Title
BDO Unibank, Inc. vs. Ailene Chua Co, et al.
Case
G.R. No. 253311
Decision Date
Jun 22, 2022
BDO Unibank contested the RTC's decision nullifying its payment application to secure its claim in a voluntary insolvency case. The Supreme Court upheld the lower courts' findings, affirming the inclusion of Ailene's accounts in the liquidation for creditors.
insolvency proceedings
secured creditor
application of payment

Case Summary (G.R. No. 253311)

Factual Background

In November 2011, respondents filed a Petition for Voluntary Insolvency before the RTC. As mandated by the FRIA, respondents disclosed that they had two US dollar time deposit accounts with petitioner BDO: Account No. 302703078315 and Account No. 302703452706. The RTC issued a Liquidation Order on December 9, 2011, declaring respondents insolvent and directing the liquidation of their assets. The Liquidation Order also directed, among others, that a deputy sheriff take possession of respondents’ properties until the appointment of a liquidator, that respondents refrain from payments and transfers except for administrative expenses, and that creditors file claims with the liquidator upon their election and appointment.

BDO filed its creditor claim to collect PHP 287,904.19, and after the court confirmed claims including BDO’s, the RTC issued an Order dated October 16, 2013 directing BDO to render an accounting and to hold in trust the deposits, including their fruits, relating to respondents’ accounts until further orders of the court.

BDO later informed the RTC that the deposits had been applied to Ailene’s obligations through unilateral set-off or application of payment. For Account No. 302703452706, BDO asserted that the deposited amount had been applied entirely to Ailene’s obligation under her Back-to-Back Loan, allegedly taking place on October 17, 2011 or before the filing of the insolvency petition. For Account No. 302703078315, BDO claimed that it too had been applied in full to Ailene’s obligation under a Superlite Loan on January 30, 2012. BDO explained that both accounts had zero balances and were closed, hence it argued that there was nothing to hold in trust for other creditors.

RTC Orders Requiring Documentation and the Nullification of the Application of Payment

Respondents challenged BDO’s unilateral set-off and application by filing a Motion for Production, asking that the court examine the veracity and accuracy of BDO’s assertions as to the material dates and amounts reflected in the deposit accounts vis-a-vis Ailene’s obligations. The RTC granted the motion and issued an Omnibus Order dated September 15, 2014, requiring BDO to produce the complete ledgers of the two subject accounts “from opening date to closure of the accounts.”

About a year later, on September 7, 2015, BDO filed a Manifestation/Compliance and a motion to exclude the dollar time deposit accounts from the list of assets available for distribution. BDO reiterated that the funds were used to pay Ailene’s personal loan obligations and requested exclusion. Respondents objected and moved for contempt; other creditors also opposed, arguing that BDO’s application of payment was unsupported by documentary evidence. They invoked Section 58 of the FRIA, contending that transactions undertaken within the 90-day period before the issuance of the liquidation order are presumed to be intended to defraud other creditors.

In an Omnibus Order dated January 10, 2017, the RTC denied BDO’s motion to exclude and granted the motion to nullify the questioned application of payment. The RTC ordered that BDO’s application of Ailene’s dollar time deposit accounts with her alleged back-to-back loan be nullified, and that the deposits be included in respondents’ assets for eventual distribution according to the rules. The RTC also reiterated the prior directive requiring BDO to produce the complete ledgers and specified that the issue of indirect contempt required a proper initiatory verified petition.

Subsequent Proceedings and BDO’s Partial Submissions

During the following hearing on March 28, 2017, the RTC granted BDO additional time to produce the ledgers. It further required BDO to file an amended notice of claim reflecting the US dollar time deposits and the corresponding loans allegedly paid off. The RTC also directed BDO to issue demand drafts payable to the RTC for deposit with the Land Bank of the Philippines. Despite these directions, BDO did not produce the complete ledgers. Instead, it filed a Motion to Admit and submitted copies of documents regarding the back-to-back loan related to Account No. 302703452706—a time deposit certificate, a Promissory Note with Assignment, and a Disclosure Statement on Loan and Credit Transaction covering July 18, 2011 to October 17, 2011. BDO explained that Ailene obtained the back-to-back loan secured by the time deposit, and that upon maturity on October 17, 2011, the account was terminated and proceeds were applied as payment to her loan. BDO admitted that the offset occurred within the 90-day period before the liquidation order but insisted that the presumption under Section 58 did not apply because it allegedly acted as a secured creditor. BDO also argued that collation had not commenced at the time of set-off, so the action was not aimed at defeating other creditors.

On February 5, 2018, the RTC issued an order admitting the Promissory Note with Assignment attached to BDO’s motion to admit, but it maintained the requirement that BDO submit and produce the complete and original customer ledgers for the dollar accounts and render a full accounting. The RTC reiterated this during the hearing on August 23, 2018. BDO later filed a motion for reconsideration, seeking reversal of the RTC’s verbal order and insisting that admission of the promissory note should render Account No. 302703452706 excluded from the liquidation order. The RTC denied the motion on February 28, 2019.

CA Ruling in CA-G.R. SP No. 160580

BDO challenged the RTC’s August 23, 2018 and February 28, 2019 orders via certiorari before the CA. On January 16, 2020, the CA dismissed the petition, finding no grave abuse of discretion by the RTC. The CA held that the RTC orders requiring BDO to produce ledgers and permitting only partial documentation did not amount to a jurisdictional defect or grave abuse, and it sustained the RTC’s approach within the liquidation process.

On September 2, 2020, the CA denied reconsideration. The CA specifically treated BDO’s effort as belated because BDO did not timely assail the earlier Omnibus Order dated January 10, 2017 that had already nullified BDO’s application of payment.

Parties’ Contentions Before the Supreme Court

BDO argued that insolvency proceedings under FRIA could not diminish its status as a secured creditor. It claimed that the CA erred in sustaining the RTC’s nullification order on the ground of laches, and it further argued that the RTC and CA wrongly concluded that the grounds in Section 58 of the FRIA to nullify its application of payment were present. BDO also faulted the CA for allegedly ruling that its Motion to Admit was not the proper remedy to prove validity of its application of payment.

Respondents countered that the RTC’s order nullifying the application of payment had been issued as early as January 10, 2017, while BDO only challenged the matter much later. Respondents argued that BDO’s delay reflected negligence and invoked the equitable doctrine of laches to bar relief.

Supreme Court’s Legal Reasoning

The Supreme Court held that the RTC orders assailed by BDO were interlocutory in nature. The Court explained that interlocutory matters arise between the commencement and the end of a suit and decide some incident without finally disposing of the whole controversy. The Court further held that, at that preliminary stage, BDO had no right to appeal the interlocutory orders. BDO resorted to certiorari under Rule 65, but the Court refused to issue the writ because the RTC did not act without or in excess of jurisdiction, nor with grave abuse of discretion.

The Court recounted the sequence of RTC rulings in the insolvency case. After BDO informed the RTC that its accounts had zero balances due to application of payment, the RTC required complete ledgers to verify the set-off. The RTC issued the September 15, 2014 Omnibus Order to require full ledger production, and BDO failed to comply. When BDO later sought exclusion of the accounts from distribution, the RTC denied the motion and in the January 10, 2017 Omnibus Order nullified the application of payment and included the deposits among assets for eventual distribution. The Court emphasized that the RTC’s subsequent directives, including the requirement to produce complete ledgers despite admission of partial documents, were consistent with the RTC’s duty as a special commercial court facilitating speedy, orderly liquidation under the FRIA, with transparency and fairness toward all creditors.

On the laches issue, the Court affirmed the CA’s view. It defined laches as failure or neglect, for an unreasonable and unexplained length of time, to do that which due diligence could or should have done earlier. The Court held that BDO’s certiorari petition only attacked the RTC orders dated August 23, 2018 and February 28, 2019, while the RTC’s nullification of BDO’s application of payment had been decreed earlier in the January 10, 2017 Omnibus Order. The Court found that BDO questioned the nullification for the first time only in September 2018 through a motion for reconsideration of the August 23, 2018 order. The Court considered BDO’s attempt to reverse the January 10, 2017 omnibus ruling after one year and nine months to be unreasonable and inequitable, thus reflecting laches.

Even if BDO’s inaction were ignored, the Court held that the petition still failed on the merits because BDO could not bypass the need for competent proof of its alleged secured status. Citing Section 114 of the FRIA on Rights of Secured Creditors, the Court explained that the liquidation order shall not affect a secured creditor’s right to enforce its lien. However, the liquidation court must still protect other creditors from fraudulent schemes that could reduce their shares. The Court thus treated the verification of secured status and the admissibility and sufficiency of proof as critical.

Finally, the Supreme Court addressed BDO’s submissions

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