G.R. No. 74851 - Rizal Commercial Banking Corp. vs. Intermediate Appellate Court

On September 28, 1984, BF Homes filed a petition for rehabilitation and declaration of suspension of payments (SEC Case No. 002693) with the Securities and Exchange Commission (SEC). RCBC was listed as one of its creditors.
On October 26, 1984, RCBC requested the Provincial Sheriff of Rizal to extra-judicially foreclose its mortgage on properties owned by BF Homes. A foreclosure sale was scheduled for November 29, 1984.
BF Homes secured a temporary restraining order (TRO) from the SEC on November 28, 1984, preventing the foreclosure sale, which was rescheduled to January 29, 1985.
The SEC ordered the issuance of a writ of preliminary injunction on January 25, 1985, but RCBC failed to post the required bond until January 29, 1985, the day of the auction. No injunction was therefore issued on time.
The foreclosure auction proceeded on January 29, 1985, with RCBC as the highest bidder. However, the SEC issued the writ of preliminary injunction belatedly on February 13, 1985, suspending the auction sale two weeks after it had been conducted.

BF Homes filed a motion to annul the auction sale and to cite RCBC and the sheriff for contempt on February 5, 1985. RCBC opposed the motion. The sheriff withheld the certificate of sale.
On March 13, 1985, RCBC filed a mandamus action before the Regional Trial Court (RTC) to compel the sheriff to execute the certificate of sale in its favor.
On May 8, 1985, the RTC issued a judgment ordering the sheriff to deliver the certificate of sale to RCBC.
BF Homes filed a complaint with the Intermediate Appellate Court (IAC) on June 4, 1985, praying for annulment of the RTC judgment, arguing:

SEC had assumed exclusive jurisdiction over BF Homes’ assets prior to the foreclosure; and
There was extrinsic fraud since RCBC was not a party to the mandamus case, depriving BF Homes of its right to be heard.

On April 8, 1986, the IAC annulled the RTC judgment, dismissed the mandamus case, and suspended issuance of new land titles in favor of RCBC pending resolution of the SEC rehabilitation case.

The SEC, during the pendency of the case, denied BF Homes’ motion to annul the sale and to cite for contempt by Order dated October 16, 1986; subsequently, the Register of Deeds issued new titles to RCBC.
RCBC moved for dismissal of the petition before the Supreme Court on grounds that the issuance of new titles rendered the dispute moot.
The Supreme Court initially denied the motion to dismiss and on September 14, 1992, affirmed IAC’s decision annulling the transfer certificates of title (TCTs) issued to RCBC and reinstating BF Homes’ titles. The Court held that:

Upon filing a petition for rehabilitation and suspension of payments, preferred creditors lose preference and stand on equal footing with other creditors;
Foreclosure and delivery of certificates of sale and title transfers during the rehabilitation period are prohibited.

A motion for reconsideration was filed, but not resolved until 1999 due to procedural delays.

Suspension of actions for claims against a distressed corporation under PD 902-A commences only upon appointment of a management committee or rehabilitation receiver by the SEC;
Prior to appointment of such body (management committee created March 18, 1985), preferred creditors like RCBC remain entitled to assert rights (including foreclosure);
SEC’s power to issue restraining orders and injunctions before appointment of a management committee is valid and necessary to protect the corporation’s assets;
The initial refusal to recognize RCBC’s foreclosure rights was erroneous since the appointment of the management committee had not yet occurred at the time of the mortgage foreclosure;

Accordingly, the Court granted RCBC’s motion for reconsideration, vacated the 1992 judgment, reversed the IAC decision, and reinstated the RTC judgment ordering issuance of the certificate of sale to RCBC.

Whether the filing of a petition for rehabilitation with the SEC suspends the rights of preferred creditors, particularly mortgage creditors, to enforce their rights prior to the appointment of a management committee or rehabilitation receiver.

Whether the Securities and Exchange Commission has jurisdiction and authority to issue restraining orders and preliminary injunctions against foreclosure and other acts before the appointment of a management committee or rehabilitation receiver.

Whether the RTC had jurisdiction to hear and decide the mandamus case filed by RCBC to compel the sheriff to deliver the certificate of sale.

The proper interpretation and application of Presidential Decree No. 902-A concerning suspension of actions for claims against corporations under rehabilitation or suspension of payments.

The effect of injunctions and foreclosure proceedings initiated prior to the appointment of a management committee on the validity of certificates of sale and titles issued in favor of a preferred creditor.