Icon Development Corporation vs. National Life Insurance Company of the Philippines

The board of directors of an insurance company placed under conservatorship retains its authority to initiate extrajudicial foreclosure proceedings to collect debts, and a conservator does not supplant the board's functions, meaning demands made by the board are sufficient to put a debtor in default.

Icon Development Corporation obtained several loans from National Life Insurance Company of the Philippines, secured by mortgages over properties in Makati City and Tayabas, Quezon. Icon made payments until 2008, when it refused to make further payments despite repeated demands from National Life. On November 25, 2011, National Life filed a Petition for Extrajudicial Foreclosure, alleging an outstanding balance of ₱274,497,565.60. The provincial sheriff issued a Notice of Extra-Judicial Sale setting the auction.

On December 27, 2011, Icon filed a complaint for Discharge of Obligation/Determination of Actual Indebtedness, and Declaration of Nullity with TRO/WPI with Damages before the RTC. Icon claimed that National Life was collecting unconscionable interest, that it had overpaid its loan of ₱31,513,152.69, and that the officers who secured the loans lacked authority. Icon also argued that because National Life was under conservatorship, its directors had no authority to initiate the foreclosure. The conservator, Atty. Clifford E. Chua, later filed a Manifestation stating he authorized the foreclosure petition.

The RTC issued several orders granting a TRO and a WPI, fixing the bond at ₱2,500,000.00, and eventually suspending proceedings to refer the matter to the Insurance Commission. National Life elevated the matter to the Court of Appeals via certiorari. The Court of Appeals reversed the RTC, finding that the conservator does not supplant the board of directors, that the issues were purely legal and within the RTC's jurisdiction, and that the RTC failed to apply A.M. No. 99-10-05-0.

• Authority to Foreclose: Petitioner maintained that filing an extrajudicial foreclosure during conservatorship belongs solely to the conservator, not the board of directors, making the board's initiation of foreclosure unlawful.
• Default: Petitioner argued that demands made by the respondent’s directors were insufficient to put it in default because the conservator did not accede to their actions.
• Unjust Enrichment: Petitioner insisted that it already paid its obligations and even made an overpayment, so allowing foreclosure would unjustly enrich the respondent.
• Applicability of A.M. No. 99-10-05-0: Petitioner argued that A.M. No. 99-10-05-0 is inapplicable because the obligation was already extinguished by payment.

• Applicability of A.M. No. 99-10-05-0: Respondent countered that A.M. No. 99-10-05-0 prohibits injunctive reliefs in extrajudicial foreclosure without complying with its conditions, which petitioner failed to satisfy.
• Proof of Payment: Respondent asserted that petitioner utterly failed to submit proof of payment or overpayment of its obligations.
• Authority of the Board: Respondent claimed its board of directors had the authority to demand payment and foreclose, an authority confirmed by the conservator himself.

• Authority of Directors: Whether the directors of an insurance company under conservatorship can initiate a petition for extrajudicial foreclosure without the conservator's authority.
• Default: Whether the petitioner was validly placed in default despite the lack of demand by the conservator.
• Injunction Guidelines: Whether A.M. No. 99-10-05-0 should apply despite the RTC's preliminary finding of overpayment.
• Unjust Enrichment: Whether the respondent would be unjustly enriched if allowed to foreclose.

• Authority of Directors: Yes. The board of directors retains its authority to initiate foreclosure proceedings during conservatorship, as a conservator does not supplant the board.
• Default: Yes. Demands made by the board of directors are sufficient to put the debtor in default, even without the conservator's authority.
• Injunction Guidelines: Yes. A.M. No. 99-10-05-0 applies, and the RTC gravely abused its discretion in issuing a TRO/WPI without petitioner complying with its requirements.
• Unjust Enrichment: No. Unjust enrichment was not established because petitioner failed to present evidence of payment or overpayment.

• Authority of Directors: Conservatorship under the Insurance Code is in the nature of a rehabilitation proceeding aimed at preserving assets and restoring viability. While the conservator has vast powers, the law does not provide that the conservator supplants the board of directors. The board continues to exercise its powers, including collecting debts via foreclosure, subject to the conservator's power to overrule prejudicial actions. By analogy to bank conservatorship, an insurance company retains its juridical personality through its board. Foreclosure to collect debts aligns with the purpose of conservatorship.
• Default: Since the board of directors validly retains the power to collect debts, their demands are sufficient to put the debtor in default. Only the conservator has the personality to question the board's authority, not the petitioner. Here, the conservator even authorized the foreclosure.
• Injunction Guidelines: A.M. No. 99-10-05-0 prohibits issuing a TRO/WPI against extrajudicial foreclosure based on allegations of payment or unconscionable interest unless supported by evidence of payment and the debtor pays at least 12% interest per annum, and posts a bond equal to the outstanding debt. The RTC issued the TRO/WPI based on bare allegations without proof of payment, without the 12% interest payment, and with a bond of only ₱2,500,000.00, far below the ₱274,497,565.60 outstanding debt.
• Unjust Enrichment: Unjust enrichment requires a person to be unjustly benefited at the expense of another. Petitioner failed to present evidence of payment or overpayment, relying on bare allegations. Mere allegation is not proof, and the burden of evidence lies with the party asserting the affirmative.

• Conservatorship of Insurance Companies — A conservatorship proceeding is a conservation of company assets and business during financial difficulties, aimed at the continuance of corporate life and reinstatement of the corporation to its former status. The conservator does not supplant the board of directors; the board continues to exercise its powers, including the collection of debts via foreclosure, subject to the conservator's power to overrule prejudicial actions.
• Guidelines in Extrajudicial Foreclosure (A.M. No. 99-10-05-0) — No TRO or WPI against extrajudicial foreclosure shall be issued on the allegation that the loan has been paid unless supported by evidence of payment. For allegations of unconscionable interest, the debtor must pay at least 12% per annum interest on the principal obligation. A bond equal to the amount of the outstanding debt must be posted.
• Unjust Enrichment — There is unjust enrichment when (1) a person is unjustly benefited, and (2) such benefit is derived at the expense of or with damages to another. It must be proven with evidence, not mere allegations.

• "There is nothing in the law which provides that a conservator supplants the board of directors and management of the company." — This defines the scope of a conservator's authority, clarifying that the board of directors retains its functions during rehabilitation.
• "No temporary restraining order or writ of preliminary injunction against the extrajudicial foreclosure of real estate mortgage shall be issued on the allegation that the loan secured by the mortgage has been paid or is not delinquent unless the application is verified and supported by evidence of payment." — This states the strict requirement under A.M. No. 99-10-05-0 for enjoining foreclosure based on payment allegations.

• Central Bank of the Phils. vs. Court of Appeals, 284-A Phil. 143 (1992) — Cited to support the rule that once a bank (and by analogy, an insurance company) is placed under conservatorship, an action may still be filed on its behalf without prior approval of the conservator, as it retains its juridical personality.
• Phil. National Bank vs. Castalloy Technology Corp., et al., 684 Phil. 438 (2012) — Cited to emphasize that an allegation of unconscionable interest is no longer a ground to apply for a WPI under A.M. No. 99-10-05-0.

• Section 248 (now Section 255), Insurance Code (Republic Act No. 10607) — Defines the powers of a conservator appointed for a distressed insurance company, including taking charge of assets, liabilities, and management, and overruling previous management, but not supplanting the board.
• Article 22, Civil Code — Defines unjust enrichment, requiring a person who acquires something at the expense of another without just or legal ground to return it.
• A.M. No. 99-10-05-0 (OCA Circular No. 25-2007) — Provides the guidelines in extrajudicial and judicial foreclosure of real estate mortgages, imposing strict requirements for issuing TROs or WPIs.

Perlas-Bernabe, S.A.J. (Chairperson), Reyes, A. Jr., Hernando, and Delos Santos, JJ., concur.