G.R. No. 211287, 17 April 2017

FACTS:

West Bay Colleges, Inc. (West Bay) is a domestic corporation engaged in the operation of an educational institution; while PBR Management and Development Corporation (PBR) and BCP: Trading Company, Inc. (BCP) are domestic corporations engaged in the business of real estate and construction, respectively. Together, West Bay, PBR and BCP form the Chiongbian Group of Companies (CGC) (respondents).

In June 1996, West Bay applied for an interim financing with Land Bank for the construction of a school building, which was approved in the amount of P125 Million. On December 22, 1997, PBR availed of a P100-Million Term Loan from Land Bank for the construction of condominium buildings.

On January 22, 1998, West Bay, as an accommodation mortgagor, executed a Real and Chattel Mortgage over its training vessel to secure the loan of PBR with Land Bank. The vessel was insured with First Lepanto Taisho Insurance Corporation in the amount of P26 Million, representing the mortgagee Land Bank’s insurable interest in the vessel. On November 3, 2000, the mortgaged vessel sank during the typhoon Seniang. By agreement of the parties, insurance proceeds in the amount of P21,980,000.00 net of shared expenses were released to Land Bank on account of PBR’s loan.

To resolve its financial difficulties, West Bay proposed a restructuring of its debts with Land Bank, which the latter accepted through a letter dated March 25, 2002.10 It was provided therein that Land Bank will reimburse West Bay with the insurance proceeds that it had previously received. Subsequently, on May 10, 2002, West Bay and PBR executed their respective Restructuring Agreements with Land Bank.

But on June 28, 2002, the respondents filed a petition for corporate rehabilitation with a prayer for suspension of payments before the Regional Trial Court (RTC) of Muntinlupa City.12 The RTC Branch 256 issued a Stay Order dated July 10, 2002 directing, among others, a stay in the enforcement of all claims against West Bay, its guarantors and sureties not solidarily liable with it, particularly, PBR and BCP

On September 30, 2013, the CA promulgated a Decision,29 setting aside the RTC order. Per the CA’s findings, Land Bank did not apply the insurance proceeds to the remaining obligations of West Bay, PBR or BCP as there was no statement of the settlement of the insurance proceeds in the context of the restructured loan. Granting that West Bay and PBR failed to comply with the requirements of the restructured loan, it was because they were prohibited from paying any of their outstanding liabilities when the Stay Order took effect. Petitioner filed a motion for reconsideration but was denied.

ISSUE:

Whether or not West Bay is entitled to the reimbursement of the P 21,980,000.00 insurance proceeds and whether such right has been clearly and fully established in the modified rehabilitation plan?

RULING:

No.

As the CA pointed out, despite several amendments to the rehabilitation plan which repeatedly provided for the application of the insurance proceeds to the debts of West Bay, then to PBR and BCP, there is no showing that Land Bank applied the amount thereof to the aforementioned loans. The Court is inclined to uphold this finding – for if Land Bank had in fact deducted the amount of the insurance proceeds from the loan obligations of either West Bay or PBR and BCP, this information would have reflected on the rehabilitation plans of the CGC.

In other words, if the insurance proceeds were indeed applied to West Bay’s and PBR’s account in January and June 2002 as Land Bank espoused, then P21,980,000.00 should have been subtracted from the obligations of the said companies. Verily, Land Bank negated its own claim when it failed to present evidence of reduction in the outstanding balances of the respondents, whether singly or collectively.

Also, a belated application of the insurance proceeds to the obligations of West Bay or PBR and BCP would violate the Stay Order dated July 10, 2002 issued by the RTC. Section 6 of Rule 4 of the 2000 Interim Rules of Procedure on Corporate Rehabilitation, which was in force at the time of the filing of the petition for corporate rehabilitation, provides:

SEC. 6. Stay Order. – If the court finds the petition to be sufficient in form and substance, it shall, not later than five (5) days from the filing of the petition, issue an Order (a) appointing a Rehabilitation Receiver and fixing his bond; (b) staying enforcement of all claims, whether for money or otherwise and whether such enforcement is by court action or otherwise, against the debtor, its guarantors and sureties not solidarily liable with the debtor; (c) prohibiting the debtor from selling, encumbering, transferring, or disposing in any manner any of its properties except in the ordinary course of business; ; (d) prohibiting the debtor from making any payment of its liabilities outstanding as at the date of filing of the petition; (e) prohibiting the debtor’s suppliers of goods or services from withholding supply of goods and services in the ordinary course of business for as long as the debtor makes payments for the services and goods supplied after the issuance of the stay order; (f) directing the payment in full of all administrative expenses incurred after the issuance of the stay order; (g) fixing the initial hearing on the petition not earlier than forty-five (45) days but not later than sixty (60) days from the filing thereof; (h) directing the petitioner to publish the Order in a newspaper of general circulation in the Philippines once a week for two (2) consecutive weeks; (i) directing all creditors and all interested parties (including the Securities and Exchange Commission) to file and serve on the debtor a verified comment on or opposition to the petition, with supporting affidavits and documents, not later than ten (10) days before the date of the initial hearing and putting them on notice that their failure to do so will bar them from participating in the proceedings; and (j) directing the creditors and interested parties to secure from the court copies of the petition and its annexes within such time as to enable themselves to file their comment on or opposition to the petition and to prepare for the initial hearing of the petition.

*Case Digest by Mary Tweetie Antonette G. Semprun, JD – IV, Andres Bonifacio College, SY 2019 – 2020