Title
Rizal Commercial Banking Corp. vs. Intermediate Appellate Court
Case
G.R. No. 74851
Decision Date
Dec 9, 1999
BF Homes filed for rehabilitation; RCBC foreclosed properties. SEC issued TRO, later injunction. Courts ruled on jurisdiction, secured creditor rights, and fraud claims. SC upheld RCBC's foreclosure, clarifying suspension of claims upon management committee appointment.

Case Summary (G.R. No. L-8922-24)

Background and Procedural History

BF Homes filed a petition for rehabilitation and suspension of payments with the Securities and Exchange Commission (SEC) on September 28, 1984. RCBC was listed as one of its creditors. RCBC proceeded with a mortgage foreclosure of BF Homes’ properties through extrajudicial means on October 26, 1984, and scheduled a public auction for November 29, 1984. The SEC issued a temporary restraining order (TRO) on November 28, 1984, which temporarily enjoined the foreclosure sale, rescheduling the auction to January 29, 1985. The SEC ordered issuance of a preliminary injunction upon bond filing, but RCBC only filed the bond on the day of the auction. The sheriff conducted the auction on January 29, 1985, with RCBC as the highest bidder.

Following the auction, BF Homes filed a motion before the SEC to annul the sale and cite RCBC and the sheriff for contempt. The SEC eventually issued a writ of preliminary injunction on February 13, 1985, after the auction had already taken place. RCBC subsequently filed a mandamus action with the Regional Trial Court (RTC) to compel issuance of a certificate of sale. The RTC ruled in favor of RCBC on May 8, 1985. BF Homes then filed a petition with the Intermediate Appellate Court (IAC) to annul the RTC judgment on grounds that the SEC had exclusive jurisdiction over BF Homes’ assets due to the rehabilitation proceeding and that the foreclosure violated said jurisdiction. The IAC annulled the RTC judgment and suspended issuance of new titles to RCBC pending resolution of the SEC rehabilitation case. RCBC appealed to the Supreme Court.

Supreme Court’s Initial Ruling (1992)

The Court affirmed the IAC decision, holding that:

  • Upon filing of a petition for rehabilitation and suspension of payments, all creditors, including preferred creditors such as those holding mortgages, stand on an equal footing. Foreclosure is disallowed to avoid prejudicing other creditors or causing discrimination among them.
  • Any foreclosure conducted despite the rehabilitation petition should have the certificate of sale withheld and no transfer of title effected during the rehabilitation period.
  • The rationale of PD 902-A is to promote viable rehabilitation by suspending such actions upon filing of the petition to prevent dissipation of corporate assets prior to SEC’s intervention.
    The majority held that the prohibition against foreclosure attaches immediately upon filing the rehabilitation petition, thus invalidating RCBC’s foreclosure and subsequent acquisition of judicial title.

Dissenting Opinion on Suspension of Claims Timing

Justice Feliciano and others dissented, arguing that:

  • The clear language of PD 902-A Section 6(c) establishes that suspension of claims against a corporation under rehabilitation attaches only upon the appointment of a management committee, rehabilitation receiver, or similar body. The mere filing of a petition does not trigger suspension.
  • In this case, the management committee for BF Homes was appointed only on March 18, 1985, well after RCBC’s foreclosure sale on January 29, 1985. Therefore, RCBC’s foreclosure was valid and its rights as a mortgage creditor should have been recognized.
  • The statute requires specific circumstances (imminent danger of dissipation or paralysis of operations) to justify such appointment and suspension, which are legal safeguards ensuring extraordinary relief does not attach prematurely.

Motion for Reconsideration and Supreme Court’s Final Ruling (1999)

Upon reconsideration, the Court reversed its 1992 decision, reasoning that:

  • The suspension of claims under PD 902-A occurs only upon appointment of a management committee, rehabilitation receiver, board or body, not upon mere filing of a rehabilitation petition. The law’s language is unambiguous and must be strictly applied, avoiding judicial legislation.
  • The appointment of a management committee is based on an SEC determination that such extraordinary preventive action is necessary under specified conditions (imminent danger of asset dissipation or business paralysis prejudicial to minority interests or the public). Absent such appointment, creditors like RCBC retain the right to enforce preferred claims through foreclosure.
  • The earlier holding disrupting RCBC’s foreclosure based solely on the filing of a petition misapplied the law, thereby infringing on RCBC’s legitimate rights as a preferred creditor.
  • Consequently, RCBC’s extrajudicial foreclosure conducted prior to the March 18, 1985 appointment of the management committee was valid, and RCBC was entitled to the certificate of sale and transfer of titles. The RTC’s original judgment enforcing this right was reinstated.

Clarification on Secured vs. Unsecured Creditors under Rehabilitation

The Court addressed confusion arising from conflicting rulings regarding whether secured creditors are treated differently from unsecured creditors in rehabilitation proceedings under PD 902-A:

  • All claims against a corporation placed under management or receivership shall be suspended from the time a management committee or rehabilitation receiver is appointed, regardless of whether the creditor is secured or unsecured.
  • Secured creditors retain their preference over unsecured creditors; however, enforcement of such preference is suspended to provide the management committee or receiver a fair opportunity to rehabilitate the corporation without interference from secured creditors seeking foreclosure.
  • Once rehabilitation proves unfeasible and liquidation occurs, secured creditors regain their priority rights pursuant to Civil Code provisions on credit preference.
  • This position reconciles earlier jurisprudence and underscores that suspension of actions applies only upon appointment of a management committee—not immediately upon filing a rehabilitation petition.

Statutory Interpretation and Judicial Role

The Court emphasized principles of statutory interpretation:

  • Where the law’s language is clear and free from ambiguity, courts must apply the law strictly as written without resorting to construction or judicial legislation.
  • Judicial rulings must respect legislative prerogative in defining the scope and timing of suspension of claims under PD 902-A.
  • Only where the law invites multiple interpretations may courts construe the statute to ascertain legislative intent.

SEC’s Authority to Issue Injunctive Relief Prior to Management Committee Appointment

A separate opinion by Justice Panganiban recognized the competing economic interests between protecting creditor rights and safeguarding corporate assets for rehabilitation:

  • The SEC acquires jurisdiction over a rehabilitatio

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