RCBC v.

IAC
1992-09-14 G.R. No. 74851 MEDIALDEA, J
Presidential Decree No. 902-A J N Palmera
Petitioner(s): Respondent(s):
RIZAL COMMERCIAL BANKING CORPORATION INTERMEDIATE APPELLATE COURT AND BF
HOMES, INC.
Recit Ready Summary:
Petitioner is a mortgagor-creditor of the party respondent. The respondent being a distressed firm,
filed a "Petition for Rehabilitation and for Declaration or Suspension of Payments" before the
Securities and Exchange Commission. RCBC, consequently, requested the Sheriff of Rizal to levy upon
execution the properties of the respondent and has obtained favorable judgement. RCBC being the
highest bidder, sought to transfer certificate of titles from the Register of Deeds in its name. RCBC
obtained favor in the execution of the respondent’s properties and that a Management Committee
was established after that fact.

The court ruled in favor of the respondent wherein whenever a distressed corporation asks the SEC
for rehabilitation and suspension of payments, preferred creditors may no longer assert such
preference, but as earlier stated, 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.
FACTS
1. September 28, 1984
1.1. B.F. Homes filed a "Petition for Rehabilitation and for Declaration or Suspension of
Payments" (SEC Case No. 002693) with the Securities and Exchange Commission (SEC) with
one of the creditors listed in its inventory of creditors and liabilities was RCBC.
2. October 26, 1984
2.1. RCBC requested the Provincial Sheriff of Rizal to extra-judicially foreclose its real estate
mortgage on some properties of B.F. Homes.
2.2. A notice of extra-judicial foreclosure sale was issued by the Sheriff on October 29, 1984,
scheduled on November 29, 1984, copies furnished both B.F. Homes (mortgagor) and RCBC
(mortgagee).
3. 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.
4. January 25, 1985
4.1. 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.
4.2. 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.
5. February 5, 1985
5.1. B.F. Homes filed in the SEC a consolidated motion to annul the auction sale and to cite RCBC
and the sheriff for contempt.
 5.2. RCBC opposed the motion.
5.3. Sheriff withheld the delivery to RCBC of a certificate of sale covering the auctioned
properties.
6. February 13, 1985
6.1. 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.
7. March 13, 1985
7.1. 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.
8. March 18, 1985
8.1. SEC appointed a Management Committee for B.F. Homes.
9. May 8, 1985
9.1. The court granted RCBC's motion in the mandamus case.
10. June 4, 1985
10.1. B.F. Homes filed an original complaint with the IAC pursuant to Sec. 9 of B.P. 129
praying for annulment of the judgment
11. April 8, 1986
11.1. 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.
12. June 18, 1986
12.1. RCBC filed its present petition concerning IAC ruling.
13. November 12, 1986
13.1. Court gave due course to the petition.
14. November 24, 1986
14.1. RCBC filed a "Manifestation" informing Us that on October 16, 1986, the SEC in Case
No. 002693 had issued an Order denying the consolidated Motion to Annul the Auction Sale
and to cite RCBC and the sheriff for contempt.
15. November 27, 1986
15.1. RCBC had invoked this Court's jurisdiction.
16. The court does not see any merit in considering the case closed or terminated, for being moot
and academic, since there is basis for nullifying end setting aside the TCTs in RCBC's name.
ISSUES
Whether or not the court erred in their ruling and the application of the law.
RULING
ACCORDINGLY, the petition is DISMISSED, the decision of the Court of Appeals is AFFIRMED with the
modification that RCBC and Vicente A. Garcia, Pasay City Register of Deeds, are hereby found guilty of
CONTEMPT and FINED One Thousand Pesos (P1,000.00) each. The new torrens titles issued in RCBC's
name are hereby NULLIFIED and SET ASIDE and BF Homes TCT's Nos. 51001, 51002, 51003, 51005,
51006, 51007, 51011, 51013, 51014, 51015, 51017, 51018, 51019, 51020, 51021, 51022, 51286,
51287, 51288, 51290, 51292, 51297, 51309, 51319, 51321, 51331, 51332, 51333, 51334, 51335,
51336, 51337, 51338, 51339, 51340, 51342, 51343, 51344, 51345, 51347, 48151, 48128, 48194,
68603, 71273, 71275, and 71276 are reinstated. Costs against petitioner.
LEGAL BASIS
1. Presidential Decree No. 902-A
1.1. The appellate court had ruled on the illegality of the mandamus case and thus set aside the
decision of the lower court, directing the delivery of the certificates of auction sale.
 1.2. Since the properties, subject of the motion for contempt (in the SEC) involved assets of a
distressed firm, SEC would have been fully justified in issuing the corresponding restraining
order against the consolidation of title in RCBC, pursuant to Sec. 6(a), PD 902-A, as amended.
2. BF Homes, Inc. as the distressed firm
2.1. The fact remains that by ordering the suspension of registration of titles, the appellate court
clearly intended to have BF Homes' assets/properties remain untouched during the period of
rehabilitation so as not to render the SEC Management Committee irrelevant and inutile and
to give it unhampered "rescue efforts" over the distressed firm.
2.2. The court agree with BF Homes that as owner, it should have been impleaded in CC 10042 to
allow it to protect its rights.
3. Since RCBC had gone ahead with the registration of title in complete defiance of the Court of
Appeals' directive, the court have no recourse except to set aside such transfer and nullify the
TCTs issued in RCBC's name.
4. The court states:
4.1. Whenever a distressed corporation asks the SEC for rehabilitation and suspension of
payments, preferred creditors may no longer assert such preference, but as earlier stated,
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.
4.1.1.In this connection, the prohibition against foreclosure attaches as soon as a petition for
rehabilitation is filed.
5. Dissenting Opinion of Justice Feliciano
5.1. “In other words, a period of just about six (6) months intervened between the filing of the
petition for rehabilitation and for declaration of suspension of payments and the
appointment by the SEC of a management committee for B.F. Homes. During that
intervening six (6) months period, the SEC purported to act by issuing, on 28 November 1984,
a temporary restraining order enjoining the Rizal Commercial Banking Corporation (RCBC)
and the Sheriff from proceeding with the extra-judicial foreclosure sale. On 13 February
1985, the SEC belatedly issued a writ of preliminary injunction purportedly stopping the
auction sale actually conducted by the Sheriff two (2) weeks earlier.”
5.2. …suspension of actions for claims against the corporation which applies for rehabilitation
takes effect as soon as the application or a petition for rehabilitation is filed with the SEC. I
would point out, with respect, that the actual language used in Section 6 (c) and (d) of P.D.
No. 902-A, as amended, does not support the position taken in the ponencia. The pertinent
provision of Section 6 (c) is as follows:
5.2.1. “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, further, that the Commission may appoint a rehabilitation receiver of
corporations, partnership or other associations supervised or regulated by other
government agencies, such as banks and insurance companies, upon request of the
government agency concerned; 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.”
5.3. The appointment of a management committee or a rehabilitation receiver is not ordinarily
effected immediately upon the filing of an application for suspension of payments and for
rehabilitation.
5.4. Only upon such appointment of the management committee did the proviso in Section 6 (c)
which decrees suspension of actions for claims against the petitioning corporation take
effect.
5.5. The authority of the SEC to suspend or freeze the judicial enforcement of claims against a
corporation is an extraordinary authority, most specially where credits secured by specific
liens on property, like real estate mortgages, are involved; such authority cannot lightly be
assumed to have arisen simply because the corporation on its own initiative goes to the SEC
and there seeks shelter from its lawful creditors.
5.6. “I, therefore, respectfully suggest that the SEC acted prematurely and without jurisdiction
or legal authority when, on 28 November 1984, it issued a temporary restraining order
enjoining RCBC and the Sheriff from proceeding with the public auction sale, and when, on
13 February 1985, the SEC issued a writ of preliminary injunction stopping the auction sale
which, incidentally, had already been conducted two (2) weeks earlier. I vote to grant the
Petition for Review and to reverse and set aside the Decision of the Court of Appeals.”