G.R. No. 97178 January 10, 1994
BANK OF THE PHILIPPINE ISLANDS, petitioner, vs. COURT OF APPEALS AND RUBY INDUSTRIAL CORPORATION, respondents.

FACTS

On February 16, 1984, petitioner Bank of the Philippine Islands (BPI) filed a complaint for foreclosure of real estate mortgage against respondent Ruby Industrial Corporation (RUBY) with the Regional Trial Court of Pasig. On November 8, 1984, RUBY filed its answer with counterclaim. RUBY subsequently filed a motion to suspend the proceedings, citing an Order dated August 10, 1984, from the Securities and Exchange Commission (SEC) which placed RUBY under a rehabilitation plan pursuant to P.D. 902-A. The SEC Order declared that all actions or claims against RUBY pending before any court were deemed suspended. The trial court granted the motion and suspended the proceedings on December 19, 1984.
On July 31, 1990, BPI filed a motion to reopen the proceedings, invoking the Supreme Court ruling in Philippine Commercial International Bank v. Court of Appeals, which stated that an SEC suspension order applies only to unsecured creditors and not to secured creditors unless they relinquish their security. The trial court denied BPI’s motion on August 22, 1990, and its subsequent motion for reconsideration on October 19, 1990, citing the contrary ruling in Alemar’s Sibal & Sons, Inc. v. Elbinias that suspension applies to all creditors.
BPI then filed a petition for certiorari and mandamus with the Court of Appeals to set aside the trial court’s orders. The Court of Appeals dismissed the petition on January 31, 1991, upholding the suspension of actions by all creditors, whether secured or unsecured, against a distressed firm under rehabilitation.

ISSUE

Whether a secured creditor may judicially enforce its claim against a corporation that has been placed by the SEC under rehabilitation pursuant to P.D. 902-A.

RULING

No. The Supreme Court denied the petition and affirmed the decision of the Court of Appeals. The Court held that the right of a secured creditor to enforce its claim in court is suspended when the debtor corporation is placed by the SEC under rehabilitation. The Court distinguished the case from Philippine Commercial International Bank v. Court of Appeals, noting that in that case, an order of dissolution had already been issued, whereas here, the corporation was under rehabilitation, and the action was pending when the suspension order was issued. The Court further ruled that the doctrine in the PCIB case had been abrogated by subsequent rulings, including Alemar’s Sibal & Sons v. Elbinias, BF Homes, Inc. v. Court of Appeals, Araneta v. Court of Appeals, and RCBC v. Court of Appeals. These cases established that when a distressed corporation is under rehabilitation, preferred creditors may no longer assert their preference and must stand on equal footing with other creditors to enable a feasible and viable rehabilitation. Foreclosure is disallowed during rehabilitation to prevent prejudice or discrimination among creditors. The management committee or rehabilitation receiver must be free from judicial interference to effectively rescue the distressed company.