Town and Country Enterprises, Inc. vs. Hon. Norberto J. Quisumbing, and Town and Country Enterprises, Inc. vs. Metropolitan Bank and Trust Co.

G.R. No. 173610 and G.R. No. 174132, October 1, 2012 (consolidated petitions)

(Corporate Rehabilitation Proceedings, Stay Order, Foreclosure of Mortgage, Writ of Possession)

This case defines the procedure in corporate rehabilitation initiated by the debtor vis-a-vis a motion for writ of possession in a mortgage foreclosure filed by the creditor.

FACTS

Town and Country Enterprises, Inc. (TCEI) borrowed P12 million  from Metrobank, and said loan was secured by a mortgage over 20 parcels of land. Unable to pay upon demand, TCEI lost the properties to Metrobank due to foreclosure and auction. When TCEI held on to the properties, Metrobank asked the Regional Trial Court (RTC) to issue a writ of possession in the bank's favor. Meanwhile, in a separate corporate rehabilitation proceeding, TCEI successfully asked the Securities and Exchange Commission (SEC) for a stay order on the payment of its obligations. Based on that stay order, TCEI asked the RTC which is hearing the writ of possession case to suspend the said proceedings, which the RTC granted. On review by the Court of Appeals, the latter reversed the decision and ordered the RTC to continue with the writ of possession case. The RTC later granted Metrobank's petition and issued a writ of possession. On appeal, the Court of Appeals affirmed the RTC's decision, after which TCEI's land titles were then cancelled in exchange for new titles in the name of Metrobank. TCEI sought remedy before the SEC, the rehabilitation court which had earlier issued the stay order, to annul the said cancellation and transfer of titles, but the SEC denied TCEI's petition. On review, the Court of Appeals agreed with the SEC.

ISSUES

1.) Is the granting of the Writ of Possession by the RTC in favor of Metrobank valid, in view of the stay order issued by the SEC in the rehabilitation proceeding?

2.) Can the register of deeds transfer the titles to Metrobank in view of the said stay order?

RULING

1.) Yes, the granting of the Writ of Possession is valid because the subject properties are no longer within the scope of the corporate rehabilitation proceeding.

The purpose of corporate rehabilitation is to enable an insolvent company to gain a new lease on life and eventually pay its loans. To allow this to happen, a stay order is issued to defer all present claims against the company until the time of its projected recovery. In this case, however, Metrobank had already acquired ownership over the mortgaged parcels of land when TCEI started its petition for corporate rehabilitation. No doubt Metrobank acquired ownership over the properties when TCEI failed to redeem these within the three-month period prescribed by Section 47 of Republic Act 8791.

It does not matter, then, if Metrobank only had the certificate of sale registered before the Deed of Registry a couple of months later, and had consolidated its ownership over a year later. "The mortgagor loses all interest over the foreclosed property after the expiration of the redemption period and the purchaser becomes the absolute owner thereof when no redemption is made."

Thus, having acquired ownership of the said properties, Metrobank can simply file an ex-parte motion for issuance of the writ of possession - "the issuance of which has been held to be a ministerial function which cannot be hindered by an injunction or an action for the annulment of the mortgage or the foreclosure itself." There is an exception to this rule, however, and that is where the property is held by a third party claiming a right adverse to that of the judgment debtor. But, on the other hand, the rehabilitation receiver's claim is far from adverse. He is an officer of the court who is appointed to protect the interests of TCEI's investors and creditors, not the interests of TCEI per se or its officers and directors.

2.) It follows then that the register of deeds can transfer the titles to Metrobank. "Upon failure to redeem foreclosed realty, consolidation of title becomes a matter of right on the part of the auction buyer, and the issuance of a certificate of title in favor of the purchaser becomes ministerial upon the Register of Deeds."

Finally, proceedings in corporate rehabilitation cases are summary and non-adversarial, and do not impair the debtor's contracts or diminish the status of preferred creditors. Thus, the stay order, which only suspends the enforcement of all claims, cannot be held to extend to the period not within its scope. In this case, there was no more claim by Metrobank to speak of because the bank had already acquired ownership over the subject properties prior to the issuance of the stay order.

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