IN RE: PETITION FOR DECLARATION OF INSOLVENCY OF [A] FILAND MANUFACTURING AND ESTATE DEVELOPMENT COMPANY; [B] TOP CONSTRUCTION ENTERPRISES, INC.; AND [C] SPOUSES EMILIO CHING AN…

Land Bank of the Philippines versus Filand Manufacturing and Estate Development Company

The Case

This is a petition for review on certiorari brought by the Land Bank of the Philippines against Filand Manufacturing and Estate Development Company, Top Construction Enterprises, and the spouses Emilio Ching and Inai Teh. The bank challenges the jurisdiction of the Regional Trial Court of Pasay City over a petition for declaration of insolvency filed by these private respondents. The case matters because it draws the boundary line between the regular courts and the Securities and Exchange Commission in insolvency and suspension of payments proceedings, a question of far reaching legal and economic importance.

Procedural History

The bank first sued the private respondents for recovery of a loan before the Regional Trial Court of Manila. While that collection suit was pending, the private respondents filed a petition for declaration of insolvency before the Regional Trial Court of Pasay City. That court issued an Order of Adjudication declaring them insolvent under the Insolvency Law, and later issued an Order upholding its own jurisdiction and appointing the bank as assignee for the creditors. The bank declined the appointment, and the City Treasurer of Pasay City was appointed in its stead. The bank then filed a Notice of Appeal and a Record on Appeal, and the trial court forwarded the records directly to the Supreme Court. The Supreme Court required explanations as to why the records were forwarded in that manner, then directed the bank to file a petition for review on certiorari and to pay the docket and legal research fund fees, which the bank did. The Court gave the petition due course, impleaded the Securities and Exchange Commission, and heard the case with an amicus curiae.

Facts

On September 19, 1980, Filand Manufacturing and Emilio Ching obtained from the Land Bank of the Philippines a loan of Ten Million Pesos. The private respondents failed to pay on the due date, so the bank filed a collection suit before the Regional Trial Court of Manila.

While that suit was pending, on December 29, 1984, Filand Manufacturing, the spouses Emilio Ching and Inai Teh, and Top Construction Enterprises filed before the Regional Trial Court of Pasay City a petition for declaration of insolvency. They cited their inability to pay their various debts, brought about by a fire in January 1984 that gutted the Holiday Plaza Building owned and operated by Filand Manufacturing, and by the economic crisis that followed the assassination of former Senator Benigno Aquino in 1983.

On January 29, 1985, the trial court issued an Order of Adjudication declaring the private respondents insolvent under Section 18 of the Insolvency Law. The bank moved for reconsideration, arguing that the court had no jurisdiction over the petition insofar as the petitioning corporations were concerned. The trial court denied the motions and upheld its jurisdiction. It later rendered a decision declaring the corporations insolvent and declaring the spouses Emilio Ching and Inai Teh insolvent and discharged from their liabilities. The Supreme Court issued a temporary restraining order, later lifted as to the spouses, who are natural persons.

Issues

• Whether or not the Regional Trial Court has jurisdiction over a petition for declaration of insolvency filed by private corporations, or whether that jurisdiction belongs exclusively to the Securities and Exchange Commission.
• Whether or not the provisions of Presidential Decree Number 902-A, as amended, repealed the Insolvency Law and transferred insolvency jurisdiction to the Securities and Exchange Commission.

Applicable Provisions

Section 5, paragraph (d) of Presidential Decree Number 902-A, as amended by Presidential Decree Number 1758, provides:

Petitions of corporations, partnerships or associations to be declared in the state of suspension of payments in cases where the corporation, partnership or association possesses sufficient property to cover all its debts but foresees the impossibility of meeting them when they respectively fall due or in cases where the corporation, partnership or association has no sufficient assets to cover its liabilities, but is under the management of a Rehabilitation Receiver or Management Committee created pursuant to this Decree.

This is the provision the bank invoked to claim that insolvency jurisdiction had shifted to the Securities and Exchange Commission, and the Court read its qualifying phrase as confining that jurisdiction.

Section 14 of the Insolvency Law, Act Number 1956, provides:

An insolvent debtor, owing debts exceeding in amount the sum of one thousand pesos, may apply to be discharged from his debts and liabilities by petition to the Court of First Instance of the province or city in which he has resided for six months next preceding the filing of such petition. In his petition, he shall set forth his place of residence, the period of his residence therein immediately prior to filing said petition, his inability to pay all his debts in full, his willingness to surrender all his property, estate, and effects not exempt from execution for the benefit of his creditors, and an application to be adjudged an insolvent. He shall annex to his petition a schedule and inventory in the form hereinafter provided. The filing of such petition shall be an act of insolvency.

This is the law the Court held applicable to a corporation that seeks a declaration of insolvency rather than a mere suspension of payments.

Ruling

On the first issue, the Court ruled that the regular court has exclusive and original jurisdiction over petitions for declaration of insolvency of private corporations. The Securities and Exchange Commission is a tribunal of limited jurisdiction and may wield only the powers specifically granted to it by its enabling statute, and its jurisdiction is interpreted strictly. The Court held that the Commission may entertain such petitions only as an incident of, and in continuation of, jurisdiction it has already acquired over a petition for suspension of payments.

On the second issue, the Court held that there was no repeal of the Insolvency Law. The jurisdiction of the Commission over a corporation with no sufficient assets to cover its liabilities is qualified by the conjunctive phrase in Section 5, paragraph (d), which the Court quoted:

but is under the management of a Rehabilitation Receiver or Management Committee created pursuant to this Decree.

That qualification circumscribes the Commission's jurisdiction over insolvent corporations. The Court also held that the powers granted under Section 6, paragraphs (c) and (d) of the same decree are merely ancillary powers, exercisable only in connection with an action pending before the Commission, and do not enlarge its original and exclusive jurisdiction. Finally, the Court applied the rule that repeals by implication are not favored, and that statutes in pari materia, meaning statutes on the same subject matter, should be construed together so that effect may be given to every provision of each.

Doctrine

Jurisdiction over petitions for declaration of insolvency of private corporations belongs to the regular courts under the Insolvency Law. The Securities and Exchange Commission has original and exclusive jurisdiction only over petitions to be declared in a state of suspension of payments, and over insolvent corporations only when they are already under a rehabilitation receiver or management committee created under Presidential Decree Number 902-A. A corporation that has no sufficient assets to cover its liabilities, is not under such a receiver or committee, and seeks a declaration of insolvency rather than a mere suspension of payments falls under Section 14 of the Insolvency Law. Repeals by implication are not favored, and the ancillary powers of the Commission do not enlarge its jurisdiction.

Disposition

The Supreme Court denied the petition for review on certiorari and lifted the temporary restraining order, with no pronouncement as to costs, thereby sustaining the jurisdiction of the Regional Trial Court of Pasay City.

Remember This

The one line to memorize is that insolvency of a corporation is for the regular court, while suspension of payments is for the Securities and Exchange Commission, which reaches insolvency only as an incident of a receivership or management committee it has already created. Examiners use this case to test the limits of the Commission's jurisdiction and the rule against implied repeal.