THIRD DIVISION

[G.R. No. 172895. July 30, 2008.]

UNION BANK OF THE PHILIPPINES, petitioner, vs. ASB

DEVELOPMENT CORPORATION, respondent.

DECISION

CHICO-NAZARIO, J : p

This is a Petition for Review seeking to set aside the Decision 1 dated
31 May 2005 and Resolution dated 31 May 2006 of the Court of Appeals in
CA-G.R. SP No. 85780 which sustained the Resolution dated 6 July 2004 of
the Securities and Exchange Commission (SEC) En Banc in SEC-EB Case No.
12-03-08 which, in turn, affirmed the Resolution dated 11 December 2003 of
the SEC Hearing Panel in SEC Case No. 05-00-6609. TcIaHC

I
FACTS
The factual and procedural antecedents of this case are as follows:
The Indenture Contracts
On 29 May 1989, respondent ASB Development Corporation (ASBDC), a
domestic corporation organized and existing under Philippine laws, executed
a Mortgage Trust Indenture (MTI) and, thereafter, supplemental indentures,
in favor of Rizal Commercial Banking Corporation (RCBC), as trustee for the
following creditor banks: RCBC itself, petitioner Union Bank of the Philippines
(UBP) and United Coconut Planters Bank (UCPB). Under said MTI and
supplemental indentures, the creditor banks granted respondent ASBDC a
loan in the total amount of P1.198 billion, P122 million of which was
extended by petitioner UBP. As security for the loan, respondent ASBDC
mortgaged to RCBC real properties covered by Transfer Certificates of Title
(TCTs) No. 9836, No. 9837, and No. 9838. Petitioner UBP has an aliquot
share of 10.32% in said mortgages as security for its loan to respondent
ASBDC. IHaCDE

The Petition for Rehabilitation

On 2 May 2000, respondent ASBDC, together with ASB Holdings Inc.,
ASB Realty Corporation, ASB Land Inc., ASB Finance Inc., Makati Hope
Christian School Inc., Bel-Air Holdings Corporation, Winchester Trading Inc.,
VYL Development Corporation, and Neighborhood Holdings Inc. (collectively
referred to as the ASB Group of Companies), as affiliated companies
commonly owned by Mr. Luke C. Roxas, filed with the SEC Securities and
Investigations Clearing Department (SICD) a Petition for Rehabilitation with
Prayer for Suspension of Actions and Proceedings. To take cognizance of the
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 said Petition, the SEC Hearing Panel was formed composed of three hearing
officers from SICD.
Petitioner UBP, Metropolitan Bank and Trust Company (Metrobank),
RCBC, Philippine National Bank (PNB), Prudential Bank, UCPB and Equitable-
PCI Bank opposed the petition for rehabilitation of the ASB Group of
Companies.
On 4 May 2000, the SEC Hearing Panel set for hearing on 22 May 2000
the prayer of the ASB Group of Companies for suspension of payment and
the creation of a management committee and/or the appointment of a
rehabilitation receiver. For the time being, the SEC Hearing Panel issued a
sixty-day suspension order against all actions for claims against the ASB
Group of Companies pending or still to be filed before any court, office,
board, body and/or tribunal. SEIaHT

The SEC Hearing Panel then appointed Atty. Monico V. Jacob as Interim
Receiver and ordered the latter to post a bond in the amount of P200,000.00
within ten days from notice. Atty. Jacob refused the appointment, leading to
the appointment instead of Fortunato B. Cruz. The SEC Hearing Panel
enjoined the ASB Group of Companies from disposing of their properties in
any manner whatsoever except in the ordinary course of business and from
making payments of its liabilities outstanding as of the date of the filing of
its petition for rehabilitation.
The SEC Hearing Panel subsequently issued various Orders extending
the suspension order it initially issued on 4 May 2000 until 29 April 2001.
On 10 October 2000, the SEC Hearing Panel issued an Order giving due
course to the Petition for Rehabilitation.
The SEC Hearing Panel approved on 26 April 2001 the Rehabilitation
Plan of the ASB Group of Companies. On the same day, the SEC Hearing
Panel appointed Interim Receiver Fortunato B. Cruz as Rehabilitation
Receiver of the ASB Group of Companies.
Related Cases
In the course of the foregoing proceedings before the SEC Hearing
Panel, the following cases arose:
Petitioner UBP and PNB assailed the 4 May 2000 Suspension Order of
the SEC Hearing Panel before the Court of Appeals in a Petition for Certiorari
Ad Cautelam, docketed as CA-G.R. SP No. 66649, wherein they prayed inter
alia that the said Order be set aside. The Court of Appeals later dismissed
CA-G.R. SP No. 66649 in its 31 January 2002 Resolution, and denied the
Motion for Reconsideration of petitioner UBP and PNB in its 4 June 2002
Resolution. Petitioner UBP and PNB went to this Court via a Petition for
Review on Certiorari, docketed as G.R. No. 153830, challenging the
Resolutions dated 31 January 2002 and 4 June 2002 of the Court of Appeals
in CA-G.R. SP No. 66649, but their petition was dismissed by this Court in a
16 September 2002 Resolution. Entry of Judgment was made in G.R. No.
153830 on 28 February 2003. IaHSCc

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 Petitioner UBP would also join a consortium of creditor banks which
filed a Petition for Review on Certiorari with Application for the Issuance of a
Temporary Restraining Order and/or Writ of Preliminary Injunction before the
SEC En Banc seeking to annul the 10 October 2000 Order of the SEC Hearing
Panel giving due course to the Petition for Rehabilitation of the ASB Group of
Companies. Said consortium subsequently filed a Supplemental Petition with
the SEC En Banc praying for the enjoinment of the implementation of the 27
October 2000 Order of the SEC Hearing Panel which granted yet again the
motion of the ASB Group of Companies for extension of the 4 May 2000
Suspension Order. The SEC En Banc dismissed this Petition in its 11
November 2003 Resolution. Petitioner UBP, however, no longer participated
when the PNB and Equitable-PCI Bank assailed the 11 November 2003
Resolution of the SEC En Banc before the Court of Appeals in CA-G.R. SP No.
82800. AHSaTI

The Extrajudicial Foreclosure and

Sale
In the meantime, two months after the SEC Hearing Panel approved the
Rehabilitation Plan for the ASB Group of Companies and during the pendency
of CA-G.R. SP No. 66649 before the Court of Appeals, petitioner UBP, citing
the failure of respondent ASBDC to pay its indebtedness, filed on 27 July
2001 with the Office of the Clerk of Court of the Regional Trial Court (RTC) of
Mandaluyong City, a Notice of Extrajudicial Sale of Properties under Act No.
3135, as amended, over its 10.32% participation in the mortgage of real
properties covered by TCTs No. 9836, No. 9837, and No. 9838 securing the
loans of respondent ASBDC under the MTI and supplemental indentures.
On 24 August 2001, Notary Public Jimmy D. Lacebal auctioned the
mortgaged properties of respondent ASBDC, during which petitioner UBP
submitted the highest bid in the amount of P178,635,330.48. Atty. Lacebal
issued a Certificate of Sale over the said properties in favor of petitioner
UBP. Vice Executive Judge Japar D. Dimaampao of the Mandaluyong City RTC
approved the Certificate of Sale.TCacIA

Petitioner UBP then filed a request with the Register of Deeds of

Mandaluyong City for registration of the Certificate of Sale on TCTs No.
9836, No. 9837 and No. 9838. On 28 August 2001, the Register of Deeds
requested RCBC (the trustee for petitioner UBP and the other creditor-
mortgagee banks under the MTI and supplemental indentures) to present the
owner's duplicate copies of said certificates of title for the purpose of
annotating the Certificate of Sale on the same. RCBC, however, failed to act
on said request.
In a letter dated 5 December 2001, petitioner UBP requested the
Register of Deeds of Mandaluyong City to just effect the registration and
annotation of the Certificate of Sale on the original copies of TCTs No. 9836,
No. 9837 and No. 9838 which were on file with the Registry of Deeds. The
Register of Deeds, in a reply-letter dated 8 December 2002, denied the
request of petitioner UBP to merely annotate the Certificate of Sale on the
original copies of TCTs No. 9836, No. 9837 and No. 9838 since such
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 annotation partakes of the nature of a voluntary dealing on registered land
wherein the production of the owner's duplicate copies of the certificates of
title is necessary. HaDEIc

On 22 January 2002, petitioner UBP filed a Motion for Reconsideration

with the Register of Deeds of Mandaluyong City. However, the Register of
Deeds maintained its original stand and denied the motion on 4 February
2002.
Petitioner UBP thus filed on 7 February 2002 a Consulta with the Land
Registration Authority (LRA) soliciting a resolution reversing the denial of its
request for annotation of the Certificate of Sale on the original copies of
TCTs No. 9836, No. 9837 and No. 9838.
On 3 September 2003, respondent ASBDC filed before the SEC Hearing
Panel a Motion and a Supplement dated 15 September 2003 praying for the
nullification of the extrajudicial sale of its properties conducted on 24 August
2001. The SEC Hearing Panel issued a Resolution dated 11 December 2003
granting said Motion of respondent ASBDC, to wit:
WHEREFORE, premises considered, petitioners' Motion dated 3
September 2003 is GRANTED. Accordingly, all proceedings pertaining
to and in connection with the extrajudicial sale caused by Union Bank
of the Philippines involving properties covered by TCTs Nos. 9836,
9837 and 9838 issued by the Registry of Deeds of Mandaluyong City
are hereby ANNULLED and SET ASIDE. 2 aIcSED

Petitioner UBP filed with the SEC En Banc a Petition for Review on
Certiorari assailing the afore-quoted Resolution of the SEC Hearing Panel,
which was docketed as SEC-EB Case No. 12-03-08. Petitioner UBP contended
that the annulment of the extrajudicial sale was contrary to law, arguing
that:
1. Article 1308 of the Civil Code of the Philippines on mutuality of
contracts provides "The contract must bind both contracting
parties; its validity or compliance cannot be left to the will of one
of them". CcSTHI

In signing the MTI and its Supplemental, ASBDC had agreed and bound
itself to comply with all the provisions of the contract.

2. ASBDC violated the proscription against unilateral cancellation of

contracts under Article 1159 of the Civil Code;

3. Respondent SEC Hearing Panel amended or expanded the rule

making powers in suspending all actions and claims against
ASBDC immediately after the petition for rehabilitation is filed;
4. Contravened the constitutional proscription against impairment of
contracts;
5. Deprived Union Bank of its substantial right over its property without
due process of law;

6. Unilaterally revoked and/or nullified the right of a secured creditor

like Union Bank with existing contractual rights;
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 7. Amended and/or modified existing and valid contracts between the
parties, without their consent. DaCTcA

On 6 July 2004, the SEC En Banc issued a Resolution denying the

Petition, thus:
WHEREFORE, the Petition for Review on Certiorari assailing the
Resolution dated 11 December 2003 issued by Respondent Hearing
Panel is hereby DENIED for lack of merit. 3
In so doing, the SEC En Banc held that the SEC Hearing Panel acted in
accordance with Section 6 (c) of Presidential Decree No. 902-A 4 as
amended, which granted to the SEC the following power:
c) To appoint one or more receivers of the property, real and personal,
which is the subject of the action pending before the Commission
in accordance with the pertinent provisions of the Rules of Court
in such other cases whenever necessary in order to preserve the
rights of the parties-litigants and/or protect the interest of the
investing public and creditors: . . . Provided, finally, That upon
appointment of a management committee, rehabilitation
receiver, board or body, pursuant to the Decree, all
actions for claims against corporations, partnerships or
associations under management or receivership pending
before any court, tribunal, board or body shall be
suspended accordingly. (Emphasis supplied.)

CA-G.R. SP No. 85780

Petitioner UBP then sought recourse with the Court of Appeals via a
Petition for Review, docketed as CA-G.R. SP No. 85780, seeking the reversal
of the 6 July 2004 Resolution of the SEC En Banc. It argued that respondent
ASBDC should not have filed a Petition for Rehabilitation as the latter itself
admitted in the same petition that it possessed sufficient properties to cover
its obligations, but only that it foresaw its inability to pay its obligations
within a period of one year. ECDHIc

On 31 May 2005, the Court of Appeals rendered the assailed Decision

dismissing the Petition for Review, the dispositive of which reads:
WHEREFORE, premises considered, the PETITION FOR REVIEW is
hereby DISMISSED. Accordingly, the Securities and Exchange
Commission En Banc's Resolution dated July 6, 2004 and the
Securities and Exchange Commission's Hearing Panel's Resolution
dated December 11, 2003 are hereby affirmed in toto. 5
The Court of Appeals cited the Rules of Procedure on Corporate
Recovery which provides for two distinct remedies for a financially
distressed corporation, namely: (1) suspension of payments under
Section 3-1, Rule III; and (2) rehabilitation proceedings under Section
4-1, Rule IV. These provisions read:
SECTION 3-1. Suspension of Payments. — Any debtor which
possesses sufficient property to cover all its debts but foresees the
impossibility of meeting them when they respectively fall due may
petition the Commission that it be declared in the state of suspension
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 of payments. ATEHDc

xxx xxx xxx

SECTION 4-1. Who may petition. — A debtor which is insolvent
because its assets are not sufficient to cover its liabilities, or which is
technically insolvent under Section 3-12 of these Rules, but which
may still be rescued or revived through the institution of some
changes in its management, organization, policies, strategies
operations or finances, may petition the Commission to be placed
under rehabilitation.
Any of the creditors or stockholders of the debtor may file the
petition on its behalf.
The Court of Appeals explained that a debtor or petitioning corporation may
have sufficient assets to pay for all of its obligations but foresees the
impossibility of paying them when they respectively fall due, necessitating a
suspension of payments for at least one year. Despite such declaration of
solvency, the petitioning corporation may still be found to be subsequently
unable to pay its obligations for a period longer than one year and be
considered by the SEC as technically insolvent under Sections 3-12 6 and 3-
13 7 of Rule III of the Rules of Procedure on Corporate Recovery. Section 3-
13 provides, inter alia, that if during the pendency of the proceedings, the
petitioner has become or is shown to be insolvent, whether actually or
technically, the SEC may, instead of terminating the proceedings for
suspension of payments, treat the petition as one for rehabilitation of the
debtor. DCIAST

Hence, the Rules of Procedure on Corporate Recovery does not

preclude a solvent corporation or debtor from filing a petition for
rehabilitation instead of just a petition for suspension of payments because
such temporary inability to pay its obligations out of its assets may extend
beyond the period of one year, or a solvent corporation may become actually
insolvent in the interim. The requirements and procedures in a petition for
suspension of payments and petition for rehabilitation are indeed entirely
different and distinct from one another; nonetheless, the petitioning
corporation which seeks temporary relief and assistance in the payment of
its obligations falling due, but may still have sufficient assets to cover the
same, may already file at the first instance a petition for rehabilitation under
Rule IV. Given the foregoing, the Court of Appeals found that the Petition for
Rehabilitation of the ASB Group of Companies, which includes respondent
ASBDC, is warranted under the circumstances. cDAITS

The Court of Appeals further clarified that under either of the two
remedies available, suspension of payments or rehabilitation, a
suspension order against all claims, proceedings or actions against the
petitioning corporation is available as immediate relief to the distressed
corporation pursuant to Sections 3-4 8 and 3-8 9 of Rule III and Section 4-4 10
of Rule IV. During the pendency of either proceeding, a management
committee may be created upon agreement of the parties or upon showing
that there is imminent danger of dissipation, loss, wastage or destruction of
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 the debtor's assets or those in its legal possession, or paralysis of its
business operations, in accordance with Section 5-1. 11
In its Decision of 31 May 2005, the Court of Appeals also affirmed the
validity of the 4 May 2000 Order of the SEC Hearing Panel suspending all
claims already pending or still to be filed against the ASB Group of
Companies. While said Suspension Order was interlocutory, it could no
longer be assailed since the propriety of its issuance had already been
passed upon several times. Petitioner UBP and other creditor banks had
already challenged the Suspension Order when they filed with the SEC
Hearing Panel their Comment/Opposition 12 to the Petition for Rehabilitation.
The said Comment/Opposition was denied by the SEC Hearing Panel in its 10
October 2002 Order, which in effect upheld the validity of the Suspension
Order. The consortium of creditor banks, including petitioner UBP, then filed
a Petition for Certiorari with the SEC En Banc, which was likewise dismissed
by the SEC En Banc in its 11 November 2003 Resolution. Of the creditor
banks belonging to the consortium, only the PNB and Equitable-PCI Bank
persisted in questioning the 11 November 2003 Resolution of the SEC En
Banc before the Court of Appeals in CA-G.R. SP No. 82800; thus, the 11
November 2003 Resolution of the SEC En Banc upholding the validity of the
4 May 2000 Suspension Order is already final and executory insofar as
petitioner UBP is concerned. IDATCE

The Court of Appeals added that petitioner UBP, together with PNB,
also assailed the 4 May 2000 Suspension Order of the SEC Hearing Panel
before the Court of Appeals in CA-G.R. SP No. 66649. When the Court of
Appeals dismissed CA-G.R. SP No. 66649 in its Resolutions dated 31 January
2002 13 and 4 June 2002, petitioner UBP and PNB filed a Petition for Review
on Certiorari with this Court, docketed as G.R. No. 153830. This Court
likewise dismissed G.R. No. 153830 in a 16 September 2002 Resolution, and
Entry of Judgment was made in G.R. No. 153830 on 28 February 2003.
Therefore, the 4 May 2000 Suspension Order by the SEC Hearing Panel can
no longer be questioned by petitioner UBP.
Finally, the Court of Appeals noted that when petitioner UBP filed its
petition for extrajudicial foreclosure on 27 July 2001 and caused the holding
of the public auction of the mortgaged properties of respondent ASBDC on
21 August 2001, the SEC Hearing Panel had already issued its Order dated 4
May 2000 suspending all actions for claims against respondent ASBDC,
whether pending or still to be filed. In fact, on such dates, the SEC Hearing
Panel had already approved the Rehabilitation Plan of the ASB Group of
Companies in an Order dated 26 April 2001. The appointment of a
Rehabilitation Receiver effectively suspended actions for claims against
respondent ASBDC. 14 cDIHES

On 24 June 2005, petitioner UBP filed a Motion for Reconsideration of

the foregoing Decision. On 31 May 2006, the Court of Appeals issued the
assailed Resolution denying the Motion for Reconsideration.
G.R. No. 172895
Petitioner UBP filed the instant Petition for Review on Certiorari, setting
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 forth the following assignment of errors for the Court's consideration:
1. With all due respect, the Court of Appeals erred in law when
it applied the Rules of Procedure on Corporate Recovery and allowed
respondent's application for rehabilitation despite the existence of
fatal jurisdictional defects. The Court of Appeals decided a matter not
in accord with law and existing jurisprudence. SDTaHc

2. The Court of Appeals erred in ruling that the May 4, 2000

Suspension Order is valid and could no longer be questioned it being
a mere interlocutory order which cannot become final and executory.
3. The Court of Appeals erred in ruling that petitioner bank has
no power on its own to foreclose the mortgaged property. 15
II
RULING
SEC Jurisdiction Over the Petition
for Rehabilitation
Petitioner UBP alleges that the Petition for Rehabilitation with Prayer
for Suspension of Actions and Proceedings of respondent ASBDC before the
SEC suffers from fatal and jurisdictional defects. Respondent ASBDC cannot
file a Petition for Rehabilitation when respondent ASBDC itself alleged in its
Petition for Rehabilitation that it possessed sufficient property to cover its
obligations. By admitting that it is a solvent corporation, respondent ASBDC
cannot file a Petition for Rehabilitation. TDaAHS

Petitioner UBP also argues that respondent ASBDC cannot invoke

Sections 3-12 16 and 3-13, 17 Rule III of the Rules of Procedure on Corporate
Recovery since the situation contemplated therein is the pendency of a
petition for suspension of payments and the supervention of technical
insolvency, 18 in which event, the petition for suspension of payments may
be dismissed or the petitioning corporation may opt for rehabilitation under
Rule IV of the same Rules. They do not apply to the circumstance in which
the petitioning corporation erroneously files a petition for rehabilitation even
when it has enough assets to cover its liabilities, but would eventually suffer
from technical insolvency in the course of the proceedings, finally justifying
its rehabilitation. The defect of the petition in the latter case is jurisdictional
and precludes the SEC from hearing the petition, and cannot be cured by the
subsequent technical insolvency of the petitioning corporation. Petitioner
UBP, thus, claims that respondent ASBDC should have filed the "proper
petition" with the SEC at the first instance. SCcHIE

Anyhow, petitioner UBP asserts that respondent ASBDC was not able to
prove that it was technically insolvent at the time it filed its Petition for
Rehabilitation, or that it became so in the course of the hearing by the SEC
Hearing Panel of its Petition.
Rule III of the Rules of Procedure on Corporate Recovery deals
specifically with Petitions for Suspension of Payments , while Rule IV
covers Petitions for Rehabilitation.

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 The title and the contents of the initiatory pleading of respondent
ASBDC before the Court of Appeals clearly establish that it is a Petition for
Rehabilitation, with a prayer for the suspension of actions and proceedings
to supplement the same. The suspension of actions and proceedings for any
claims against respondent ASBDC is merely meant to afford respondent
ASBDC the opportunity to preserve its assets for later distribution pursuant
to its approved rehabilitation plan. CASaEc

Being a Petition for Rehabilitation, the Petition of respondent ASBDC

must comply with the jurisdictional requirements under Rule IV of the Rules
of Procedure on Corporate Recovery. Section 4-1 19 of the said Rules
provides that any of the following: (1) an actually insolvent debtor; (b) a
technically insolvent debtor; or (3) a creditor or stockholder of the debtor,
can file a petition for rehabilitation.
Although respondent ASBDC admitted in its Petition that it had
sufficient assets to cover its liabilities, it also alleged that it had foreseen its
inability to pay its obligations within a period of one year. This is the very
definition of technical insolvency: the inability of the petitioning corporation
to pay, although temporarily, for a period longer than one year from the
filing of the petition. 20
As a technically insolvent corporation, respondent ASBDC can seek
recourse from the SEC through a Petition for Rehabilitation.
The reference to Section 3-12 of the Rules of Procedure on Corporate
Recovery should be limited only to the definition of technical insolvency
provided therein. Section 3-13 and the rest of Rule III of the Rules of
Procedure on Corporate Recovery governing Petitions for Suspension of
Payments actually have no relevance in the instant Petition. SHaATC

Neither can the Court sustain the allegation of petitioner UBP that
respondent ASBDC failed to prove that it was technically insolvent. Whether
respondent ASBDC is indeed technically insolvent is a question of fact. This
Court has held that for a question to be one of law, it must involve no
examination of the probative value of the evidence presented by the
litigants or any of them. There is a question of law in a given case when the
doubt or difference arises as to what the law is pertaining to a certain state
of facts, and there is a question of fact when the doubt arises as to the truth
or the falsity of alleged facts. 21 The determination of technical insolvency of
respondent ASBDC is a question of fact since it will require a review of
sufficiency and weight of evidence presented by the parties.
The resolution of a question of fact is normally beyond the authority of
this Court, as this Court is not a trier of facts. Moreover, the SEC Hearing
Panel found that respondent ASBDC was technically insolvent; the SEC En
B a n c and the Court of Appeals sustained such factual finding; and we
likewise find no reason to disturb the same. The factual findings of quasi-
judicial agencies, which have acquired expertise due to their jurisdiction
being confined to special matters, are generally accorded great respect and
even finality, absent any showing that they disregarded evidence or
misapprehended evidence to such an extent as to compel a contrary
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 conclusion if such evidence had been properly appreciated. 22

More importantly, on 27 February 2007, this Court promulgated its

Decision in Metropolitan Bank & Trust Company v. ASB Holdings, Inc. 23
Metropolitan Bank & Trust Company (MBTC) was one of the creditor-
mortgagee banks of the ASBDC. MBTC challenged the validity of the Petition
for Rehabilitation of the ASB Group of Companies approved by the SEC
Hearing Panel on 26 April 2001. We already upheld in said case the validity
of the Rehabilitation Plan. We also denied with finality on 6 June 2007 the
Motion for Reconsideration of MBTC. The Rehabilitation Plan, like the 4 May
2000 Suspension Order, resulted from the very same proceedings held
herein by the SEC Hearing Panel pursuant to the Petition for Rehabilitation
filed by the ASB Group of Companies. As we have already settled the validity
of the Rehabilitation Plan, the jurisdictional issues on the Petition for
Rehabilitation should also be considered laid to rest. Intrinsic to this Court's
affirmation of the validity of the Rehabilitation Plan is its recognition of the
jurisdiction acquired by the SEC Hearing Panel over the Petition for
Rehabilitation of the ASB Group of Companies. HASDcC

Validity of the Suspension Order

Petitioner UBP argues that the 4 May 2000 Suspension Order of the
SEC Hearing Panel is void; consequently, the 6 July 2004 Order of the SEC
Hearing Panel nullifying the extrajudicial sale of the mortgaged properties of
respondent ASBDC held on 24 August 2001 for being in violation of its 4 May
2000 Suspension Order, is likewise void.
As pointed out by the Court of Appeals, the issue of the validity of the 4
May 2000 Suspension Order was already resolved with finality by no less
than this Court in its Resolution dated 16 September 2002 in G.R. No.
153830. As previously stated, petitioner UBP, together with PNB, had already
assailed the 4 May 2000 Suspension Order of the SEC Hearing Panel before
the Court of Appeals in a Petition for Certiorari Ad Cautelam docketed as CA-
G.R. SP No. 66649. When the Court of Appeals dismissed the said Petition in
its 31 January 2002 Resolution, and denied the Motion for Reconsideration in
its 4 June 2002 Resolution, petitioner UBP and the PNB jointly filed a Petition
for Review on Certiorari with this Court, docketed as 153830, which was
denied in a 16 September 2002 Resolution. ICacDE

However, petitioner UBP refuses to be bound by this Court's ruling in

G.R. No. 153830, contending that the 4 May 2000 Suspension Order of the
SEC Hearing Panel was merely interlocutory and did not become final. Since
the said Order never became final, the principle of res judicata is, therefore,
not applicable.
Res judicata is a rule that precludes parties from relitigating issues
actually litigated and determined by a prior and final judgment. 24
Petitioner cites the Decision of this Court in Montilla v. Court of Appeals, 25
wherein we held that:
Quite elementary is that an order such as that rendered on
December 5, 1972, being interlocutory, cannot become final and
executory in the sense just described, and cannot bring the doctrine
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 of res adjudicata into play at all. Indeed, the correctness of such an
interlocutory order may subsequently be impugned on appeal by any
party adversely affected thereby, regardless of whether or not he had
presented a motion for the reconsideration thereof, if he has
otherwise made of record his position thereon. STIcEA

While conceding that petitioner UBP is not precluded from questioning

the validity of the 4 May 2000 Suspension Order on the basis of res judicata,
it is, however, barred from doing so by the principle of law of the case.
When the validity of such interlocutory order has already been passed upon
on appeal, the Decision of the Court on appeal becomes the law of the case
between the same parties. Law of the case has been defined as "the
opinion delivered on a former appeal. More specifically, it means that
whatever is once irrevocably established as the controlling legal rule of
decision between the same parties in the same case continues to be the law
of the case, whether correct on general principles or not, so long as the facts
on which such decision was predicated continue to be the facts of the case
before the court." 26 Hence, that the 4 May 2000 Suspension Order is valid,
as we already upheld in G.R. No. 153830, is the controlling legal rule of
decision between petitioner UBP and respondent ASBDC in the Petition at
bar. The same is true, whether the decision of this Court in G.R. No. 153830
was correct on general principles or not, and without a showing by petitioner
UBP that the facts on which G.R. No. 153830 was predicated are no longer
the same facts of the case presently before us. cAaETS

Power of petitioner UBP to

foreclose the mortgaged property
Finally, petitioner UBP claims that the Court of Appeals erred in ruling
that petitioner UBP had no power to institute extrajudicial foreclosure of the
mortgage on the properties of respondent ASBDC securing the MTI and
supplemental indentures. Petitioner UBP claims that under Section 7.16 of
Article VII of the MTI, it had the right to initiate foreclosure proceedings.
While it is true that said provision of the MTI confers on any Holder of
Participation Certificates, i.e., any of the creditor-mortgagor banks, the right
to initiate foreclosure proceedings, such right is the exception rather than
the rule and is subject to specific conditions. As provided under Sections
7.04, 7.05, 7.06 and 7.12 of Article VII of the MTI, it is RCBC, as the
designated Trustee of the creditor-mortgagor banks under the MTI, which is
vested with the primary authority to extrajudicially foreclose the mortgaged
properties. The Holders of Participation Certificates are given the right to
foreclose the mortgaged property as against the primary authority of RCBC
only if the conditions under Section 7.16 of Article VII of the MTI are met.
Section 7.16 of the MTI provides: SDHAcI

Section 7.16. Any HOLDER OF PARTICIPATION CERTIFICATES

shall have the right to institute any action or proceeding for the
foreclosure of this INDENTURE, or for the appointment of a receiver,
or for the exercise of any trust or power conferred upon the TRUSTEE
or the prosecution of any remedy available to the TRUSTEE, under
this INDENTURE, PROVIDED, however, that such HOLDER shall have
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 previously given to the TRUSTEE written notice of the Event of Default
on which the HOLDERS of not less than 51% of the total outstanding
FACE AMOUNT of the PARTICIPATION CERTIFICATES shall have made
WRITTEN REQUEST to the TRUSTEE and shall have given it a
reasonable period of time either to proceed to exercise the powers
conferred by this INDENTURE or to institute such action, suit or
proceeding in its own name, it being understood and intended that
no one or more HOLDERS of the PARTICIPATION CERTIFICATES shall
have any right in any manner whatsoever to affect, disturb, or
prejudice the lien of this INDENTURE by its or their action or to
enforce any right hereunder except in the manner herein
provided or to the extent allowed by law and that all proceedings
may only be instituted and maintained and all trusts, powers or
remedies of the TRUSTEE exercised by any HOLDER of PARTICIPATION
CERTIFICATES availing to the provisions of this Section in the
manner herein provided and for the pari-passu benefit of all the
holders of the PARTICIPATION CERTIFICATES then outstanding.
(Emphases supplied.) cTECHI

Thus, as a general rule, the following circumstances must be present in

order that the Holders of Participation Certificates may directly exercise the
authority to foreclose mortgaged properties: (1) an event of default by
respondent ASBDC occurs; (2) Holders of not less than 51% of the total
outstanding face amount of the Participation Certificates have made a
written request to RCBC as the trustee that would exercise the powers
conferred upon them by the MTI or institute proceedings under their own
names; and (3) RCBC as the trustee is given a reasonable time to act on the
Holders' written request but fails to do so. It is noted that Section 7.16 of the
MTI even emphasized that the Holders of Participation Certificates may
exercise their right to institute any action or proceeding for the foreclosure
of mortgage only in the manner provided therein.
The Court of Appeals explicitly found that petitioner UBP did not meet
the first two of the conditions set forth in Section 7.16 of the MTI. According
to the Court of Appeals, the failure of respondent ASBDC to pay its obligation
under the MTI and supplemental indentures is legally justified by the
issuance of the Order dated 4 May 2000 suspending all claims against
respondent ASBDC and the subsequent approval of respondent's
Rehabilitation Plan on 26 April 2001 by the SEC Hearing Panel. It further held
that petitioner UBP failed to establish that Holders of at least 51% of the total
outstanding face amount of the Participation Certificates had given their
written request to RCBC as trustee to exercise their powers under the MTI or
institute proceedings under their own names. IEHScT

Petitioner UBP does not dispute the factual finding by the Court of
Appeals that there was non-compliance with the requirement that the
Holders of at least 51% of the total outstanding face amount of the
Participation Certificates should have given their written request to RCBC as
trustee to exercise their powers conferred by the MTI or institute
proceedings under their own name. Petitioner UBP, however, maintains that
there was an Event of Default, particularly described under Section 7.01 (e)
as follows:
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 Section 7.01. The COMPANY and TIFFANY shall, without the
necessity of demand, be in default under this INDENTURE upon the
occurrence of any one or more of the following events:

xxx xxx xxx

e. The COMPANY and/or TIFFANY shall file a petition for

voluntary bankruptcy, or shall consent to the filing of any such
petition, or shall consent to the appointment of a trustee or receiver
for the COMPANY and/or TIFFANY for all or any part of its properties,
or shall file a petition or answer seeking reorganization or
arrangement under any law or statute of the Republic of the
Philippines for the relief or aid of the debtor or shall consent to the
filing of any such petition, or shall file a petition to take advantage of
the debtor's act. 27EDISaA

Petitioner UBP then reasons that Section 7.04 of the MTI authorizes the
foreclosure of the mortgaged properties of respondent ASBDC even without
the written request of the Holders of 51% of the total outstanding face
amount of the Participation Certificates, provided that the Event of Default is
under Section 7.01 (c) or (e) of the MTI. Section 7.04 reads:
Section 7.04. Except in clauses (c) and (e) of Section 7.01 ,
no foreclosure of the MORTGAGED PROPERTY or any part thereof may
be made unless (i) an Event of Default has occurred as provided for in
Section 7.01 and (ii) the HOLDERS of at least 51% of the total
outstanding FACE AMOUNT of the PARTICIPATION CERTIFICATES shall
have given written instructions to the TRUSTEE to foreclose. The
TRUSTEE, within five (5) working days after its receipt of written
instructions to foreclose as provided above, shall give written notice
to the COMPANY [respondent corporation] that it is foreclosing on the
MORTGAGED PROPERTY or any part thereof and shall furnish the
other HOLDERS of PARTICIPATION CERTIFICATES who did not give
instructions to foreclose, and the TRUSTEE shall have the right and
power to foreclose immediately on all the MORTGAGED PROPERTY or
any part thereof for all the credits secured by this INDENTURE,
judicially or extrajudicially, in accordance with Philippine laws and
this INDENTURE. 28 AIaSTE

Petitioner UBP is partially correct on this point. There was indeed an

Event of Default under Section 7.01 (e) of the MTI when respondent ASBDC
filed a Petition for Rehabilitation with the SEC and consented to the
appointment of a Receiver; and pursuant to the plain wording of Section 7.04
of the MTI, a foreclosure of the mortgaged properties or a part thereof may
be had under the circumstances even without the written request of the
Holders of at least 51% of the outstanding face amount of Participation
Certificates.
Despite having the authority to foreclose the mortgaged properties
under the MTI, the extrajudicial foreclosure initiated by petitioner UBP,
nevertheless, remains invalid for being a blatant violation of the 4 May 2000
Order of the SEC Hearing Panel suspending all claims against respondent
ASBDC. The 4 May 2000 Suspension Order of the SEC Hearing Panel, the
validity of which is now unquestionable, likewise suspends the exercise by
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 petitioner UBP of its right under Section 7.04 of the MTI. The 4 May 2000
Order suspended "all actions or claims against pending or still to be filed
before any tribunal, office, board, body, and/or Commission against ASB
Group of Companies". 29 Section 1-1 of Rule I of the Rules of Procedure on
Corporate Recovery states that the term claim "shall include all claims or
debts of whatever character against a debtor or its property, whether
secured or unsecured", and under which definition clearly falls the obligation
of respondent ASBDC to petitioner UBP. SCEDAI

WHEREFORE, the Petition is DENIED. The Decision dated 31 May 2005

and Resolution dated 31 May 2006 of the Court of Appeals in CA-G.R. SP No.
85780 are AFFIRMED. Costs against petitioner.
SO ORDERED.
Ynares-Santiago, Austria-Martinez, Nachura and Reyes, JJ., concur.

Footnotes

1. Penned by Associate Justice Bienvenido L. Reyes with Associate Justices

Godardo A. Jacinto and Rosalinda Asuncion-Vicente, concurring; rollo, pp. 72-
91. TcSaHC

2. Rollo, p. 90.

3. Id. at 227.
4. REORGANIZATION OF THE SECURITIES AND EXCHANGE COMMISSION WITH
ADDITIONAL POWERS AND PLACING THE SAID AGENCY UNDER THE
ADMINISTRATIVE SUPERVISION OF THE OFFICE OF THE PRESIDENT.

5. Rollo, p. 227.
6. SECTION 3-12. Technical Insolvency of Petitioner. — If it is established that the
inability of the petitioner to pay, although temporary, will last for a period
longer than one (1) year from the filing of the petition, the petitioner shall be
considered technically insolvent and the petition shall be dismissed
accordingly.
7. SECTION 3-13. Supervening Insolvency or Violation of Suspension Order. — If at
any time during the pendency of the proceedings, the petitioner has become
or is shown to be insolvent, whether actual or technical, or that it has
violated any of the conditions of the suspension order, or has failed to make
payments on its obligations in accordance with the approved Repayment
Schedule, the Commission shall terminate the proceedings and dismiss the
petition. Instead of terminating the proceedings, however, the Commission
may, upon motion, treat the petition as one for rehabilitation of the debtor.
Thereupon, the pertinent provisions of the succeeding Rule shall govern the
proceedings. ECaScD

8. SECTION 3-4. Effect of Filing of Petition. — Upon the filing of the petition, an
order shall be issued by the Commission suspending all actions and
proceedings to enforce payment of all claims against the petitioner for a
period of thirty (30) days from the issuance thereof but enjoining the
petitioner during such period from selling, encumbering or transferring any of
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 its properties in any manner or for whatever purpose, or from making any
payment or any application thereof without the approval of the Commission.
The order shall be automatically vacated upon the lapse of the said period
unless extended or the period is granted. Its life may be extended only upon
proof that petitioner will suffer irreparable injury unless so extended. In any
event, the total period of the extension allowed may not exceed six (6)
months. cdasia

9. SECTION 3-8. Suspension Order. — If, after hearing, the solvency of the
petitioner and the temporary inability to pay are established, the
Commission shall issue an order suspending payment of all claims against
the petitioner, and all actions and proceedings to enforce the same, during
the period of temporary inability which in no case shall exceed one (1) year
from the filing of the petition. The order shall also direct the petitioner to
resume payment of its obligations upon the lapse of said period in
accordance with the Repayment Schedule approved by the Commission. The
order may impose on the petitioner such terms and conditions as are
necessary for the protection of the creditors and shall cover all actions for
the recovery of the property being used by the petitioner in the normal
course of its business operations even though such property belongs to a
creditor.

In any event, the petition shall be deemed ipso facto denied and dismissed if
no decision was taken thereon by the Commission after the lapse of two
hundred and forty (240) days from the filing thereof. In such case, all orders
issued in the proceedings are deemed automatically vacated. CSDcTA

10. SECTION 4-4. Effect of Filing of the Petition. — Immediately upon the filing of a
petition, the Commission shall issue an Order (a) appointing an Interim
Receiver and fixing his bond; (b) suspending all actions and proceedings for
claims against the debtor; (c) prohibiting the debtor from selling,
encumbering, transferring or disposing in any manner any of its properties
except in the normal course of business in which the debtor is engaged; (d)
prohibiting the debtor from making any payment of its liabilities outstanding
as of the date of the filing of the petition; . . . .

11. SECTION 5-1. Creation of a Management Committee. — Upon agreement of the

parties, or upon showing that there is imminent danger of dissipation, loss,
wastage or destruction of the debtor's assets or those in its legal possession,
or paralyzation of its business operations, the Commission may create a
management committee for the debtor at any time during, the pendency of
the petition for suspension of payments or for rehabilitation.

12. CA rollo, pp. 109-119. HAEDIS

13. Id. at 524.

14. SEC Rules of Procedure on Corporate Recovery, Rule IV, Section 4-21.

15. Rollo, p. 398.

16. Section 3-12. Technical Insolvency of Petitioner. — If it is established that the
inability of the petitioner to pay, although temporary, will last for a period
longer than one (1) year from the filing of the petition, the petitioner shall be
considered technically insolvent and the petition shall be dismissed
accordingly. CSDcTA

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 17. Section 3-13. Supervening Insolvency or Violation of Suspension Order. — If at
any time during the pendency of the proceedings, the petitioner has become
or is shown to be insolvent, whether actual or technical, or that it has
violated any of the conditions of the suspension order, or has failed to make
payments on its obligations in accordance with the approved Repayment
Schedule, the Commission shall terminate the proceedings and dismiss the
petition. Instead of terminating the proceedings, however, the Commission
may, upon motion, treat the petition as one for rehabilitation of the debtor.
Thereupon the pertinent provisions of the succeeding Rule shall govern the
proceedings. CTAIHc

18. When the petitioning corporation is unable to pay its debts for a period longer
than one year.

19. SECTION 4-1. Who May Petition. — A debtor which is insolvent because its
assets are not sufficient to cover its liabilities, or which is technically
insolvent under Section 3-12 of these Rules, but which may still be rescued
or revived through the institution of some changes in its management,
organization, policies, strategies, operations, or finances, may petition the
Commission to be placed under rehabilitation. HASDcC

Any of the creditors or stockholders of the debtor may file the petition on its
behalf.

20. SEC Rules of Procedure on Corporate Recovery, Rule III, Section 3-12.

21. Reyes v. Court of Appeals, 328 Phil. 171, 179 (1996); Manila Bay Club
Corporation v. Court of Appeals, 315 Phil. 805, 820 (1995). SDEHIa

22. Id.

23. G.R. No. 166197, 27 February 2007, 517 SCRA 1.

24. De Knecht v. Court of Appeals, 352 Phil. 833, 847 (1998).

25. G.R. No. L-47968, 9 May 1988, 161 SCRA 167, 171-172.
26. People v. Pinuila, 103 Phil. 992, 999 (1958).

27. Rollo, pp. 116-117.

28. Id. at 117. acAESC

29. CA rollo, p. 108.

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