G.R. No. 211287. April 17, 2017
LAND BANK OF THE PHILIPPINES, PETITIONER, VS. WEST BAY COLLEGES, INC., PBR MANAGEMENT AND DEVELOPMENT CORPORATION AND BCP TRADING CO., INC., RESPONDENTS.

FACTS

Respondents, collectively the Chiongbian Group of Companies, obtained loans from petitioner Land Bank of the Philippines (LBP). West Bay Colleges, Inc., as an accommodation mortgagor, mortgaged its training vessel to secure a loan of PBR Management. The vessel sank in 2000, and the insurance proceeds of ₱21.98 million were released to LBP. In 2002, LBP agreed in writing to restructure the respondents’ debts and to reimburse West Bay for the insurance proceeds. Subsequently, Restructuring Agreements were executed. However, respondents soon filed a petition for corporate rehabilitation. The Rehabilitation Court issued a Stay Order, suspending all claims against respondents.
During the rehabilitation proceedings, several court-approved rehabilitation plans stipulated that the insurance proceeds should be applied to the obligations of PBR and BCP. Later, LBP assigned its credit to a special purpose vehicle. West Bay then filed an Urgent Motion before the Rehabilitation Court, praying for an order directing LBP to reimburse the ₱21.98 million, citing the 2002 commitment. LBP opposed, claiming it had already applied the proceeds to settle part of PBR’s loan and for documentary stamp taxes, justified by respondents’ alleged breach of the Restructuring Agreement and the filing of the rehabilitation petition. The Rehabilitation Court denied West Bay’s motion.

ISSUE

Whether the Court of Appeals erred in annulling the Rehabilitation Court’s order and in directing LBP to reimburse the insurance proceeds to West Bay.

RULING

The Supreme Court denied LBP’s petition and affirmed the Court of Appeals. The legal logic centers on the binding effect of the Stay Order in rehabilitation proceedings and the nature of LBP’s commitment. The Stay Order, issued upon the filing of the rehabilitation petition, created an automatic and mandatory suspension of all actions for the enforcement of claims against the debtor. This includes any act to collect, including the unilateral application of funds by a creditor. Consequently, LBP’s act of applying the insurance proceeds to the loan after the Stay Order took effect was a violation of the suspension.
Furthermore, LBP’s prior written commitment in March 2002 to reimburse the proceeds to West Bay was a clear undertaking. The subsequent Restructuring Agreements did not supersede this specific commitment. The Court found that LBP failed to substantiate its claim that the proceeds were validly applied before the Stay Order, and its actions contravened the rehabilitation court’s authority. The approved rehabilitation plans, which proposed applying the proceeds to other debts, did not constitute implementation or ratification of LBP’s unilateral set-off. Therefore, LBP was ordered to reimburse West Bay the ₱21.98 million with interest, computed from the issuance of the Stay Order, as the amount was effectively withheld from the debtor undergoing rehabilitation.