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CONSUELO METAL CORPORATION VS. PLANTERS DEVELOPMENT BANK

1st Division | June 26, 2008 | Carpio, J.
Liquidation
DOCTRINE: Creditor-mortgagee may exercise his right to foreclose the mortgage upon the termination of the rehabilitation
proceedings or upon the lifting of the stay order, whether or not the debtor-mortgagee is under insolvency or liquidation
proceedings.
SUMMARY: CMC argues that the foreclosure made by PDB is void because it was undertaken without the knowledge and
previous consent of the liquidator and other lien holders and that the concurrence and preference of credits should apply.
SC ruled that PDB as a secured creditor, enjoys preference over a specific mortgaged property and has a right to foreclose
the mortgage under NCC 2248. Creditor-mortgagee may exercise his right to foreclose the mortgage upon the termination
of the rehabilitation proceedings or upon the lifting of the stay order, whether or not the debtor-mortgagee is under insolvency
or liquidation proceedings.

FACTS:
• Consuelo Metal Corporation (CMC) filed with the SEC a petition to be declared in a state of suspension of
payment, for rehabilitation, and for the appointment of a rehabilitation receiver or management committee.
• SEC found the petition to be sufficient in form and substance and declared that all actions for claims against CMC
pending before any court are deemed suspended immediately until further order.
• A management committee undertook the rehabilitation and reiterated the suspension of all actions for claims against
CMC.
• Per the management committee’s recommendation, SEC directed the dissolution and liquidation of CMC and
directed that the proceedings and implementation of the liquidation order be commenced with the RTC.
• Planters Development Bank (PDB), one of CMC’s creditors commenced the extrajudicial foreclosure of CMC’s
real estate mortgage (REM).
• CMC sought to enjoin the foreclosure of the REM. SEC issued a TRO to maintain the status quo. The case was
then transferred to the trial court.
• RTC denied CMC’s motion for issuance of a TRO since SEC had already terminated and decided on the merits of
CMC’s petition for suspension of payment and the trial court no longer had legal basis to act on CMC’s motion.
o MR was also denied. RTC ruled that the petition for suspension of payment could not be converted into a
petition for dissolution and liquidation since they cover different subject matters and governed by diff. rules.
o According to the RTC, CMC’s remedy is to file a new petition for dissolution and liquidation with the SEC or
the trial court.
• PDB extrajudicially foreclosed the REM.
• CA dismissed the petition for certiorari of CMC because the TRO was only an ancillary remedy to the petition for
suspension of payment which was already terminated.
o Also, according to the Corporation Code, SEC has jurisdiction to hear CMC’s petition for dissolution and
liquidation.
• CMC filed an MR arguing that it does not have to file a new petition for dissolution and liquidation with the SEC but
that the case should just be remanded to the SEC as a continuation of its jurisdiction over the petition for suspension.
o CMC also asked that the foreclosure for the REM be declared void.
• CA partially granted the MR and ordered that the case be remanded to the SEC. It also ruled that since the SEC
already ordered the dissolution and liquidation, PDB’s foreclosure of the REM was in order.
• PDB filed a MR questioning the remand of the case to the SEC. CA denied the MR. CMC was not satisfied with
the previous resolution, hence this petition.
ISSUE: W/N SEC has jurisdiction over CMC’s dissolution and liquidation. NO
W/N PDB’s foreclosure of the REM is valid. YES
RULING:
A. SEC has jurisdiction to order CMC's dissolution but the trial court has jurisdiction over CMC's liquidation.
• RA 8799 transferred to the appropriate RTCs the SEC’s jurisdiction. It provides: “The Commission shall retain
jurisdiction over pending suspension of payments/rehabilitation cases filed as of 30 June 2000 until finally disposed.”
• ITCAB, SEC assumed jurisdiction over the petition after finding the petition to be sufficient in form and substance.
It was finally disposed when SEC issued an Omnibus Order the directing the dissolution of CMC, once it determined
that CMC could no longer be successfully rehabilitated.
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• The Omnibus Order also directed the transfer of the liquidation proceedings before the appropriate TC.
• While the SEC has jurisdiction to order the dissolution of a corporation, jurisdiction over the liquidation of the
corporation now pertains to the appropriate regional trial courts.
o Liquidation of corporation requires the settlement of claims for and against the corporation, which falls under
the jurisdiction of the regular courts.
o Trial court is in the best position to convene all creditors of the corporation, ascertain their claims, and
determine their preferences.
B. Foreclosure of the REM is valid. [MAIN ISSUE]
• CMC’s argument: Foreclosure is void because it was undertaken without the knowledge and previous consent of
the liquidator and other lien holders. The concurrence and preference of credits should apply.
• PDB’s argument: It has the right to foreclose the REM because of non-payment of the loan. Rules on concurrence
and preference of credits are not applicable because CMC has not been declared insolvent and there are no
insolvency proceedings against CMC.
• RCBC v. IAC: If rehabilitation is no longer feasible and the assets of the corporation are finally liquidated, secured
creditors shall enjoy preference over unsecured creditors.
o Creditors of secured obligations may pursue their security interest or lien, or they may choose to abandon
the preference and prove their credits as ordinary claims.
• NCC 2248: Those credits which enjoy preference in relation to specific real property or real rights, exclude all others
to the extent of the value of the immovable or real right to which the preference refers.
• ITCAB, PDB as a secured creditor, enjoys preference over a specific mortgaged property and has a right to
foreclose the mortgage under NCC 2248.
• Creditor-mortgagee may exercise his right to foreclose the mortgage upon the termination of the rehabilitation
proceedings or upon the lifting of the stay order, whether or not the debtor-mortgagee is under insolvency or
liquidation proceedings.
• Foreclosure proceedings have in their favor the presumption of regularity and the burden of evidence is on the party
alleging the contrary.
DISPOSITION: Petition denied. RTC directed to immediately undertake the liquidation of CMC. PDB’s extrajudicial
foreclosure of the REM is valid.