FRIA: Rehabilitation – Sec.

4 (gg) having to exhaust all the properties of PhilPhos and without

Commencement order (including stay order) - Secs. 16, 17, Under a normal contract of guarantee, the guarantor binds
18, 20, 21 himself to the creditor to fulfill the obligation of the principal
debtor in case the latter should fail to do so. The guarantor
Doctrine: who pays for a debtor, in turn, must be indemnified by the
latter. However, the guarantor cannot be compelled to pay
The Stay Order issued by the Rehabilitation Court did not
the creditor unless the latter has exhausted all the property
preclude the RTC from hearing and deciding respondent
of the debtor and resorted to all the legal remedies against
PVB's Complaint.
the debtor. This is what is otherwise known as the benefit of
excussion. Conversely, if this benefit of excussion is waived,
First and foremost, it must be noted that the Stay Order
the guarantor can be directly compelled by the creditor to
relied upon by petitioner TIDCORP merely ordered the staying
pay the entire debt even without the exhaustion of the
and suspension of enforcement of all claims and proceedings
debtor's properties.
against the petitioner PhilPhos and not against all the other
persons or entities solidarily liable with the debtor. The tenor
In other words, a guarantor who engages
of the Stay Order itself belies the theory of petitioner
to directly shoulder the debt of the debtor, waiving the
TIDCORP. According to the Stay Order, the said order only
benefit of excussion and the requirement of prior
covers "all claims, actions, or proceedings against the
presentment, demand, protest or notice of any kind,
petitioner [referring to debtor PhilPhos]."
undoubtedly makes himself/herself solidarily liable to the
creditor.
Second, Section 18(c) of the FRIA explicitly states that a stay
order shall not apply "to the enforcement of claims against
In the instant case, without any shadow of doubt, petitioner
sureties and other persons solidarity liable with the debtor,
TIDCORP had expressly renounced the benefit of
and third party or accommodation mortgagors as well as
excussion and in no uncertain terms made itself directly and
issuers of letters of credit, x x x."
principally liable without any qualification to the Series A
Noteholders and without the need of any prior recourse to
In Situs Dev. Corporation, et al. v. Asiatrust Bank, et al.,30 the PhilPhos.
Court held that when a stay order is issued, the
rehabilitation court is only empowered to suspend claims Victorio Aquino v Pacific Plans
against the debtor, its guarantors, and sureties who are not
DOCTRINE: The court upheld the cram-down” power of the
solidarily liable with the debtor. Hence, the making of claims
Rehabilitation Court pursuant to Sec. 23 of FRIA which states
against sureties and other persons solidarily liable with the
that the court may approve a rehabilitation plan over the
debtor is not barred by a stay order.
opposition of creditors, holding a majority of the total
liabilities of the debtor if, in its judgment, the rehabilitation of
Thus, the question now redounds to whether the
the debtor is feasible and the opposition of the creditors is
abovementioned provision of the FRIA on the non-application
manifestly unreasonable.
of a stay order with respect to the enforcement of claims
against sureties and other persons solidarity liable with the                 Moreover, notwithstanding the rejection of the
debtor applies to petitioner TIDCORP. Rehabilitation Plan by the creditors, the court
may confirm the Rehabilitation Plan if all of the following
Upon a simple perusal of the Guarantee Agreement, to which circumstances are present:
petitioner TIDCORP readily admitted  it is bound, the answer
to the aforementioned question becomes a clear and  1. The Rehabilitation Plan complies with
unmistakable yes. Petitioner TIDCORP indubitably engaged the requirements specified in this Act;
to be solidarity liable with PhilPhos under the Guarantee
1. The rehabilitation receiver recommends
Agreement.
the confirmation of the Rehabilitation Plan;

The Guarantee Agreement unequivocally states that 2. The shareholders, owners or partners of the
petitioner TIDCORP waived its right of excussion under Article juridical debtor lose at least their controlling
2058 of the Civil Code and that, consequently, the Series A interest as a result of the Rehabilitation Plan; and
Noteholders can claim under the Guarantee
3. The Rehabilitation Plan would likely provide the
Agreement DIRECTLY against petitioner TIDCORP without
objecting class of creditors with compensation which
 has a net present value greater than that which they rehabilitation plan, now final and executory resulting from
would have received if the debtor were under the resolution of BPI v. Pryce Corporation docketed as G.R.
liquidation. No. 180316, binds all creditors including respondent China
Banking Corporation.
In approving the rehabilitation plan, the court shall ensure
that the rights of the secured creditors are not impaired. The Metrobank vs Naguiat
court shall also issue the necessary orders or processes for its
DOCTRINE:
immediate and successful implementation. It may impose
such terms, conditions, or restrictions as the effective Debtor filed for insolvency proceedings and subsequently
implementation and monitoring thereof may reasonably declared as an insolvent. After declaration, mortgagee
require, or for the protection and preservation of the foreclosed the property subject of the mortgage without
interests of the creditors should the plan fail.57 claim in the insolvency proceedings:
This legal precept is not novel and has, in fact, been According to SC, such forcolsure or sale needs approval of the
reinforced in recent decisions such as in Bank of the insolvency court.
Philippine Islands v. Sarabia Manor Hotel
Corporation,58 where the Court elucidated the rationale Act No. 1956 impliedly requires a secured creditor to ask the
behind Section 23, Rule 4 of the Interim Rules, thus: permission of the insolvent court before said creditor (even a
secured creditor) can foreclose the mortgaged property.
Among other rules that foster the foregoing policies, Section
23, Rule 4 of the Interim Rules of Procedure on Corporate (NOTE: ACT 1956 was the old insolvency law applicable prior
Rehabilitation (Interim Rules) states that a rehabilitation plan to the enactment of FRIA on July 18, 2010//which was what
may be approved even over the opposition of the creditors happened in this case).
holding a majority of the corporation’s total liabilities if there
With the declaration of insolvency of the debtor, insolvency
is a showing that rehabilitation is feasible and  the opposition
courts "obtain full and complete jurisdiction over all property
of the creditors is manifestly unreasonable . Also known as
of the insolvent and of all claims by and against [it.]" 94 It
the “cram-down” clause, this provision, which is currently
follows that the insolvency court has exclusive jurisdiction to
incorporated in the FRIA, is necessary to curb the majority
deal with the property of the insolvent. 95 Consequently, after
creditors’ natural tendency to dictate their own terms and
the mortgagor-debtor has been declared insolvent and the
conditions to the rehabilitation, absent due regard to the
insolvency court has acquired control of his estate, a
greater long-term benefit of all stakeholders. Otherwise
mortgagee may not, without the permission of the insolvency
stated, it forces the creditors to accept the terms and
court, institute proceedings to enforce its lien. In so doing, it
conditions of the rehabilitation plan, preferring long-term
would interfere with the insolvency court's possession and
viability over immediate but incomplete recovery.
orderly administration of the insolvent's properties.
In any case, the Interim Rules or the rules in effect at the time
On the other hand, unlike Act No. 1956, Republic Act
the petition for corporate rehabilitation was filed in 2004
No. 10142 provides secured creditor, however, is subject to
adopts the cram-down principle which “consists of two
the temporary stay of foreclosure proceedings for a period
things: (i) approval despite opposition and (ii) binding effect
of 180 days, upon the issuance by the court of the
of the approved plan x x x.”
Liquidation Order.

First, the Interim Rules allows the rehabilitation court to During the liquidation proceedings, the secured
“approve a rehabilitation plan even over the opposition of creditor may enforce the lien or foreclose on the property
creditors holding a majority of the total liabilities of the pursuant to applicable laws.
debtor if, in its judgment, the rehabilitation of the debtor is
feasible and the opposition of the creditors is manifestly
unreasonable.” AMLA

Land Bank v Artemio San Juan Jr.(nasa reviewer na)

Thus, the January 17, 2005 order approving the amended