View full case

SECURITIES v. COLLEGE ASSURANCE PLAN PHILIPPINES

FACTS:

The case involves a dispute over the use of the assets of the trust fund of College Assurance Plan Philippines, Inc. (CAP), a pre-need company. CAP purchased MRT III Bonds and assigned them to the Trust Fund to address the trust fund deficiency. In 2005, CAP filed for rehabilitation, and negotiations for the sale of the MRT III Bonds were ongoing when Smart Share Investment, Ltd. (Smart) demanded CAP to settle its outstanding balance. The Receiver sought approval for the sale of the bonds and payment of CAP's obligations to Smart and Fil-Estate Management, Inc. (FEMI). The bonds were eventually sold to the Development Bank of the Philippines (DBP) and Land Bank of the Philippines.

CAP entered into a contract to purchase MRT III Bonds but failed to fully execute payments to Smart Share Investments Ltd. and Fil Estate Management, Inc. The receiver moved for the payment of CAP's obligations to Smart and FEMI, but the RTC initially approved and then withdrew its approval. CAP was summoned by the High Court of Hong Kong, compelling it to satisfy the claims of Smart and FEMI. CAP sought authorization to pay the claims, but the RTC denied the motion. CAP filed a petition for certiorari to the CA, which ruled in favor of CAP. The petitioners sought reconsideration, which was denied by the CA.

The case involves the interpretation of the Pre-Need Code of the Philippines. The petitioners, who are planholders of the Legacy Plans, seek a writ of mandamus to compel the respondent, Loyola Plans Consolidated, Inc., to remit to them the proceeds of the sale of MRT III Bonds, which form part of the respondent's trust fund. They argue that the trust fund should be treated separately from the assets of the respondent, as it is primarily constituted for the sole benefit of the planholders.

The petitioners argue that the obligation to pay Smart and FEMI does not constitute "benefits" or "cost of services rendered or property delivered" or "administrative expenses" that could be validly withdrawn from the trust fund. The respondent claims that the settlement of its obligation to Smart and FEMI is a necessary condition for the sale of the MRT III Bonds and for the benefit of the planholders.

The Court held in favor of the petitioners and ruled that their appeal is meritorious.

ISSUES:

  1. Did the obligation to pay Smart and FEMI constitute "benefits" or "cost of services rendered or property delivered" or "administrative expense" that could be validly withdrawn from the trust fund pursuant to Section 16.4, Rule 16 of the New Rules and Section 30 of R.A. No. 9829?

  2. Whether the obligations incurred by the respondent should be paid out of the trust fund.

  3. Whether Legacy is a beneficiary of the trust fund.

  4. Whether only the paid value of the MRT III Bonds should be made part of the trust fund.

  5. Whether Smart and FEMI should be treated as contributors to the assets of the trust fund and not as ordinary creditors of the respondent.

  6. Whether the outstanding obligation of the respondent to Smart and FEMI can be considered an administrative expense to be withdrawn from the trust fund.

  7. Whether the payment of the unpaid obligation to Smart and FEMI is the liability of the respondent's assets or of the trust fund.

RULING:

  1. The obligation to pay Smart and FEMI did not constitute the "benefits" or "cost of services rendered" or "property delivered" under Section 16.4, Rule 16 of the New Rules and Section 30 of R.A. No. 9829.

  2. The Court held that the obligations incurred by the respondent should not be paid out of the trust fund. Section 30 of the New Rules and Regulations on Pre-Need Plans prohibits the utilization of the trust fund for purposes other than for the benefit of the planholders. The allowed withdrawals from the trust fund only pertain to payments that the pre-need company had undertaken to make based on the contracts. The trust fund cannot be used to satisfy the claims of the respondent's creditors.

  3. The Court ruled that Legacy is not a beneficiary of the trust fund. A person is considered a beneficiary of a trust if there is a manifest intention to give them the beneficial interest over the trust properties. In this case, the terms of the trust agreement clearly confer the status of beneficiary to the planholders, not to Legacy. The intention of the trustor is to make the planholders the beneficiaries of the trust properties, and Legacy has no interest in the trust fund. The regulatory framework and legislative intent also support the recognition of planholders as the ultimate beneficiaries of the trust fund.

  4. The Court did not sustain the observation of the CA that only the paid value of the MRT III Bonds should be included in the trust fund. The respondent did not indicate any reservation or condition that only the paid value should be accrued. Therefore, the MRT III Bonds, upon their infusion into the trust fund, were considered as assets themselves.

  5. Smart and FEMI should not be treated as contributors to the assets of the trust fund. The trust fund statements and the respondent's unaudited financial statements did not report any liability relating to the MRT III bonds.

  6. The Court held that the respondent's outstanding obligation to Smart and FEMI cannot be considered an administrative expense that can be withdrawn from the trust fund. The exclusive enumeration of administrative expenses in Section 16.4, Rule 6 of the New Rules does not include the purchase price of bonds for the capital infusion to the trust fund.

  7. The Court ruled that if the unpaid obligation to Smart and FEMI were to be considered an administrative expense, its payment would be the liability of the respondent's assets, not of the trust fund. The trust fund is separate and distinct from the corporate assets of the respondent, and only the planholders as beneficiaries of the trust fund can make claims against it.

PRINCIPLES:

  • The trust fund in pre-need companies should be treated as separate and distinct from the company's assets and obligations. It is established to ensure the delivery of benefits and services to planholders. (Section 30 of R.A. No. 9829)

  • Withdrawals from the trust fund should only be made for payment of benefits, termination values payable to planholders, annuities, contributions of cancelled plans, and taxes on trust funds. Only reasonable withdrawals for minor repairs and costs of ordinary maintenance of trust fund assets are allowed. (Section 16.4, Rule 16 of the New Rules)

  • The term "benefits" refers to the money or services that the pre-need company undertakes to deliver to the planholder or beneficiary in the future. It pertains to payments made to planholders as stipulated in their pre-need plans. (Section 16.4, Rule 16 of the New Rules)

  • The trust fund assets should be used solely for the benefit of planholders and cannot be used to satisfy the claims of other creditors of the pre-need company. (Section 30 of R.A. No. 9829)

  • Section 30 of the New Rules and Regulations on Pre-Need Plans prohibits the utilization of the trust fund for purposes other than for the benefit of the planholders.

  • A person is considered a beneficiary of a trust if there is a manifest intention to give them the beneficial interest over the trust properties.

  • The regulatory framework and legislative intent support the recognition of planholders as the ultimate beneficiaries of the SEC-mandated trust fund.

  • The Pre-Need Code provides a stronger legal framework for the pre-need industry to protect the rights of pre-need planholders.

  • The infusion of MRT III Bonds in a trust fund constitutes the bonds as assets of the trust fund.

  • Statements from the trust fund and financial statements can be used as evidence to determine liabilities and assets.

  • Administrative expenses that may be withdrawn from a trust fund are limited to trust fees, bank charges, investment expenses, taxes on trust funds, and costs of ordinary maintenance and minor repairs of trust fund assets.

  • The trust fund is separate and distinct from the corporate assets of the respondent, and only the planholders as beneficiaries of the trust fund can make claims against it.