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

A Stay Order in corporate rehabilitation proceedings does not apply to mortgage obligations already enforced and foreclosed prior to the filing of the rehabilitation petition; once the redemption period expires without redemption, the purchaser becomes the absolute owner and is entitled to a writ of possession as a matter of right.

Petitioner Town & Country Enterprises, Inc. (TCEI) obtained a P12,000,000.00 loan from respondent Metropolitan Bank & Trust Co. (Metrobank), secured by a real estate mortgage over 20 parcels of land. Due to the Asian financial crisis, TCEI defaulted, prompting Metrobank to extrajudicially foreclose the mortgage.

• Original Filing: Metrobank filed a petition for issuance of a writ of possession docketed as LRC Case No. 2128-02 before the RTC, Branch 21, Imus, Cavite.
• Concurrent Filing: TCEI filed a petition for corporate rehabilitation docketed as SEC Case No. 023-02 before the same RTC, sitting as a Special Commercial Court.
• Lower Court Decision (Rehabilitation): The Rehabilitation Court issued a Stay Order on October 8, 2002, and later approved the Rehabilitation Plan on March 29, 2004.
• Lower Court Decision (Writ of Possession): The RTC issued an Order on January 11, 2005, granting Metrobank's petition for a writ of possession.
• Appeals: TCEI appealed the issuance of the writ of possession to the CA (CA-G.R. CV No. 84464), which affirmed the RTC. Separately, TCEI filed a Rule 43 petition regarding the transfer of titles (CA-G.R. SP No. 90311), which the CA also dismissed, noting res judicata from an earlier CA ruling (CA-G.R. SP No. 76147).
• SC Action: TCEI filed two separate Rule 45 petitions (G.R. No. 173610 and G.R. No. 174132), which were consolidated.

• The Loan and Foreclosure: TCEI obtained a loan from Metrobank secured by a real estate mortgage. After default, Metrobank extrajudicially foreclosed the mortgage and purchased the properties at public auction on November 7, 2001. The Certificate of Sale was issued on December 13, 2001, and registered on April 10, 2002.
• Expiration of Redemption Period: Under Section 47 of RA 8791 (General Banking Law), juridical persons have a 3-month redemption period. TCEI failed to redeem; thus, Metrobank acquired ownership by February 6, 2002.
• Consolidation of Ownership: Metrobank executed an Affidavit of Consolidation of Ownership on April 25, 2003. New titles in Metrobank's name were issued on June 26, 2003.
• Corporate Rehabilitation Petition: On October 1, 2002, TCEI filed for corporate rehabilitation. The Rehabilitation Court issued a Stay Order on October 8, 2002, suspending all actions against TCEI.
• Writ of Possession Proceedings: On September 23, 2002, Metrobank filed for a writ of possession. TCEI moved to suspend the proceedings based on the Stay Order, which the RTC initially granted. The CA reversed this in CA-G.R. SP No. 76147, directing the RTC to issue the writ.
• Title Cancellation Issue: TCEI discovered the titles had been transferred to Metrobank and moved to revert the titles, arguing the transfer violated the Stay Order. The Rehabilitation Court denied the motion, citing the CA's earlier ruling.

• The writ of possession is invalid and unenforceable because the properties are in the possession of the rehabilitation receiver and are considered custodia legis upon approval of the rehabilitation plan.
• The rehabilitation receiver is a third party in possession of the properties adversely against Metrobank, which should exempt the issuance of a ministerial writ of possession.
• The one-year redemption period under Act 3135 should apply, not the three-month period under RA 8791. Even under Act 3135, the transfer of titles occurred after the Stay Order was in effect.
• The Register of Deeds cannot legally transfer titles during the pendency of the Stay Order, as rehabilitation proceedings are in rem and bind the whole world.

• Metrobank had already acquired ownership over the properties before TCEI filed the petition for corporate rehabilitation.
• Under Section 47 of RA 8791, the redemption period for juridical persons is three months, which had already lapsed.
• The issuance of a writ of possession is a ministerial function after the redemption period expires without redemption.
• The Stay Order cannot impair vested rights that were already perfected before the rehabilitation petition was filed.

• Procedural Issues: Whether the CA erred in affirming the RTC's issuance of the writ of possession despite the pendency and approval of the corporate rehabilitation proceedings.
• Substantive Issues:
  • Whether the Stay Order in corporate rehabilitation applies to mortgage obligations already foreclosed and ownership already consolidated prior to the filing of the rehabilitation petition.
  • Whether the rehabilitation receiver qualifies as a third party claiming adverse possession, barring the ministerial issuance of a writ of possession.
  • Whether the three-month redemption period under RA 8791 or the one-year period under Act 3135 applies to juridical persons.

• Procedural: The SC upheld the CA's affirmance of the writ of possession. The issuance of a writ of possession is a ministerial function that cannot be hindered by an injunction or the pendency of rehabilitation proceedings when ownership has already vested in the purchaser.
• Substantive:
  • The Stay Order does not apply to Metrobank. The foreclosure sale occurred on November 7, 2001, and the redemption period expired on February 6, 2002. TCEI only filed for rehabilitation on October 1, 2002. By the time the Stay Order was issued on October 8, 2002, Metrobank had long acquired ownership. A Stay Order cannot impair vested rights.
  • The rehabilitation receiver is not a third party possessing the property adversely to the judgment debtor. The receiver is an officer of the court protecting the interests of the corporate investors and creditors, not asserting a right adverse to the debtor.
  • The three-month redemption period under Section 47 of RA 8791 applies to juridical persons, notwithstanding Act 3135. However, the SC noted that even if the one-year period under Act 3135 were applied, Metrobank still consolidated ownership on April 25, 2003, well after the one-year period lapsed. TCEI failed to redeem under either statute.

• Stay Order in Corporate Rehabilitation — Defers all actions or claims against the distressed corporation from the date of issuance until the dismissal of the petition or termination of the proceedings. It does not, however, apply to obligations already enforced and ownership already consolidated prior to the filing of the rehabilitation petition.
• Ministerial Issuance of Writ of Possession — After the expiration of the redemption period without redemption, the purchaser's right to possession becomes absolute. The issuance of a writ of possession becomes a ministerial function, requiring only the filing of an ex parte motion and no bond.
• Third Party Exception to Writ of Possession — The function of issuing a writ of possession ceases to be ministerial only when the property is in the possession of a third party claiming a right adverse to that of the judgment debtor. A rehabilitation receiver does not qualify as such a third party.
• Redemption Period for Juridical Persons — Under the second paragraph of Section 47 of RA 8791, juridical persons whose property is sold pursuant to an extrajudicial foreclosure have the right to redeem the property until, but not after, the registration of the certificate of foreclosure sale, which in no case shall be more than three months after foreclosure.

• Section 47, Republic Act No. 8791 (General Banking Law of 2000) — Provides the redemption period for juridical persons in extrajudicial foreclosure sales, limiting it to not more than three months after the foreclosure sale. The SC applied this provision to rule that TCEI's redemption period had already expired before the Stay Order was issued.
• Section 7, Act No. 3135 — Governs the issuance of a writ of possession during the redemption period (requiring a bond). The SC noted that after the redemption period expires, no bond is required, and the writ becomes a matter of right.
• Section 24, Rule 4, Interim Rules of Procedure on Corporate Rehabilitation — Enumerates the effects of the approval of a rehabilitation plan. The SC clarified that while the plan binds all creditors, it does not impair vested property rights acquired prior to the rehabilitation filing.