Town and Country Enterprises, Inc. vs. Quisumbing, Jr.

A Stay Order issued in corporate rehabilitation proceedings does not suspend the enforcement of claims or rights that have already vested in creditors prior to the filing of the petition; consequently, a mortgagee-creditor who has acquired ownership of foreclosed property before rehabilitation may obtain a writ of possession despite the Stay Order, and the rehabilitation receiver does not hold possession adverse to the creditor that would prevent such ministerial issuance.

During the Asian financial crisis, petitioner Town and Country Enterprises, Inc. (TCEI) encountered financial difficulties in servicing its loan obligations to respondent Metropolitan Bank and Trust Co. (Metrobank). This led to extrajudicial foreclosure of mortgaged properties and subsequent conflicting claims between the mortgagee's foreclosure rights and the debtor's attempt to seek relief through corporate rehabilitation mechanisms.

• Town and Country Enterprises, Inc. (TCEI) obtained loans aggregating P12,000,000.00 from Metropolitan Bank and Trust Co. (Metrobank), secured by a Deed of Real Estate Mortgage over twenty parcels of land registered under Transfer Certificates of Title (TCTs) in the name of TCEI and/or its corporate officers, Spouses Reynaldo and Lydia Campos.
• For failure to pay the loan, Metrobank extrajudicially foreclosed the mortgage on November 7, 2001. Metrobank was the highest bidder at the public auction and was issued a Certificate of Sale on December 13, 2001, which was registered with the Cavite Provincial Registry of Deeds on April 10, 2002.
• On September 23, 2002, Metrobank filed a petition for the issuance of a writ of possession before the RTC, Branch 21, Imus, Cavite (LRC Case No. 2128-02), invoking Section 7 of Act No. 3135.
• On October 1, 2002, TCEI filed a petition for declaration of a state of suspension of payments with approval of a proposed rehabilitation plan (SEC Case No. 023-02) before the same court sitting as a Special Commercial Court, citing difficulty in servicing obligations due to the Asian financial crisis.
• On October 8, 2002, the Rehabilitation Court issued a Stay Order suspending all actions or claims against TCEI.
• On October 21, 2002, TCEI filed a motion to suspend proceedings in LRC Case No. 2128-02, which was granted by the RTC on December 2, 2002.
• Metrobank filed a petition for certiorari (CA-G.R. SP No. 76147) assailing the suspension order. On January 30, 2004, the CA rendered a decision directing the RTC to continue proceedings and issue the writ of possession, ruling that Metrobank's ownership had consolidated under Section 47 of RA 8791.
• On March 29, 2004, the Rehabilitation Court approved TCEI's rehabilitation plan, granting a five-year moratorium on payments to creditor banks and reducing interest charges from 36% to 24% per annum.
• On January 11, 2005, the RTC issued an order granting Metrobank's petition for a writ of possession.
• Meanwhile, Metrobank executed an Affidavit of Consolidation of Ownership on April 25, 2003, and the Register of Deeds cancelled TCEI's titles and issued new titles in Metrobank's name on June 26, 2003.
• TCEI filed a motion to direct the Register of Deeds to bring back the titles in its name, arguing that the transfer violated the Stay Order; the Rehabilitation Court denied this motion on June 2, 2005.
• TCEI perfected an appeal from the January 11, 2005 order (CA-G.R. CV No. 84464), arguing denial of due process and that the writ violated rehabilitation rules. The CA affirmed the RTC on November 30, 2005.
• TCEI also filed a petition for review (CA-G.R. SP No. 90311) assailing the denial of its motion regarding the titles. The CA dismissed this on May 24, 2006, ruling that Metrobank was already the owner when the Stay Order was issued and that the prior CA decision (January 30, 2004) had attained finality, constituting res judicata.

• The Order granting the Writ of Possession in favor of Metrobank is invalid and unenforceable because the properties are in the possession of the rehabilitation receiver by virtue of the final judgment approving the Rehabilitation Plan, placing the assets in custodia legis.
• The Rehabilitation Receiver is a third-party in possession of the properties adversely against Metrobank for the benefit of the creditors and the debtor, which constitutes an exception to the ministerial issuance of a writ of possession.
• The parties agreed that Act No. 3135 would apply, providing for a one-year redemption period, not Section 47 of RA 8791 (General Banking Act) which provides for a three-month redemption period for juridical persons; thus, the transfer of titles on June 26, 2003 occurred during the redemption period.
• The Register of Deeds cannot legally transfer titles in favor of Metrobank on June 26, 2003 because the Stay Order issued on October 8, 2002 was already in effect, prohibiting the enforcement of claims.
• The rehabilitation proceeding is in rem and binds the whole world, taking precedence over the ex-parte proceedings for a writ of possession.

• Metrobank acquired ownership over the subject properties upon the expiration of the redemption period on February 6, 2002 (three months after the November 7, 2001 foreclosure sale under RA 8791), long before TCEI filed its petition for rehabilitation on October 1, 2002, and before the Stay Order was issued on October 8, 2002.
• The Stay Order cannot apply to mortgage obligations that had already been enforced prior to the filing of the rehabilitation petition; the foreclosure sale and consolidation of title vested absolute ownership in Metrobank.
• The issuance of a writ of possession is ministerial after the redemption period expires without redemption; the rehabilitation receiver does not hold possession adverse to the creditor but acts for the benefit of both debtor and creditors.
• Even assuming Act No. 3135 applies (one-year redemption period), the redemption period expired on November 7, 2002 (or April 10, 2003 from registration), and the consolidation of title and issuance of new certificates on June 26, 2003 occurred well after the expiration of the redemption period.
• The prior CA decision (January 30, 2004) had already recognized Metrobank's ownership, and the principle of res judicata bars relitigation of this issue.

• Procedural Issues:
  • Whether the Court of Appeals committed grave abuse of discretion in applying the principle of res judicata to dismiss the petition regarding the validity of the title transfers.
  • Whether the appeal from the order granting the writ of possession was the proper remedy given the ex-parte nature of the proceedings.
• Substantive Issues:
  • Whether the Stay Order issued in the corporate rehabilitation proceedings bars the issuance of a writ of possession in favor of Metrobank.
  • Whether the rehabilitation receiver's possession of the foreclosed properties constitutes an adverse possession that prevents the ministerial issuance of a writ of possession.
  • Whether Section 47 of RA 8791 (three-month redemption period) or Act No. 3135 (one-year redemption period) applies to the foreclosure of mortgage involving a juridical person.
  • Whether the cancellation of TCEI's titles and issuance of new titles in Metrobank's name on June 26, 2003 were valid despite the existence of the Stay Order.

• Procedural:
  • The Court found that the CA correctly applied res judicata regarding the title transfer issue based on the finality of the January 30, 2004 decision in CA-G.R. SP No. 76147, which had already determined that Metrobank's ownership had consolidated prior to the rehabilitation proceedings.
• Substantive:
  • The Stay Order issued on October 8, 2002 does not apply to Metrobank because Metrobank had already acquired ownership over the foreclosed properties upon the expiration of the redemption period on February 6, 2002 (under RA 8791), prior to the filing of the rehabilitation petition on October 1, 2002. The Stay Order suspends the enforcement of claims but does not affect rights already vested in creditors.
  • Under Section 47 of RA 8791 (General Banking Act), juridical persons have only three (3) months from the foreclosure sale or registration of the certificate of sale, whichever is earlier, to redeem the property. This period expired on February 6, 2002. Even under Act No. 3135 (one-year period from registration on April 10, 2002), the period expired on April 10, 2003, and the title transfers on June 26, 2003 were valid.
  • The rehabilitation receiver is not a third-party possessor whose possession is adverse to the creditor. The receiver is an officer of the court appointed for the protection of the interests of corporate investors and creditors, and there is nothing in corporate rehabilitation that ipso facto deprives officers of a debtor corporation of control, nor does it defeat the vested rights of a secured creditor who has become the absolute owner of the property.
  • The issuance of a writ of possession becomes a ministerial function after the redemption period expires without redemption; no bond is required at this stage. The writ was properly issued.
  • Corporate rehabilitation proceedings are summary and non-adversarial and do not impair the debtor's contracts or diminish the status of preferred creditors. The approval of the rehabilitation plan does not place foreclosed properties already owned by the creditor in custodia legis to the exclusion of the creditor's rights.

• Effect of Stay Order on Vested Rights — A Stay Order in corporate rehabilitation suspends all actions or claims against the debtor from the date of its issuance until the dismissal of the petition or termination of proceedings; however, it does not apply to foreclosure sales where the certificate of sale was issued and ownership had already vested in the purchaser prior to the filing of the rehabilitation petition. In this case, the Court held that since Metrobank's ownership consolidated before the rehabilitation petition was filed, the Stay Order could not divest it of its vested rights.
• Ministerial Duty to Issue Writ of Possession — After the expiration of the redemption period without redemption being effected, the purchaser at a foreclosure sale becomes the absolute owner, and the right to possession becomes absolute. The issuance of a writ of possession by the court becomes a ministerial function that does not require a bond and cannot be hindered by an injunction or an action for annulment of the mortgage or foreclosure.
• Redemption Period for Juridical Persons (RA 8791) — Section 47 of the General Banking Act of 2000 (RA 8791) provides that juridical persons whose property is sold pursuant to an extrajudicial foreclosure shall have the right to redeem the property until, but not after, the registration of the certificate of foreclosure sale with the applicable Register of Deeds, which in no case shall be more than three (3) months after foreclosure, whichever is earlier. This provision applies notwithstanding Act No. 3135.
• Nature of Rehabilitation Receiver's Possession — A rehabilitation receiver is an officer of the court appointed for the protection of the interests of corporate investors and creditors. The receiver's possession is not adverse to the debtor or the creditors but is held for their benefit; thus, it does not constitute the "adverse possession of a third party" that would prevent the ministerial issuance of a writ of possession in favor of a creditor who has already acquired ownership of the property.
• Corporate Rehabilitation as Summary and Non-Adversarial — Proceedings for corporate rehabilitation are summary and non-adversarial in nature; they do not impair the debtor's contracts or diminish the status of preferred creditors. The rehabilitation plan binds the debtor and all affected persons, but it cannot revive rights already extinguished or defeat vested rights of secured creditors acquired prior to rehabilitation.

• "Corporate 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, the purpose being to enable the company to gain a new lease on life and allow its creditors to be paid their claims out of its earnings."
• "The Stay Order issued by the Rehabilitation Court in SEC Case No. 023-02 cannot, however, apply to the mortgage obligations owing to Metrobank which had already been enforced even before TCEI’s filing of its petition for corporate rehabilitation on 1 October 2002."
• "After the redemption period expired without respondent redeeming the foreclosed property, petitioner becomes the absolute owner of the property and it was within its right to ask for the consolidation of title and the issuance of new title in its name as a consequence of ownership; thus, it is entitled to the possession and enjoyment of the property."
• "The rule is settled that the mortgagor loses all interest over the foreclosed property after the expiration of the redemption period and the purchaser becomes the absolute owner thereof when no redemption is made."

• Equitable PCI Bank, Inc. v. DNG Realty and Development Corporation — Cited as controlling precedent establishing that foreclosure and issuance of certificate of sale prior to the appointment of a rehabilitation receiver and issuance of a Stay Order are not affected by the Stay Order; actions subsequent to the Stay Order (consolidation of title, issuance of new titles) are valid if redemption period expired without redemption.
• RCBC v. IAC — Cited in Equitable PCI Bank; upheld extrajudicial foreclosure sale done before appointment of management committee, and subsequent issuance of certificate of sale, consolidation of title, and issuance of new titles after appointment were upheld.
• Union Bank of the Philippines v. Court of Appeals — Cited for the principle that upon failure to redeem foreclosed realty, consolidation of title becomes a matter of right on the part of the auction buyer, and the issuance of a certificate of title in favor of the purchaser becomes ministerial upon the Register of Deeds.
• Oliveros v. Presiding Judge, RTC, Branch 24, Biñan, Laguna — Cited for the rule that the mortgagor loses all interest over the foreclosed property after the expiration of the redemption period and the purchaser becomes the absolute owner thereof when no redemption is made.
• Spouses Tansipek v. Philippine Bank of Communications — Cited for the principle that the right of the purchaser to possession becomes absolute after the redemption period, and the mere filing of an ex parte motion for the issuance of the writ of possession would suffice, and no bond is required.
• Philippine Airlines, Inc. v. Court of Appeals — Cited regarding the nature of the Stay Order as a mechanism suspending all actions and claims against the distressed corporation.
• Castillo v. Uniwide Warehouse Club, Inc. — Cited for the definition of corporate rehabilitation.

• Section 47, Republic Act No. 8791 (The General Banking Act of 2000) — Provides for the three-month redemption period for juridical persons in extrajudicial foreclosure sales, notwithstanding Act No. 3135.
• Section 7, Act No. 3135 — Provides for the right of the purchaser to petition for a writ of possession during the redemption period upon posting of a bond.
• Section 24, Rule 4, Interim Rules of Procedure on Corporate Rehabilitation — Provides that the approved rehabilitation plan is binding upon the debtor and all persons who may be affected by it, and outlines the effects of the plan.
• Section 5, Rule 3, Interim Rules of Procedure on Corporate Rehabilitation — States that any order issued by the court under these Rules is immediately executory.
• Section 3, Chapter I, Republic Act No. 10142 (FRIA) — Cited in footnote 46; provides that corporate rehabilitation proceedings are summary and non-adversarial.
• Section 14(s), Rule 4, Interim Rules of Procedure on Corporate Rehabilitation — Defines the powers of the rehabilitation receiver to take possession, control, and custody of the debtor's assets.