Title
Land Bank of the Philippines vs. Capistrano
Case
G.R. No. 73123
Decision Date
Sep 2, 1991
Filand Manufacturing and Emilio Ching defaulted on a P10M loan from Land Bank. Amid a collection suit, they filed for insolvency, citing fire damage and economic crisis. Land Bank contested jurisdiction, arguing SEC, not RTC, had authority. SC upheld RTC's jurisdiction, ruling Insolvency Law governs insolvency, not SEC under P.D. 902-A.
voluntary insolvency
jurisdiction
loan recovery
A

Case Summary (G.R. No. 73123)

Factual Background and Antecedent Proceedings

The record showed that on September 19, 1980, Filand Manufacturing and Estate Development Co., Inc. (Filand Manufacturing) and Emilio Ching obtained from the Land Bank a loan of P10,000,000.00. When the borrowers failed to pay on the due date, the Land Bank instituted a collection suit before the RTC of Manila docketed as Civil Case No. 0184-P.

During the pendency of that collection case, on December 29, 1984, private respondents filed before the RTC of Pasay City a petition docketed as Special Proceedings No. 3232-P for a declaration of insolvency. The petition was filed by Filand Manufacturing, Emilio Ching, his spouse Inai Teh, and Top Construction Enterprises, Inc., through Emilio Ching. The petition alleged that they were unable to pay their debts and liabilities incurred jointly or solidarily, or guaranteed by one for the other, due to business reverses caused by a fire on January 2, 1984 that gutted the Holiday Plaza Building then owned and operated by Filand Manufacturing. It also cited the economic crisis that followed the assassination of former Senator Benigno S. Aquino in 1983.

RTC’s Order of Adjudication and Issuance of Creditors’ Meeting

Acting on the insolvency petition, the RTC of Pasay City issued an Order of Adjudication on January 29, 1985, declaring the private respondents insolvent pursuant to Section 18 of Act No. 1956. The order directed the Sheriff of Pasay City to take possession and safely keep various corporate and personal records and property of the petitioners, including deeds, vouchers, books of account, papers, notes, bonds, bills, and securities, and all real and personal properties and effects not exempt from execution, until the appointment of a receiver or assignee.

The RTC also scheduled March 25, 1985 at 9:00 A.M. as the meeting date for creditors to choose an assignee or assignees of the estates.

Land Bank’s Motions and the RTC’s July 19, 1985 Order

The Land Bank moved for reconsideration of the Order of Adjudication on two grounds: first, that the court lacked subject-matter jurisdiction over the insolvency petition insofar as the petitioning corporations were concerned; and second, that the petition was defective in form and substance. After an exchange of pleadings, the RTC issued an Order dated July 19, 1985 that upheld its jurisdiction. The RTC appointed the Land Bank as assignee “for and in behalf of all the creditors” without bond, and directed delivery of properties and documents already seized pursuant to the January 29, 1985 order. It further required compliance with the time limit under Section 43 of Act 1956 and set the assignee’s report for hearing on October 29, 1985 at 9:00 A.M.

The Land Bank declined the appointment. The RTC then appointed the City Treasurer of Pasay City, identified as the second biggest creditor, in its stead.

Events on Appeal and the Supreme Court’s Clarification of Appellate Mode

The Land Bank filed a Notice of Appeal and a Record on Appeal on August 19, 1985, and the RTC forwarded the records directly to the Supreme Court. The Supreme Court, in a resolution dated September 23, 1985, required explanations from the Branch Clerk of Court and the presiding judge as to why the records were forwarded, given that the mode of review under R.A. 5440 is by petition for review on certiorari.

The Court also required the Land Bank to explain, within ten days from notice, why timely docket and legal research fund fees were not paid and why a timely petition for review on certiorari under R.A. 5440 was not filed, warning that otherwise the judgment sought to be reviewed could be deemed final and executory.

After explanations were submitted, the Supreme Court on December 4, 1985 required the Land Bank to file a petition for review on certiorari and to pay the fees within a non-extendible period of ten days. The Land Bank complied seasonably. After private respondents filed comments, the Land Bank, on March 24, 1986, informed the Court that on March 3, 1986, the RTC rendered a decision in Special Proceedings No. 3232-P. That RTC decision declared Filand Manufacturing and Top Construction Enterprises, Inc. insolvent and provided for distribution of their properties and assets to creditors, while stating that they were not discharged from liabilities under Section 52 of Act 1956, as amended. It also declared Spouses Emilio Ching and Inai Teh insolvent and approved their application for discharge, ordering their release from claims, debts, liabilities, and demands with respect to specified obligations and creditors, while treating receiver and winding-up matters as interlocutory.

The Supreme Court then issued a temporary restraining order on April 14, 1986, enjoining enforcement of the RTC decision. The restraining order was later lifted insofar as the natural persons, Emilio Ching and Inai Teh, were concerned, because jurisdiction over them was not being questioned.

Core Jurisdiction Issue Raised by the Petition

In the Supreme Court petition, given due course, the Land Bank argued that jurisdiction over insolvency petitions for corporations belonged to the SEC, not the RTC. The Land Bank contended that specific provisions of Presidential Decree No. 902-A, as amended (notably Sections 3, 5(d), and 6(c) and (d) as construed by the Land Bank), had repealed the Insolvency Law provisions conferring jurisdiction on regular courts. The Land Bank’s position thereby asserted that SEC, and not RTC, should entertain corporate petitions for insolvency.

Private respondents maintained the opposite view. They argued that the insolvency petition was not among the cases enumerated in Section 5 of P.D. No. 902-A, over which the SEC had original and exclusive jurisdiction.

Because the Court considered the issue to have “far reaching importance” from both legal and economic standpoints, it impleaded the SEC and required it to inform the Court of its practice regarding suspensions of payments and voluntary and involuntary insolvencies of Philippine corporations.

SEC Participation and Hearing; Amicus Curiae

The SEC, through the Solicitor General, filed its memorandum on December 13, 1989. After deliberation, the Court set the case for hearing on May 14, 1990 at 10:00 o’clock in the morning. It required the appearance of a senior SEC officer to inform the Court of the law and practice applied by the SEC regarding suspension of payments and insolvencies of corporations.

Former SEC Chairman Julito Sulit, Jr. was appointed amicus curiae to appear and assist the Court.

Procedural Clarification on Mode of Appeal

Before addressing the principal jurisdictional question, the Court expressed dismay that both the petitioner and the lower court remained uncertain about the proper appellate mode. It quoted a March 1, 1990 en banc resolution in UDK 9748, “Murillo v. Consul”, clarifying that R.A. No. 5440 changed the mode of appeal to the Supreme Court in certain cases from ordinary appeal to review by petition for certiorari governed by Rule 45. The Court stressed that, apart from specified exceptions in criminal cases, RTC judgments could not be appealed to the Supreme Court by petition for review or notice of appeal. The proper vehicle was petition for review on certiorari under Rule 45.

Legal Reasoning: SEC Jurisdiction Is Limited and Must Be Strictly Construed

On the merits, the Court ruled for private respondents. It began with the statutory allocation under Act No. 1956, under which jurisdiction over proceedings for suspension of payments and voluntary and involuntary insolvency was exclusively vested in the regular courts. The Court then examined how P.D. No. 1758 amended Section 5(d) of P.D. No. 902-A by adding that the SEC had original and exclusive jurisdiction over corporate petitions to be declared in a state of suspension of payments in specified situations.

The Court rejected the Land Bank’s interpretation that the addition effectively repealed the Insolvency Law and transferred to the SEC jurisdiction over insolvency. The Court reasoned that the SEC, as an administrative body, possessed only such powers as were specifically granted by its enabling law. Hence, SEC jurisdiction must be interpreted in strictissimi juris.

According to the Court, Section 5(d) should be construed as granting original and exclusive SEC jurisdiction only over petitions to be declared in a state of suspension of payments, whether as (a) a simple suspension petition based on the Insolvency Law or (b) a suspension petition accompanied by a prayer for the creation or appointment of a management committee and/or a rehabilitation receiver under P.D. No. 902-A. The Court held that the provision could not be expanded to include petitions for declaration of insolvency.

The Court emphasized a critical qualification in Section 5(d): SEC jurisdiction over cases where the corporation lacks sufficient assets to cover liabilities is conditioned by the conjunctive phrase that the corporation “is under the management of a Rehabilitation Receiver or Management Committee created pursuant to this Decree.” That qualification limited SEC authority over insolvent corporations to those already placed under SEC management via SEC mechanisms in continuation of its suspension-of-payments jurisdiction.

Thus, the Court explained that when a petition properly seeks a declaration of a state of suspension of payments, and the petitioning corporation is either solvent but illiquid or insolvent but already under SEC-appointed management, P.D. No. 902-A governs. Conversely, when the corporation has no sufficient assets, is not under SEC-appointed management, and seeks instead a declaration of insolvency—as in the instant petition—Act 1956 governs, specifically Section 14 on voluntary insolvency, which permits an insolvent debtor with debts exceeding one thousand pesos to apply for discharge by petition to the Court of First Instance (now the RTC) in the province or city of residence for

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