METROPOLITAN BANK AND TRUST COMPANY VS. S.F.
NAGUIAT
ENTERPRISES, INC.
G.R. No. 178407, March 18, 2015 LEONEN
SUMMARY
This case calls for the determination of whether the approval and consent of the
insolvency court is required under Act No. 1956, otherwise known as the Insolvency
Law, before a secured creditor like petitioner Metropolitan Bank and Trust Company
can proceed with the extrajudicial foreclosure of the mortgaged property. Sometime
in April 1997, Spouses Rommel Naguiat and Celestina Naguiat and S.F. Naguiat
Enterprises, Inc. (S.F. Naguiat) executed a real estate mortgage in favor of
Metropolitan Bank and Trust Company (Metrobank) to secure certain credit
accommodations obtained from the latter amounting to P17 million. S.F. Naguiat
represented by Celestina T. Naguiat, Eugene T. Naguiat, and Anna N. Africa obtained
a loan from Metrobank in the amount of P1,575,000.00. The loan was likewise
secured by the 1997 real estate mortgage by virtue of the Agreement on Existing
Mortgage(s) executed between the parties. S.F. Naguiat filed a Petition for Voluntary
Insolvency with Application for the Appointment of a Receiver pursuant to Act No.
1956, as amended, before the RTC of Angeles. Among the assets declared in the
Petition was one of the properties mortgaged to Metrobank. RTC judge issued an
order declaring S.F. Naguiat insolvent; directing the Deputy Sheriff to take possession
of all the properties of S.F. Naguiat until the appointment of a receiver/assignee; and
forbidding payment of any debts due, delivery of properties, and transfer of any of its
properties.] In lieu of a Comment, Metrobank filed a Manifestation and Motion
informing the court of Metrobank's decision to withdraw from the insolvency
proceedings because it intended to extrajudicially foreclose the mortgaged property
to satisfy its claim against S.F. Naguiat. Subsequently, S.F. Naguiat defaulted in
paying its loan. Metrobank instituted an extrajudicial foreclosure proceeding against
the mortgaged property and sold the property at a public auction to Phoenix Global
Energy, Inc., the highest bidder. Afterwards, Sheriff Claude B. Balasbas prepared the
Certificate of Sale and submitted it for approval to Clerk of Court Vicente S.
Fernandez, Jr. and Executive Judge Bernardita Gabitan-Erum (Executive Judge
Gabitan-Erum). However, Executive Judge Gabitan-Erum issued the order
denying her approval of the Certificate of Sale in view of the July 12, 2005
Order issued by the insolvency court. CA rendered its Decision dismissing the
Petition on the basis of Metrobank's failure to "obtain the permission of the
insolvency court to extrajudicially foreclose the mortgaged property. CA declared
that "a suspension of the foreclosure proceedings is in order, until an assignee [or
receiver,] is elected or appointed [by the insolvency court] so as to afford the
insolvent debtor proper representation in the foreclosure [proceedings]." Hence, the
present Petition for Review was filed. Petitioner contends that the Court of Appeals
decided questions of substance in a way not in accord with law and with the
applicable decisions of this court. SC found that the petition has no merit.
DOCTRINE:
Petitioner argues that nowhere in Act No. 1956 does it require that a secured creditor
must first obtain leave or permission from the insolvency court before said creditor
can foreclose on the mortgaged property. It adds that this procedural requirement
applies only to civil suits, and not when the secured creditor opts to exercise the right
to foreclose extrajudicially the mortgaged property under Act No. 3135, as amended,
because extrajudicial foreclosure is not a civil suit. Thus, the Court of Appeals
allegedly imposed a new condition that was tantamount to unauthorized judicial
legislation when it required petitioner to file a Motion for Leave of the insolvency
court. Nonetheless, petitioner contends that the filing of its Manifestation before the
insolvency court served as sufficient notice of its intention and, in effect, asked the
court's permission to foreclose the mortgaged property. [Court looked into history of
insolvency] Act No. 1956 impliedly requires a secured creditor to ask the permission
of the insolvent court before said creditor can foreclose the mortgaged property.
When read together, the following provisions of Act No. 1956 reveal the necessity
for leave of the insolvency court. Here, the foreclosure and sale of the mortgaged
property of the debtor, without leave of court, contravene the provisions of Act No.
1956 and violate the Order dated July 12, 2005 of the insolvency court which
declared S.F. Naguiat insolvent and forbidden from making any transfer of any of its
properties to any person.
Executive Judge Gabitan-Erum did not unlawfully neglect to perform her duty when
she refused to approve and sign the Certificate of Sale, as would warrant the
issuance of a writ of mandamus against her. An executive judge has the
administrative duty in extrajudicial foreclosure proceedings to ensure that all the
conditions of Act No. 3135 have been complied with before approving the sale at
public auction of any mortgaged property. Furthermore, Act No. 3135 outlines the
notice and publication requirements and the procedure for the extrajudicial
foreclosure which constitute a condition sine qua non for its validity. There was a
valid reason for Executive Judge Gabitan-Erum to doubt the propriety of the
foreclosure sale. Her verification with the records of the Clerk of Court showed that a
Petition for Insolvency had been filed and had already been acted upon by the
insolvency court prior to the application for extrajudicial foreclosure of the mortgaged
properties. Among the inventoried unpaid debts and properties attached to the
Petition for Insolvency was the loan secured by the real estate mortgage subject of
the application for extrajudicial foreclosure sale. With the pendency of the insolvency
case, substantial doubt exists to justify the refusal by Executive Judge Gabitan-Erum
to approve the Certificate of Sale as the extrajudicial foreclosure sale without leave
of the insolvency court may contravene the policy and purpose of Act No. 1956. Act
No. 3135 is silent with respect to mortgaged properties that are in custodia legis,
such as the property in this case, which was placed under the control and supervision
of the insolvency court. This court has declared that "[a] court which has control of
such property, exercises exclusive jurisdiction over the same, retains all incidents
relative to the conduct of such property. No court, except one having supervisory
control or superior jurisdiction in the premises, has a right to interfere with and
change that possession." The extrajudicial foreclosure and sale of the mortgaged
property of the debtor would clearly constitute an interference with the insolvency
court's possession of the property.
