G.R. No. 211537, December 10, 2019
Land Bank of the Philippines, Petitioner, v. Polillo Paradise Island Corporation, Respondent.
FACTS
Respondent Polillo Paradise Island Corporation obtained loans from petitioner Land Bank of the Philippines, secured by mortgages on two parcels of land. After respondent failed to pay its obligations, petitioner extrajudicially foreclosed the mortgaged properties on June 24, 2011. The properties were sold at public auction on August 22, 2011, with petitioner as the highest bidder, and a Certificate of Sale was issued and registered. The respondent failed to redeem the properties within the redemption period. Consequently, petitioner consolidated its title, and new Transfer Certificates of Title were issued in its name on November 19, 2012.
Respondent filed a Petition for Corporate Rehabilitation on August 22, 2012, which the Regional Trial Court (RTC) dismissed on August 25, 2012. Respondent then filed an Amended Petition for Corporate Rehabilitation on October 18, 2012, invoking the Financial Rehabilitation and Insolvency Act of 2010 (FRIA). The RTC granted this amended petition and issued a Commencement/Suspension Order on January 11, 2013, which included a stay order suspending all actions for the enforcement of claims against the debtor.
Petitioner opposed the amended petition, arguing it was no longer a creditor of respondent due to the consolidation of ownership of the foreclosed properties, which occurred before the rehabilitation proceedings. The RTC denied petitioner’s opposition and subsequent motion for reconsideration, ruling that the consolidation of ownership (November 19, 2012) took place after the filing of the amended petition (October 18, 2012) and was thus void under Section 17 of the FRIA. The RTC held that the effects of the Commencement Order were retroactive to the filing date of the petition.
ISSUE
Whether or not the Commencement Order issued by the RTC has the effect of rendering void the foreclosure sale of the subject properties and the consolidation of ownership in favor of the petitioner.
RULING
No. The Supreme Court granted the petition and reversed the RTC’s orders. The Court ruled that the commencement date for the rehabilitation proceedings was October 18, 2012, the date of filing of the Amended Petition (which was effectively a new petition after the dismissal of the first). The extrajudicial foreclosure sale was conducted on August 22, 2011, and the ownership of the properties was vested in the petitioner as the highest bidder upon the expiration of the redemption period without redemption, which occurred on August 22, 2012. This date of vesting of ownership (August 22, 2012) preceded the commencement date of the rehabilitation proceedings (October 18, 2012). Since Section 17 of the FRIA only nullifies extrajudicial activities or processes to seize or enforce a claim against the debtor that occur after the commencement date, the foreclosure and its effects were valid. Consequently, petitioner was no longer a creditor of the respondent, and the subject properties were rightfully consolidated in its name.