RCBC vs. Plast-Print Industries Inc.

Where a corporation files a petition for suspension of payments before the SEC, the SEC acquires exclusive jurisdiction over the action and all matters relating thereto—including the financial accommodations and securities subject of a subsequent RTC complaint—to the exclusion of the RTC, and a judicially approved restructuring agreement constitutes a compromise with the force of res judicata that does not extinguish the mortgage security absent extinctive novation.

Plast-Print Industries, Inc. obtained various credit facilities from Rizal Commercial Banking Corporation (RCBC), including a secured term loan, a secured loan line, and a letters of credit/trust receipts line, all secured by a real estate mortgage over several properties covered by Transfer Certificate of Title Nos. 499643, 617967, 597336, 597337, 621037, 59286, and PT-91458. Plast-Print defaulted on its obligations, prompting RCBC to initiate extrajudicial foreclosure proceedings. Before the second scheduled auction, Plast-Print filed a petition for suspension of payments before the Securities and Exchange Commission under Presidential Decree No. 902-A, which at that time vested the SEC with original and exclusive jurisdiction over such petitions. The SEC's adjudication of that petition—and its approval of a Restructuring Agreement among Plast-Print and its creditors—forms the jurisdictional and contractual backdrop against which the propriety of the RTC's subsequent exercise of jurisdiction and the effect of the restructuring on the mortgage security must be evaluated.

Plast-Print Industries, Inc. applied for and obtained credit facilities from Rizal Commercial Banking Corporation to secure additional working capital and fund expansion. The facilities consisted of a Secured (A) Term Loan for ₱6.65 million, a Secured (C) Loan Line for ₱4.49 million, and an Import/Domestic Letters of Credit with Trust Receipts (LC/TR) Line for ₱2 million, bringing Plast-Print's total principal loan obligation to ₱12,980,000.00. These facilities were secured by a real estate mortgage over properties covered by TCT Nos. 499643, 617967, 597336, 597337, 621037, 59286, and PT-91458. Plast-Print availed of the facilities through several promissory notes executed between January and April 1995, bearing interest rates ranging from 13.25% to 25% per annum, with due dates either on demand or in the year 2000.

Plast-Print failed to pay its past due obligations and interest under several promissory notes and the LC/TR Line. On July 31, 1997, RCBC sent a demand letter requiring Plast-Print to settle its account, warning of legal action upon failure to comply. Plast-Print acknowledged its obligation in a letter dated August 7, 1997, but asserted that based on its records, its outstanding balance was only ₱661,564.45 and requested reconciliation of its payments. The parties met on October 9, 1997 to reconcile their accounts and confirmed that all statements of account were correct except for three applications of payments involving RCBC Check Nos. 21412 and 21413 (returned checks) and OR No. 107556 (a replacement for a returned UCPB check). Despite this reconciliation, Plast-Print still failed to settle its obligations. It offered to restructure its debts, and RCBC agreed on the condition that Plast-Print immediately pay ₱4,000,000.00, evidenced by two post-dated checks of ₱2,000,000.00 each—one of which was dishonored. A written demand was thereafter made for payment of ₱13,452,372.85 as of October 10, 1997, within five days from receipt, but no payment was made.

On May 4, 1998, RCBC filed separate petitions for extrajudicial foreclosure of the mortgaged properties. Some properties were sold at public auction on November 12, 1998, with RCBC as the highest bidder. A second auction for the remaining properties was scheduled for November 30, 1998. Unknown to RCBC, Plast-Print had filed a petition for suspension of payments before the SEC on October 5, 1998. On November 16, 1998, the SEC ordered a 30-day suspension of all payments due to Plast-Print's creditors, causing the second auction to be cancelled. Negotiations among Plast-Print and its creditors ensued, culminating in a Restructuring Agreement dated June 25, 1999, approved by the SEC on July 22, 1999. Under the Restructuring Agreement, Plast-Print acknowledged its indebtedness to RCBC in the amount of ₱11,216,178.22 as of December 31, 1998, and bound itself to pay within six years, with grace periods of one year for interest and two years for principal payments. Plast-Print executed a non-negotiable promissory note for ₱11,216,178.22 due on December 31, 2004, but again failed to settle its obligations. On August 21, 2000, Plast-Print sought another moratorium, which RCBC refused.

A day after RCBC denied the plea for moratorium, Plast-Print and its Vice-President for Operations, Reynaldo Dequito, filed before the RTC a complaint for accounting, cancellation of bid price and sheriff's Certificate of Sale, injunction, and damages, alleging that payments totaling ₱5,506,152.00 had not been applied to its statement of account. RCBC moved to dismiss on grounds of lack of jurisdiction, defective certification against forum shopping, forum shopping, and bar by prior judgment. The RTC denied the motion on April 16, 2001, and RCBC's petition for certiorari before the CA was likewise dismissed, becoming final. After trial, the RTC ruled in favor of Plast-Print on May 17, 2006, finding that RCBC had failed to establish how Plast-Print's previous payments were applied, declaring the foreclosure premature, ordering cancellation of the Certificate of Sale, directing RCBC to render an accounting and re-computation, and awarding ₱200,000.00 as attorney's fees. The CA affirmed this decision on May 31, 2011, holding that while Plast-Print was notified of the total amount of its indebtedness, RCBC had not apprised it of how its initial payments were applied, and that the SEC Petition did not preclude the RTC from taking cognizance of the complaint.

• Res Judicata and Judicial Stability: RCBC maintained that the SEC Order approving the Restructuring Agreement constitutes a prior judgment rendered by a co-equal body, which the RTC cannot open, modify, or vacate under the doctrine of judicial stability.
• Obligatory Force of the Restructuring Agreement: RCBC argued that the CA disregarded the binding effect of the Restructuring Agreement when it affirmed the RTC Decision ordering RCBC to make an accounting and re-computation of Plast-Print's payments, given that Plast-Print had already acknowledged a fixed indebtedness of ₱11,216,178.22 under that agreement.
• Lack of RTC Jurisdiction: RCBC asserted that the RTC lacked jurisdiction over the complaint because the SEC had already acquired jurisdiction over Plast-Print's financial accommodations and securities when Plast-Print filed its petition for suspension of payments, and that this jurisdictional objection was preserved by assertion as an affirmative defense in its Answer Ad Cautelam.

• Law of the Case: Plast-Print and Dequito contended that the issue of the RTC's jurisdiction had been settled with finality when the CA dismissed RCBC's petition for certiorari, and that this ruling serves as the law of the case between the parties, precluding RCBC from assailing the RTC's jurisdiction before the Supreme Court.
• Nature of the RTC Action: Plast-Print and Dequito argued that the RTC Complaint was an action for annulment of real estate mortgage and foreclosure sale—an ordinary civil suit beyond the jurisdiction of the SEC—and that the SEC Petition for suspension of payments did not preclude the RTC from taking cognizance of it.

• Jurisdiction: Whether the CA erred in holding that the RTC had jurisdiction to act on Plast-Print's complaint.
• Accounting and Re-computation: Whether the CA erred in directing RCBC to make an accounting and re-computation of Plast-Print's payments.
• Validity of Foreclosure Sale: Whether the CA erred in affirming the nullification of the foreclosure sale and the Certificate of Sale arising therefrom.

• Jurisdiction: Yes. The RTC lacked jurisdiction over the nature of the action, the SEC having already acquired exclusive jurisdiction over Plast-Print's financial accommodations and securities when Plast-Print itself filed the petition for suspension of payments.
• Accounting and Re-computation: Yes. The Restructuring Agreement, approved by the SEC, fixed Plast-Print's acknowledged indebtedness at ₱11,216,178.22 and carried the force of res judicata, precluding any further re-computation.
• Validity of Foreclosure Sale: Yes. The Restructuring Agreement effected only modificatory—not extinctive—novation, leaving the real estate mortgage and the prior foreclosure sale intact, warranting reinstatement of the Certificate of Sale annotation.

• Jurisdiction: Under Section 5(d) of P.D. 902-A, as amended, the SEC had original and exclusive jurisdiction over petitions of corporations for suspension of payments. By filing the SEC Petition, Plast-Print voluntarily placed its financial accommodations and the securities securing them under the SEC's special jurisdiction. Jurisdiction, once acquired, is not lost and continues until the case is terminated. Because the SEC had already acquired jurisdiction over the financial accommodations and securities that were the subject of the subsequent RTC Complaint, the RTC erred in proceeding to act on it while the SEC Petition remained pending. The SEC stands as a co-equal body of the RTC in the exercise of its quasi-judicial jurisdiction, and its orders may not be interfered with or overturned by the RTC. Plast-Print's reliance on the doctrine of the law of the case was rejected because that doctrine cannot be applied so as to confer jurisdiction which the law does not provide; lack of jurisdiction over the nature of the action, like lack of jurisdiction over the subject matter, may be raised at any time and is neither subject to estoppel nor waiver. RCBC preserved its jurisdictional objection by asserting it as an affirmative defense in its Answer Ad Cautelam, thereby neither abandoning nor waiving it.

• Accounting and Re-computation: The Restructuring Agreement expressly acknowledged Plast-Print's indebtedness to RCBC in the amount of ₱11,216,178.22 as of December 31, 1998, as detailed in Annex "A" thereof. This agreement was not merely a binding contract under Article 1159 of the Civil Code but also a compromise approved by the SEC in the exercise of its quasi-judicial powers, giving it the force and effect of a judgment with the authority of res judicata. A judicially approved compromise agreement is final and executory, has the force of law, and is conclusive between the parties, subject to disturbance only for vices of consent or forgery. By ordering RCBC to render an accounting and re-computation, the RTC effectively permitted Plast-Print to renege on its obligation to pay the outstanding balance explicitly recognized under the Restructuring Agreement and interfered with the SEC's jurisdiction by negating the SEC Order.

• Validity of Foreclosure Sale: Articles 1291 and 1292 of the Civil Code govern novation. Extinctive or total novation requires that the old obligation be extinguished in unequivocal terms or that the old and new obligations be incompatible on every point. The Restructuring Agreement, while superseding existing agreements as to Plast-Print's outstanding loans, merely modified certain terms—waiver of penalties, reduction of interest rates, renewal of payment periods, and fixing of principal amounts payable. These modifications did not amount to total or extinctive novation that would extinguish the real estate mortgage or nullify the foreclosure conducted before the restructuring took effect. By the very terms of the Restructuring Agreement, specifically Sections 2, 15, and 20(b), the parties agreed to maintain the status quo vis-à-vis the subsisting mortgages and to proceed to foreclosure and/or consolidation of title in case of default. Absent extinctive novation, the effects of the foreclosure conducted prior to the execution of the Restructuring Agreement must be respected, and reinstatement of the annotation of the Certificate of Sale on the foreclosed properties' TCTs is proper.

• Jurisdiction over the Nature of the Action — This concept differs from jurisdiction over the subject matter. Lack of jurisdiction over the nature of the action arises when a court that would ordinarily have authority to take a case is rendered without it either because a special law has limited the exercise of its normal jurisdiction on a particular matter or because the type of action has been reposed by law in certain other courts or quasi-judicial agencies. The rules relating to the effects of want of jurisdiction over the subject matter apply with equal vigor to cases where the court is bereft of jurisdiction over the nature of the action. The defense may be raised at any time, and neither estoppel nor waiver shall apply.

• Jurisdiction Once Acquired Is Not Lost — Jurisdiction, once acquired by a court or quasi-judicial body, continues until the case is terminated. Where a petition for suspension of payments is filed before the SEC, it acquires jurisdiction over the action and all matters relating thereto to the exclusion of the RTC.

• Doctrine of Judicial Stability — The SEC stands as a co-equal body of the RTC in the exercise of its quasi-judicial jurisdiction. All orders and issuances of the SEC may not be interfered with or overturned by the RTC; only the Supreme Court can enjoin and correct any actuation of the Commission.

• Judicially Approved Compromise Agreement as Res Judicata — A compromise agreement, once stamped with judicial imprimatur, becomes more than a mere contract; it has the force and effect of a judgment and the authority of res judicata. It is final and executory, has the force of law, and is conclusive between the parties, subject to disturbance only for vices of consent or forgery. This principle applies with equal force to agreements approved by the SEC in the exercise of its quasi-judicial powers.

• Extinctive vs. Modificatory Novation — Novation may be total or extinctive, when there is an absolute extinguishment of the old obligation, or partial or modificatory, when there is merely a modification of the old obligation. Under Article 1292, extinctive novation requires that it be so declared in unequivocal terms or that the old and new obligations be incompatible on every point. Mere modification of terms—such as waiver of penalties, reduction of interest, renewal of payment periods, and fixing of principal amounts—without clear intent to extinguish the old obligation constitutes only modificatory novation, which does not extinguish accessory securities such as a real estate mortgage.

• Law of the Case Cannot Confer Jurisdiction — The doctrine of the law of the case cannot be applied to serve as a bar against jurisdictional challenges involving the subject matter or nature of the case, nor can it be applied so as to grant jurisdiction which the law itself does not confer.

• "Simply stated, there is lack of jurisdiction over the nature of the action where the type of action is reposed by law in certain other courts, or in the present case, in a quasi-judicial body — even as there may be subject matter jurisdiction." — This passage defines the concept of jurisdiction over the nature of the action and distinguishes it from subject matter jurisdiction, a distinction central to the Court's ruling that the RTC lacked jurisdiction.

• "A compromise agreement once approved by final order of the court has the force of res judicata between the parties and should not be disturbed except for vices of consent or forgery. Hence, a decision on a compromise agreement is final and executory; it has the force of law and is conclusive between the parties." — Quoted from Spouses Martir vs. Spouses Verano, this formulation articulates the binding effect of a judicially approved compromise agreement, which the Court applied to the SEC-approved Restructuring Agreement to preclude re-computation.

• "Absent a total or extinctive novation, the effects of the foreclosure conducted prior to the execution of the Restructuring Agreement must be respected." — This statement captures the ratio decidendi on the novation issue: because the restructuring was merely modificatory, the prior foreclosure sale remained valid and the Certificate of Sale annotation was properly reinstated.

• Philippine Pacific Fishing Co., Inc. vs. Luna, 198 Phil. 301 (1982) — Cited as controlling authority for the principle that the SEC, as a co-equal body with the RTC, may not be interfered with by the RTC, and that only the Supreme Court can enjoin or correct the SEC's actuations. The Court relied on this case to establish that the RTC could not overturn or interfere with the SEC's orders.

• La Naval Drug Corporation vs. Court of Appeals, 306 Phil. 84 (1994) — Cited for the distinction between jurisdiction over the subject matter and jurisdiction over the nature of the action, and for the rule that lack of jurisdiction over the nature of the action may be raised at any time, with neither estoppel nor waiver applying. The Court applied this framework to conclude that the RTC lacked jurisdiction over the nature of Plast-Print's complaint.

• Spouses Martir vs. Spouses Verano, 529 Phil. 120 (2006) — Cited for the doctrine that a judicially approved compromise agreement has the force of res judicata and is conclusive between the parties. The Court applied this principle to the SEC-approved Restructuring Agreement to hold that Plast-Print was bound by its acknowledged indebtedness and precluded from seeking re-computation.

• Macapalan vs. Katalbas-Moscardon — Cited by the CA in its assailed Decision for the proposition that a complaint for annulment of real estate and foreclosure sale is an ordinary civil suit beyond the jurisdiction of the SEC. The Supreme Court effectively distinguished this ruling by emphasizing that the SEC had already acquired jurisdiction over the subject financial accommodations through Plast-Print's own petition for suspension of payments.

• Section 5(d), Presidential Decree No. 902-A — Vests the SEC with original and exclusive jurisdiction over petitions of corporations, partnerships, or associations to be declared in a state of suspension of payments. The Court applied this provision to hold that Plast-Print's filing of the SEC Petition placed its financial accommodations and securities under the SEC's exclusive jurisdiction, ousting the RTC of jurisdiction over the subsequent complaint.

• Section 5.2, Republic Act No. 8799 — Transferred the SEC's jurisdiction over cases enumerated under Section 5 of P.D. 902-A to the courts of general jurisdiction, but provided that the SEC shall retain jurisdiction over pending suspension of payments/rehabilitation cases filed as of June 30, 2000. The Court noted that the SEC retained jurisdiction over the SEC Petition because it was filed on October 5, 1998.

• Article 1159, Civil Code — Provides that obligations arising from contracts have the force of law between the contracting parties and should be complied with in good faith. The Court cited this provision to reinforce the binding nature of the Restructuring Agreement.

• Articles 1291 and 1292, Civil Code — Govern novation, providing that obligations may be modified by changing their object or principal conditions, substituting the debtor, or subrogating a third person in the rights of the creditor, and that extinctive novation requires an express declaration or total incompatibility between the old and new obligations. The Court applied these provisions to conclude that the Restructuring Agreement effected only modificatory novation, not extinctive novation, leaving the mortgage and foreclosure sale intact.

• Section 19, Batas Pambansa Blg. 129 — vests RTCs with exclusive original jurisdiction over civil actions incapable of pecuniary estimation, such as accounting, cancellation of certificates of sale, and injunction. The Court acknowledged this general jurisdiction but held that it cannot extend over matters falling under the special jurisdiction of the SEC.

Carpio (Chairperson), Perlas-Bernabe, Reyes, Jr., and Lazaro-Javier, JJ., concurred.