB retained its jurisdiction despite the rehabilitation proceedings since the claim filed by the homeowners did not involve pecuniary considerations. The claim therein was for specific performance to enforce the homeowners rights as regards right of way, open spaces, road and perimeter wall repairs, and security. However, it can also be deduced therefrom that if the claim was for monetary awards, the proceedings before the HLURB should be suspended during the rehabilitation. Thus: No violation of the SEC order suspending payments to creditors would result as far as petitioners complaint before the HLURB is concerned. To reiterate, what petitioners seek to enforce are respondents obligations as a subdivision developer. Such claims are basically not pecuniary in nature although it could incidentally involve monetary considerations. All that petitioners claims entail is the exercise of proper subdivision management on the part of the SEC-appointed Board of Receivers towards the end that homeowners shall enjoy the ideal community living that respondent portrayed they would have when they bought real estate from it. Neither may petitioners be considered as having claims against respondent within the context of the following proviso of Section 6 (c) of P.D. No. 902-A, to warrant suspension of the HLURB proceedings. In this case, under the complaint for specific performance before the HLURB, petitioners do not aim to enforce a pecuniary demand. Their claim for reimbursement should be viewed in the light of respondents alleged failure to observe its statutory and contractual obligations to provide petitioners a decent human settlement and ample opportunities for improving their quality of life. The HLURB, not the SEC, is equipped with the expertise to deal with that matter. [21] Finally, we agree with the Court of Appeals that under the Contract to Sell, ASBDC was obliged to deliver the property to Sobrejuanite on or before December 1999. Nonetheless, the same was deemed extended due to the financial reverses experienced by the company. Section 7 of the Contract to Sell allows the developer to extend the period of delivery on account of causes beyond its control, such as financial reverses. WHEREFORE, the petition is DENIED. The assailed Decision of the Court of Appeals dated June 29, 2004 in CA-G.R. SP No. 79420 and its Resolution dated October 18, 2004, are AFFIRMED. SO ORDERED.