Concept of InsolvencySection 2.Declaration of Policy.- It is the policy of the State to encourage debtors, both juridical and natural persons, and their creditors to collectively and realistically resolve and adjust competing claims and property rights. In furtherance thereof, the State shall ensure a timely, fair, transparent, effective and efficient rehabilitation or liquidation of debtors. The rehabilitation or liquidation shall be made with a view to ensure or maintain certainly and predictability in commercial affairs, preserve and maximize the value of the assets of these debtors, recognize creditor rights and respect priority of claims, and ensure equitable treatment of creditors who are similarly situated. When rehabilitation is not feasible, it is in the interest of the State to facilities a speedy and orderly liquidation of these debtor's assets and the settlement of their obligations.Section 4.(p)Insolventshall refer to the financial condition of a debtor that is generally unable to pay its or his liabilities as they fall due in the ordinary course of business or has liabilities that are greater than its or his assets.(q)Insolvent debtor's estateshall refer to the estate of the insolvent debtor, which includes all the property and assets of the debtor as of commencement date, plus the property and assets acquired by the rehabilitation receiver or liquidator after that date, as well as all other property and assets in which the debtor has an ownership interest, whether or not these property and assets are in the debtor's possession as of commencement date:Provided,That trust assets and bailment, and other property and assets of a third party that are in the possession of the debtor as of commencement date, are excluded therefrom.(r)Involuntary proceedingsshall refer to proceedings initiated by creditors.Section 146.Application to Pending Insolvency, Suspension of Payments and Rehabilitation Cases.- This Act shall govern all petitions filed after it has taken effect. All further proceedings in insolvency, suspension of payments and rehabilitation cases then pending, except to the extent that in opinion of the court their application would not be feasible or would work injustice, in which event the procedures set forth in prior laws and regulations shall apply.Section 147.Application to Pending Contracts.- This Act shall apply to all contracts of the debtor regardless of the date of perfection.Section 148.Repeating Clause.- The Insolvency Law (Act No. 1956). As amended is hereby repealed. All other laws, orders, rules and regulations or parts thereof inconsistent with any provision of this Act are hereby repealed or modified accordingly.Concrrence and Preference of CreditSection 133.Concurrence and Preference of Credits.- The Liquidation Plan and its Implementation shall ensure that the concurrence and preference of credits as enumerated in the Civil Code of the Philippines and other relevant laws shall be observed, unless a preferred creditor voluntarily waives his preferred right. For purposes of this chapter, credits for services rendered by employees or laborers to the debtor shall enjoy first preference under Article 2244 of the Civil Code, unless the claims constitute legal liens under Article 2241 and 2242 thereof.Section 136.Liquidation of a Securities Market Participant.- The foregoing provisions of this chapter shall be without prejudice to the power of a regulatory agency or self- regulatory organization to liquidate trade-related claims of clients or customers of a securities market participant which, for purposes of investor protection, are hereby deemed to have absolute priority over other claims of whatever nature or kind insofar as trade-related assets are concerned.For purposes of this section, trade -related assets include cash, securities, trading right and other owned and used by the securities market participant in the ordinary course of this business. [G.R. NO. 180036 - July 25, 2012]SITUS DEVELOPMENT CORPORATIONv.ASIATRUST BANK, The instant Rule 45 Petition assails the Decision1and Resolution2of the Court of Appeals (CA) in CA-G.R. CV No. 80223. The CA reversed and set aside the Adjudication3of the Regional Trial Court (RTC), Branch 93, Quezon City (the Rehabilitation Court) in Civil Case No. Q-02-010, which had approved the Second Amended Rehabilitation Plan of petitioners Situs Development Corporation, Daily Supermarket, Inc. and Color Lithographic Press, Inc. (collectively, petitioners or petitioner corporations) over the objections of respondents Asiatrust Bank (Asiatrust), Allied Banking Corporation (Allied Bank) and Metropolitan Bank and Trust Company (Metrobank). Respondent Cameron Granville II Asset Management, Inc. (Cameron), a Special Purpose Vehicle, was the transferee of Metrobank s rights, title and interest in the instant case.The facts are not in issue, and we quote with favor the narration of the appellate court:In 1972, the Chua Family, headed by its patriarch, Cua Yong Hu, a.k.a. Tony Chua, started a printing business and put up Color Lithographic Press, Inc. (COLOR). On June 6, 1995, the Chua Family ventured into real estate development/leasing by organizing Situs Development Corporation (SITUS) in order to build a shopping mall complex, known as Metrolane Complex (COMPLEX) at 20th Avenue corner P. Tuazon, Cubao, Quezon City. To finance the construction of the COMPLEX, SITUS, COLOR and Tony Chua and his wife, Siok Lu Chua, obtained several loans from (1) ALLIED secured by real estate mortgages over two lots covered by TCT Nos. RT-13620 and RT-13621; (2) ASIATRUST secured by a real estate mortgage over a lot covered by TCT No. 79915; and (3) Global Banking Corporation, now METROBANK, secured by a real estate mortgage over a lot covered by TCT No. 79916. The COMPLEX was built on said four (4) lots, all of which are registered in the names of Tony Chua and his wife, Siok Lu Chua. On March 21, 1996, the Chua Family expanded into retail merchandising and organized Daily Supermarket, Inc. (DAILY). All three (3) corporations have interlocking directors and are all housed in the COMPLEX. The Chua Family also resides in the COMPLEX, while the other units are being leased to tenants. SITUS, COLOR and DAILY obtained additional loans from ALLIED, ASIATRUST and METROBANK and their real estate mortgages were updated and/or amended. Spouses Chua likewise executed five (5) Continuing Guarantee/Comprehensive Surety in favor of ALLIED to guarantee the payment of the loans of SITUS and DAILY.SITUS, COLOR, DAILY and the spouses Chua failed to pay their obligations as they fell due, despite demands.On November 22, 2000, ALLIED filed with the Office of the Clerk of Court and Ex-Officio Sheriff of Quezon City an application for extrajudicial foreclosure of the mortgage on the properties of spouses Chua covered by TCT Nos. RT-13620 and RT-13621. The auction sale was scheduled on February 6, 2001. However, on February 5, 2001, SITUS, COLOR and spouses Chua filed a complaint for nullification of foreclosure proceedings, with prayer for temporary restraining order/injunction, with the Regional Trial Court, Branch 87, Quezon City, docketed as Civil Case No. Q-01-43280. As no temporary restraining order was issued, the scheduled auction sale proceeded wherein ALLIED emerged as the highest bidder in the amount of P88,958,700.00. The Certificate of Sale dated March 9, 2001 in favor of ALLIED was approved by the Executive Judge of the Regional Trial Court of Quezon City on September 9, 2002 and the same was annotated on TCT Nos. RT-13620 and RT-13621 on September 23, 2002.On July 26, 2001, METROBANK likewise filed an application for extrajudicial foreclosure of the mortgage on the property of spouses Chua covered by TCT No. 79916. The auction sale was conducted on September 18, 2001, with METROBANK as the highest bidder in the amount of P95,282,563.86.On May 16, 2002, ASIATRUST sent a demand letter to DAILY and COLOR for the payment of their outstanding obligations.On June 11, 2002, SITUS, DAILY and COLOR, herein petitioners, filed a petition for the declaration of state of suspension of payments with approval of proposed rehabilitation plan, docketed as Civil Case No. Q-02-010, with the Regional Trial Court, Branch 93, Quezon City.Petitioners alleged that due to the 1997 Asian financial crisis, peso devaluation and high interest rate, their loan obligations ballooned and they foresee their inability to meet their obligations as they fall due; that their loan obligations are secured by the real properties of their major stockholder, Tony Chua; that ALLIED has already initiated foreclosure proceedings; that Global Banking Corporation, now METROBANK, and ASIATRUST made final demands for payment of their obligations; that they foresee a very good future ahead of them if they would be given a "breathing spell" from their obligations as they fall due; and that their assets are more than sufficient to pay off their debts. Petitioners submitted a program of rehabilitation for the approval of creditors and the court a quo.A Stay Order dated June 17, 2002, was issued by the court a quo directing as follows: lbrrA. ) a stay in the enforcement of all claims, whether for money or otherwise and whether such enforcement is by court action or otherwise, against the petitioners Situs Development Corporation, Daily Supermarket, Inc., & Color Lithographic Press, Inc., their guarantors and sureties not solidarily liable with them;b.) prohibiting Situs Development Corporation, Daily Supermarket, Inc., & Color Lithographic Press, Inc., from selling, encumbering, transferring or disposing in any manner any of their properties except in the ordinary course of business;c.) prohibiting Situs Development Corporation, Daily Supermarket, Inc. & Color Lithographic Press, Inc., from making any payment of their liabilities outstanding as of the filing of the instant petition;d.) prohibiting Situs Development Corporation, Daily Supermarket, Inc. and Color Lithographic Press, Inc. s suppliers of goods and services from withholding supply of goods and services in the ordinary course of business for as long as Situs Development Corporation, Daily Supermarket, Inc. & Color Lithographic Press, Inc., make payments for the goods and services supplied after the issuance of this stay order; ande.) directing the payment in full of all administrative expenses incurred after the issuance of this stay order.virtual law lThe court a quo appointed Mr. Antonio B. Garcia as the Rehabilitation Receiver, set the initial hearing on the petition on August 2, 2002 and directed all creditors and interested parties, including the Securities and Exchange Commission (SEC), to file their comment on or opposition to the petition.ALLIED filed its opposition and comment praying for the dismissal of the petition and the lifting of the Stay Order on the grounds that it is defective in form and substance; that it contains substantial inaccuracies and inconsistencies; and that it does not contain a viable rehabilitation plan.ASIATRUST filed its comment with partial opposition praying likewise for the dismissal of the petition on the grounds that it is not in due form and lacks substantial allegations on its debt obligations with its various creditors; that petitioners do not have a viable rehabilitation plan; and that petitioners do not have a clear source of repayment of their obligations.No comment or opposition was filed by SEC.In an Order dated August 2, 2002, the court a quo foundprima faciemerit in the petition and gave due course thereto. The Rehabilitation Receiver was given forty-five (45) days within which to submit his report on the proposed rehabilitation plan.On October 15, 2002, METROBANK filed a Manifestation stating that it was participating in the proceedings as a mere observer inasmuch as the mortgage executed in its favor by spouses Chua on the property covered by TCT No. 79916 was foreclosed by it on September 18, 2001, so that it ceased to be a creditor of COLOR as its claim was already fully satisfied.On October 9, 2002, petitioners filed a motion for the cancellation of the certificate of sale approved on September 9, 2002 by the Executive Judge of the RTC of Quezon City and the annotation thereof on TCT Nos. RT-13620 and RT-13621, as the same were done in violation of the Stay Order dated June 17, 2002. A vehement opposition was filed by ALLIED arguing that the foreclosure proceedings cannot be considered as a "claim", as understood under Section 1, Rule 2 of the Interim Rules of Procedure on Corporate Rehabilitation, since the issuance of the Certificate of Sale and annotation thereof on the certificates of titles do not constitute demands for payment of debt or enforcement of pecuniary liabilities; that the auction sale was conducted more than one year before the filing of the petition for rehabilitation; and that TCT Nos. RT-13620 and RT-13621 are registered in the names of "Cua Yong Hu/Tony Chua and Siok Lu Chua", hence, should not have been included in the Inventory of Assets of petitioners.On October 21, 2002, ASIATRUST filed an urgent manifestation praying for the outright dismissal of the petition inasmuch as METROBANK and ALLIED had already foreclosed the mortgages on the properties that stood as securities for petitioners obligations, as well as the lifting of the Stay Order.On October 19, 2002, the Rehabilitation Receiver submitted his Report on petitioners proposed Rehabilitation Plan, to which oppositions were filed by ALLIED and METROBANK.On November 21, 2002, petitioners proposed to amend their Rehabilitation Plan. On December 2, 2002, petitioners filed and submitted an Amended Rehabilitation Plan, which was opposed by ALLIED and ASIATRUST.On January 8, 2003, petitioners filed a motion to admit Second Amended Rehabilitation Program of Situs Development Corporation, the pertinent provisions of which read:brr1. Situs will assume the outstanding obligations of its non-profiting affiliate companies: Daily Supermarket, Inc. and Color Lithographic Press, Inc.;2. Situs will convert all its debts to equity;3. Situs will lease the properties from the new owners at P50.00 per square meter for a period of 25 years or at P555,200.00 a month, with a yearly escalation of 5%;4. The annual lease income will be distributed among the new owners according to their percentage ownership and, in the event that the property is sold, any profit will be shared accordingly;5. The new owners are Asiatrust with 21% ownership, Metrobank with 17% ownership, Allied with 30% ownership, and Tony Chua with 32% ownership;6. The two properties in Cavite which were mortgaged to ASIATRUST will be returned to its registered owner since the properties where the Complex sits is enough to cover the loan obligations; and7. All unpaid interests, penalties and other charges arewaived.law libraryComments on and oppositions to the Second Amended Rehabilitation Plan were filed by ALLIED, ASIATRUST and METROBANK.On August 15, 2003, ALLIED filed a motion praying for the dismissal of the petition as no Rehabilitation Plan was approved upon the lapse of 180 days from the date of the initial hearing on August 2, 2002, as mandated in Section 11 of the Interim Rules of Procedure on Corporate Rehabilitation.On August 14, 2003, the court a quo rendered an ADJUDICATION approving the Second Amended Rehabilitation Program as SITUS deserves a sporting chance at rehabilitation, subject to the following conditions: lbrr1. The first phase of implementation shall cover immediately the payment of the appurtenant shares to the creditors/new owners out of the monthly rental income of P555,200.00 as outlined in paragraph D.1 of the plan;2. An automatic review of the progress of implementation shall be undertaken six (6) months from and after the initial payment described in condition no. 1 above;3. The rehabilitation receiver, petitioner and creditors/new owners to file written reports on the sixth month of implementation and to seasonably prompt the court to set up the matter for a monitoring hearing thereon;4. At the end of one year from and after the initial implementation of the plan, the court shall undertake a review of the entire rehabilitation program for the purpose of determining the desirability of terminating or continuing with the rehabilitation;5. The rehabilitation receiver, petitioner and creditors/new owners to file written reports conformably with condition no. 4 above and to seasonably prompt the court accordingly.law libraryIn approving the Second Amended Rehabilitation Program, the court a quo held:rlFrom the original rehabilitation proposal which simply involved a condoning and restructuring of the loan obligations, the petitioners came out with an amended rehabilitation plan that calls for, among others, a concentration into the business of commercial leasing coupled with the consolidation of the debts of Daily and Color with that of Situs; a conversion of debt to equity in proportionate terms; a reduction of the principal stockholder s control of Situs Development; a proportionate share in the monthly rental income of Situs by creditors/new owners.The creditor banks have consistently opposed the rehabilitation plans submitted by the petitioners. To the creditor banks, they would be [better-off] if the businesses of the petitioners would be simply liquidated. A most simple view indeed, except that such a view totally ignores the susceptibility of petitioner Situs to rehabilitation. The creditor banks are fully aware that the real property on which the building structure of Situs Development sits is more than sufficient to answer for all the outstanding obligations of petitioners. This fact alone should be enough to afford the petitioners a sporting chance at business resuscitation. That the realties are titled in the name of Mr. Tony Chua is of no moment insofar as the rehabilitation is concerned, after all, the creditor banks were fully aware of the real facts when they willingly extended loans to the petitioners.To the court the 2nd Amended Rehabilitation Program of Situs Development Corporation Inc., a copy of which is enclosed and made an integral part of this adjudication, deserves due consideration. Although said plan is opposed by the creditor banks, the court notes that it bears the approval of the rehabilitation receiver who had the opportunity to peruse it. Moreover, under the plan, the shareholders of Situs Development will lose controlling interest in the corporation. There is also no clear showing that the properties of the debtor will be readily sold by a liquidator within a three-month period from termination of the herein proceedings and that the creditors would get more from said sale than what they would get under the plan. The court thus considers the creditors opposition to be unreasonable.In an Order dated August 25, 2003, the court a quo declared that the motion to dismiss filed by ALLIED was mooted with the issuance of the Adjudication.Aggrieved, ALLIED, ASIATRUST and METROBANK filed their separate notices of appeal.On November 10, 2003, petitioners filed with the court a quo a motion for declaration of nullity of the certificate of sale in favor of ALLIED alleging that the issuance thereof was in violation of the Stay Order, as well as a motion to direct the Register of Deeds to annotate the Adjudication on TCT Nos. RT-13620, RT-13621, TCT Nos. 79915 and 79916. Said motions were opposed by ALLIED on the grounds that the properties foreclosed by it belonged to spouses Chua and not to petitioners; that the auction sale was conducted on February 6, 2001, or more than a year prior to the filing of the petition for rehabilitation; and that the issuance of the Certificate of Sale and its annotation on the certificates of title are merely incidental to the foreclosure proceedings; and that the Stay Order does not cover the issuance of the Certificate of Sale and the registration thereof on the certificates of title as they do not in any way refer to its enforcement of a monetary claim against petitioners.In Separate Orders dated January 9, 2004, the court a quo granted both motions of petitioners. The court a quo held that while the foreclosure was conducted prior to the issuance of the Stay Order, however, the foreclosure does not fully and effectively terminate until after the issuance of the title in the name of the creditor, such that until a new title is issued, any action in the interregnum, judicial or not, is deemed an enforcement of the claim arising from such foreclosure, which in this case will be in patent violation of the Stay Order.4rllOn 25 April 2007, the appellate court rendered the assailed Decision, the dispositive portion of which reads:rlWHEREFORE, the appeals are GRANTED. The ADJUDICATION dated August 14, 2003 is REVERSED and SET ASIDE, the petition for the declaration of state of suspension of payments with approval of proposed rehabilitation plan is DISMISSED and the Stay Order dated June 17, 2002 is LIFTED.The twin Orders dated January 9, 2004 declaring the Certificate of Sale issued in favor of Allied Banking Corporation null and void, with respect to the properties covered by TCT No. RT-13620 and RT-13621, and directing the Register of Deeds of Quezon City to cancel the annotation of the Certificate of Sale on said titles, as well as to annotate said ADJUDICATION thereon, are likewise REVERSED and SET ASIDE. SO ORDERED.5rllIn so concluding, the CA reasoned that the Stay Order did not affect the claims of Allied Bank and Metrobank, because these claims were not directed against the properties of petitioners, but against those of spouses Chua.The CA also reasoned that when the Stay Order was issued, Allied Bank and Metrobank were already the owners of the foreclosed properties, subject only to the right of redemption of Spouses Tony and Siok Lu Chua (spouses Chua), because the extrajudicial foreclosure proceedings had taken place prior to the filing of the Petition for Rehabilitation and the issuance of the Stay Order.Furthermore, the CA agreed with the contention of respondents that the Petition was insufficient in form and in substance. Among the reasons cited by the appellate court was the fact that the inventory of assets of petitioner corporations included properties that were not owned by them, but registered in the names of spouses Chua and already acquired by Allied Bank and Metrobank; and that the financial statements submitted by petitioner corporations showed that their total liabilities exceeded their total assets.Finally, the CA ruled that the Petition for Rehabilitation should be dismissed, because the rehabilitation plan was approved by the court more than 180 days from the date of the initial hearing, contrary to the directive of Section 11, Rule 4 of the Interim Rules on Corporate Rehabilitation.6rllAggrieved by the ruling of the appellate court, petitioners then filed the instant Rule 45 Petition before this court and prayed for the issuance of a status quo order.On 10 December 2007, we resolved to direct the parties to maintain the status quo as of the date of the issuance of the Stay Order of the trial court.On 17 March 2008, petitioners filed a "Manifestation and Motion to Substitute Metro Bank with Cameron Granville II Asset Management, Inc.,"7alleging that since Metrobank had sold, transferred and conveyed all its rights, title and interest over the loans of petitioners to Cameron, Metrobank was no longer a real party-in-interest in this case. Furthermore, petitioners prayed that Metrobank and Cameron be directed to disclose the transfer price or discounted value of the sale allegedly because, under Art. 1634 of the Civil Code, they had the right of redemption of the sold credits by paying only the transfer price to the transferee.THE ISSUESThe resolution of this case hinges on the following issues:r1. Whether the dismissal of the Petition for Rehabilitation is in order;2. Whether the Stay Order affects foreclosure proceedings involving properties mortgaged by stockholders to secure corporate debts; and3. Whether petitioners can redeem the credit transferred by Metrobank to Cameron by paying only the price paid by the transferee.law libraryTHE COURT S RULINGWe lift the status quo order and affirm the Decision of the appellate court.IThe dismissal of the Petition for Rehabilitation is in orderWe find no reversible error on the part of the appellate court when it dismissed the Petition for Rehabilitation.The Rules provide that "the petition shall be dismissed if no rehabilitation plan is approved by the court upon the lapse of one hundred eighty (180) days from the date of the initial hearing."8While the Rules expressly provide that the 180-day period may be extended, such extension may be granted only "if it appears by convincing and compelling evidence that the debtor may successfully be rehabilitated."9rllIn this case, the Second Amended Rehabilitation Program was approved by the trial court beyond the 180-day period counted from the date of the initial hearing. However, the evidence on record does not support the lower court s finding that the debtor corporations may still be successfully rehabilitated.The trial court s only justification for approving the Second Amended Rehabilitation Program is that "the creditor banks are fully aware that the real property on which the building structure of Situs Development sits is more than sufficient to answer for all the outstanding obligations of the petitioners."10It then went on to conclude that "[t]his fact alone should be enough to afford the petitioners a sporting chance at business resuscitation."11rllWe do not agree.It is a fundamental principle in corporate law that a corporation is a juridical entity with a legal personality separate and distinct from the people comprising it.12Hence, the rule is that assets of stockholders may not be considered as assets of the corporation, and vice-versa. The mere fact that one is a majority stockholder of a corporation does not make one s property that of the corporation, since the stockholder and the corporation are separate entities.13rllIn this case, the parcels of land mortgaged to respondent banks are owned not by petitioners, but by spouses Chua.14Applying the doctrine of separate juridical personality, these properties cannot be considered as part of the corporate assets. Even if spouses Chua are the majority stockholders in petitioner corporations, they own these properties in their individual capacities. Thus, the parcels of land in question cannot be included in the inventory of assets of petitioner corporations.The fact that these properties were mortgaged to secure corporate debts is of no moment. A mortgage is an accessory undertaking to secure the fulfillment of a principal obligation.15In a third-party mortgage, the mortgaged property stands as security for the loan obtained by the principal debtor; but until the mortgaged property is foreclosed, ownership thereof remains with the third-party mortgagor.Here, the properties owned by spouses Chua were mortgaged as security for the debts contracted by petitioner corporations. However, ownership of these properties remained with the spouses notwithstanding the fact that these were mortgaged to secure corporate debts. We have ruled that "when a debtor mortgages his property, he merely subjects it to a lien but ownership thereof is not parted with."16This leads to no other conclusion than that, notwithstanding the mortgage, the real properties in question belong to spouses Chua; hence, these properties should not be considered as assets of petitioner corporations.Since the real properties in question cannot be considered as corporate assets, the trial court s pronouncement that petitioners were susceptible of rehabilitation was bereft of any basis. Based on the rehabilitation court s narration of facts, Situs Development Corporation has total assets of P54,176,149.22 with total liabilities of P74,304,188.01; Daily Supermarket, Inc. has total assets of P43,986,412.33 with total liabilities of P114,219,462.00; and Color Lithographic Press, Inc. has total assets of P7,618,006.69 and total liabilities of P6,588,534.99.17Clearly, the aggregate total liabilities of petitioner corporations far exceed their aggregate total assets.We take this opportunity to point out that rehabilitation contemplates a continuance of corporate life and activities in an effort to restore and reinstate the corporation to its former position of successful operation and solvency.18However, if the continued existence of the corporation is no longer viable, rehabilitation can no longer be an option. The purpose of rehabilitation proceedings is to enable the company to gain a new lease on life,19and not to prolong its inevitable demise.IIThe Stay Order does not suspend the foreclosure of a mortgage constituted over the property of a third-party mortgagorPetitioners insist that the Stay Order covers the mortgaged properties, citing the Interim Rules on Corporate Rehabilitation (the Rules). Under the Rules, one of the effects of a Stay Order is the stay of the "enforcement of all claims, whether for money or otherwise and whether such enforcement is by court action or otherwise, against the debtor, its guarantors and sureties not solidarily liable with the debtor."20rllBased on a reading of the Rules, we rule that the Stay Order cannot suspend foreclosure proceedings already commenced over properties belonging to spouses Chua. The Stay Order can only cover those claims directed against petitioner corporations or their properties, againstpetitioners guarantors, or against petitioners sureties who are not solidarily liable with them.Spouses Chua may not be considered as "debtors." The Interim Rules on Corporate Rehabilitation (the Rules) define the term "debtor" as follows:"Debtor" shall mean any corporation, partnership, or association, whether supervised or regulated by the Securities and Exchange Commission or other government agencies, on whose behalf a petition for rehabilitation has been filed under these Rules.Likewise, the enforcement of the mortgage lien cannot be considered as a claim against a guarantor or a surety not solidarily liable with the debtor corporations. While spouses Chua executed Continuing Guaranty and Comprehensive Surety undertakings in favor of Allied Bank, the bank did not proceed against them as individual guarantors or sureties. Rather, by initiating extrajudicial foreclosure proceedings, the bank was directly proceeding against the property mortgaged to them by the spouses as security. The Civil Code provides that the property upon which a mortgage is imposed directly and immediately subjected to the fulfillment of the obligation for whose security the mortgage was constituted.21As such, a real estate mortgage is a lien on the property itself, inseparable from the property upon which it was constituted.In this case, we find that the undertaking of spouses Chua with respect to the loans of petitioner corporations is the sale at public auction of certain real properties belonging to them to satisfy the indebtedness of petitioner corporations in case of a default by the latter. This undertaking is properly that of a third-party mortgagor or an accommodation mortgagor, whereby one mortgages one s property to stand as security for the indebtedness of another.22rllIn Pacific Wide Realty and Development Corporation v. Puerto Azul Land, Inc.,23we ruled that the issuance of a Stay Order cannot suspend the foreclosure of accommodation mortgages, because the Stay Order may only cover the suspension of the enforcement of all claims against the debtor, its guarantors, and sureties not solidarily liable with the debtor.24Thus, the suspension of enforcement of claims does not extend to the foreclosure of accommodation mortgages.Moreover, the intent of the Rules is to exclude from the scope of the Stay Order the foreclosure of properties owned by accommodation mortgagors. The newly adopted Rules of Procedure on Corporate Rehabilitation provides for one of the effects of a Stay Order:SEC. 7. Stay Order.(b) staying enforcement of all claims, whether for money or otherwise and whether such enforcement is by court action or otherwise, against the debtor, its guarantors and persons not solidarily liable with the debtor; provided, that the stay order shall not cover claims against letters of credit and similar security arrangements issued by a third party to secure the payment of the debtor's obligations; provided, further, that the stay order shall not cover foreclosure by a creditor of property not belonging to a debtor under corporate rehabilitation; provided, however, that where the owner of such property sought to be foreclosed is also a guarantor or one who is not solidarily liable, said owner shall be entitled to the benefit of excussion as such guarantor.25(Emphasis supplied)From the foregoing, we therefore hold that foreclosure proceedings over the properties in question are not suspended by the trial courts issuance of the Stay Order.Furthermore, even assuming that the properties in question fall under the ambit of the Stay Order, the issuance thereof should not affect the execution of the Certificate of Sale.In Rizal Commercial Banking Corporation v. Intermediate Appellate Court and BF Homes, Inc.,26the debtor corporation filed a Petition for Rehabilitation and Declaration of Suspension of Payments before the Securities and Exchange Commission (SEC). Prior to the SEC s appointment of a management committee and during the pendency of the case, the mortgagee-bank foreclosed on the real estate mortgage over some of the corporations mortgaged properties. An auction sale was conducted, and the mortgagee-bank emerged as the highest bidder. However, because of the pendency of the rehabilitation case before the SEC, the Sheriff withheld the delivery of the Certificate of Sale. Ruling on the validity of the foreclosure proceedings, we held that the conduct of the foreclosure sale was valid, because it was carried out prior to the issuance of the SEC s order appointing a management committee. We held that the appointment of a management committee, rehabilitation receiver, board or body pursuant to Presidential Decree No. 902-A is the operative act that suspends all actions or claims against a distressed corporation.In the case at bar, the auction sale for the parcels of land covered by TCT Nos. RT-13620 and RT-13621 and mortgaged to respondent Allied Bank was conducted on 6 February 2001, while the foreclosure sale for the parcel of land covered by TCT No. 79916 and mortgaged to Metrobank was conducted on 18 September 2001. Clearly, the foreclosure proceedings commenced and the auction sale was conducted before the issuance of the Stay Order and the appointment of the Rehabilitation Receiver on 17 June 2002. In fact, the public auctions took place almost a year before petitioner corporations filed the Petition for Rehabilitation with the court a quo on 11 June 2002. Therefore, the execution of the Certificate of Sale may no longer be suspended by the trial court s issuance of the Stay Order, even if the questioned properties are assumed to fall under the ambit of the Stay Order, since the foreclosure proceedings and the auction sale were conducted prior to the appointment of the Rehabilitation Receiver.IIIPetitioners cannot redeem the credit transferred by Metrobank to Cameron by reimbursing the transfereePetitioners claim that, based on Republic Act (R.A.) No. 9182 or the Special Purpose Vehicle (SPV) Act of 2002, they have the right of legal redemption by paying Cameron the transfer price plus the cost of money up to the time of redemption and the judicial costs in case of sale or transfer of Non-Performing Loans (NPLs) under litigation.27rllPetitioners claim is anchored on Section 13 of the SPV Act, which provides:rlSec. 13.Nature of Transfer. All sales or transfers of Non-Performing Assets to an SPV shall be in the nature of a true sale after proper notice in accordance with the procedures as provided for in section 12: Provided, That GFIs and GOCCs shall be subject to existing law on the disposition of assets: Provided, further, That in the transfer of the NPLs, the provisions on subrogation and assignment of credits under the New Civil Code shall apply.In turn, Art. 1634 of the Civil Code on Assignment of Credits and Other Incorporeal Rights provides:rlArt. 1634. When a credit or other incorporeal right in litigation is sold, the debtor shall have a right to extinguish it by reimbursing the assignee for the price the latter paid therefor, the judicial costs incurred by him, and the interest on the price from the day on which the same was paid.A credit or other incorporeal right shall be considered in litigation from the time the complaint concerning the same is answered.The debtor may exercise his right within thirty days from the date the assignee demands payment from him.At the outset, we find that the issue is only belatedly raised in the instant Petition28and was never threshed out in the proceedings below. Fundamental considerations of fair play, justice and due process dictate that this Court should not pass upon this question.29"Questions raised on appeal must be within the issues framed by the parties; consequently, issues not raised before the trial court cannot be raised for the first time on appeal."30rllAs early as 21 December 2005, Metrobank notified petitioners that the credit had been transferred to Cameron. However, petitioners only raised the issue of their alleged equitable right of redemption in their "Manifestation and Motion to Substitute Metro Bank with Cameron Granville II Asset Management, Inc." dated 17 March 2008.31They have not even raised this issue in the instant Petition for Review filed on 26 November 2007. This being so, the argument should not be considered, having been belatedly raised on appeal.Moreover, even if we were to consider the foregoing issue, petitioners cannot take refuge in the provisions of the SPV Act of 2004 in conjunction with Art. 1634 of the Civil Code.For the debtor to be entitled to extinguish his credit by reimbursing the assignee under Art. 1634, the following requisites must concur:r(a) there must be a credit or other incorporeal right;(b) the credit or other incorporeal right must be in litigation;(c) the credit or other incorporeal right must be sold to an assignee pending litigation;(d) the assignee must have demanded payment from the debtor;(e) the debtor must reimburse the assignee for the price paid by the latter, the judicial costs incurred by the latter and the interest on the price from the day on which the same was paid; andcralawlibrary(f) the reimbursement must be done within 30 days from the date of the assignee s demand.virtual law libraryIn this case, the credit owed by petitioner corporations to Metrobank had already been extinguished when the bank foreclosed upon the parcel of land mortgaged to it by the spouses Chua as security for petitioners debts, in full satisfaction of the loan the bank had extended. Therefore, during the pendency of these proceedings, what was transferred by Metrobank to Cameron was ownership over the foreclosed property, subject only to the right of redemption by the proper party within one year reckoned from the date of registration of the Certificate of Sale.Moreover, the provisions of the Civil Code on subrogation and assignment of credits are only applicable to NPLs,32defined in the SPV Act of 2002 as follows:rl"Non-Performing Loans or NPLs" refers to loans and receivables such as mortgage loans, unsecured loans, consumption loans, trade receivables, lease receivables, credit card receivables and all registered and unregistered security and collateral instruments, including but not limited to, real estate mortgages, chattel mortgages, pledges, and antichresis, whose principal and/or interest have remained unpaid for at least one hundred eighty (180) days after they have become past due or any of the events of default under the loan agreement has occurred.33rllWhat is involved in this case is more properly a real property acquired by a financial institution in settlement of a loan (ROPOA). Under the law, ROPOAs are defined in this manner: "ROPOAs" refers to real and other properties owned or acquired by an financial institution in settlement of loans and receivables, including real properties, shares of stocks, and chattels formerly constituting collaterals for secured loans which have been acquired by way of dation in payment (dacionenpago) or judicial or extra-judicial foreclosure or execution of judgment.34rllMay the subject property be considered as one acquired by Metrobank pursuant to an extrajudicial foreclosure sale?The Implementing Rules and Regulations of the SPV Act of 2002 provide that, in case of extrajudicial foreclosure, a property is deemed acquired by a financial institution on the date of notarization of the Sheriff s Certificate.35rllIn this case, a Certificate of Sale has not been executed in favor of Metrobank in deference to the Stay Order issued by the rehabilitation court. However, we reiterate that the rehabilitation court has no jurisdiction to suspend foreclosure proceedings over a third-party mortgage. Much less can it restrain the issuance of a Certificate of Sale after the subject properties have been sold at public auction more than a year before the Petition for Rehabilitation was filed. The property foreclosed by Metrobank was clearly beyond the ambit of the Stay Order. Consequently, there was no valid ground for the Sheriff to withhold the issuance and execution of the Certificate of Sale.The parcel of land mortgaged to Metrobank and subsequently transferred to Cameron should be treated as a ROPOA as provided for by law. Hence, the application of Art. 1634 finds no basis in law.WHEREFORE, in view of the foregoing, the instant Rule 45 Petition for Review is DENIED. The assailed Decision and Resolution of the Court of Appeals in CA-G.R. CV No. 80223 are AFFIRMED. The Status Quo Order issued by this Court on 10 December 2007 is LIFTED.G.R. No. 180036 : January 16, 2013SITUS DEV. CORPORATION, DAILY SUPERMARKETv.ASIATRUST BANK, ALLIED BANKING CORPORATION, For resolution is the Motion for Reconsideration1of our 25 July 2012 Decision2in the case involving petitioners herein, Situs Development Corporation, Daily Supermarket, Inc. and Color Lithographic Press, Inc.Most of the arguments raised by petitioners are too insubstantial to merit our consideration or are merely rehashed from their previous pleadings and have already been passed upon by this Court. However, certain issues merit a brief discussion, to wit:1. That the properties belonging to petitioner corporations majority stockholders may be included in the rehabilitation plan pursuant to Metropolitan Bank and Trust Company v. ASB Holdings, Inc.3(the Metrobank Case);2. That the subject properties should be included in the ambit of the Stay Order by virtue of the provisions of the Financial Rehabilitation and Insolvency Act of 2010 (FRIA), which should be given a retroactive effect; and3. That Allied Bank and Metro Bank were not the owners of the mortgaged properties when the Stay Order was issued by the rehabilitation court.rblrlllbrrOn the first issue, petitioners incorrectly argue that the properties belonging to their majority stockholders may be included in the rehabilitation plan, because these properties were mortgaged to secure petitioners loans. In support of their argument, they cite a footnote appearing in the Metrobank Case, which states:4rl1In their petition for rehabilitation, the corporations comprising the ASB Group of Companies alleged that their allied companies have joined in the said petition because they executed mortgages and/or pledges over their real and personal properties to secure the obligations of petitioner ASB Group of Companies. Further, (they) agreed to contribute, to the extent allowed by law, some of their specified properties and assets to help rehabilitate petitioner ASB Group of Companies. (Rollo, pp. 119-120)A reading of the footnote shows that it is not a ruling on the propriety of the joinder of parties; rather, it is a statement of the fact that the afore-quoted allegation was made in the petition for rehabilitation in that case.On the second issue, petitioners argue that the trial court was correct in including the subject properties in the ambit of the Stay Order. Under the FRIA, the Stay Order may now cover third-party or accommodation mortgages, in which the "mortgage is necessary for the rehabilitation of the debtor as determined by the court upon recommendation by the rehabilitation receiver."5The FRIA likewise provides that its provisions may be applicable to further proceedings in pending cases, except to the extent that, in the opinion of the court, their application would not be feasible or would work injustice.6rl1Sec. 146 of the FRIA, which makes it applicable to "all further proceedings in insolvency, suspension of payments and rehabilitation cases x xx except to the extent that in the opinion of the court their application would not be feasible or would work injustice," still presupposes a prospective application. The wording of the law clearly shows that it is applicable to all further proceedings. In no way could it be made retrospectively applicable to the Stay Order issued by the rehabilitation court back in 2002.At the time of the issuance of the Stay Order, the rules in force were the 2000 Interim Rules of Procedure on Corporate Rehabilitation (the "Interim Rules"). Under those rules, one of the effects of a Stay Order is the stay of the "enforcement of all claims, whether for money or otherwise and whether such enforcement is by court action or otherwise, against the debtor, its guarantors and sureties not solidarily liable with the debtor."7Nowhere in the Interim Rules is the rehabilitation court authorized to suspend foreclosure proceedings against properties of third-party mortgagors. In fact, we have expressly ruled in Pacific Wide Realty and Development Corp. v. Puerto Azul Land, Inc.8that the issuance of a Stay Order cannot suspend the foreclosure of accommodation mortgages. Whether or not the properties subject of the third-party mortgage are used by the debtor corporation or are necessary for its operation is of no moment, as the Interim Rules do not make a distinction. To repeat, when the Stay Order was issued, the rehabilitation court was only empowered to suspend claims against the debtor, its guarantors, and sureties not solidarily liable with the debtor. Thus, it was beyond the jurisdiction of the rehabilitation court to suspend foreclosure proceedings against properties of third-party mortgagors.The third issue, therefore, is immaterial. Whether or not respondent banks had acquired ownership of the subject properties at the time of the issuance of the Stay Order, the same conclusion will still be reached. The subject properties will still fall outside the ambit of the Stay Order issued by the rehabilitation court.Since the subject properties are beyond the reach of the Stay Order, and since foreclosure and consolidation of title may no longer be stalled, petitioners rehabilitation plan is no longer feasible. We therefore affirm our earlier finding that the dismissal of the Petition for the Declaration of State of Suspension of Payments with Approval of Proposed Rehabilitation Plan is in order.WHEREFORE, the Court resolves to DENY WITH FINALITY the instant Motion for Reconsideration for lack of merit. No further pleadings shall be entertained. Let entry of judgment be made in due course.Interim rules on corporate rehabilitation; effect of stay order on foreclosure. A Stay Order cannot suspend the foreclosure of accommodation mortgages, because the Stay Order may only cover the suspension of the enforcement of all claims against the debtor, its guarantors, and sureties not solidarily liable with the debtor the enforcement of the mortgage lien cannot be considered as a claim against a guarantor or a surety not solidarily liable with the debtor corporations. While spouses Chua executed Continuing Guaranty and Comprehensive Surety undertakings in favor of Allied Bank, the bank did not proceed against them as individual guarantors or sureties. Rather, by initiating extrajudicial foreclosure proceedings, the bank was directly proceeding against the property mortgaged to them by the spouses as security. The Civil Code provides that the property upon which a mortgage is imposed directly and immediately subjected to the fulfillment of the obligation for whose security the mortgage was constituted. As such, a real estate mortgage is a lien on the property itself, inseparable from the property upon which it was constituted. In this case, we find that the undertaking of spouses Chua with respect to the loans of petitioner corporations is the sale at public auction of certain real properties belonging to them to satisfy the indebtedness of petitioner corporations in case of a default by the latter. This undertaking is properly that of a third-party mortgagor or an accommodation mortgagor, whereby one mortgages ones property to stand as security for the indebtedness of another.Situs Development Corporation, et al. vs. Asiatrust Bank, et al.;G.R. No. 180036, July 25, 2012.SPV Act; extinguishment of credit. Petitioners cannot take refuge in the provisions of the SPV Act of 2004 in conjunction with Art. 1634 of the Civil Code.For the debtor to be entitled to extinguish his credit by reimbursing the assignee under Art. 1634, the following requisites must concur:(a) there must be a credit or other incorporeal right;(b) the credit or other incorporeal right must be in litigation;(c) the credit or other incorporeal right must be sold to an assignee pending litigation;(d) the assignee must have demanded payment from the debtor;(e) the debtor must reimburse the assignee for the price paid by the latter, the judicial costs incurred by the latter and the interest on the price from the day on which the same was paid; and(f) the reimbursement must be done within 30 days from the date of the assignees demand.In this case, the credit owed by petitioner corporations to Metrobank had already been extinguished when the bank foreclosed upon the parcel of land mortgaged to it by the spouses Chua as security for petitioners debts, in full satisfaction of the loan the bank had extended. Therefore, during the pendency of these proceedings, what was transferred by Metrobank to Cameron was ownership over the foreclosed property, subject only to the right of redemption by the proper party within one year reckoned from the date of registration of the Certificate of Sale.Moreover, the provisions of the Civil Code on subrogation and assignment of credits are only applicable to NPLs, defined in the SPV Act of 2002 as follows:Non-Performing Loans or NPLs refers to loans and receivables such asmortgage loans, unsecured loans, consumption loans, trade receivables,lease receivables, credit card receivables and all registered andunregistered security and collateral instruments, including but not limitedto, real estate mortgages, chattel mortgages, pledges, and antichresis,whose principal and/or interest have remained unpaid for at least onehundred eighty (180) days after they have become past due or any of theevents of default under the loan agreement has occurred.What is involved in this case is more properly a real property acquired by a financial institution in settlement of a loan (ROPOA). Under the law, ROPOAs are defined in this manner:ROPOAs refers to real and other properties owned or acquired by an[financial institution] in settlement of loans and receivables, including realproperties, shares of stocks, and chattels formerly constituting collateralsfor secured loans which have been acquired by way of dation in payment(dacionenpago) or judicial or extra-judicial foreclosure or execution ofjudgment.May the subject property be considered as one acquired by Metrobank pursuant to an extrajudicial foreclosure sale?The Implementing Rules and Regulations of the SPV Act of 2002 provide that, in case of extrajudicial foreclosure, a property is deemed acquired by a financial institution on the date of notarization of the Sheriffs Certificate. In this case, a Certificate of Sale has not been executed in favor of Metrobank in deference to the Stay Order issued by the rehabilitation court. However, we reiterate that the rehabilitation court has no jurisdiction to suspend foreclosure proceedings over a third-party mortgage. Much less can it restrain the issuance of a Certificate of Sale after the subject properties have been sold at public auction more than a year before the Petition for Rehabilitation was filed. The property foreclosed by Metrobank was clearly beyond the ambit of the Stay Order. Consequently, there was no valid ground for the Sheriff to withhold the issuance and execution of the Certificate of Sale.The parcel of land mortgaged to Metrobank and subsequently transferred to Cameron should be treated as a ROPOA as provided for by law. Hence, the application of Art. 1634 finds no basis in law.Situs Development Corporation, et al. vs. Asiatrust Bank, et al.;G.R. No. 180036, July 25, 2012.G.R. No. 175844, July 29, 2013BANK OF THE PHILIPPINE ISLANDS,v.SARABIA MANOR HOTEL CORPORATION,Before the Court is a petition for review oncertiorari1assailing the Decision2dated April 24, 2006 and Resolution3dated December 6, 2006 of the Court of Appeals, Cebu City (CA) in CA-G.R. CV. No. 81596 which affirmed with modification the rehabilitation plan of respondent Sarabia Manor Hotel Corporation (Sarabia) as approved by the Regional Trial Court of Iloilo City, Branch 39 (RTC) through its Order4dated August 7, 2003.

The Facts

Sarabia is a corporation duly organized and existing under Philippine laws, with principal place of business at 101 General Luna Street, Iloilo City.5It was incorporated on February 22, 1982, with an authorized capital stock of P10,000,000.00, fully subscribed and paid-up, for the primary purpose of owning, leasing, managing and/or operating hotels, restaurants, barber shops, beauty parlors, sauna and steam baths, massage parlors and such other businesses incident to or necessary in the management or operation of hotels.6

In 1997, Sarabia obtained a P150,000,000.00 special loan package from Far East Bank and Trust Company (FEBTC) in order to finance the construction of a five-storey hotel building (New Building) for the purpose of expanding its hotel business. An additional P20,000,000.00 stand-by credit line was approved by FEBTC in the same year.7

The foregoing debts were secured by real estate mortgages over several parcels of land8owned by Sarabia and a comprehensive surety agreement dated September 1, 1997 signed by its stockholders.9By virtue of a merger, Bank of the Philippine Islands (BPI) assumed all of FEBTCs rights against Sarabia.10

Sarabia started to pay interests on its loans as soon as the funds were released in October 1997. However, largely because of the delayed completion of the New Building, Sarabia incurred various cash flow problems. Thus, despite the fact that it had more assets than liabilities at that time,11it, nevertheless, filed, on July 26, 2002, a Petition12for corporate rehabilitation (rehabilitation petition) with prayer for the issuance of a stay order before the RTC as it foresaw the impossibility to meet its maturing obligations to its creditors when they fall due.

In the said petition, Sarabia claimed that its cash position suffered when it was forced to take-over the construction of the New Building due to the recurring default of its contractor, Santa Ana AJ Construction Corporation (contractor),13and its subsequent abandonment of the said project.14Accordingly, the New Building was completed only in the latter part of 2000, or two years past the original target date of August 1998, thereby skewing Sarabias projected revenues. In addition, it was compelled to divert some of its funds in order to cover cost overruns. The situation became even more difficult when the grace period for the payment of the principal loan amounts ended in 2000 which resulted in higher amortizations. Moreover, external events adversely affecting the hotel industry,i.e., the September 11, 2001 terrorist attacks and the Abu Sayyaf issue, also contributed to Sarabias financial difficulties.15Owing to these circumstances, Sarabia failed to generate enough cash flow to service its maturing obligations to its creditors, namely: (a) BPI (in the amount of P191,476,421.42); (b) Rural Bank of Pavia (in the amount of P2,500,000.00); (c) Vic Imperial Appliance Corp. (Imperial Appliance) (in the amount of P5,000,000.00); (d) its various suppliers (in the amount of P7,690,668.04); (e) the government (for minimum corporate income tax in the amount of P547,161.18); and (f) its stockholders (in the amount of P18,748,306.35).16

In its proposed rehabilitation plan,17Sarabia sought for the restructuring of all its outstanding loans, submitting that the interest payments on the same be pegged at a uniform escalating rate of: (a) 7% per annum (p.a.) for the years 2002 to 2005; (b) 8% p.a. for the years 2006 to 2010; (c) 10% p.a. for the years 2011 to 2013; (d) 12% p.a. for the years 2014 to 2015; and (e) 14% p.a. for the year 2018. Likewise, Sarabia sought to make annual payments on the principal loans starting in 2004, also in escalating amounts depending on cash flow. Further, it proposed that it should pay off its outstanding obligations to the government and its suppliers on their respective due dates, for the sake of its day to day operations.

Finding Sarabias rehabilitation petition sufficient in form and substance, the RTC issued a Stay Order18on August 2, 2002. It also appointed Liberty B. Valderrama as Sarabias rehabilitation receiver (Receiver). Thereafter, BPI filed its Opposition.19

After several hearings, the RTC gave due course to the rehabilitation petition and referred Sarabias proposed rehabilitation plan to the Receiver for evaluation.20

In a Recommendation21dated July 10, 2003 (Receivers Report), the Receiver found that Sarabia may be rehabilitated and thus, made the following recommendations:

(1) Restructure the loans with Sarabias creditors, namely, BPI, Imperial Appliance, Rural Bank of Pavia, and BarceloGestionHotelera, S.L. (Barcelo), under the following terms and conditions: (a) the total outstanding balance as of December 31, 2002 shall be recomputed, with the interest for the years 2001 and 2002 capitalized and treated as part of the principal; (b) waive all penalties; (c) extend the payment period to seventeen (17) years,i.e., from 2003 to 2019, with a two-year grace period in principal payment; (d) fix the interest rate at 6.75% p.a. plus 10% value added tax on interest for the entire term of the restructured loans;22(e) the interest and principal based on the amortization schedule shall be payable annually at the last banking day of each year; and (f) any deficiency shall be paid personally by Sarabias stockholders in the event it fails to generate enough cash flow; on the other hand, any excess funds generated at the end of the year shall be paid to the creditors to accelerate the debt servicing;23

(2) Pay Sarabias outstanding payables with its suppliers and the government so as not to disrupt hotel operations;24

(3) Convert the Advances from stockholders amounting to P18,748,306.00 to stockholders equity and other advances amounting to P42,688,734.00 as of the December 31, 2002 tentative financial statements to Deferred Credits; the said conversion should increase stockholders equity to P268,545,731.00 and bring the debt to equity ratio to 0.85:1;25

(4) Require Sarabias stockholders to pay its payables to the hotel recorded as Accounts Receivable Trade, amounting to P285,612.17 as of December 31, 2001, and its remaining receivables after such date;26

(5) No compensation or cash dividends shall be paid to the stockholders during the rehabilitation period, except those who are directly employed by the hotel as a full time officer, employee or consultant covered by a valid contract and for a reasonable fee;27

(6) All capital expenditures which are over and above what is provided in the case flow of the rehabilitation plan which will materially affect Sarabias cash position but which are deemed necessary in order to maintain the hotels competitiveness in the industry shall be subject to the RTCs approval prior to its implementation;28

(7) Terminate the management contract with Barcelo, thereby saving an estimated P25,830,997.00 in management fees, over and above the salaries and benefits of certain managerial employees;29

(8) Appoint a new management team which would be required to submit a comprehensive business plan to support the generation of the target revenue as reported in the rehabilitation plan;30

(9) Open a debt servicing account and transfer all excess funds thereto, which in no case should be less than P500,000.00 at the end of the month; the funds will be drawn payable to the creditors only based on the amortization schedule;31and(10) Release the surety obligations of Sarabias stockholders, considering the adequate collaterals and securities covered by the rehabilitation plan and the continuing mortgages over Sarabias properties.32The RTC Ruling

In an Order33dated August 7, 2003, the RTC approved Sarabias rehabilitation plan as recommended by the Receiver, finding the same to be feasible. In this accord, it observed that the rehabilitation plan was realistic since, based on Sarabias financial history, it was shown that it has the inherent capacity to generate funds to pay its loan obligations given the proper perspective.34The recommended rehabilitation plan was also practical in terms of the interest rate pegged at 6.75% p.a. since it is based on Sarabias ability to pay and the creditors perceived cost of money.35It was likewise found to be viable since, based on the extrapolations made by the Receiver, Sarabias revenue projections, albeit projected to slow down, remained to have a positive business/profit outlook altogether.36

The RTC further noted that while it may be true that Sarabia has been unable to comply with its existing terms with BPI, it has nonetheless complied with its obligations to its employees and suppliers and pay its taxes to both local and national government without disrupting the day-to-day operations of its business as an on-going concern.37

More significantly, the RTC did not give credence to BPIs opposition to the Receivers recommended rehabilitation plan as neither BPI nor the Receiver was able to substantiate the claim that BPIs cost of funds was at the 10% p.a. threshold. In this regard, the RTC gave more credence to the Receivers determination of fixing the interest rate at 6.75% p.a., taking into consideration not only Sarabias ability to pay based on its proposed interest rates,i.e., 7% to 14% p.a., but also BPIs perceived cost of money based on its own published interest rates for deposits,i.e., 1% to 4.75% p.a., as well as the rates for treasury bills,i.e., 5.498% p.a. and CB overnight borrowings,i.e., 7.094%. p.a.38The CA Ruling

In a Decision39dated April 24, 2006, the CA affirmed the RTCs ruling with the modification of reinstating the surety obligations of Sarabias stockholders to BPI as an additional safeguard for the effective implementation of the approved rehabilitation plan.40It held that the RTCs conclusions as to the feasibility of Sarabias rehabilitation was well- supported by the companys financial statements, both internal and independent, which were properly analyzed and examined by the Receiver.41

It also upheld the 6.75%. p.a. interest rate on Sarabias loans, finding the said rate to be reasonable given that BPIs interests as a creditor were properly accounted for. As published, BPIs time deposit rate for an amount of P5,000,000.00 (with a term of 360-364 days) is at 5.5% p.a.; while the benchmark ninety one-day commercial paper, which banks used to price their loan averages to 6.4% p.a. in 2005, has a three-year average rate of 6.57% p.a.42As such, the 6.75% p.a. interest rate would be higher than the current market interest rates for time deposits and benchmark commercial papers. Moreover, the CA pointed out that should the prevailing market interest rates change as feared by BPI, the latter may still move for the modification of the approved rehabilitation plan.43

Aggrieved, BPI moved for reconsideration which was, however, denied in a Resolution44dated December 6, 2006.

Hence, this petition.The Issue Before the Court

The primordial issue raised for the Courts resolution is whether or not the CA correctly affirmed Sarabias rehabilitation plan as approved by the RTC, with the modification on the reinstatement of the surety obligations of Sarabias stockholders.

BPI mainly argues that the approved rehabilitation plan did not give due regard to its interests as a secured creditor in view of the imposition of a fixed interest rate of 6.75% p.a. and the extended loan repayment period.45It likewise avers that Sarabias misrepresentations in its rehabilitation petition remain unresolved.46

On the contrary, Sarabia essentially maintains that: (a) the present petition improperly raises questions of fact;47(b) the approved rehabilitation plan takes into consideration all the interests of the parties and the terms and conditions stated therein are more reasonable than what BPI proposes;48and (c) BPIs allegations of misrepresentation are mere desperation moves to convince the Court to overturn the rulings of the courtsa quo.49The Courts Ruling

The petition has no merit.

A. Propriety of BPIs petition;procedural considerations.

It is fundamental that a petition for review oncertiorarifiled under Rule 45 of the Rules of Court covers only questions of law. In this relation, questions of fact are not reviewable and cannot be passed upon by the Court unless, the following exceptions are found to exist: (a) when the findings are grounded entirely on speculations, surmises, or conjectures; (b) when the inference made is manifestly mistaken, absurd, or impossible; (c) when there is a grave abuse of discretion; (d) when the judgment is based on misappreciation of facts; (e) when the findings of fact are conflicting; (f) when in making its findings, the same are contrary to the admissions of both parties; (g) when the findings are contrary to those of the trial court; (h) when the findings are conclusions without citation of specific evidence on which they are based; (i) when the facts set forth in the petition as well as in the petitioners main and reply briefs are not disputed by the respondent; and (j) when the findings of fact are premised on the supposed absence of evidence and contradicted by the evidence on record.50

The distinction between questions of law and questions of fact is well- defined. A question of law exists when the doubt or difference centers on what the law is on a certain state of facts. A question of fact, on the other hand, exists if the doubt centers on the truth or falsity of the alleged facts. This being so, the findings of fact of the CA are final and conclusive and the Court will not review them on appeal.51

In view of the foregoing, the Court finds BPIs petition to be improper and hence, dismissible52 as the issues raised therein involve questions of fact which are beyond the ambit of a Rule 45 petition for review.

To elucidate, the determination of whether or not due regard was given to the interests of BPI as a secured creditor in the approved rehabilitation plan partakes of a question of fact since it will require a review of the sufficiency and weight of evidence presented by the parties among others, the various financial documents and data showing Sarabias capacity to pay and BPIs perceived cost of money and not merely an application of law. Therefore, given the complexion of the issues which BPI presents, and finding none of the above-mentioned exceptions to exist, the Court is constrained to dismiss its petition, and prudently uphold the factual findings of the courtsa quowhich are entitled to great weight and respect, and even accorded with finality. This especially obtains in corporate rehabilitation proceedings wherein certain commercial courts have been designated on account of their expertise and specialized knowledge on the subject matter, as in this case.

In any event, even discounting the above-discussed procedural considerations, the Courts still finds BPIs petition lacking in merit.

B. Approval of Sarabias rehabilitation plan;substantive considerations.

Records show that Sarabia has been in the hotel business for over thirty years, tracing its operations back to 1972. Its hotel building has been even considered a landmark in Iloilo, being one of its kind in the province and having helped bring progress to the community.53Since then, its expansion was continuous which led to its decision to commence with the construction of a new hotel building. Unfortunately, its contractor defaulted which impelled Sarabia to take-over the same. This significantly skewed its projected revenues and led to various cash flow difficulties, resulting in its incapacity to meet its maturing obligations.

Recognizing the volatile nature of every business, the rules on corporate rehabilitation have been crafted in order to give companies sufficient leeway to deal with debilitating financial predicaments in the hope of restoring or reaching a sustainable operating form if only to best accommodate the various interests of all its stakeholders, may it be the corporations stockholders, its creditors and even the general public. In this light, case law has defined corporate rehabilitation as an attempt to conserve and administer the assets of an insolvent corporation in the hope of its eventual return from financial stress to solvency. It contemplates the continuance of corporate life and activities in an effort to restore and reinstate the corporation to its former position of successful operation and liquidity. Verily, the purpose of rehabilitation proceedings is to enable the company to gain a new lease on life and thereby allow creditors to be paid their claims from its earnings.54Thus, rehabilitation shall be undertaken when it is shown that the continued operation of the corporation is economically more feasible and its creditors can recover, by way of the present value of payments projected in the plan, more, if the corporation continues as a going concern than if it is immediately liquidated.55

Among other rules that foster the foregoing policies, Section 23, Rule 4 of the Interim Rules of Procedure on Corporate Rehabilitation56(Interim Rules) states thata rehabilitation plan may be approved even over the opposition of the creditors holding a majority of the corporations total liabilities if there is a showing that rehabilitation isfeasibleandthe opposition of the creditors is manifestly unreasonable.Also known as the cram-down clause, this provision, which is currently incorporated in the FRIA,57is necessary to curb the majority creditors natural tendency to dictate their own terms and conditions to the rehabilitation, absent due regard to the greater long-term benefit of all stakeholders. Otherwise stated, it forces the creditors to accept the terms and conditions of the rehabilitation plan, preferring long-term viability over immediate but incomplete recovery.

It is within the parameters of the aforesaid provision that the Court examines the approval of Sarabias rehabilitation.

i. Feasibility of Sarabias rehabilitation.

In order to determine the feasibility of a proposed rehabilitation plan, it is imperative that a thorough examination and analysis of the distressed corporations financial data must be conducted. If the results of such examination and analysis show that there is a real opportunity to rehabilitate the corporation in view of the assumptions made and financial goals stated in the proposed rehabilitation plan, then it may be said that a rehabilitation is feasible. In this accord, the rehabilitation court should not hesitate to allow the corporation to operate as an on-going concern, albeit under the terms and conditions stated in the approved rehabilitation plan. On the other hand, if the results of the financial examination and analysis clearly indicate that there lies no reasonable probability that the distressed corporation could be revived and that liquidation would, in fact, better subserve the interests of its stakeholders, then it may be said that a rehabilitation would not be feasible. In such case, the rehabilitation court may convert the proceedings into one for liquidation.58As further guidance on the matter, the Courts pronouncement inWonder Book Corporation v. Philippine Bank of Communications59proves instructive:cralavvonlinelawlibraryRehabilitation is x xx available to a corporation [which], while illiquid, has assets that can generate more cash if used in its daily operations than sold.Its liquidity issues can be addressed by a practicable business plan that will generate enough cash to sustain daily operations, has a definite source of financing for its proper and full implementation, and anchored on realistic assumptions and goals. This remedy should be denied to corporations whose insolvency appears to be irreversible and whose sole purpose is to delay the enforcement of any of the rights of the creditors, which is rendered obvious by the following: (a) the absence of a sound and workable business plan; (b) baseless and unexplained assumptions, targets and goals; (c) speculative capital infusion or complete lack thereof for the execution of the business plan; (d) cash flow cannot sustain daily operations; and (e) negative net worth and the assets are near full depreciation or fully depreciated.60(Emphasis and underscoring supplied)

Keeping with these principles, the Court thus observes that:cralavvonlinelawlibrary

First, Sarabia has the financial capability to undergo rehabilitation.

Based on the Receivers Report, Sarabias financial history shows that it has the inherent capacity to generate funds to repay its loan obligations if applied through the proper financial framework. The Receivers examination and analysis of Sarabias financial data reveals that the latters business is not only an on-going but also a growing concern. Despite its financial constraints, Sarabia likewise continues to be profitable with its hotelier business as its operations have not been disrupted.61Hence, given its current fiscal position, the prospect of substantial and continuous revenue generation is a realistic goal.

Second, Sarabia has the ability to have sustainable profits over a long period of time.

As concluded by the Receiver, Sarabias projected revenues shall have a steady year-on-year growth from the time that it applied for rehabilitation until the end of its rehabilitation plan in 2018, albeit with decreasing growth rates (growth rate is at 26% in 2003, 5% in 2004-2007, 3% in 2008-2018).62 Should such projections come through, Sarabia would have the ability not just to pay off its existing debts but also to carry on with its intended expansion. The projected sustainability of its business, as mapped out in the approved rehabilitation plan, makes Sarabias rehabilitation a more viable option to satisfy the interests of its stakeholders in the long run as compared to its immediate liquidation.

Third, the interests of Sarabias creditors are well-protected.

As correctly perceived by the CA, adequate safeguards are found under the approved rehabilitation plan, namely: (a) any deficiency in the required minimum payments to creditors based on the presented amortization schedule shall be paid personally by Sarabias stockholders;63(b) the conversion of the advances from stockholders amounting to P18,748,306.00 and deferred credits amounting to P42,688,734 as of the December 31, 2002 tentative audited financial statements to stockholders equity was granted;64(c) all capital expenditures which are over and above what is provided in the cash flow of the approved rehabilitation plan which will materially affect the cash position of the hotel but which are deemed necessary in order to maintain the hotels competitiveness in the industry shall be subject to the approval by the Court prior to implementation;65(d) the formation of Sarabias new management team and the requirement that the latter shall be required to submit a comprehensive business plan to support the generation of revenues as reported in the Rehabilitation Plan, both short term and long term;66(e) the maintenance of all Sarabiasexisting real estate mortgages over hotel properties as collaterals and securities in favor of BPI until the formers full and final liquidation of its outstanding loan obligations with the latter;67and (f) the reinstatement of the comprehensive surety agreement of Sarabias stockholders regarding the formers debt to BPI.68With these terms and conditions69in place, the subsisting obligations of Sarabia to its creditors would, more likely than not, be satisfied.

Therefore, based on the above-stated reasons, the Court finds Sarabias rehabilitation to be feasible.

ii. Manifest unreasonableness of BPI s opposition.

Although undefined in the Interim Rules, it may be said that the opposition of a distressed corporations majority creditor is manifestly unreasonable if it counter-proposes unrealistic payment terms and conditions which would, more likely than not, impede rather than aid its rehabilitation. The unreasonableness becomes further manifest if the rehabilitation plan, in fact, provides for adequate safeguards to fulfill the majority creditors claims, and yet the latter persists on speculative or unfounded assumptions that his credit would remain unfulfilled.

While Section 23, Rule 4 of the Interim Rules states that the rehabilitation court shall consider certain incidents in determining whether the opposition is manifestly unreasonable,70BPI neither proposes Sarabias liquidation over its rehabilitation nor questions the controlling interest of Sarabias shareholders or owners. It only takes exception to: (a) the imposition of the fixed interest rate of 6.75% p.a. as recommended by the Receiver and as approved by the courtsa quo, proposing that the original escalating interest rates of 7%, 8%, 10%, 12%, and 14%, over seventeen years be applied instead;71and (b) the fact that Sarabias misrepresentations in the rehabilitation petition, i.e., that it physically acquired additional property whereas in fact the increase was mainly due to the recognition of Revaluation Increment and because of capital expenditures, were not taken into consideration by the courtsa quo.72

Anent the first matter, it must be pointed out that oppositions which push for high interests rates are generally frowned upon in rehabilitation proceedings given that the inherent purpose of a rehabilitation is to find ways and means to minimize the expenses of the distressed corporation during the rehabilitation period. It is the objective of a rehabilitation proceeding to provide the best possible framework for the corporation to gradually regain or achieve a sustainable operating form. Hence, if a creditor, whose interests remain well-preserved under the existing rehabilitation plan, still declines to accept interests pegged at reasonable rates during the period of rehabilitation, and, in turn, proposes rates which are largely counter-productive to the rehabilitation, then it may be said that the creditors opposition is manifestly unreasonable.

In this case, the Court finds BPIs opposition on the approved interest rate to be manifestly unreasonable considering that: (a) the 6.75% p.a. interest rate already constitutes a reasonable rate of interest which is concordant with Sarabias projected rehabilitation; and (b) on the contrary, BPIs proposed escalating interest rates remain hinged on the theoretical assumption of future fluctuations in the market, this notwithstanding the fact that its interests as a secured creditor remain well-preserved.

The following observations impel the foregoing conclusion:first, the 6.75% p.a. interest rate is actually higher than BPIs perceived cost of money as evidenced by its published time deposit rate (for an amount of P5,000,000.00, with a term of 360-364 days) which is only set at 5.5% p.a.;second,the 6.75% p.a. is also higher than the benchmark ninety one-day commercial paper, which is used by banks to price their loa averages to 6.4% p.a. in 2005, and has a three-year average rate of 6.57% p.a.; andthird, BPIs interests as a secured creditor are adequately protected by the maintenance of all Sarabias existing real estate mortgages over its hotel properties as collateral as well as by the reinstatement of the comprehensive surety agreement of Sarabias stockholders, among other terms in the approved rehabilitation plan.

As to the matter of Sarabias alleged misrepresentations, records disclose that Sarabia already clarified its initial statements in its rehabilitation petition by submitting, on its own accord, a supplemental affidavit dated October 24, 200273that explains that the increase in its properties and assets was indeed by recognition of revaluation increment.74

Proceeding from this fact, the CA observed that BPI actually failed to establish its claimed defects in light of Sarabias assertive and forceful explanation that the alleged inaccuracies do not warrant the dismissal of its petition.75Thus, absent any compelling reason to disturb theCA's finding on this score, the Court deems it proper to dismiss BPI's allegations of misrepresentation against Sarabia.

As a final point, BPI claims that Sarabia's projections were "too optimistic," its management was "extremely incompetenf"76and that it was even forced to pay a pre-termination penalty due to its previous loan with the Land bank of the Philippines.77Suffice it to state that bare allegations of fact should not be entertained as they are bereft of any probative value.78In any event, even if it is assumed that the said allegations are substantiated by clear and convincing evidence, the Court, absent any cogent basis to proceed otherwise, remains steadfast in its preclusion to thresh out matters of fact on a Rule 45 petition, as in this case.

All told, Sarabia's rehabilitation plan, as approved and modified by the CA, is hereby sustained. In view of the foregoing pronouncements, the Court finds it unnecessary to delve on the other ancillary issues as herein raised.

WHEREFORE, the petition isDENIED. Accordingly, the Decision dated April 24, 2006 and Resolution dated December 6, 2006 of the Court of Appeals, Cebu City in CA-GR. CV. No. 81596 are herebyAFFIRMED.G.R. No. 173610 : October 1, 2012TOWN AND COUNTRY ENTERPRISES, INC.,Petitioner,v.HONORABLE NORBERTO J. QUISUMBING, G.R. No. 174132TOWN AND COUNTRY ENTERPRISES, INC.,Petitioner,v.METROPOLITAN BANK AND TRUST CO.,Respondent.These consolidated Rule 45 Petitions for Review onCertiorariprimarily assail the 30 November 2005 Decision rendered by the Fourth Division of the Court of Appeals (CA) in CA-G.R. CV No. 844641rlland the 24 May 2006 Decision rendered by said Courts Sixteenth Division in CAG. R. SP No. 90311.2rllThere is no dispute regarding the fact that petitioner Town & Country Enterprises, Inc. (TCEI) obtained loans in the aggregate sum ofP12,000,000.00 from respondent Metropolitan Bank & Trust Co. (Metrobank).To secure the prompt payment of the loan, TCEI executed in favor of Metrobank a thrice amended Deed of Real Estate Mortgage4rllover twenty parcels of land registered in its name and/or its corporate officers, petitioners Spouses Reynaldo and Lydia Campos (Spouses Campos), under Transfer Certificates of Title (TCT) Nos. T-361540, T-361541, T-361542, T-361543, T-361544, T-261545, T-361546, T-361547, T-361548, T-361565, T-361566, T-361567, T-361568, T-361569, T-361570, T0361571, T-361572, T-361573, T-361574 and T-743815, all of the Cavite Provincial Registry of Deeds.5rllFor failure of TCEI to heed its demands for the payment of the loan, Metrobank caused the real estate mortgage to be extrajudicially foreclosed and the subject realties to be sold at public auction on 7 November 2001 in accordance with Act No. 3135. As highest bidder, Metrobank was issued the corresponding Certificate of Salewhich was registered with the Cavite Provincial Registry of Deeds on 10 April 2002.7rllIn view of TCEIs further refusal to heed its demands to turn over actual possession of the properties, Metrobank filed on 23 September 2002 the petition for issuance of a writ of possession docketed as LRC Case No. 2128-02 before the Regional Trial Court (RTC), Branch 21, in Imus, Cavite, presided over by public respondent judge, the Hon. Norberto J. Quisumbing, Jr.8rllMetrobank invoked its right to said writ of possession under Section 7 of Act No. 3135. Claiming difficulty in servicing its obligations as a consequence of the Asian financial crisis, on the other hand, TCEI filed on 1 October 2002 the petition for declaration of a state of suspension of payments, with approval of a proposed rehabilitation plan, which was docketed as SEC Case No. 023-02 before the same court, sitting as a Special Commercial Court (Rehabilitation Court).9rllWith the issuance of a Stay Order on 8 October 2002 in the corporate rehabilitation case,10rllTCEI filed on 21 October 2002 a motion to suspend the proceedings in LRC Case No. 2128-02 which was granted by respondent judge in the Order dated 2 December 2002.11Aggrieved by the denial of its motion for reconsideration of the same order, Metrobank filed the Rule 65 petition forcertiorariwhich was docketed before the CA as CA-G.R. SP No. 76147.12rllOn 30 January 2004, the CAs then Fifth Division rendered the Decision13in CA-G.R. SP No. 76147, directing respondent judge "to continue with the proceedings in [LRC Case No. 2128-02rlland eventually to issue the required writ of possession in favor of [Metrobank] over the foreclosed properties." The foregoing directive was anchored on the second paragraph of Section 47 of Republic Act (RA) No. 8741.14rllFinding the Rehabilitation Plan submitted by TCEI feasible, on the other hand, the rehabilitation court issued the Order dated 29 March 2004 in SEC Case No. 023-02,the decretal portion of which states:CONSIDERING THE FOREGOING, the Court hereby approves the Rehabilitation Plan of [TCEI] thereby granting [TCEI] a moratorium of five (5) years from today in the payment of all its obligations, together with the corresponding interests, to its creditor banks, subject to the modification that the interest charges shall be reduced from 36% to 24% per annum. After the five-year grace period, [TCEI] shall commence to pay its existing obligations with its creditor banks monthly within a period of three (3) years.TCEI is enjoined to comply strictly with the provisions of the Rehabilitation Plan, perform its obligations thereunder and take all actions necessary to carry out the Plan, failing which, the Court shall either, upon motion, motuproprio or upon the recommendation of the Rehabilitation Receiver, terminate the proceeding pursuant to SECTION 27, Rule 4 of the Interim Rules of Procedure on Corporate Rehabilitation.The Rehabilitation Receiver is directed to strictly monitor the implementation of the Plan and submit a quarterly report on the progress thereof. SO ORDERED.16rllOn 11 January 2005, the RTC issued in LRC Case No. 2128-02 an order granting Metrobanks petition for issuance of a writ of possession and directing the Clerk of Court to issue the writ therein sought.17rllAggrieved, TCEI and the Spouses Campos perfected the appeal which was docketed before the CA as CA-G.R. CV No. 84464, on the ground that it had been denied due processa quoand that the writ of possession issued is contrary to the rules on corporate rehabilitation.18rllOn 30 November 2005, the CAs then Fourth Division rendered the first assailed Decision, affirming the RTCs appealed 11 January 2005 Order. In denying the appeal, the CA ruled that, as purchaser of the foreclosed properties, Metrobank was entitled to the writ of possession without delay since, under Section 8 of Act No. 3135, the remedy of the mortgagor is to set aside the sale and the writ of possession within 30 days after the purchaser was placed in possession and, if aggrieved from the resolution thereof, to appeal in accordance with Section 14 of Act No. 496, otherwise known as theLand Registration Act. Likewise finding that the proceedings before the RTC wereex parteby nature, the CA decreed that TCEI and the Spouses Campos were not denied due process and that the appealed order is not reviewable since only one party sought reliefa quo.19rllDissatisfied with the denial of the motion for reconsideration of the foregoing decision in the CAs Resolution dated 26 July 2006,20rllTCEI and the Spouses Campos filed the Rule 45 petition for review now docketed before us as G.R. No. 173610.21rllIn the meantime, TCEI discovered that