A.M. No. MTJ-94-971 - Balagapo, Jr. vs. Duquilla

On September 11, 2006, Equitable PCI Bank, Inc. (EPCIB) filed a petition under the 2000 Interim Rules of Corporate Rehabilitation to place Steel Corporation of the Philippines (SCP) under corporate rehabilitation, alleging SCP’s financial distress following the 1997 Asian Financial Crisis and defaults under various loan agreements, including the December 2002 Omnibus Agreement.
Allied Banking Corporation (ABC) was another creditor of SCP, having granted SCP a P100 million revolving credit facility secured by a Trust Receipt (TR) that authorized ABC to charge SCP’s accounts upon default or insolvency.

On September 12, 2006, the Regional Trial Court (RTC), Branch 2, Batangas City, issued an order (a commencement order under later Rules) granting the rehabilitation petition, appointing a receiver, and staying all claims against SCP (Sec. 11, Rule 4; Sec. 5, Rule 3, Interim Rules). The order was to be published.
On September 15, 2006, unaware or disregarding the stay, ABC applied P6,750,000 from SCP’s Current Account No. 1801-004-87-6 at its Aguirre Branch to satisfy SCP’s obligations under the TR.
On October 29, 2006, SCP moved to restore the account balance and honor future transactions; ABC opposed, asserting valid set-off and lack of notice of the stay order.

On November 22, 2006, the RTC ruled that ABC violated the stay and ordered it to restore the P6,750,000 and honor SCP’s transactions in the account.
ABC appealed via Rule 43 to the Court of Appeals (CA), which on July 22, 2008 affirmed the RTC. A motion for reconsideration was denied on April 12, 2010.
ABC filed a petition for review on certiorari under Rule 45 with the Supreme Court, raising due process and custodia legis issues.

Whether ABC was bound by the September 12, 2006 RTC stay order—effective upon issuance—before its publication, such that enforcing the TR set-off on September 15, 2006 deprived ABC of due process.
Whether, by virtue of the stay order placing SCP’s account in custodia legis, ABC was prohibited from applying the account proceeds to satisfy SCP’s obligations after the stay’s issuance.