G.R. No. 168616 , January 28, 2015
HOME GUARANTY CORPORATION, PETITIONER, VS. LA SAVOIE DEVELOPMENT CORPORATION, RESPONDENT.

FACTS

La Savoie Development Corporation (La Savoie), a real estate developer, filed a Petition for Corporate Rehabilitation before the Regional Trial Court (RTC) of Makati due to financial distress caused by the 1997 Asian financial crisis and other factors. The RTC issued a Stay Order on June 4, 2003, staying all claims against La Savoie. Home Guaranty Corporation (HGC) filed an Opposition, although it was not a direct creditor of La Savoie. HGC asserted a material interest because La Savoie had obtained financing through a securitization process involving the issuance of “La Savoie Development Certificates” (LSDC certificates) by Planters Development Bank (PDB). The projects financed were secured by properties conveyed by La Savoie into a trust (the La Savoie Asset Pool) with PDB as trustee. HGC had issued a guaranty covering the LSDC certificates. La Savoie failed to remit sales collections from the projects to the trust, leading to a default on the certificates. HGC argued that the properties in the Asset Pool were held as security and should be excluded from the rehabilitation proceedings. The Rehabilitation Receiver’s report indicated inaccuracies in La Savoie’s petition. Consequently, the RTC denied due course to the petition and lifted the Stay Order on October 1, 2003. La Savoie appealed to the Court of Appeals (CA). During the appeal, HGC settled the investors’ call on its guaranty, paying P128.5 million. PDB then executed a Deed of Assignment and Conveyance, transferring the Asset Pool properties and the right to collect La Savoie’s unremitted receivables to HGC. The CA reversed the RTC, reinstated the Stay Order, and remanded the case for further proceedings. HGC filed the present Petition for Review.

ISSUE

Whether the properties conveyed by La Savoie to the Asset Pool, and subsequently assigned to HGC, should be excluded from the coverage of the corporate rehabilitation proceedings.

RULING

No. The Supreme Court denied HGC’s petition and affirmed the CA decision. The properties forming the La Savoie Asset Pool are not excluded from the rehabilitation proceedings. The conveyance of the properties to the trust was not an absolute transfer of ownership but was intended as security for the redemption of the LSDC certificates. The Trust Agreement explicitly stated that the conveyance was to secure the obligations under the certificates. Furthermore, the subsequent Deed of Assignment and Conveyance from PDB to HGC, executed after HGC paid the certificate holders, merely effected a transfer of the security interest. HGC, by paying the guaranteed obligation, was subrogated to the rights of the creditors (the certificate holders) against La Savoie pursuant to Article 2067 of the Civil Code. This subrogation did not transform HGC into the absolute owner of the properties; it merely stepped into the shoes of the creditors whose claims were secured by the properties. Therefore, HGC’s claim is a secured claim that must be addressed within the rehabilitation proceedings. The Stay Order properly covers all claims against La Savoie, including HGC’s secured claim, to enable the rehabilitation court to consider a feasible plan that may involve the disposition of encumbered assets for the benefit of all creditors. The RTC’s denial of the petition based on the Receiver’s findings of inaccuracies was premature, as the Interim Rules on Corporate Rehabilitation require the court to first determine the viability of the rehabilitation plan, which involves evaluating all claims and assets, including encumbered ones. The case was remanded to the RTC for further proceedings.