G.R. No. 178407 March 18, 2015
METROPOLITAN BANK AND TRUST COMPANY, Petitioner, vs. S.F. NAGUIAT ENTERPRISES, Respondent.

FACTS

Sometime in April 1997, Spouses Rommel Naguiat and Celestina Naguiat and S.F. Naguiat Enterprises, Inc. (S.F. Naguiat) executed a real estate mortgage in favor of Metropolitan Bank and Trust Company (Metrobank) to secure credit accommodations. The mortgage covered properties under TCT No. 58676 (Angeles, Pampanga) and TCT No. 310523 (Marikina, Rizal). On March 3, 2005, S.F. Naguiat obtained another loan from Metrobank, also secured by the 1997 mortgage via an Agreement on Existing Mortgage(s). On July 7, 2005, S.F. Naguiat filed a Petition for Voluntary Insolvency before the Regional Trial Court of Angeles City, Branch 56, which included the property under TCT No. 58676 among its declared assets. The insolvency court issued an Order dated July 12, 2005, declaring S.F. Naguiat insolvent, directing the Deputy Sheriff to take possession of its properties, and forbidding payment of debts or transfer of properties. Metrobank filed a Manifestation and Motion informing the insolvency court of its decision to withdraw from the proceedings to extrajudicially foreclose the mortgaged property. After S.F. Naguiat defaulted, Metrobank instituted extrajudicial foreclosure proceedings on the property under TCT No. 58676, and the property was sold at public auction on December 9, 2005. The sheriff prepared a Certificate of Sale for approval by the Executive Judge. However, Executive Judge Bernardita Gabitan-Erum issued an Order dated December 15, 2005, denying approval of the Certificate of Sale due to the July 12, 2005 Order from the insolvency court. Metrobank’s Motion for Reconsideration was denied. Metrobank filed a Petition for certiorari and mandamus before the Court of Appeals, which was dismissed. The Court of Appeals held that Metrobank failed to obtain permission from the insolvency court to extrajudicially foreclose the mortgaged property and that a suspension of foreclosure proceedings was required until an assignee or receiver was appointed. Metrobank’s Motion for Reconsideration was denied.

ISSUE

1. Whether the Court of Appeals erred in ruling that prior leave of the insolvency court is necessary before a secured creditor can extrajudicially foreclose mortgaged property under Act No. 1956 (Insolvency Law).
2. Whether the Court of Appeals erred in ruling that Executive Judge Gabitan-Erum did not abuse her discretion in refusing to approve the Certificate of Sale.

RULING

The Petition has no merit. The Supreme Court denied the Petition for Review. The Court held that under Act No. 1956, the Insolvency Law, the approval and consent of the insolvency court is required before a secured creditor can proceed with the extrajudicial foreclosure of mortgaged property. The insolvency court’s order, which forbids payment of debts and transfer of properties, operates to suspend all claims against the insolvent debtor, including foreclosure actions by secured creditors. This suspension is intended to prevent the dissipation of the insolvent estate’s assets and to allow for the orderly administration and equitable distribution of the estate through the appointed assignee or receiver. The Court further held that the Executive Judge did not abuse her discretion in refusing to approve the Certificate of Sale, as her action was in accordance with the insolvency court’s order and the requirement to obtain leave from the insolvency court before proceeding with foreclosure. The Court emphasized that the filing of a Manifestation by Metrobank informing the insolvency court of its intent to foreclose did not constitute a request for or grant of permission to foreclose. The foreclosure proceedings were properly suspended pending the insolvency proceedings.