BF HOMES, INCORPORATED, PETITIONER, VS. COURT OF APPEALS, ROSALINDA R. ROA AND VICENTE MENDOZA, RESPONDENTS.

Involved here are two petitions for review assailing the decision
of the Court of Appeals in CA-G.R. No. Sp 05411, entitled BF Homes, Inc. v.
Judge Tutaan, et al., dated June 6, 1986, as amended on October 22, 1986.

BF Homes, Inc. is a domestic corporation previously engaged in the business of developing and
selling residential lots and houses and other related realty matters.

On July 19, 1984,
BF contracted a loan from Rosalinda R. Roa and
Vicente Mendoza in the amount of P250,000.00 with
interest at the rate of 33% per annum payable after 32 days.  The obligation was embodied in a promissory
note and secured by two post-dated checks issued by BF in favor of the lenders.

On September 25, 1984, BF
filed a Petition for Rehabilitation and for a Declaration in a State of
Suspension of Payments under Sec. 5 (d) of P.D. No. 902-A with a prayer that
upon the filing of the petition and in the meantime, all claims against it for
any and all accounts or indebtedness be suspended, but allowing petitioner to
continue with its normal operations.  It
also asked for the approval of the proposed rehabilitation plan.

On October 17, 1984, Roa and Mendoza filed a complaint against BF with the Regional
Trial Court of Quezon City, docketed as Civil Case
No. Q-43104, for the recovery of the loan of P250,000.00,
with interest and attorney’s fees.  The
complaint also prayed for the
issuance of a writ of preliminary attachment against the properties of BF.

On October
22, 1984, the trial
court issued the writ against properties of BF sufficient to satisfy the
principal claim in the amount of P257,333.33.

In a motion dated October
25, 1984, BF moved
for the dismissal of the case for lack of jurisdiction, or at least for its
suspension in view of the pendency of SEC Case No.
002693.  It also asked for the lifting of
the writ of preliminary attachment.

The trial court denied
the motion to dismiss on November 20, 1984, and the motion for reconsideration on January
11, 1985.  Citing the case of DMRC Enterprises v. Este del Sol Mountain Reserves,
Inc.,^[1] the trial court held it had jurisdiction
because what was involved was not an intra-corporate or partnership dispute but
merely a determination of the rights of the parties arising out of the contract
of loan.

On February
13, 1985, BF filed
with the Intermediate Appellate Court (now Court of Appeals) an original action
for certiorari with
prayer for a writ of preliminary injunction against the regional trial court, Roa and Mendoza.  On February
14, 1985, the Court
of Appeals issued an order temporarily restraining proceedings in Civil Case No. Q-43104.

On March
18, 1985, the SEC,
finding an urgent need to rehabilitate BF, issued an order creating a
management committee and suspending all actions for claims against BF pending
before any court, tribunal or board.

On June 6,
1986, the Court of
Appeals rendered a decision dismissing the complaint in Civil Case No. Q-43104 and declaring the writ of preliminary attachment null and
void.  But upon a motion for
reconsideration filed by Roa and Mendoza, the decision was set aside and a
new one was entered upholding the jurisdiction of the regional trial court over
the case.  At the same time, however, it
suspended the proceedings therein until after the management committee shall
have been impleaded as party defendant.  The dissolution of the writ of preliminary
attachment was maintained.

Both parties filed
separate motions for reconsideration.  BF
took exception to the amended decision insofar as it directed the continuation
of proceedings in Civil Case No. Q-43104 until after the management committee
shall have been impleaded.  Roa and Mendoza
faulted the Court of Appeals for ordering BF to be substituted by the
management committee and for dissolving the writ of preliminary attachment
without the filing of the necessary counter-bond by the defendant.

In a resolution dated December
22, 1986, the Court
of Appeals denied both motions for reconsideration, noting that the proceedings
in the civil
case could not remain suspended
forever.  The purpose of the suspension,
it said, was to enable the management committee to substitute BF as party defendant and prosecute the defense
to conclusion.  Substitution was necessary to
prevent collusion between the
previous management and creditors it might seek to favor, to the prejudice of
its other creditors.

In sustaining the
dissolution of the writ of preliminary attachment, the respondent court said
that Roa and Mendoza were secured in the satisfaction
of any judgment they might obtain against BF since all the properties of the latter were already in
the custody of the management committee.

Their motions for
reconsideration having been denied, both parties filed their respective
petitions for review before this Court.

In G.R. No. 76879,
entitled “BF Homes, Inc. v. Court of Appeals, Rosalinda R. Roa and Vicente Mendoza,” the petitioner contends that
the respondent court committed an error and violated Sec. 5(d) of P.D. No. 902-A when it authorized continuation of
proceedings in Civil Case No. Q-43104 after the management committee created by
the SEC shall have been impleaded.

In G.R. No. 77143,
entitled “Rosalinda R. Roa and Vicente Mendoza
v. Court of Appeals and BF Homes, Inc.,” the petitioners seek a review on
the grounds that the management committee was not a proper party and should not
have been ordered substituted as party defendant in the regional trial court
and that the writ of preliminary attachment should not have been dissolved.

These two petitions were ordered consolidated in the resolution of this Court
dated August 17, 1987.

On February
2, 1988, the SEC
issued an order approving the proposed revised rehabilitation plan and
dissolving the management committee earlier created.  Atty. Florencio Orendain was appointed rehabilitation receiver.

Now to
the merits.

The parties in both cases
are agreed that the proceedings in the civil case for the recovery of a sum of
money should be suspended.  BF originally
maintained that the action should be resumed only until after SEC Case No.
002693 shall have been adjudicated on the merits but now agrees with Roa and Mendoza, in
line with the “assessment” of
the Solicitor General, that the action should be suspended pending the outcome
of the rehabilitation proceedings.

The pertinent provision
of law dealing with the suspension of actions for claims against the
corporation is Sec. 6(c) of P.D. 902-A, as amended,
which reads:

Sec. 6. 
In order to effectively exercise such jurisdiction, the Commission shall
possess the following powers:

x          x          x

(c) To appoint one or more receivers of the property, real and
personal, which is the subject of the action pending before the Commission in
accordance with the pertinent provisions of the Rules of Court, and in such
other cases whenever necessary in order to preserve the rights of
parties-litigants and/or protect the
interest of the investing public and creditors: 
Provided, however, That the Commission may, in appropriate
cases, appoint a rehabilitation receiver of corporations, partnerships or other
associations not supervised or regulated by other government agencies who shall
have, in addition to the powers
of a regular receiver under the provisions of the Rules of Court, such
functions and powers as are provided for in the succeeding paragraph (d)
hereof:  Provided, further,
That the Commission may appoint a rehabilitation receiver of corporations,
partnerships or other associations supervised or regulated by other government
agencies, such as banks and insurance companies, upon request of the government
agency concerned:  Provided, finally,
That upon appointment of a management committee, rehabilitation receiver, board
or body, pursuant to this Decree, all actions for claims against corporations,
partnerships, or associations under management or receivership pending before
any court, tribunal, board or body shall be suspended accordingly.  (As amended by P.D. Nos. 1653, 1758 and 1799; underscoring supplied.)

As will be noted, the
duration of the suspension is not indicated in the law itself.  And neither is it specified in the SEC order
creating the management committee.

The Court feels that the
respondent court erred in ordering
the resumption of the civil proceeding after the management committee shall
have been impleaded as party defendant.  The explanation that the only purpose of
suspending the civil action was to enable the management committee
to substitute BF as party defendant is not acceptable.

The view of the
respondent court is that the continuation of the action is necessary for the
purpose of determining the extent of the liability of BF to Roa
and Mendoza.  The flaw in this theory is
that even if such liability is determined, it still cannot be enforced by the
trial court as long as BF is under receivership.^[2] Moreover, it disregards the possibility that
such determination would not be necessary at all should the rehabilitation
receiver favorably consider and fully acknowledge the claims made by Roa and Mendoza.

Under Sec. 6(d) of P.D.
No. 902-A, the management committee or rehabilitation receiver is empowered to
take custody and control of all existing assets and properties of such
corporations under management; to evaluate the existing assets and liabilities,
earnings and operations of such corporations; to determine the best way to salvage and protect the interest
of investors and creditors; to study, review and evaluate the feasibility of
continuing operations and restructure and rehabilitate such entities if
determined to be feasible by the SEC.

In light of these powers,
the reason for suspending actions for claims against the corporation should not
be difficult to discover.  It is not
really to enable the management committee or the rehabilitation receiver to
substitute the defendant in any pending action against it before any court,
tribunal, board or body.  Obviously, the
real justification is to enable the management committee or rehabilitation
receiver to effectively exercise its/his powers free from any judicial
or extra-judicial interference that might unduly hinder or prevent the
“rescue” of the debtor company. 
To allow such other action to continue would only add to the burden of
the management committee or rehabilitation receiver, whose time, effort and
resources would be wasted in defending claims against the corporation instead
of being directed toward its restructuring and rehabilitation.

In BF Homes, Inc. v. Hon.
Fernando P. Agdamag, et al.,^[3] the Court of Appeals held:

It must be emphasized that the suspension is only for a temporary
period to prevent the irreversible collapse of the corporation and give the
management committee or receiver the absolute tranquility to study the
viability of the corporation.  During
this period, the law creates a wall around the corporation against all claims.

In Alemar’s
Sibal & Sons, Inc. v. Hon. Jesus M. Elbinias, et al.,^[4] this Court, explaining the legal
consequences of a receivership, said:

x x
x When a corporation
threatened by bankruptcy is taken over by a receiver, all the creditors should
stand on an equal footing.  Not anyone of
them should be given any preference by paying one or some of them ahead of the
others.  This is precisely the reason for the suspension of all pending claims
against the corporation under receivership. 
Instead of creditors vexing the court with suits against the distressed firm, they are
directed to file their claims with the receiver who is a duly appointed officer of the SEC.  (Emphasis supplied.)

Consequently, we feel that
the trial court cannot at this point determine the extent of BF’s liability, if any, to Roa
and Mendoza.  This is true whether it is retained as party defendant or substituted by the management committee
(or the rehabilitation receiver) as directed by the respondent court.  What Roa and
Mendoza should do now is file their claims with the rehabilitation receiver and
submit to him such evidence as they would otherwise have to adduce before the
trial court to prove such claims.

As the revised
rehabilitation plan approved by the SEC is expected to be implemented within
ten years, the proceedings in the Regional Trial Court of Quezon
City should be suspended during that period, to begin from February 2, 1988, the date of its
approval.  This is without prejudice to
the authority of the SEC to extend the period when warranted and even to order
the liquidation of BF if the plan is found to be no longer feasible.  On the other hand, on a more positive note,
the SEC can also find within that period that BF has been sufficiently revived
and able to resume its normal business operations without further need of
rehabilitation.

Coming now to the writ of
preliminary attachment, we find that it must stand despite the suspension of
the proceedings in the Regional
Trial Court of Quezon City.  The writ was issued prior to the creation of
the management committee and so should not be regarded as an undue advantage of
Mendoza and Roa over the other creditors of BF.

In its amended decision
and the resolution ordering the discharge of the writ of preliminary
attachment, the respondent court did not rule on whether the issuance of the
writ was improper or irregular.  It
simply said that the writ was no longer proper or necessary at that time because the properties of BF were in the
hands of the receiver.  We do not think
so.

The appointment of a
rehabilitation receiver who took control and custody of BF has not necessarily
secured the claims of Roa and Mendoza.  In the event that the receivership is
terminated with such claims not having been satisfied, the creditors may also
find themselves without security therefor in the
civil action because of the dissolution of the attachment.  This should not be permitted.  Having previously obtained the issuance of the writ in good faith, they should
not be deprived of its protection if
the rehabilitation plan does not succeed and the civil action is resumed.

It is settled that:

If there is an attachment or sequestration of the goods or estate
of the defendant in an action which is removed to a bankruptcy court, such an
attachment or sequestration will continue in existence and hold the goods or
estate to answer the final judgment or decree in the same manner as they would have been held to answer the final
judgment or decree rendered by the Court from which the action was removed,
unless the attachment or sequestration is invalidated under applicable
law.  (28 USCS No. 1479
[a].)^[5]

As we ruled in Government
of the Philippine Islands v. Mercado:^[6]

Attachment is in the nature of a proceeding in rem.  It is
against the particular property.  The
attaching creditor thereby acquires specific lien upon the attached property
which ripens into a judgment
against the res when the order of sale is
made.  Such a proceeding is in effect a
finding that the property attached is an indebted thing and a virtual
condemnation of it to pay the owner’s debt. 
The law does not provide the length of time an attachment lien shall continue after the rendition of judgment,
and it must therefore necessarily continue until the debt is paid, or sale is
had under execution issued on
the judgment or until judgment is satisfied, or the attachment discharged or
vacated in some manner provided by law.

It has been held that the
lien obtained by attachment stands upon as high equitable grounds as a mortgage
lien:

“The lien or security obtained by an attachment even before
judgment, is a fixed and positive security, a specific lien, and, although
whether it will ever be made available to the creditor depends on
contingencies, its existence is in no way contingent, conditioned or inchoate.  It is a
vested interest, an actual and
substantial security, affording specific security for satisfaction of the debt
put in suit, which constitutes a cloud on the legal title, and is as specific
as if created by virtue of a voluntary act of the debtor and stands upon as
high equitable grounds as a mortgage.” (7 Corpus Juris Secundum, 433, and
authorities therein cited.)

Under the Rules of Court,
a writ of attachment may be dissolved only upon the filing of a counter-bond or
upon proof of its improper or irregular issuance.  Neither ground has been established in the
case at bar to warrant the discharge of the writ.  No counter-bond has been given.  As for the contention that the writ was
improperly issued for lack of notice to BF on the application for the writ, it suffices to cite Mindanao Savings & Loan Association,
Inc. v. Court of Appeals, where we held:^[7]

The only requisites for the issuance of a writ of preliminary
attachment under Section 3, Rule 57 of the Rules of Court are the affidavit and
bond of the applicant.

SEC. 3. 
Affidavit and bond required. – An order of attachment shall be
granted only when it is made to
appear by the affidavit of the applicant, or of some other person who personally knows the facts, that a
sufficient cause of action exists, that the case is one of those mentioned in
section 1 hereof, that there is no other sufficient security for the claim
sought to be enforced by the action and that the amount due to the applicant,
or the value of the property the possession of which he is entitled to recover,
is as much as the sum for which the order is granted above all legal
counterclaims.  The affidavit, and the
bond required by the next succeeding section must be duly filed with the clerk
or judge of the court before the order issues.”

No notice to the adverse party or hearing of the application is
required.  As a matter of fact a hearing
would defeat the purpose of this provisional remedy.  The time which such a hearing would take, could be enough to enable the defendant to abscond
or dispose of his property before a writ of attachment issues.  Nevertheless, while no hearing is required by
the Rules of Court for the issuance of an attachment (Belisle
Investment & Finance Co., Inc.
v. State Investment House, Inc.,
72927, June 30, 1987; Filinvest Credit Corp. v. Relova, 117 SCRA 420), a motion to quash the writ may not be granted without “reasonable notice to the applicant”
and only “after hearing” (Secs. 12 and 13, Rule 57, Rules of Court).

In sum, the Court holds
that the substitution of the management committee/rehabilitation receiver in
Civil Case No. Q-43104 in the Regional Trial Court of Quezon
City is not necessary because the proceedings therein shall be suspended anyway
pending implementation of the revised rehabilitation plan, during which the
writ of preliminary attachment shall remain in force.

WHEREFORE, the decision of the respondent court is SET
ASIDE and judgment is rendered as follows:

(1) In G.R. No. 76879, the petition is GRANTED.  The proceedings in Civil Case No. Q-43104 shall remain
suspended for a period of ten (10) years from February 2, 1988, unless extended or shortened by the SEC
as circumstances may warrant; and

(2) In G.R. No. 77143, the petition is GRANTED insofar as it
seeks restoration of the writ of preliminary attachment, issued on October 22, 1984, which is hereby
reinstated.

SO ORDERED.

Narvasa, (Chairman), Gancayco, Griño-Aquino, and Medialdea, JJ., concur.

^[1]
132 SCRA 293.

^[2]
Alemar’s Sibal & Sons,
Inc. v. Hon. Jesus M. Elbinias, G.R. No.
75414, June 4, 1990; Lipana v. Development
Bank of Rizal, 154 SCRA 257; Central Bank v. Morfe, 63 SCRA 114.

^[3]
CA-G.R. Sp No. 09680, October 16,
1986.

^[4]
See note 2.

^[5]
9 Am. Jur. 2d, Bankruptcy 109.

^[6]
67 Phil. 409.

^[7]
172 SCRA 480.