Republic of the Philippines

SUPREME COURT
Manila
EN BANC

G.R. No. 88353 May 8, 1992

CENTRAL BANK OF THE PHILIPPINES and HON. JOSE B.
FERNANDEZ, petitioners,
vs.
HON. COURT OF APPEALS, RTC JUDGE TEOFILO GUADIZ, JR., PRODUCERS
BANK OF THE PHILIPPINES and PRODUCERS PROPERTIES, INC., respondents.
G.R. No. 92943 May 8, 1992
ATTY. LEONIDA G. TANSINSIN-ENCARNACION, as the Acting Conservator of
Producers Bank of the Philippines, and PRODUCERS BANK OF THE
PHILIPPINES, petitioners,
vs.
PRODUCERS BANK OF THE PHILIPPINES, allegedly represented by HENRY L.
CO, HON. COURT OF APPEALS, HON. TEOFILO GUADIZ, JR., and the "LAW
FIRM OF QUISUMBING, TORRES AND EVANGELISTA" (RAMON J. QUISUMBING,
VICENTE TORRES,RAFAEL E. EVANGELISTA, JR. and CHRISTOFER L.
LIM), respondents.
Agapito S. Fajardo, Jerry P. Rebutoc & Antonio M. Tan for petitioners in G.R. No.
88353.
Leonida G.T. Encarnacion for petitioners in G.R. No. 92943.
Quiason, Makalintal, Barot, Torres, Ibarra Law Office for the respondents in G.R. Nos.
88353 & 92943.

DAVIDE, JR., J.:

The common origin of these cases is Civil Case No. 17692 filed before Branch 147
(Makati) of the Regional trail Court, National Capital Judicial Region and entitled
Producers Bank of the Philippines and Producers Properties, Inc. versus Central Bank

of the Philippines, Jose B. Fernandez. Jr. and the Monetary Board. On 21 January
1991, this Court ordered the consolidation of G.R. No. 92943 with G.R. No. 88353.

The first case, G.R. No. 88353, is a petition for review on certiorari of the decision of 6
October 1988 2 and the resolution of 17 May 1989 3 of the respondent Court of Appeals
in C.A.-G.R. No. SP-13624. The impugned decision upheld the 21 September 1987
Order of respondent Judge Teofilo Guadiz, Jr. in Civil Case No. 17692 granting the
motion for issuance of a writ of preliminary injunction enjoining petitioners Central
Bank of the Philippines (CB), Mr. Jose B. Fernandez, Jr. and the Monetary Board, or
any of their agencies from implementing Monetary Board (MB) Resolutions No. 649
and No. 751, or from taking the threatened appropriate alternative action and the 27
October 1987 Order in the same case denying petitioners' motion to dismiss and
vacate said injunction. The challenged resolution, on the other hand, denied
petitioners' motion for reconsideration of the 6 October 1988 decision.
The second case, G.R. No. 92943, is a petition for review directed principally against
the 17 January 1990 decision of the respondent Court of Appeals in C.A.-G.R. SP No.
16972. The said decision dismissed the petition therein filed and sustained the various
Orders of the respondent Judge in Civil Case No. 17692, but directed the plaintiffs
therein to amend the amended complaint by stating in its prayer the specific amount of
damages which Producers Bank of the Philippines (PBP) claims to have sustained as
a result of losses of operation and the conservator's bank frauds and abuses; the Clerk
of Court was also ordered to determine the amount of filing fees which should be paid
by the plaintiffs within the applicable prescriptive or reglementary period. 4
The records of both cases reveal the following factual and procedural antecedents:
Petitioners claim that on 29 April 1983, during the regular examination of the PBP, CB
examiners stumbled upon some highly questionable loans which had been extended
by the PBP management to several entities. Upon further examination, it was
discovered that these loans, totalling approximately P300 million, were "fictitious" as
they were extended, without collateral, to certain interests related to PBP owners
themselves. Said loans were deemed to be anomalous particularly because the total
paid-in capital of PBP at that time was only P 140.544 million. This means that the
entire paid-in capital of the bank, together with some P160 million of depositors'
money, was utilized by PBP management to fund these unsecured loans.
Sometime in August of the same year, at the height of the controversy surrounding the
discovery of the anomalous loans, several blind items about a family-owned bank in
Binondo which granted fictitious loans to its stockholders appeared in major
newspapers. These news items triggered a bank-run in PBP which resulted in
continuous over-drawings on the bank's demand deposit account with the Central
Bank; the over-drawings reached P74.109 million by 29 August 1983. By 17 January
1984, PBP's overdraft with the CB increased to P143.955 million, an indication of
PBP's continuing inability to maintain that condition of solvency and liquidity necessary

to protect the interests of its depositors and creditors. Hence, on 20 January 1984, on
the basis of the report submitted by the Supervision and Examination Sector,
Department I of the CB, the Monetary Board (MB), pursuant to its authority under
Section 28-A of R.A. No. 265 and by virtue of MB Board Resolution No. 164, placed
PBP under conservatorship. 5
While PBP admits that it had no choice but to submit to the conservatorship, 6 it
nonetheless requested that the same be lifted by the CB. Consequently, the MB issued
on 3 February 1984 Resolution No. 169 directing the principal stockholders of PBP to
increase its capital accounts by such an amount that would be necessary for the
elimination of PBP's negative net worth of P424 million. On 10 April 1984, CB senior
deputy Governor Gabriel Singson informed PBP that pursuant to MB Resolution No.
490 of 30 March 1984, the CB would be willing to lift the conservatorship under the
following conditions:
(a) PBP's unsecured overdraft with the Central Bank will be converted into
an emergency loan, to be secured by sufficient collateral, including but not
limited to the Following properties offered by PBP's principal stockholders:
i. 6 floors and other areas of the Producers Bank Bldg., at
Paseo de Roxas, owned by PBP;
ii. 15 floors of the Producers Bank Bldg., at Paseo de Roxas,
Makati, owned by the Producers Properties, Inc.;
iii. Manhattan Bldg. on Nueva Street, Binondo, Manila; and
iv. Producers Bank, Makati Branch Bldg. at Buendia Avenue,
Makati;
(b) A comptroller for PBP and any number of bank examiners deemed
necessary to oversee PBP's operations shall be designated by the Central
Bank, under terms of reference to be determined by the Governor;
(c) A letter from the Management of PBP authorizing the Central Bank to
automatically return clearing items that would result in an overdraft in its
Central Bank account shall be submitted to the Central Bank.
On 27 April 1984, the MB adopted Resolution No. 584 approving the consolidation of
PBP's other unsecured obligations to the CB with its overdraft and authorizing the
conversion thereof into an emergency loan. The same resolution authorized the CB
Governor to lift the conservatorship and return PBP's management to its principal
stockholders upon completion of the documentation and full collateralization of the
emergency loan, but directed PBP to pay the emergency loan in five (5) equal annual

installments, with interest and penalty rates at MRR 180 days plus 48% per annum,
and liquidated damages of 5% for delayed payments.
On 4 June 1984, PBP submitted a rehabilitation plan to the CB which proposed the
transfer to PBP of three (3) buildings owned by Producers Properties, Inc. (PPI), its
principal stockholder and the subsequent mortgage of said properties to the CB as
collateral for the bank's overdraft obligation. 7 Although said proposal was explored and
discussed, no program acceptable to both the CB and PPI was arrived at because of
disagreements on certain matters such as interest rates, penalties and liquidated
damages.
No other rehabilitation program was submitted by PBP for almost three (3) years; as a
result thereof, its overdrafts with the CB continued to accumulate. By the end of June
1987, the figure swelled to a staggering P1.023 billion.Consequently, per Resolution
No. 649 dated 3 July 1987, the CB Monetary Board decided to approve in principle
what it considered a viable rehabilitation program for PBP. The program had these
principal features:
Al. The Central Bank will assign in favor of the Philippine Deposit Insurance
Corporation (PDIC) its claim over the overdraft of PBP net of net peso
differential arising from swap transactions and interest thereon, up to the
amount of the par value of the Producers Properties, Inc. (PPI) shares of
stock in PBP presently pledged to the Central Bank, and PDIC will enter
into a contract of dacion en pago with PBP and PPI whereby PDIC will
acquire 4,116,100 preferred shares of stock of PBP with a par value of
P100 per share in consideration for which PDIC will convey its rights over
the overdraft assigned to it by the Central Bank, in favor of PPI;
2. The balance of the overdraft of PBP, after the assignment to PDIC of a
portion of such overdraft referred to in Item I above, will also be assigned to
PDIC and converted into preferred shares of stock of PBP;
3. The interest on the overdraft of PBP will be reduced to 11.75% p.a.
retroactively to the date when the overdraft of PBP was incurred;
4. The accrued interest on the overdraft of PBP, at the reduced rate
approved in Item 3 above, as well as the unbooked penalties on legal
reserve deficiencies of PBP will be assigned in favor of PDIC and such
amounts will be allowed to be converted into preferred shares of stock of
PBP; and
5. The booking of valuation reserves will be allowed as follows:
3rd year P31 million
4th year 48 million

5th year 67 million

6th year 85 million
7th year 105 million
8th year 124.61 million
subject to the following conditions:
a. Fresh capital of P200.0 million shall be put up, provided that
a new group of stockholders shall hold at least 40% of the total
outstanding voting shares of stock of PBP;
b. PBP shall submit additional collaterals to fully collateralize its
overdraft with the Central Bank;
c. PPI shall convey to PBP the remaining floors of the
Producers Bank Centre for a value of P143.54 million partly in
payment of DOSRI loans of P27.6 million, principal plus
interest, and the balance of P115.94 million for shares of stock
of PBP, P15.12 million common and P100.89 million preferred,
with features as presently provided under PBP's Articles of
Incorporation and By-Laws;
d. PBP's Articles of Incorporation and By-Laws shall be
amended so as to create a special class of preferred, nonvoting, cumulative, non-participating shares of stock with a
dividend rate of 12% which shall be issued (i) in exchange for
the PPI shares that will be conveyed to PDIC under the dacion
en pago mentioned in Item 1 above, (ii) in consideration of the
balance of PBP's overdraft assigned to PDIC under Item 2
above, (iii) in consideration of the accrued interest on PBP's
overdraft assigned to PDIC and the unbooked penalties on
legal reserve deficiencies of PBP also assigned to PDIC. The
said preferred shares of stock shall be convertible into common
voting shares of stock upon the sale of such preferred shares to
private parties at the option of such parties.Proceeds from the
sale of these shares of stock shall be used to liquidate the
advances made by the Central Bank to PDIC by virtue of the
various assignments under Items 1, 2, and 4 above. The said
shares of stock shall not share in losses and other capital
adjustments representing reduction of capital accounts as
recommended by SES Department I incurred up to the date of
the issuance of such shares of stock;
e. PBP shall execute in favor of a trustee to be approved by the
Central Bank of mortgage trust indenture covering the assets

presently mortgaged/pledged to Central Bank as collateral for

the overdraft of PBP as well as additional collaterals to be
submitted to fully collateralize the overdraft of PBP, under which
indenture PDIC as holder of preferred shares of stocks, shall
have the first lien and preference over the assets subject of the
indenture in case of insolvency, to the extent of the overdraft
converted into preferred shares of stock, provided that PBP
shall submit an opinion from the Securities and Exchange
Commission that such indenture is legal and valid; and
f. The principal stockholders of both PBP and PPI shall submit
in writing their conformity to the above conditions, with the
effect that any previous agreements to the contrary shall be set
aside; and
B. To require PBP to submit to the Monetary Board for approval the
identities of the new stockholders and the new management which shall not
be changed without the prior approval of the Central Bank, it being
understood that final approval of the above rehabilitation plan shall depend
entirely upon the acceptance by the Board of the new stockholders and the
new management; and to give PBP a period of two weeks after such final
approval within which to implement the above rehabilitation
plan 8 (Emphasis supplied).
There being no response from both PBP and PPI on the proposed rehabilitation plan,
the MB issued Resolution No. 751 on 7 August 1987 instructing Central Bank
management to advise the bank, through Mr. Henry Co, as follows:
a. The Central Bank conservatorship over PBP may be lifted only after PBP
shall have identified the new group of stockholders who will put in new
capital in PBP and after the Monetary Board shall have considered such
new stockholders as acceptable; and
b. The stockholders of PBP have to decide whether or not to accept the
terms of the rehabilitation plan as provided under Resolution
No. 649 dated July 3, 1987 within one week from receipt of notice hereof
and if such terms are not acceptable to them, the Central Bank will take
appropriate alternative action on the matter; . . . 9
Additionally, in a letter dated 14 August 1987, the CB called the attention of the PBP
directors and officers to Section 107 of R.A. No. 265, as amended by Executive Order
No. 289 dated 23 July 1987, which provides, inter alia, that:
. . . any bank which incurs an overdrawing in its deposit account with the
Central Bank shall fully cover said overdraft not later than the next clearing

day: Provided, further, That settlement of clearing balances shall not be

effected for any account which continue (sic) to be overdrawn for five
consecutive banking days until such time as the overdrawing is fully
covered or otherwise converted into an emergency loan or
advance pursuant to the provisions of Sec. 90 of this Act. Provided, Finally,
That the appropriate clearing office shall be officially notified of banks with
overdrawn balances.Banks with existing overdrafts with the Central Bank
as of the effectivity of this amended section shall within such period as may
be prescribed by the Monetary Board, either convert the overdraft into an
emergency loan or advance with a plan of payment, or settle such
overdrafts, and that upon failure to so comply herewith, the Central Bank
shall take such action against the bank as may be warranted under this
Act. (Emphasis provided).
A. few days later, or on 27 August 1987, the PBP, without responding to the
communications of the CB, filed a complaint verified by its former board chairman,
Henry Co, with the Regional Trial Court of Makati against the CB, the MB and CB
Governor Jose B. Fernandez, Jr. The complaint, docketed as Civil Case No.
17692, 10 devoted several pages to specific allegations in support of PBP's assertions
that the conservatorship was unwarranted, ill-motivated, illegal, utterly unnecessary
and unjustified; that the appointment of the conservator was arbitrary; that herein
petitioners acted in bad faith; that the CB-designated conservators committed bank
frauds and abuses; that the CB is guilty of promissory estoppel; and that by reason of
the conservatorship, it suffered losses enumerated in paragraph 27 thereof, the total
quantifiable extent of which is P108,479,771.00, exclusive of loss of profits and loss of
goodwill. 11 It concluded with a prayer for:
. . . judicial review of Monetary Board Resolutions No. 649 dated July 3,
1987 and No. 751 dated 14 August, 1987 and that judgment be rendered
nullifying the same and ordering defendant Central Bank's conservator to
restore the viability of PBP as mandated by section 28-A of R.A. 265 and to
fully repair the damages inflicted on PBP consisting of losses of operation
and the conservators' bank frauds and abuses, with costs against
defendants. (emphasis supplied).
and for:
. . . the issue of a temporary restraining order/preliminary injunction
enjoining defendants' coercion on PBP to accept the rehabilitation plan
within one week or their taking "appropriate alternative action" including
exclusion of PBP from settlement of clearing balances at the Central
Bank clearing house, pending judicial review of Monetary Board
Resolutions No. 649 dated July 3, 1987 and No. 751 dated August 14,
1987 defendants not being above the law. 12

Only P102.00 was paid as docket fee.

The case was raffled to Branch 147 of said court which was then presided over by
respondent Judge.
On 31 August 1987, respondent Judge issued a temporary restraining order and set
the hearing of the application for preliminary injunction on 9 September 1987. 13 On 11
September 1987, petitioner filed an Opposition to the application for preliminary
injunction. 14
Subsequently, on 21 September 1987, respondent Judge issued an Order granting the
writ 15 and enjoining defendant-petitioners or any of their agents from:
. . . implementing Monetary Board Resolutions Nos. 649 and 751 or from
taking the threatened "appropriate alternative action" including exclusion of
plaintiff bank from settlement of clearing balances at the Central Bank
clearing house or any other action that will disturb the status quo or the
viability of plaintiff bank during the pendency of this case conditioned upon
the posting of a bond in the amount of P2,000,000.00.
On 25 October 1987, PBP filed the Amended Complaint 16 impleading PPI as an
additional plaintiff. No new allegations or causes of action for said plaintiff were made.
On 5 November 1987, petitioners filed a Motion to Dismiss the Amended Complaint.
The motion contained a prayer to vacate the injunction and raised the following
grounds:
1) the amended complaint states no cause of action; MB Resolution Nos.
649 and 751 are merely advisory, thus, neither effect impairment of
plaintiffs' rights nor cause it prejudice, loss or damage; furthermore, there is
no basis for the averments on the legality or illegality of the conservatorship
since the amended complaint does not seek its annulment;
2) the amended complaint is not authorized by the management of PBP;
and
3) the lower court did not acquire jurisdiction over the case except to order
the amended complaint expunged from the records because the proper
filing fee was not paid. 17
On 27 November 1987, the trial court, through the respondent Judge, handed down an
Order denying the motion to dismiss on the following grounds: (a) the amended
complaint alleges ultimate facts showing that plaintiff has a right and that such a right
has been violated by defendant; the questioned MB Resolutions were issued arbitrarily
and with bad faith, "being a part of a scheme to divest plaintiff's present stockholders of
their control of PBP and to award the same to the PDIC or its unknown transferees";

and the averments of legality or illegality of the conservatorship are relevant to the
cause of action since the complaint seeks the lifting of the conservatorship; (b) While it
is true that under Section 28-A of the Central Bank Act the conservator takes over the
management of a bank, the Board of Directors of such bank is not prohibited from filing
a suit to lift the conservatorship and from questioning the validity of both the
conservator's fraudulent acts and abuses and its principal's (MB) arbitrary action;
besides, PPI is now a party-plaintiff in the action; and (c) plaintiffs have paid the correct
filing fees since "the value of the case cannot be estimated." 18
G.R. No. 88353
Unable to accept the above Order, herein petitioners CB and Jose B. Fernandez, Jr.
filed with respondent Court of Appeals on 11 January 1988 a petition for certiorari with
preliminary injunction 19 to annul the 21 September and 27 November 1987 Orders of
the respondent Judge, restrain the implementation of the same and nullify the writ of
preliminary injunction. They contend therein that:
1. The trial court's injunctive order and writ are anomalous and illegal
because they are directed against CB acts and measures which constitute
no invasion of plaintiff's rights; and
2. The complaint filed was, on its face, dismissible: (a) for failure to state a
cause of action, (b) for being unauthorized by the party in whose name it
purports to have been filed, and (c) for failure of the purported plaintiff to
pay the required filing fees.
Confronted with the "threshold and decisive issue of whether the respondent Judge
gravely abused his discretion when he issued the Writ of Preliminary Injunction to
enjoin petitioner from implementing Monetary Board Resolutions Nos. 649 and 751 for
having been issued arbitrarily and with bad faith," the respondent Court promulgated
the challenged decision dismissing the petition for lack of merit. 20 Respondent Court
ruled that the CB's sudden and untimely announcement of the conservatorship over
PBP eroded the confidence which the banking public had hitherto reposed on the bank
and resulted in the bank-run; it then concluded that when the CB "peremptorily and
illtimely (sic) announced" the conservatorship, PBP was not given an opportunity to be
heard since the CB arbitrarily brushed aside administrative due process
notwithstanding PBP's having sufficiently established its inherent corporate right to
autonomously perform its banking activities without undue governmental interference
that would in effect divest its stockholders of their control over the operations of the
bank." It further held that the challenged resolutions of the MB are not just advisory in
character "because the same sought to impose upon the respondent bank petitioners'
governmental acts that were specifically designed and executed to devise a scheme
that would irreparably divest from the stockholders of the respondent bank control of
the same."

The motion filed by petitioners for the reconsideration of the above decision was
denied by the respondent Court in its Resolution of 17 May
1989. 21 On the issue of the non-payment of the correct docket fees, the said court, in
ruling that the correct amount was paid, said that "the instant case is incapable of
pecuniary estimation because the value of the losses incurred by the respondent bank
cannot be calibrated nor pinned down to a specific amount in view of the damage that
may be caused by the appointment of a conservator to its goodwill and standing in the
community."
Undaunted by the adverse decision of the Court of Appeals, petitioners filed with this
Court on 30 July 1989 the instant petition for review under Rule 45 of the Rules of
Court. 22 It is alleged therein that the respondent Court committed grave abuse of
discretion in:
(1) Ignoring petitioners' contention that since PBP did not pay the correct
filing fees, the trial court did not acquire jurisdiction over the case; hence,
pursuant to Manchester Development Corp., et al. vs. Court of Appeals, et
al., G.R. No. 75919, 7 May 1987, 23 the complaint should have been
dismissed for lack of jurisdiction on the part of the court;
(2) . . . ruling on the propriety or impropriety of the conservatorship as a
basis for determining the existence of a cause of action since the amended
complaint does not seek the annulment or lifting of the conservatorship;
(3) . . . not holding that the amended complaint should have been
dismissed because it was filed in the name of PBP without the authority of
its conservator; and
(4) . . . not setting aside the Order of the trial court granting the issuance of
a writ of preliminary injunction which unlawfully restrained the CB from
exercising its mandated responsibilities and effectively compelled it to allow
the PBP to continue incurring overdrafts with it.
This petition was docketed as G.R. No. 88353.
On 19 July 1989, this Court required the respondents to comment on the petition.

24

In the Comment 25 filed on 9 October 1989, private respondents maintain that: (a) the
issue of whether or not they paid the correct filing fees involves a question of
correctness of judgment, not grave abuse of discretion; errors of judgment cannot be
the subject of the present petition for certiorari; (b) the complaint and the amended
complaint state sufficient causes of action because they both contain specific
allegations of an illegal, unnecessary, disastrous and repressive conservatorship
conducted contrary to its mandated purpose, and breach of promissory estoppel;
furthermore, the trial court committed no grave abuse of discretion when it found that

the questioned MB Resolutions were arbitrarily issued in contravention of the due

process clause of the Constitution; (c) the "Filing of the complaint without authority
from the conservator is an issue involving an error of judgment; besides, it would be
ridiculous and absurd to require such prior authorization from the conservator for no
one expects him to sanction the filing of a suit against his principal the CB;
moreover, Rule 3 of the Rules of Court requires that every action must be prosecuted
and defended in the name of the real party in interest; besides, no administrative
authority, even the CB, can nullify judicial review of administrative action by requiring
that only said administrative authority or its designated conservator can file suit for
judicial review of its actuation; and (d) the writ of preliminary injunction was properly
issued.
Petitioners filed a Reply 26 to the Comment on 3 November 1989.
In their Supplemental Comment, private respondents argue that the Manchester rule is
not applicable in the case at bar because what is primarily sought for herein is a writ of
injunction and not an award for damages; it is further alleged that an order denying a
motion to dismiss is neither appealable nor be made the proper subject of a petition
for certiorari absent a clear showing of lack of jurisdiction or grave abuse of discretion.
On 15 February 1990, this Court resolved to give due course to the instant petition and
require the parties to simultaneously file their respective Memoranda, 27 which they
complied with.
On 1 March 1990, petitioners filed an Urgent Motion 28 informing this Court of the fact
that on 6 June 1989, PBP, through Henry Co, proposed another rehabilitation plan
which involved the infusion of fresh capital into PBP byBanque Indosuez (Bangue) and
the AFP-Retirement and Separation Benefits Systems (ARSBS). Under said proposal,
all existing law suits of PBP against the Central Bank and the PBP Conservator,
and vice-versa, shall be withdrawn upon approval and implementation of the plan. The
plan was approved by the Monetary Board in its Resolution No. 497 dated 23 June
1989. However, before the mechanics of the rehabilitation plan could be threshed out
among the parties, a "quarrel" developed between Henry and Luis Co, who both have
controlling interests in PBP. Luis accused Henry of "serious manipulations" in PBP and
both steadfastly refused to settle their differences notwithstanding efforts of mediators,
including prospective investors. Eventually, the prospective investors, in a letter dated
20 November 1989, advised the Central Bank that they are withdrawing their offer to
infuse capital in PBP and that they have terminated all discussions with the Co family.
Petitioner further allege that with the withdrawal of Banque Indosuez and RSBS, the
rehabilitation plan for PBP is no longer feasible. Meanwhile, the bank's overdraft with
the Central Bank continues to rise. As of 13 February 1990, PBP's overdraft with the
CB increased to P1.233 billion. If the injunction is not lifted, PBP will continually bleed
the CB because of the former's liability to discharge its responsibilities under the law.

G.R. No. 92943

Pursuant to the powers and authority conferred upon her by the Central Bank, Atty.
Leonida Tansinsin-Encarnacion, in her capacity as conservator, instituted reforms
aimed at making PBP more viable. With this purpose in mind, she started reorganizing
the bank's personnel and committees.
In order to prevent her from continuing with the reorganization, PBP filed on 24
October 1987, or after it obtained a writ of preliminary injunction in Civil Case No.
17692, an Omnibus Motion asking the trial court for an order:
(a) reinstating PBP officers to their original positions and restoring the bank's standing
committees to their respective compositions prior to said reorganization; (b) enjoining
the lease of any portion of the bank's space in Producers Bank Centre building to third
parties and the relocation of departments/offices of PBP as was contemplated; and (c)
to hold, after an opportunity to be heard is given her, said conservator in contempt of
court for disobedience of and resistance to the writ of injunction. An opposition to the
contempt charge was later filed by said petitioner.
Subsequently, upon its inclusion as party-plaintiff via the amended complaint, PPI filed
on 4 November 1987 a motion asking the lower court to order the Central Bank and its
agents to restore to PPI the administration of the three (3) buildings earlier assigned to
PBP pending the lifting of the conservatorship. PPI claimed that such transfer was
necessary to prevent the rental income of said buildings being dissipated by the
conservator.
On 17 November 1987, both PBP and PPI filed a motion praying:
(1) that the CB Conservator be ordered to publish PBP's financial
statement for the last quarter of 1987 and every quarterly statement
thereafter during the pendency of this case, with the following claims of
plaintiff PBP against the Central Bank, to wit:
(a) Interest in unconscionable rates of CB overdrawing illegally
paid by the CB conservators to CB now totaling
P56,002,000.00,
(b) Penalties on reserve deficiencies illegally paid by the CB
conservators to CB now totaling P20,657,000.00,
(c) Penalties on reserve deficiencies not yet paid but which the
conservator has booked as liabilities now totaling
P31,717,000.00,
(d) Losses of operation by the CB conservators from January
31, 1984 to October 31, 1987 now totaling P461,092,000.00

as "suspense" accounts; and (2) that the CB conservator be ordered to

carry those "suspense" accounts in the books of PBP.
The following day, respondent Judge issued an Order (a) requiring conservator
Tansinsin-Encarnacion to reinstate PBP officers to their original positions prior to the
reorganization of the bank's personnel and restore PBP's standing committees to their
original compositions, and (b) restraining her from leasing out to third parties any
portion of PBP's space in the Producers Bank Centre building. However, respondent
Judge held in abeyance the contempt proceedings against the conservator pending
her immediate compliance with the Order.
On 22 December 1987, respondent Judge granted PPI's motion for an order
transferring to it the administration of the three (3) buildings assigned to PBP. A motion
for reconsideration of this order was filed by petitioners but was subsequently denied
by respondent Judge in the Order of 4 October 1988.
A second Order, issued by respondent Judge on the same day, 22 December 1987,
directed conservator Tansinsin-Encarnacion to publish the financial statement of PBP
in the manner prayed for in the aforesaid 17 November 1987 motion. The motion to
reconsider this Order was denied by respondent Judge on 3 October 1988.
On several occasions thereafter, conservator Tansinsin-Encarnacion caused the
publication of PBP's financial statement as required by regulations, without, however,
carrying the items enumerated by the trial court as "suspense accounts."
Consequently, two (2) contempt charges were filed against her, one for the 3 February
1988 publication in the Manila Standard of PBP's statement of condition as of 29
December 1987 and the other for the 29 July 1988 publication in the Daily Globe of the
bank's statement as of 30 June 1988. Oppositions to both charges of contempt were
filed.
On 9 November 1988, respondent Judge declared said conservator guilty of contempt
of court on three (3) counts and imposed upon her a fine of P1,000.00 for each count
of contempt. The latter asked for reconsideration of the order but the respondent Judge
denied the same.
Another contempt charge against her was filed for publishing the statement of
condition of PBP (as of 13 September 1988) in the 9 November 1988 issue of the Daily
Globe without carrying the alleged "suspense accounts." She was again found guilty as
charged and her motion for reconsideration was denied. Finding no other adequate
relief, Tansinsin-Encarnacion filed with this Court on 11 January 1989 a petition
for certiorariagainst respondent Judge, Henry L. Co and the law firm of Quisumbing,
Torres and Evangelista. This case was docketed as G.R. No. 86526. She prays therein
for judgment declaring respondent judge to be without jurisdiction to entertain both the
complaint and amended complaint in Civil Case No. 17692; declaring null and void all

his orders, specially the contempt orders; and finding respondent Judge and
respondent lawyers guilty of violating their respective oaths of office. 29
On 8 February 1989, this Court resolved to refer said petition to the Court of Appeals
which docketed it as C.A.-G.R.-SP No. 16972.
In her Memorandum submitted to the Court of Appeals, Tansinsin-Encarnacion alleged
that: (1) respondent Judge has no jurisdiction over Civil Case No. 17692 because its
filing was not authorized by the petitioner or the conservator in violation of Section 28-A
of R.A. No. 265, as amended, it was filed after the ten (10) day period prescribed by
Section 29 of R.A. No. 265, as amended, and the correct docket fees were not paid;
(2) respondent Judge illegally ordered her to return to PPI the administration of the
bank's three (3) properties, contrary to his own writ of preliminary injunction and earlier
order to make the bank viable, and to publish the alleged "suspense
accounts" contrary to Section 28-A of R.A. No. 265, as amended, the writ of preliminary
injunction and her constitutional right to silence; (3) respondent Judge erred in
declaring her in contempt of court notwithstanding his lack of jurisdiction over the case
and failure to set any date for the hearing and reception of evidence, in violation of her
right to due process of law; and (4) respondents Judge and lawyers are
administratively liable for their grossly illegal actuations and for depriving the
Government of at least P13.2 million in filing fees. 30
In its decision dated 17 January 1990, the Court of Appeals (Twelfth
Division) 31 dismissed the petition; while finding the claim of lack of jurisdiction to be
without merit, the said court nonetheless gave the following exception:
. . . except that plaintiffs in Civil Case No. 17692, within 15 days from
receipt of a copy of this Decision, shall file the corresponding amendment
to their amended complaint in said case, stating a specific amount "to fully
repair the damages inflicted on PBP consisting of losses of operation and
the conservator's bank frauds and abuses", in the prayer of their amended
complaint. Thereafter, the Clerk of Court of the lower court and/or his duly
authorized Docket Clerk of Court in charge, should determine the amount
found due, which should be paid by complainants within the applicable
prescriptive or reglementary period, failure of which said claims for
damages shall be dismissed.
In disposing of the issues raised, respondent Court merely adopted with approval the
ruling of the respondent Judge on the question of jurisdiction and cited the decision of
the Court of Appeals in C.A.-G.R. SP No. 13624 (subject of G.R. No. 88353),
sustaining the respondent Judge's ruling. As to the filing of the complaint after the
lapse of the 10-day period provided for in Section 29 of R.A. No. 265, it ruled that the
Section does not apply because the complaint essentially seeks to compel the
conservator to perform his duties and refers to circumstances and incidents which
transpired after said 10-day period.

On the issue of lack of jurisdiction for non-payment of correct filing fees, to which
an exception was made in the dispositive portion, the respondent Court found the
same to be "partly" meritorious. It agreed with petitioner that while the other
losses and damages sought to be recovered are incapable of pecuniary
estimation, the damages inflicted on PBP due to losses of operation and the
conservator's bank frauds and abuses were in fact pegged at P108,479,771.00 in
paragraph 26 of the amended complaint. This specific amount, however, should
have been stated in the prayer of the complaint. It also held that
the Manchestercase "has been legally construed in the subsequent case of Sun
Insurance Office Ltd. 32 and the case ofFilipinas Shell Petroleum Corp. 33 to the
effect that applying the doctrine initiated in the case of Manchester, together with
said subsequent thereto (sic), plaintiffs in Civil Case No. 17692 should be given a
reasonable time to amend their complaint, more particularly, to state in their
prayer in the amended complaint the specific amount of damages . . ."
On the orders of contempt and the reasons therefor, respondent Court merely stated:
. . . Generally, when the court has jurisdiction over the subject matter and of
the person, decisions upon or questions pertinent to the cause are
decisions within its jurisdiction, and however, irregular or erroneous they
may be, they cannot be corrected by certiorari Whether the court's
conclusions was based merely on speculations and conjecture, or on a
misapprehension of facts contrary to the documents and exhibits of the
case, is not for us to determine in a petition for certiorari wherein only
issues of jurisdiction may be raised. . . . Thus, the instant petition cannot
prosper.
and opined that under the Rules of Court, a judgment of contempt may be
questioned on appeal and not oncertiorari.
Finally, on the administrative liability of the respondent Judge and the lawyers, the
respondent Court declared the claim to be without merit.
Petitioner's motion to reconsider the decision having been denied in the 2 April 1990
Resolution of the respondent Court, 34 she filed with this Court a petition under Rule 45
of the Rules of Court, which was docketed as G.R. No. 92943. Petitioner Claims that
respondent Court grossly erred in confirming/affirming the allegedly void Orders of
respondent Judge which denied the motion to dismiss the complaint and granted the
writ of preliminary injunction, restating in this regard the issues raised by the CB in
G.R.
No. 88353, and in holding her in contempt of court on four occasions. As to the last
ground, she asserts that the Orders were issued in violation of the Rules of Court and
infringed her right to due process since there was no hearing on the motions for
contempt, except for the third motion wherein respondent Judge immediately ordered
the movant to present evidence.

In their Comment, 35 filed in compliance with Our Resolution 21 May 1990, private
respondents practically reiterated the arguments in their Comment to the petition in
G.R. No. 88353; in addition, more specifically on the issue of contempt, they assert
that while the motions for contempt were set for hearing, there is no showing that the
scheduled hearings actually took place. Besides, the remedy to question a contempt
order is an appeal; 36since petitioner did not appeal the questioned orders, the same
became final and executory. 37
After petitioner filed a Reply and private respondents submitted their Rejoinder thereto,
this Court ggave due course to the petition.
THE ISSUES
The basic issue in these cases is whether or not the respondent Court committed
reversible error in affirming the challenged Orders of the respondent Judge. This
necessarily calls for a determination of whether or not the respondent Judge committed
grave abuse of discretion amounting to lack of jurisdiction:
(1) In not dismissing Civil Case No. 17692 on the following grounds: (a)
lack of legal. personality to bring the action as the same was filed in the
name of the PBP without the authority of the conservator;
(b) failure of the complaint and amended complaint to state a cause of
action; and (c) non-payment of the correct amount of docket fee in violation
of the rule enunciated in Manchester Development Corp.vs. Court of
Appeals, et al.;
(2) In granting the writ of preliminary injunction; and
(3) In issuing the assailed Orders in G.R. No. 92943.
DISCUSSION
We shall take up the issues sequentially.
1. PBP has been under conservatorship since 20 January 1984. Pursuant to Section
28-A of the Central Bank Act,38 a conservator, once appointed, takes over the
management of the bank and assumes exclusive powers to oversee every aspect of
the bank's operations and affairs. Petitioners now maintain that this power includes the
authority to determine "whether or not to maintain suit in the bank's name." 39 The trial
court overruled this contention stating that the section alluded to "does not prohibit the
Board of Directors of a bank to file suit to lift the conservatorship over it, to question the
validity of the conservator's fraudulent acts and abuses and the arbitrary action of the
conservator's principal the Monetary Board of the Central Bank. The conservator
cannot be expected to question his own continued existence and acts. He cannot be
expected to file suit to annul the action of his principal . . . or a suit that would point out

the ill-motivation, the disastrous effects of the conservatorship and the conservator's
bank frauds and abuses as alleged in the complaint." 40
Obviously, the trial court was of the impression that what was sought for in Civil Case
No. 17692 is the lifting of the conservatorship because it was arbitrarily and illegally
imposed. While it may be true that the PBP devoted the first 38 pages of its 47-page
complaint and amended complaint to what it considers an unwarranted, ill-motivated,
illegal, unnecessary, and unjustified conservatorship, it, nevertheless, submitted to the
same. There is nothing in the amended complaint to reflect an unequivocal intention to
ask for its lifting. Of course, as subsequent maneuvers would show, PBP sought to
accomplish the lifting thereof through surreptitious means. That such action was not,
on its face, filed to have the conservatorship lifted, is best evidenced by PBP's prayer
for a judgment "ordering defendant Central Bank's conservator to restore the viability of
PBP as mandated by Section 28-A of R.A. No. 265 . . ." 41 Unfortunately too,
respondent Court was easily misled into believing that the amended complaint sought
the lifting of the conservatorship. Thus, although the matter was not specifically raised
in issue and clearly unnecessary for the determination of the issues squarely raised,
the respondent Court opined:
It is Our sober assessment that the respondent bank was not given an
opportunity to be heard when the Central Bank peremptorily and illtimely
(sic) announced the appointment of a conservatorship over the latter (bank)
for which reason We believe that administrative due process was arbitrarily
brushed aside to the prejudice of the said bank. . . .
If it were to lift the conservatorship because it was arbitrarily imposed, then the case
should have been dismissed on the grounds of prescription and lack of personality to
bring the action. Per the fifth paragraph of Section 29 of the Central Bank Act, as
amended by Executive Order No. 289, the actions of the MB may be assailed in an
appropriate pleading filed by the stockholders of record representing the majority of the
capital stock within ten (10) days from receipt of notice by the said majority
stockholders of the order placing the bank under conservatorship. The pertinent portion
of said paragraph reads as follows:
The provisions of any law to the contrary notwithstanding, the actions of the
Monetary Board under this Section, Section 28-A, and the second
paragraph of section 34 of this Act shall be final and executory, and can be
set aside by a court only if there is convincing proof, after hearing, that the
action is plainly arbitrary and made in bad faith: Provided, That the same is
raised in an appropriate pleading filed by the stockholders of record
representing the majority of the capital stock within ten (10) days from the
date the receiver takes charge of the assets and liabilities of the bank or
non-bank financial intermediary performing quasi-banking functions or, in
case of conservatorship or liquidation, within ten (10) days from receipt of
notice by the said majority stockholders of said bank or non-bank financial

intermediary of the order of its placement under conservatorship or

liquidation. . . .
The following requisites, therefore, must be present before the order of conservatorship
may be set aside by a court:
1. The appropriate pleading must be filed by the stockholders of record
representing the majority of the capital stock of the bank in the proper
court;
2. Said pleading must be filed within ten (10) days from receipt of notice by
said majority stockholders of the order placing the bank under
conservatorship; and
3. There must be convincing proof, after hearing, that the action is plainly
arbitrary and made in bad faith. 42
In the instant case, PBP was placed under conservatorship on 20 January 1984. The
original complaint in Civil Case No. 17692 was filed only on 27 August 1987, or three
(3) years, seven (7) months and seven (7) days later, long after the expiration of the
10-day period deferred to above. It is also beyond question that the complaint and the
amended complaint were not initiated by the stockholders of record representing the
majority of the capital stock. Accordingly, the order placing PBP under conservatorship
had long become final and its validity could no longer be litigated upon before the trial
court. Applying the original provision of the aforesaid Section 29 of the Central Bank
Act, this Court, in Rural Bank of Lucena, Inc. vs. Arca, et al., 43 ruled that:
Nor can the proceedings before Judge Arca be deemed a judicial review of
the 1962 resolution No. 122 of the Monetary Board, if only because by law
(Section 29, R.A. 265) such review must be asked within 10 days from
notice of the resolution of the Board. Between the adoption of Resolution
No. 122 and the challenged order of Judge Arca, more than one year had
elapsed. Hence, the validity of the Monetary Board's resolution can no
longer be litigated before Judge Arca, whose role under the fourth
paragraph of section 29 is confined to assisting and supervising the
liquidation of the Lucena bank.
This rule is still good law notwithstanding the amendment to Section 29 which expands
its scope by including the action of the MB under Section 28-A of the Act on the
appointment of a conservator.
It was precisely an awareness of the futility of any action to set aside the
conservatorship which prompted PBP to limit its action to a claim for damages and a
prayer for an injunction against the implementation of MB Resolution Nos. 649 and
751. However, to make it appear that it had a meritorious case and a valid grievance

against the Central Bank, it wandered long into the past and narrated a sad story of
persecution, oppression and injustice since the inception of the conservatorship
obviously to gain the sympathy of the court, which it eventually obtained.
The next crucial question that suggests itself for resolution is whether an action for
damages arising from the MB's act of placing the PBP under conservatorship and the
acts of the conservator, and to enjoin the MB from implementing resolutions related or
incident to, or in connection with the conservatorship, may be brought only for and in
behalf of the PBP by the stockholders on record representing the majority of the capital
stock thereof or simply upon authority of its Board of Directors, or by its Chairman. We
hereby rule that as to the first kind of damages, the same may be claimed only if the
MB's action is plainly arbitrary and made in bad faith, and that the action therefor is
inseparable from an action to set aside the conservatorship. In other words, the same
must be filed within ten (10) days from receipt of notice of the order placing the bank
under conservatorship. Otherwise, the provision of the fifth paragraph of Section 29 of
the Central. Bank Act could be rendered meaningless and illusory by the bank's filing,
beyond the prescribed ten-day period, of an action ostensibly claiming damages but in
reality questioning the conservatorship. As to actions for the second kind of damages
and for injunction to restrain the enforcement of the CB's implementing resolutions,
said fifth paragraph of Section 29 of the Central Bank Act, as amended, equally applies
because the questioned acts are but incidental to the conservatorship. The purpose of
the law in requiring that only the stockholders of record representing the majority of the
capital stock may bring the action to set aside a resolution to place a bank under
conservatorship is to ensure that it be not frustrated or defeated by the incumbent
Board of Directors or officers who may immediately resort to court action to prevent its
implementation or enforcement. It is presumed that such a resolution is directed
principally against acts of said Directors and officers which place the bank in a state of
continuing inability to maintain a condition of liquidity adequate to protect the interest of
depositors and creditors. Indirectly, it is likewise intended to protect and safeguard the
rights and interests of the stockholders. Common sense and public policy dictate then
that the authority to decide on whether to contest the resolution should be lodged with
the stockholders owning a majority of the shares for they are expected to be more
objective in determining whether the resolution is plainly arbitrary and issued in bad
faith.
The original complaint in Civil Case No. 17692 was not initiated by the majority of the
stockholders, hence it should have been dismissed. However, confronted with this fatal
flaw, counsel for PBP, through shrewd maneuvering, attempted to save the day by
impleading as co-plaintiff a corporation, the PPI, which was not under conservatorship.
Unfortunately, the maneuver was crudely and imperfectly executed. Except for the
inclusion of its name, nothing new was actually added to the original complaint in terms
of causes of action and reliefs for PPI. The amendment then was an exercise in futility.
We cannot, however, subscribe to the petitioner's view that: (a) once a bank is placed
under conservatorship, no action may be filed on behalf of the bank without prior

approval of the conservator, and (b) since in this case such approval was not secured
prior to the filing of Civil Case No. 17692, the latter must also be dismissed on that
ground. No such approval is necessary where the action was instituted by the majority
of the bank's stockholders. To contend otherwise would be to defeat the rights of such
stockholders under the fifth paragraph of Section 29 of the Central Bank Act. It must be
stressed here that a bank retains its juridical personality even if placed under
conservatorship; 44 it is neither replaced nor substituted by the conservator who, per
Section 28-A of the Central Bank Act, as amended by P.D. No. 1932, shall only:
. . . take charge of the assets, liabilities, and the management of that
institution, collect all monies and debts due said institution and exercise all
powers necessary to preserve the assets of the institution, reorganize the
management thereof, and restore its viability. He shall have the power to
overrule, or revoke the actions of the previous management and board of
directors . . ., any provision of law to the contrary notwithstanding, and such
other powers as the Monetary Board shall deem necessary.
Even assuming for the sake of argument that the action was properly brought by an
authorized party, the same must nevertheless be dismissed for failure of the plaintiffs
therein to pay the correct docket fees, pursuant toManchester Development
Corp. vs. Court of Appeals, et al.; 45 the said case was decided by this Court on 7 May
1987, exactly three (3) months and twenty (20) days before the filing of the original
complaint and five (5) months and eighteen (18) days before the filing of the Amended
Complaint in Civil Case No. 17692. We ruled therein that:
The Court acquires jurisdiction over any case only upon the payment of the
prescribed docket fee. An amendment of the complaint or similar pleading
will not thereby vest jurisdiction in the Court, much less the payment of the
docket fee based on the amounts sought in the amended pleading. The
ruling in the Magaspi case [115 SCRA 193], in so far as it is inconsistent
with this pronouncement is overturned and reversed.
The respondent Judge, in ruling that PBP and PPI had paid the correct docket fee of
P102.00, said that "the value of the case cannot be estimated" since what is sought is
an injunction against the enforcement of the challenged resolutions of the MB; in short,
the claim for damages is merely incidental. Upon the other hand, respondent Court, in
its Resolution of 17 May 1989 in C.A.-G.R. SP No. 13624, ruled that the case is
"incapable of pecuniary estimation" because the value of the losses incurred by the
PBP "cannot be calibrated nor pinned down to a specific amount in view of the damage
that may be caused by the appointment of a conservator to its goodwill and standing in
the community." 46
Both conclusions are unfounded and are the result of a misapprehension of the
allegations and causes of action in both the complaint and amended complaint.

While PBP cleverly worded its complaint in Civil Case No. 17692 to make it appear as
one principally for injunction, deliberately omitting the claim for damages as a specific
cause of action, a careful examination thereof bears that the same is in reality an
action for damages arising out of the alleged "unwarranted, ill-motivated and illegal
conservatorship," or a conservatorship which "was utterly unnecessary and
unjustified," and the "arbitrary" appointment of a conservator. 47 Thus, as stated earlier,
it devoted the bulk of its petition to detailed events, occurrences and transactions in
support thereof and patiently enumerated the losses it sustained and suffered. The
pertinent portions of paragraph 27 of both the original and amended complaints read
as follows:
27. The record of the Central Bank conservatorship of PBP clearly
shows that it was responsible for the losses.
xxx xxx xxx
[Then follows an enumeration, from (a) to (u), of particular acts causing or
resulting in losses, most of which are specifically stated]
xxx xxx xxx
(v) Total of only the foregoing mentioned and only of those that can be
quantified is P108,479,771.00.
And that excludes loss of profits that PBP could have realized if
that disastrous conservatorship had not been imposed on it and
loss of goodwill.
The causes for these abuses of the conservators are course
graft and corruption of the conservators aside from fault in the
system which denies private enterprise. (emphasis supplied)
xxx xxx xxx
These are the very damages referred to in the prayer:
. . . to fully repair the damages inflicted on PBP consisting of losses of
operation and the conservators' bank frauds and abuses, . . .
but not specified therein. To this Court's mind, this was done to evade the
payment of the corresponding filing fees which, as computed by petitioner on the
basis alone of the specified losses of P108,479,771.00, would amount to about P
437,000.00. 48 The PBP then clearly acted with manifest bad faith in resorting to
the foregoing clever strategy to avoid paying the correct filing fees. We are thus
constrained to reiterate Our pronouncements in the Manchester case:

The Court cannot close this case without making the observation that it
frowns at the practice of counsel who filed the original complaint in this
case of omitting any specification of the amount of damages in the prayer
although the amount of over P78 million is alleged in the body of the
complaint. This is clearly intended for no other purpose than to evade the
payment of the correct filing fees if not to mislead the docket clerk in the
assessment of the filing fee. . . .
The respondent Court itself, in its decision of 17 January 1990 in C.A-G.R. SP No.
16972, 49 confronted by the same issue, but perhaps unaware of its Resolution of 17
May 1989 in C.A.-G.R. SP No. 13624 aforementioned, ruled that PBP and PPI are
liable for the filing fees on the claim for damages. It even directed PBP and PPI to file
"the corresponding amendment to their amended complaint in said case stating a
specific amount 'to fully repair the damages inflicted on PBP consisting of losses of
operation and the conservator's bank frauds and abuses' . . .," after which the Clerk of
Court of the lower court or his duly authorized docket clerk should determine the
amount found due, which said plaintiffs shall pay "within the applicable prescriptive or
reglementary period,
. . ." 50 The 17 January 1990 ruling, clearly reversing the earlier one, is of doubtful
propriety in view of the petition for review of the decision in C.A.-G.R. SP No. 13624
filed by the petitioner.
In granting PBP and PPI an opportunity to amend their amended complaint to reflect
the specific amount of damages in the prayer of their Amended Complaint, respondent
Court took refuge under the rule laid down in Sun Insurance Office, Ltd., et
al. vs. Asuncion, et al. 51 and Filipinas Shell Petroleum Corp. vs. Court of Appeals, et
al.52 Of course, it was erroneous for respondent Court to apply these last two (2) cases
which were decided by this Court three (3) months short of two (2) years after the
promulgation of the Manchester decision on 7 May 1987. Accordingly, since the original
complaint in Civil Case No. 17692 was filed on 27 August 1987,
the Manchesterdoctrine was the controlling and applicable law. The lower court had no
choice but to apply it when its attention was called by the petitioner.
Moreover, even granting for the sake of argument that Sun Insurance and Pilipinas
Shell 53 may apply in this case, We should not lose sight of the fact that in the former,
this Court categorically stated:
1. It is not simply the filing of the complaint or appropriate initiatory
pleading, but the payment of the prescribed docket fee, that vests a trial
court with jurisdiction over the subject-matter or nature of the action. Where
the filling of the initiatory pleading is not accompanied by payment of the
docket fee, the court may allow the payment of the fee within a reasonable
time but in no case beyond the applicable prescriptive or reglementary
period.

The prescriptive period therein mentioned refers to the period within which a specific
action must be filed. It means that in every case, the docket fee must be paid before
the lapse of the prescriptive period. Chapter 3, Title V, Book III of the Civil Code is the
principal law governing prescription of actions.
There can be no question that in the instant case, PBP's claims for damages arise out
of an injury to its rights. Pursuant to Article 1146 of the Civil Code, the action therefor
must be initiated within four (4) years from the time the cause of action accrued. Since
the damages arose out of the alleged unwarranted, ill-motivated, illegal, unnecessary
and unjustified conservatorship, the cause of action, if any, first accrued in 1984 and
continued until 27 August 1987, when the original complaint was filed. Even if We are
to assume that the four-year period should start running on 27 August 1987, that period
lapsed on 27 August 1991. There is no showing that PBP paid the correct filing fee for
the claim within the prescribed period. Hence, nothing can save Civil Case No. 17692
from being dismissed.
2. And now on the issue of the writ of preliminary injunction.
The challenged Orders of the trial court granting the application for a writ of preliminary
injunction and the assailed decision of the respondent Court in C.A. G.R. No. 13624
clearly betray a prejudgment of the case. In both instances, not only did said courts
declare MB Resolutions Nos. 649 and 751 to be arbitrary, both also declared the
conservatorship to have been issued in violation of PBP's right to administrative due
process, which the CB "arbitrarily brushed aside to the prejudice" of the latter. The said
courts further concluded that "the sudden and untimely announcement by the Central
Bank that respondent Producers Bank will be under a conservatorship that will oversee
its operations worked havoc over the confidence that the public had hitherto reposed
on respondent bank so that the majority of its depositors over-reacted and rashly
withdrew their accounts from said bank, thus it incurred a loss of P593.707 million or
59.5% of its deposits."
Thus, save only for the determination of the full extent of PBP's claim for damages,
said courts have, at the most, decided or, at the very least, prejudged the case. Courts,
notwithstanding the discretion given to them, should avoid issuing writs of preliminary
injunction which in effect dispose of the main case without a trial. 54 We do not then
hesitate to rule that there was grave abuse of discretion in the issuance of the writ of
preliminary injunction.
Besides, there was neither arbitrariness nor bad faith in the issuance of MB
Resolutions Nos. 649 and 751. It must be stressed in this connection that the banking
business is properly subject to reasonable regulation under the police power of the
state because of its nature and relation to the fiscal affairs of the people and the
revenues of the state. 55 Banks are affected with public interest because they receive
funds from the general public in the form of deposits. Due to the nature of their
transactions and functions, a fiduciary relationship is created between the banking

institutions and their depositors. Therefore, banks are under the obligation to treat with
meticulous care and utmost fidelity the accounts of those who have reposed their trust
and confidence in them. 56
It is then Government's responsibility to see to it that the financial interests of those
who deal with banks and banking institutions, as depositors or otherwise, are
protected. In this country, that task is delegated to the Central Bank which, pursuant to
its Charter, 57 is authorized to administer the monetary, banking and credit system of
the Philippines. Under both the 1973 and 1987 Constitutions, the Central Bank is
tasked with providing policy direction in the areas of money, banking and credit;
corollarily, it shall have supervision over the operations of banks. 58Under its charter,
the CB is further authorized to take the necessary steps against any banking institution
if its continued operation would cause prejudice to its depositors, creditors and the
general public as well. This power has been expressly recognized by this
Court. In Philippine Veterans Bank Employees Union-NUBE vs. Philippine Veterans
Bank, 59 this Court held that:
. . . Unless adequate and determined efforts are taken by the government
against distressed and mismanaged banks, public faith in the banking
system is certain to deteriorate to the prejudice of the national economy
itself, not to mention the losses suffered by the bank depositors, creditors,
and stockholders, who all deserve the protection of the government. The
government cannot simply cross its arms while the assets of a bank are
being depleted through mismanagement or irregularities. It is the duty of
the Central Bank in such an event to step in and salvage the remaining
resources of the bank so that they may not continue to be dissipated or
plundered by those entrusted with their management.
One important measure adopted by the government to protect the public against
unscrupulous practices of some bankers is to require banking institutions to set up
reserves against their deposit liabilities. These reserves, pegged at a certain
percentage of the volume of deposit liability, is that portion of the deposit received by a
banking institution which it cannot use for loans and investments. The reserve
requirement, which ordinarily takes the form of a deposit with the Central Bank, is one
means by which the government ensures the liquidity of banking institutions. 60
These reserve accounts maintained by banking institutions with the Central Bank also
serve as a basis for the clearing of checks and the settlement of interbank balances. 61
The need to maintain these required reserves cannot be over-emphasized. Thus,
where over-drawings on deposit accounts (regardless of amount) are incurred, R.A.
No. 265 requires the delinquent bank to:
. . . fully cover said overdraft not later than the next clearing day: Provided,
Further, That settlement of clearing balances shall not be effected for any

account which continue to, be overdrawn for five consecutive banking days
until such time as the overdrawing is fully covered or otherwise converted
into an emergency loan or advance pursuant to the provisions of Sec. 90 of
this Act. Provided, Finally, That the appropriate clearing office shall be
officially notified of banks with overdrawn balances. Banks with existing
overdrafts with the Central Bank as of the effectivity of this amended
section shall, within such period as may be prescribed by the Monetary
Board, either convert the overdraft into an emergency loan or advance with
a plan of payment, or settle such overdrafts, and that, upon failure to
comply herewith, the Central Bank shall take such action against the bank
as may be warranted under this Act. 62 [Emphasis supplied.]
The fact that PBP is grossly overdrawn on its reserve account with the CB (up to
P1.233 billion as of 13 February 1990) is not disputed by PBP. This enormous overdraft
evidences the patent inability of the bank's management to keep PBP liquid. This fact
alone sufficiently justifies the remedial measures taken by the Monetary Board.
MB Resolutions Nos. 649 and 751 were not promulgated to arbitrarily divest the
present stockholders of control over PBP, as is claimed by the latter. The same
contemplates an effective and viable plan to revive and restore PBP. It is to be noted
that before issuing these resolutions, the MB gave the management of PBP ample
opportunity (from 30 March 1984 to June of 1987) to submit a viable rehabilitation plan
for the bank.
MB Resolution Nos. 751 merely reiterated the requirement set forth in Resolution No.
649 for PBP to identify and submit the list of new stockholders who will infuse new
capital into the bank for CB approval. In this Resolution, the MB gave PBP's
stockholders one (1) week from notice within which to signify their acceptance or
rejection of the proposed rehabilitation plan.
The foregoing resolutions refer to a recommended rehabilitation plan. What was
conveyed to PBP was a mere proposal. There was nothing in the resolutions to
indicate that the plan was mandatory. On the contrary, PBP was given a specific period
within which to accept or reject the plan. And, as petitioners correctly pointed out, the
plan was not self-implementing. The warning given by the MB that should said
proposal be rejected, the CB "will take appropriate alternative actions on the matter,"
does not make the proposed rehabilitation plan compulsory. Whether or not there is a
rehabilitation plan agreed upon between PBP and the MB, the CB is authorized under
R.A. No. 265 to take appropriate measures to protect the interest of the bank's
depositors as well as of the general public.
Furthermore, the assignment of claims to PDIC and the subsequent dacion en
pago (payment of credit through shares) do not divest the present stockholders of
control over PBP. As may be readily observed from the terms of Resolution No. 645,
the shares which shall be issued to PDIC under the dacion are preferred, non-voting

and non-participating shares. Hence, except for the instances enumerated in the
Corporation Code where holders of non-voting shares are given the right to vote, PDIC
shall have no hand in the bank's operation or business. In any event, these preferred
shares will eventually be sold to private parties or new stockholders as soon as they
are identified by PBP and approved by the CB. Prior approval by the CB of the
stockholders is necessary screening purposes.
There is nothing objectionable to the actions of the MB. We, therefore, find to be
completely without legal or evidentiary basis the contention that the impugned
resolutions are arbitrary, illegal and made in bad faith.
Moreover, respondent Judge acted in complete disregard of Section 107 of R.A. No.
265 when he enjoined the CB from taking appropriate actions against the bank,
"including exclusion of (PBP) from settlement of clearing balances at the Central Bank
clearing house" as warranted by law. By using his own standards, and without
scrutinizing the law, respondent Judge arbitrarily determined when CB may or may not
initiate measures against a bank that cannot maintain its liquidity. He also arbitrarily
and capriciously decided who can continually overdraw from the deposit account with
the CB, to the prejudice of other banking institutions, the banking public and the
government.
3. As could be gleamed from the pleadings in G.R. No. 92943, the respondent Judge,
per his order of 18 November 1987, (a) directed the conservator to restore both the
PBP officers to their original positions prior to the reorganization of the bank's
personnel, and the PBP's standing committees to their original compositions, and (b)
restrained her from leasing out to a third party any portion of PBP's space in the
Producers Bank Centre; per his Order of 22 December 1987, respondent Judge
granted PPI's motion for an order transferring to the latter the administration of the
three (3) buildings; and per the Order of 22 December 1987, he granted the motion
directing the conservator to publish the financial statement of the PBP in the manner
prayed for by the latter.
The foregoing Orders were issued without due hearing. Moreover, these reliefs were
not prayed for in the Amended Complaint. They were not even covered by any specific
allegations therein. Except for the prohibition to lease, the rest partook of the nature of
a preliminary mandatory injunction which deprived the conservator of her rights and
powers under Section 28-A of R.A. No. 265 and, in effect, set aside the
conservatorship with PBP itself had earlier accepted. It must be remembered that PBP
did not ask, in its Amended Complaint, for the setting aside of the conservatorship. On
the contrary, it even prayed that the conservator be ordered to restore the viability of
PBP as mandated by said Section 28-A.
The respondent Judge should not have forgotten the settled doctrine that it is improper
to issue a writ of preliminary mandatory injunction prior to the final hearing, except in
cases of extreme urgency, where the right is very clear, where considerations of

relative inconvenience bear strongly in complainant's favor, where there is a willful and
unlawful invasion of plaintiff's right against his protest and remonstrance, the injury
being a continuing one, and where the effect of the mandatory injunction is rather to reestablish and maintain a pre-existing continuing relation between the parties, recently
and arbitrarily interrupted by the defendant, than to establish a new relation. 63
It is plain to this Court that respondent Judge ceased to be an impartial arbitrator; he
became the godfather of PBP and PPI, granting to them practically all that they had
asked for in the motions they filed. Upon the issuance of these Orders, nothing
appeared clearer in the judicial horizon than this PBP and PPI had everything in the
bag, so to speak, including the reliefs not even contemplated in their Amended
Complaint. The challenged Orders then were whimsically and arbitrarily issued.
Compounding such detestable conduct is the respondent Judge's issuance, with undue
haste and unusual speed, of the orders of contempt without the proper hearing. If the
conservator could, at all, be liable for contempt, it would be for indirect contempt
punished under Section 3, Rule 71 of the Rules of Court, more specifically item (b) of
the first paragraph which reads:
Sec. 3 Indirect contempts to be punished after charge and hearing. After
charge in writing has been filed, and an opportunity given to the accused to
be heard by himself or counsel, a person guilty of any of the following acts
may be punished for contempt:
xxx xxx xxx
(b) Disobedience of or resistance to a lawful writ, process,
order, judgment, or command of a court, or injunction granted
by a court or judge, . . .;
It is clear from the said section that it is necessary that there be a charge and that the
party cited for contempt be given an opportunity to be heard. The reason for this is that
contempt partakes of the nature of a criminal offense. In the instant case, each motion
for contempt served as the charge. It is settled that a charge may be filed by a fiscal, a
judge, or even a private person. 64 Petitioner Tansinsin-Encarnacion filed oppositions
thereto. Thereafter, it was the duty of the respondent Judge to hold a hearing on the
motions. Respondent Judge deliberately did away with the hearing and this Court finds
no justifiable reason therefor.
There is, moreover, another reason why the contempt orders must be struck down. The
orders which were supposedly disobeyed and from which the motions for contempt
arose were, as earlier indicated, null and void for having been issued with grave abuse
of discretion amounting to lack of jurisdiction. Such Orders, therefore, cannot then be
characterized as lawful. Consequently, resistance thereto cannot be punished as
contempt 65

PREMISES CONSIDERED, the petitions in G.R. Nos. 88353 and 92943 are
GRANTED. The 6 October 1988 decision and 17 May 1989 resolution of the Court of
Appeals in C.A.-G.R. SP No. 13624 are REVERSED and SET ASIDE. Respondent
Judge is ordered to dismiss Civil Case No. 17692. All proceedings undertaken and all
orders issued by respondent Judge are hereby SET ASIDE for being null and void. The
writ of preliminary injunction issued by the trial court in its Order dated 21 September
1987 is hereby LIFTED.
IT IS SO ORDERED.
Narvasa, C.J., Melencio-Herrera, Cruz, Paras, Feliciano, Bidin, Grio-Aquino,
Regalado, Romero and Nocon, JJ., concur.
Padilla and Bellosillo, JJ., took no part.

Separate Opinions
GUTIERREZ, JR., J., concurring:
While I concur in the Court's decision, I would like to express certain reservations
about the arbitrary grant of power under the law to Central Bank (CB) authorities.
Any displeasure of CB officials against a private bank expressed through official
pronouncements or through rumors, real or imagined, in media, as in this case, will
lead to a bank run by depositors. And if the CB, which alone can stem the disaster,
does not sincerely do all it can to help the bank, the inevitable result is the bank's
collapse and closure. Subsequent judicial action is illusory. I realize that the possibility
of abuse is no reason to invalidate a law but here it is not a mere "possibility." It is
a certainty whenever CB officials decide or will to do so. The absolute power and
discretion over a bank's life or death and the total reliance on the officials' good faith is
contrary to principles of fairness and substantive due process embodied in our
Constitution.
The principal function of a CB conservator is to preserve the assets of the private bank
and restore its viability. I, however, note from this petition and earlier cases of the same
nature that a conservator usually forgets that he is supposed to be a friend of the bank
under conservatorship and not its adversary. The distinction between a conservator
and a liquidator is overlooked. The conservator starts with a prejudiced attitude. There
should be a more objective and evenhanded way of restoring distressed banks to
viability.

Separate Opinions
GUTIERREZ, JR., J., concurring:
While I concur in the Court's decision, I would like to express certain reservations
about the arbitrary grant of power under the law to Central Bank (CB) authorities.
Any displeasure of CB officials against a private bank expressed through official
pronouncements or through rumors, real or imagined, in media, as in this case, will
lead to a bank run by depositors. And if the CB, which alone can stem the disaster,
does not sincerely do all it can to help the bank, the inevitable result is the bank's
collapse and closure. Subsequent judicial action is illusory. I realize that the possibility
of abuse is no reason to invalidate a law but here it is not a mere "possibility." It is
a certainty whenever CB officials decide or will to do so. The absolute power and
discretion over a bank's life or death and the total reliance on the officials' good faith is
contrary to principles of fairness and substantive due process embodied in our
Constitution.
The principal function of a CB conservator is to preserve the assets of the private bank
and restore its viability. I, however, note from this petition and earlier cases of the same
nature that a conservator usually forgets that he is supposed to be a friend of the bank
under conservatorship and not its adversary. The distinction betweebetween a
conservator and a liquidator is overlooked. The conservator starts with a prejudiced
attitude. There should be a more objective and evenhanded way of restoring distressed
banks to viability.

G.R. No. 100701

March 28, 2001

PRODUCERS BANK OF THE PHILIPPINES, petitioner,

vs.
NATIONAL LABOR RELATIONS COMMISSION and PRODUCERS BANK
EMPLOYEES ASSOCIATION,1respondents.
GONZAGA-REYES, J.:
Before us is a special civil action for certiorari with prayer for preliminary injunction
and/or restraining order seeking the nullification of (1) the decision of public respondent
in NLRC-NCR Case No. 02-00753-88, entitled "Producers Bank Employees
Association v. Producers Bank of the Philippines," promulgated on 30 April 1991,
reversing the Labor Arbiter's dismissal of private respondent's complaint and (2) public
respondent's resolution dated 18 June 1991 denying petitioner's motion for partial
reconsideration.1wphi1.nt

The present petition originated from a complaint filed by private respondent on 11

February 1988 with the Arbitration Branch, National Capital Region, National Labor
Relations Commission (NLRC), charging petitioner with diminution of benefits, noncompliance with Wage Order No. 6 and non-payment of holiday pay. In addition,
private respondent prayed for damages.2
On 31 March 1989, Labor Arbiter Nieves V. de Castro found private respondent's
claims to be unmeritorious and dismissed its complaint. 3 In a complete reversal,
however, the NLRC4 granted all of private respondent's claims, except for
damages.5 The dispositive portion of the NLRC's decision provides
WHEREFORE, premises considered, the appealed Decision is, as it is hereby,
SET ASIDE and another one issued ordering respondent- appellee to pay
complainant-appellant:
1. The unpaid bonus (mid-year and Christmas bonus) and 13 th month pay;
2. Wage differentials under Wage Order No. 6 for November 1, 1984 and the
corresponding adjustment thereof; and
3. Holiday pay under Article 94 of the Labor Code, but not to exceed three (3)
years.
The rest of the claims are dismissed for lack of merit.
SO ORDERED.
Petition filed a Motion for Partial Reconsideration, which was denied by the NLRC in a
Resolution issued on 18 June 1991. Hence, recourse to this Court.
Petitioner contends that the NLRC gravely abused its discretion in ruling as it did for
the succeeding reasons stated in its Petition 1. On the alleged diminution of benefits, the NLRC gravely abused its discretion when
(1) it contravened the Supreme Court decision in Traders Royal Bank v. NLRC, et al.,
G.R. No. 88168, promulgated on August 30, 1990, (2) its ruling is not justified by law
and Art. 100 of the Labor Code, (3) its ruling is contrary to the CBA, and (4) the socalled "company practice invoked by it has no legal and moral bases" (p. 2, Motion for
Partial Reconsideration, Annex "H");
2. On the alleged non-compliance with Wage Order No. 6, the NLRC again gravely
abused its discretion when it patently and palpably erred in holding that it is "more
inclined to adopt the stance of appellant (private respondent UNION) in this issue since
it is more in keeping with the law and its implementing provisions and the intendment
of the parties as revealed in their CBA" without giving any reason or justification for

such conclusions as the stance of appellant (private respondent UNION) does not
traverse the clear and correct finding and conclusion of the Labor Arbiter.
Furthermore, the petitioner, under conservatorship and distressed, is exempted under
Wage Order No. 6.
Finally, the "wage differentials under Wage Order No. 6 for November 1, 1984 and the
corresponding adjustment thereof" (par. 2, dispositive portion, NLRC Decision), has
prescribed (p. 12, Motion for Partial Reconsideration, Annex "H").
3. On the alleged non-payment of legal holiday pay, the NLRC again gravely abused its
discretion when it patently and palpably erred in approving and adopting "the position
of appellant (private respondent UNION)" without giving any reason or justification
therefor which position does not squarely traverse or refute the Labor Arbiter's correct
finding and ruling (p. 18, Motion for Partial Reconsideration, Annex "H"). 6
On 29 July 1991, the Court granted petitioner's prayer for a temporary restraining order
enjoining respondents from executing the 30 April 1991 Decision and 18 June 1991
Resolution of the NLRC.7
Coming now to the merits of the petition, the Court shall discuss the issues ad seriatim.
Bonuses
As to the bonuses, private respondent declared in its position papers filed with the
NLRC that
1. Producers Bank of the Philippines, a banking institution, has been providing several
benefits to its employees since 1971 when it started its operation. Among the benefits it
had been regularly giving is a mid-year bonus equivalent to an employee's one-month
basic pay and a Christmas bonus equivalent to an employee's one whole month salary
(basic pay plus allowance);
2. When P.D. 851, the law granting a 13th month pay, took effect, the basic pay
previously being given as part of the Christmas bonus was applied as compliance to it
(P.D. 851), the allowances remained as Christmas bonus;
3. From 1981 up to 1983, the bank continued giving one month basic pay as mid-year
bonus, one month basic pay as 13th month pay but the Christmas bonus was no longer
based on the allowance but on the basic pay of the employees which is higher;
4. In the early part of 1984, the bank was placed under conservatorship but it still
provided the traditional mid-year bonus;

5. By virtue of an alleged Monetary Board Resolution No. 1566, bank only gave a onehalf (1/2) month basic pay as compliance of the 13 th month pay and none for the
Christmas bonus. In a tabular form, here are the bank's violations:
YEAR

MID- YEAR
BONUS

CHRISTMAS
BONUS

13TH MO. PAY

previous
years

one mo. basic

one mo. basic

one mo. Basic

1984

[one mo. basic]

-none-

one-half mo.
Basic

1985

one-half mo.
basic

-none-

one-half mo.
Basic

1986

one-half mo.
basic

one-half mo. basic

one mo. Basic

1987

one-half mo.
basic

one-half mo. basic

one mo. basic

Private respondent argues that the mid-year and Christmas bonuses, by reason of their
having been given for thirteen consecutive years, have ripened into a vested right and,
as such, can no longer be unilaterally withdrawn by petitioner without violating Article
100 of Presidential Decree No. 4429 which prohibits the diminution or elimination of
benefits already being enjoyed by the employees. Although private respondent
concedes that the grant of a bonus is discretionary on the part of the employer, it
argues that, by reason of its long and regular concession, it may become part of the
employee's regular compensation.10
On the other hand, petitioner asserts that it cannot be compelled to pay the alleged
bonus differentials due to its depressed financial condition, as evidenced by the fact
that in 1984 it was placed under conservatorship by the Monetary Board. According to
petitioner, it sustained losses in the millions of pesos from 1984 to 1988, an assertion
which was affirmed by the labor arbiter. Moreover, petitioner points out that the
collective bargaining agreement of the parties does not provide for the payment of any
mid-year or Christmas bonus. On the contrary, section 4 of the collective bargaining
agreement states that
Acts of Grace. Any other benefits or privileges which are not expressly provided
in this Agreement, even if now accorded or hereafter accorded to the employees,
shall be deemed purely acts of grace dependent upon the sole judgment and
discretion of the BANK to grant, modify or withdraw . 11

A bonus is an amount granted and paid to an employee for his industry and loyalty
which contributed to the success of the employer's business and made possible the
realization of profits. It is an act of generosity granted by an enlightened employer to
spur the employee to greater efforts for the success of the business and realization of
bigger profits.12 The granting of a bonus is a management prerogative, something
given in addition to what is ordinarily received by or strictly due the recipient. 13 Thus, a
bonus is not a demandable and enforceable obligation, 14 except when it is made part of
the wage, salary or compensation of the employee. 15
However, an employer cannot be forced to distribute bonuses which it can no longer
afford to pay. To hold otherwise would be to penalize the employer for his past
generosity. Thus, in Traders Royal Bank v. NLRC,16 we held that It is clear x x x that the petitioner may not be obliged to pay bonuses to its
employees. The matter of giving them bonuses over and above their lawful
salaries and allowances is entirely dependent on the profits, if any, realized by
the Bank from its operations during the past year.
From 1979-1985, the bonuses were less because the income of the Bank had
decreased. In 1986, the income of the Bank was only 20.2 million pesos, but the
Bank still gave out the usual two (2) months basic mid-year and two months
gross year-end bonuses. The petitioner pointed out, however, that the Bank
weakened considerably after 1986 on account of political developments in the
country. Suspected to be a Marcos-owned or controlled bank, it was placed
under sequestration by the present administration and is now managed by the
Presidential Commission on Good Government (PCGG).
In light of these submissions of the petitioner, the contention of the Union that the
granting of bonuses to the employees had ripened into a company practice that
may not be adjusted to the prevailing financial condition of the Bank has no legal
and moral bases. Its fiscal condition having declined, the Bank may not be forced
to distribute bonuses which it can no longer afford to pay and, in effect, be
penalized for its past generosity to its employees. Private respondent's contention, that the decrease in the mid-year and year-end
bonuses constituted a diminution of the employees' salaries, is not correct, for
bonuses are not part of labor standards in the same class as salaries, cost of
living allowances, holiday pay, and leave benefits, which are provided by the
Labor Code.
This doctrine was reiterated in the more recent case of Manila Banking Corporation v.
NLR17 wherein the Court made the following pronouncements
By definition, a "bonus" is a gratuity or act of liberality of the giver which the
recipient has no right to demand as a matter of right. It is something given in

addition to what is ordinarily received by or strictly due the recipient. The granting
of a bonus is basically a management prerogative which cannot be forced upon
the employer who may not be obliged to assume the onerous burden of granting
bonuses or other benefits aside from the employee's basic salaries or wages,
especially so if it is incapable of doing so.
xxx xxx xxx
Clearly then, a bonus is an amount given ex gratia to an employee by an
employer on account of success in business or realization of profits. How then
can an employer be made liable to pay additional benefits in the nature of
bonuses to its employees when it has been operating on considerable net losses
for a given period of time?
Records bear out that petitioner Manilabank was already in dire financial straits in
the mid-80's. As early as 1984, the Central Bank found that Manila bank had
been suffering financial losses. Presumably, the problems commenced even
before their discovery in 1984. As earlier chronicled, the Central Bank placed
petitioner bank under comptrollership in 1984 because of liquidity problems and
excessive interbank borrowings. In 1987, it was placed under receivership and
ordered to close operation. In 1988, it was ordered liquidated.
It is evident, therefore, that petitioner bank was operating on net losses from the
years 1984, 1985 and 1986, thus, resulting to its eventual closure in 1987 and
liquidation in 1988. Clearly, there was no success in business or realization of
profits to speak of that would warrant the conferment of additional benefits
sought by private respondents. No company should be compelled to act liberally
and confer upon its employees additional benefits over and above those
mandated by law when it is plagued by economic difficulties and financial losses.
No act of enlightened generosity and self-interest can be exacted from near
empty , if not empty coffers.
It was established by the labor arbiter18 and the NLRC19 and admitted by both
parties20 that petitioner was placed under conservatorship by the Monetary Board,
pursuant to its authority under Section 28-A of Republic Act No. 265, 21 as amended by
Presidential Decree No. 72,22 which provides
Sec.28-A. Appointment of conservator. - Whenever, on the basis of a report
submitted by the appropriate supervising and examining department, the
Monetary Board finds that a bank is in a state of continuing inability or
unwillingness to maintain a condition of solvency and liquidity deemed adequate
to protect the interest of depositors and creditors, the Monetary Board may
appoint a conservator to take charge of the assets, liabilities, and the
management of that banking institution, collect all monies and debts due said
bank and exercise all powers necessary to preserve the assets of the bank,

reorganize the management thereof and restore its viability .He shall have the
power to overrule or revoke "the actions of the previous management and board
of directors of the bank, any provision of law to the contrary notwithstanding, and
such other powers as the Monetary Board shall deem necessary.1wphi1.nt
xxx xxx xxx
Under Section 28-A, the Monetary Board may place a bank under the control of a
conservator when it finds that the bank is continuously unable or unwilling to maintain a
condition of solvency or liquidity .In Central Bank of the Philippines v. Court of
Appeals,23 the Court declared that the order placing petitioner herein under
conservatorship had long become final and its validity could no longer be litigated
upon. Also, in the same case, the Court found that sometime in August, 1983, some
news items triggered a bank-run in petitioner which resulted in continuous overdrawings on petitioner's demand deposit account with the Central Bank; the overdrawings reached P143.955 million by 17 January 1984; and as of 13 February 1990,
petitioner had over-drawings of up to P1.233 billion, which evidences petitioner's
continuing inability to maintain a condition of solvency and liquidity, thus justifying the
conservatorship. Our findings in the Central Bank case coincide with petitioner's claims
that it continuously suffered losses from 1984 to 1988 as follows
YEAR NET LOSSES IN
MILLIONS OF
PESOS
1984

P 144.418

1985

P 144.940

1986

P 132.940

1987

P 84.182

JanuaryFebruary 1988

P 9.271

These losses do not include the interest expenses on the overdraft loan of the
petitioner to the Central Bank, which interest as of July 31, 1987, amounted to
P610.065 Million, and penalties on reserve deficiencies which amounted to P89.029
Million. The principal balance of the overdraft amounted to P971.632 Million as of
March 16, 1988.24
Petitioner was not only experiencing a decline in its profits, but was reeling from
tremendous losses triggered by a bank-run which began in 1983. In such a depressed

financial condition, petitioner cannot be legally compelled to continue paying the same
amount of bonuses to its employees. Thus, the conservator was justified in reducing
the mid-year and Christmas bonuses of petitioner's employees. To hold otherwise
would be to defeat the reason for the conservatorship which is to preserve the assets
and restore the viability of the financially precarious bank. Ultimately, it is to the
employees' advantage that the conservatorship achieve its purposes for the alternative
would be petitioner's closure whereby employees would lose not only their benefits, but
their jobs as well.
13th Month Pay
With regard to the 13th month pay, the NLRC adopted the position taken by private
respondent and held that the conservator was not justified in diminishing or not paying
the 13th month pay and that petitioner should have instead applied for an exemption, in
accordance with section 7 of Presidential Decree No. 851 (PD 851), as amended by
Presidential Decree No. 1364, but that it did not do so. 25 The NLRC held that the
actions of the conservator ran counter to the provisions of PD 851.
In its position paper,26 private respondent claimed that petitioner made the following
payments to its members
YEAR

MID-YEAR BONUS

13th MONTH PAY CHRISTMAS

BONUS

1984

1 month basic

month basic

None

1985

month basic

month basic

None

1986

month basic

1 month basic

month basic

1987

month basic

1 month basic

month basic

However, in its Memorandum27 filed before this Court, private respondent revised its
claims as follows
YEAR

MID- YEAR BONUS

13th MONTH PAY CHRISTMAS

BONUS

1984

1 month basic

None

month basic

1985

month basic

None

month basic

1986

month basic

1/2 month basic

1 month basic

1987

1/2 month basic

month basic

1 month basic

1988

1/2 month basic

month basic

1 month basic

Petitioner argues that it is not covered by PD 851 since the mid-year and Christmas
bonuses it has been giving its employees from 1984 to 1988 exceeds the basic salary
for one month (except for 1985 where a total of one month basic salary was given).
Hence, this amount should be applied towards the satisfaction of the 13 th month pay,
pursuant to Section 2 of PD 851.28
PD 851, which was issued by President Marcos on 16 December 1975, requires all
employers to pay their employees receiving a basic salary of not more than P 1,000 a
month,29 regardless of the nature of the employment, a 13 th month pay, not later than
December 24 of every year.30 However, employers already paying their employees a
13th month pay or its equivalent are not covered by the law. Under the Revised
Guidelines on the Implementation of the 13 th-Month Pay Law,31 the term "equivalent"
shall be construed to include Christmas bonus, mid-year bonus, cash bonuses and
other payments amounting to not less than 1/12 of the basic salary. The intention of the
law was to grant some relief - not to all workers - but only to those not actually paid a
13thmonth salary or what amounts to it, by whatever name called. It was not envisioned
that a double burden would be imposed on the employer already paying his employees
a 13th month pay or its equivalent whether out of pure generosity or on the basis of a
binding agreement. To impose upon an employer already giving his employees the
equivalent of a 13th month pay would be to penalize him for his liberality and in all
probability, the employer would react by withdrawing the bonuses or resist further
voluntary grants for fear that if and when a law is passed giving the same benefits, his
prior concessions might not be given due credit. 32
In the case at bar, even assuming the truth of private respondent's claims as contained
in its position paper or Memorandum regarding the payments received by its members
in the form of 13th month pay, mid-year bonus and Christmas bonus, it is noted that, for
each and every year involved, the total amount given by petitioner would still exceed,
or at least be equal to, one month basic salary and thus, may be considered as an
"equivalent" of the 13thmonth pay mandated by PD 851.
Thus, petitioner is justified in crediting the mid-year bonus and Christmas bonus as part
of the 13th month pay.
Wage Order No. 6
Wage Order No.6, which came into effect on 1 November 1984, increased the statutory
minimum wage of workers, with different increases being specified for agricultural
plantation and non-agricultural workers. The bone of contention, however, involves
Section 4 thereof which reads

All wage increase in wage and/or allowance granted by employers between June
17, 1984 and the effectivity of this Order shall be credited as compliance with the
minimum wage and allowance adjustments prescribed herein, provided that
where the increases are less than the applicable amount provided in this Order,
the employer shall pay the difference. Such increases shall not include
anniversary wage increases provided in collective bargaining agreements unless
the agreement expressly provide otherwise.
On 16 November 1984, the parties entered into a collective bargaining agreement
providing for the following salary adjustments
Article VIII. Section 1. Salary Adjustments. - Cognizant of the effects of, among
others, price increases of oil and other commodities on the employees' wages
and earnings, and the certainty of continued governmental or statutory actions
adjusting employees' minimum wages, earnings, allowances, bonuses and other
fringe benefits, the parties have formulated and agreed on the following highly
substantial packaged increases in salary and allowance which take into account
and cover (a) any deflation in income of employees because of such price
increases and inflation and (b) the expected governmental response thereto in
the form of statutory adjustments in wages, allowances and benefits, during the
next three (3) years of this Agreement:
(i) Effective March 1, 1984 - P225.00 per month as salary increase plus P100.00
per month as increase in allowance to employees within the bargaining unit on
March 1, 1984.
(ii) Effective March 1,1985 -P125.00 per month as salary increase plus P100.00
per month as increase in allowance to employees within the bargaining unit on
March 1,1985.
(iii) Effective March 1,1986 -P125.00 per month as salary increase plus P100.00
per month as increase in allowance to employees within the bargaining unit on
March 1, 1986.
In addition, the collective bargaining agreement of the parties also included a provision
on the chargeability of such salary or allowance increases against government-ordered
or legislated income adjustments
Section 2. Pursuant to the MOLE Decision dated October 2, 1984 and Order
dated October 24, 1984, the first-year salary and allowance increases shall be
chargeable against adjustments under Wage Order No. 5, which took effect on
June 16, 1984. The charge ability of the foregoing salary increases against
government-ordered or legislated income adjustments subsequent to Wage
Order No. 5 shall be determined on the basis of the provisions of such
government orders or legislation.

Petitioner argues that it complied with Wage Order No. 6 because the first year salary
and allowance increase provided for under the collective bargaining agreement can be
credited against the wage and allowance increase mandated by such wage order.
Under Wage Order No. 6, all increases in wages or allowances granted by the
employer between 17 June 1984 and 1 November 1984 shall be credited as
compliance with the wage and allowance adjustments prescribed therein. Petitioner
asserts that although the collective bargaining agreement was signed by the parties on
16 November. 1984, the first year salary and allowance increase was made to take
effect retroactively, beginning from 1 March 1984 until 28 February 1985. Petitioner
maintains that this period encompasses the period of creditability provided for under
Wage Order No. 6 and that, therefore, the balance remaining after applying the first
year salary and allowance increase in the collective bargaining agreement to the
increase mandated by Wage Order No. 5, in the amount of P125.00, should be made
chargeable against the increase prescribed by Wage Order No. 6, and if not sufficient,
petitioner is willing to pay the difference. 33
On the other hand, private respondent contends that the first year salary and allowance
increases under the collective bargaining agreement cannot be applied towards the
satisfaction of the increases prescribed by Wage Order No. 6 because the former were
not granted within the period of creditability provided for in such wage order. According
to private respondent, the significant dates with regard to the granting of the first year
increases are 9 November 1984 the date of issuance of the MOLE Resolution, 16
November 1984 - the date when the collective bargaining agreement was signed by
the parties and 1 March 1984 the retroactive date of effectivity of the first year
increases. Private respondent points out that none of these dates fall within the period
of creditability under Wage Order No. 6 which is from 17 June 1984 to 1 November
1984. Thus, petitioner has not complied with Wage Order No. 6. 34
The creditability provision in Wage Order No. 6 is based on important public policy, that
is, the encouragement of employers to grant wage and allowance increases to their
employees higher than the minimum rates of increases prescribed by statute or
administrative regulation. Thus, we held in Apex Mining Company, Inc. v. NLRC35 that
[t]o obliterate the creditability provisions in the Wage Orders through
interpretation or otherwise, and to compel employers simply to add on legislated
increases in salaries or allowances without regard to what is already being paid,
would be to penalize employers who grant their workers more than the statutorily
prescribed minimum rates of increases. Clearly, this would be counter-productive
so far as securing the interest of labor is concerned. The creditability provisions
in the Wage Orders prevent the penalizing of employers who are industry leaders
and who do not wait for statutorily prescribed increases in salary or allowances
and pay their workers more than what the law or regulations require.
Section 1 of Article VIII of the collective bargaining agreement of the parties states that
"...the parties have formulated and agreed on the following highly substantial packaged

increases in salary and allowance which take into account and cover (a) any deflation
in income of employees because of such price increases and inflation and (b) the
expected governmental response thereto in the form of statutory adjustments in
wages, allowances and benefits, during the next three (3) years of this Agreement..."
The unequivocal wording of this provision manifests the clear intent of the parties to
apply the wage and allowance increases stipulated in the collective bargaining
agreement to any statutory wage and allowance, adjustments issued during the
effectivity of such agreement from 1 March 1984 to 28 February 1987. Furthermore,
contrary to private respondent's contentions, there is nothing in the wording of Section
2 of Article VIII of the collective bargaining agreement that would prevent petitioner
from crediting the first year salary and allowance increases against the increases
prescribed by Wage Order No. 6.
It would be inconsistent with the above stated rationale underlying the creditability
provision of Wage Order No. 6 if, after applying the first year increase to Wage Order
No. 5, the balance was not made chargeable to the increases under Wage Order No. 6
for the fact remains that petitioner actually granted wage and allowance increases
sufficient to cover the increases mandated by Wage Order No. 5 and part of the
increases mandated by Wage Order No. 6.
Holiday Pay
Article 94 of the Labor Code provides that every worker shall be paid his regular daily
wage during regular holidays 36 and that the employer may require an employee to work
on any holiday but such employee shall be paid a compensation equivalent to twice his
regular rate. In this case, the Labor Arbiter found that the divisor used by petitioner in
arriving at the employees' daily rate for the purpose of computing salary-related
benefits is 314.37This finding was not disputed by the NLRC. 38 However, the divisor was
reduced to 303 by virtue of an inter-office memorandum issued on 13 August 1986, to
wit
To increase the rate of overtime pay for rank and filers, we are pleased to inform
that effective August 18, 1986, the acting Conservator approved the use of 303
days as divisor in the computation of Overtime pay. The present Policy of 314
days as divisor used in the computation for cash conversion and determination of
daily rate, among others, still remain, Saturdays, therefore, are still considered
paid rest days.
Corollarily, the Acting Conservator also approved the increase of meal allowance
from P25.00 to P30.00 for a minimum of four (4) hours of work for Saturdays.
Proceeding from the unambiguous terms of the above quoted memorandum, the Labor
Arbiter observed that the reduction of the divisor to 303 was for the sole purpose of
increasing the employees' overtime pay and was not meant to replace the use of 314
as the divisor in the computation of the daily rate for salary-related benefits. 39

Private respondent admits that, prior to 18 August 1986, petitioner used a divisor of
314 in arriving at the daily wage rate of monthly-salaried employees. Private
respondent also concedes that the divisor was changed to 303 for purposes of
computing overtime pay only. In its Memorandum, private respondent states that
49. The facts germane to this issue are not debatable. The Memorandum
Circular issued by the Acting Conservator is clear. Prior to August 18,1986, the
petitioner bank used a divisor of 314 days in arriving at the daily wage rate of the
monthly-salaried employees. Effective August 18, 1986, this was changed. It
adopted the following formula:
Basic salary x 12 months = Daily Wage Rate
303 days
50. By utilizing this formula even up to the present, the conclusion is inescapable
that the petitioner bank is not actually paying its employees the regular holiday
pay mandated by law. Consequently, it is bound to pay the salary differential of its
employees effective November 1, 1974 up to the present.
xxx

xxx

xxx

54. Since it is a question of fact, the Inter-office Memorandum dated August

13,1986 (Annex "E") provides for a divisor of 303 days in computing overtime
pay. The clear import of this document is that from the 365 days in a year, we
deduct 52 rest days which gives a total of 313 days. Now, if 313 days is the
number of working days of the employees then, there is a disputable
presumption that the employees are paid their holiday pay. However, this is not
so in the case at bar. The bank uses 303 days as its divisor. Hence, it is not
paying its employees their corresponding holiday pay.40
In Union of Filipro Employees v. Vivar, ]r.41 the Court held that "[t]he divisor assumes an
important role in determining whether or not holiday pay is already included in the
monthly paid employee's salary and in the computation of his daily rate." This was also
our ruling in Chartered Bank Employees Association v. Ople,42 as follows
It is argued that even without the presumption found in the rules and in the policy
instruction, the company practice indicates that the monthly salaries of the
employees are so computed as to include the holiday pay provided by law. The
petitioner contends otherwise.
One strong argument in favor of the petitioner's stand is the fact that the
Chartered Bank, in computing overtime compensation for its employees, employs
a "divisor" of 251 days. The 251 working days divisor is the result of subtracting
all Saturdays, Sundays and the ten (10) legal holidays form the total number of

calendar days in a year. If the employees are already paid for all non-working
days, the divisor should be 365 and not 251.
Apparently, the divisor of 314 is arrived at by subtracting all Sundays from the total
number of calendar days in a year, since Saturdays are considered paid rest days, as
stated in the inter-office memorandum. Thus, the use of 314 as a divisor leads to the
inevitable conclusion that the ten legal holidays are already included therein.
We agree with the labor arbiter that the reduction of the divisor to 303 was done for the
sole purpose of increasing the employees' overtime pay, and was not meant to exclude
holiday pay from the monthly salary of petitioner's employees. In fact, it was expressly
stated in the inter-office memorandum - also referred to by private respondent in its
pleadings - that the divisor of 314 will still be used in the computation for cash
conversion and in the determination of the daily rate. Thus, based on the records of
this case and the parties' own admissions, the Court holds that petitioner has complied
with the requirements of Article 94 of the Labor Code.1wphi1.nt
Damages
As to private respondent's claim for damages, the NLRC was correct in ruling that
there is no basis to support the same.
WHEREFORE, for the reasons above stated, the 30 April 1991 Decision of public
respondent in NLRC-NCR Case No. 02-00753-88, entitled "Producers Bank
Employees Association v. Producers Bank of the Philippines," and its 18 June 1991 Resolution issued in the same case are hereby SET ASIDE, with the exception of
public respondent's ruling on damages.
SO ORDERED.
Melo, Vitug , Panganiban, and Sandoval-Gutierrez, JJ., concur.
G.R. No. 148491

February 8, 2007

SPOUSES ZACARIAS BACOLOR and CATHERINE BACOLOR, Petitioners,

vs.
BANCO FILIPINO SAVINGS AND MORTGAGE BANK, DAGUPAN CITY BRANCH
and MARCELINO C. BONUAN,Respondents.
DECISION
SANDOVAL-GUTIERREZ, J.:
Petition for Review on Certiorari under Rule 45 of the 1997 Rules of Civil Procedure, as
amended, assailing the Decision 1 of the Court of Appeals in CA-G.R. CV No. 47732
promulgated on February 23, 2001 and its Resolution dated May 30, 2001.

On February 11, 1982, spouses Zacarias and Catherine Bacolor, herein petitioners,
obtained a loan ofP244,000.00 from Banco Filipino Savings and Mortgage Bank,
Dagupan City Branch, respondent. They executed a promissory note providing that the
amount shall be payable within a period of ten (10) years with a monthly amortization
of P5,380.00 beginning March 11, 1982 and every 11th day of the month thereafter;
that the interest rate shall be twenty-four percent (24%) per annum, with a penalty of
three percent (3%) on any unpaid monthly amortization; that there shall be a service
charge of three percent (3%) per annum on the loan; and that in case respondent bank
seeks the assistance of counsel to enforce the collection of the loan, petitioners shall
be liable for ten percent (10%) of the amount due as attorneys fees and fifteen percent
(15%) of the amount due as liquidated damages.
As security for the loan, petitioners mortgaged with respondent bank their parcel of
land located in Dagupan City, Pangasinan, registered under Transfer Certificate of Title
No. 40827.
From March 11, 1982 to July 10, 1991, petitioners paid respondent bank P412, 199.36.
Thereafter, they failed to pay the remaining balance of the loan.
On August 7, 1992, petitioners received from respondent bank a statement of account
stating that their indebtedness as of July 31, 1992 amounts to P840,845.61.
In its letter dated January 13, 1993, respondent bank informed petitioners that should
they fail to pay their loan within fifteen (15) days from notice, appropriate action shall
be taken against them.
Due to petitioners failure to settle their obligation, respondent instituted, on March 5,
1993, an action for extra-judicial foreclosure of mortgage.
Prior thereto, or on February 1, 1993, petitioners filed with Branch 40 of the same RTC,
a complaint for violation of the Usury Law against respondent, docketed as Civil Case
No. D-10480. They alleged that the provisions of the promissory note constitute a
usurious transaction considering the (1) rate of interest, (2) the rate of penalties,
service charge, attorneys fees and liquidated damages, and (3) deductions for
surcharges and insurance premium. In their amended complaint, petitioners further
alleged that, during the closure of respondent bank, it ceased to be a banking
institution and, therefore, could not charge interests and institute foreclosure
proceeding.
On August 25, 1994, the RTC rendered its decision dismissing petitioners complaint,
holding that:
(1) The terms and conditions of the Deed of Mortgage and the Promissory Note are
legal and not usurious.

The plaintiff freely signed the Deed of Mortgage and the Promissory Note with full
knowledge of its terms and conditions.
The interest rate of 24% per annum is not usurious and does not violate the Usury Law
(Act 2655) as amended by P.D. No. 166.
The rate of interest, including commissions, premiums, fees and other charges, on a
loan or forbearance of any money etc., regardless of maturity x x x, shall not be subject
to any ceiling under or pursuant to the Usury Law, as amended (CB Circular no. 905).
Hence, the 24% interest per annum is allowed under P.D. No. 166.
For sometime now, usury has been legally non-existent. Interest can now be as lender
and borrower may agree upon (Verdejo v. CA, Jan. 29, 1988. 157 SCRA 743).
The imposition of penalties in case the obligation is not fulfilled is not prohibited by the
Usury Law. Parties to a contract of loan may validly agree upon the imposition of
penalty charges in case of delay or non-payment of the loan. The purpose is to compel
the debtor to pay his debt on time (Go Chioco v. Martinez, 45 Phil. 256, 265).
(2) The closure of Banco Filipino did not suspend or stop its usual and normal banking
operations like the collection of loan receivables and foreclosures of mortgages.
In view of the foregoing, plaintiffs failed to substantiate their cause of action against the
defendant. 2
On appeal, the Court of Appeals rendered its Decision affirming the Decision of the trial
court. Petitioners subsequent motion for reconsideration was denied.
Hence, this present petition for review on certiorari raising this lone issue: whether the
interest rate is "excessive and unconscionable."
It is the petitioners contention that while the Usury Law ceiling on interest rates was
lifted by Central Bank Circular No. 905, there is nothing in the said circular which
grants respondent bank carte blanche authority to raise interest rates to levels which
"either enslave the borrower or lead to a hemorrhaging of their assets." 3
In its comment 4 , respondent bank maintained that petitioner, by signing the Deed of
Mortgage and Promissory Note, knowingly and freely consented to its terms and
conditions. A contract between the parties must not be impaired. The interest rate of
24% per annum is not usurious and does not violate the Usury Law. 5
The petition lacks merit.
Article 1956 of the Civil Code provides that no interest shall be due unless it has been
expressly stipulated in writing. Here, the parties agreed in writing on February 11, 1982
that the rate of interest on the petitioners loan shall be 24% per annum.

At the time the parties entered into the loan transaction, the applicable law was the
Usury Law (Act 2655), as amended by P.D. No. 166, which provides that the rate of
interest for the forbearance of money when secured by a mortgage upon real estate,
should not be more than 6% per annum or the maximum rate prescribed by the
Monetary Board of the Central Bank of the Philippines in force at the time the loan was
granted. Central Bank Circular No. 783, which took effect on July 1, 1981, removed the
ceiling on interest rates on a certain class of loans, thus:
SECTION 2. The interest rate on a loan forbearance of any money, goods, or credits
with a maturity of more than seven hundred thirty (730) days shall not be subject to any
ceiling. 6
In the present case, the term of the subject loan is for a period of 10 years.
Considering that its maturity is more than 730 days, the interest rate is not subject to
any ceiling following the above provision. Therefore, the 24% interest rate agreed upon
by parties does not violate the Usury Law, as amended by P.D. 116.
This Court has consistently held that for sometime now, usury has been legally noninexistent and that interest can now be charged as lender and borrower may agree
upon. 7 As a matter of fact, Section 1 of Central Bank Circular No. 905 states that:
SECTION 1. The rate of interest, including commissions, premiums, fees and other
charges , on a loan or forbearance of any money, goods, or credits, regardless of
maturity and whether secured or unsecured, that may be charged or collected by any
person, whether natural or judicial, shall not be subject to any ceiling prescribed under
or pursuant to the Usury Law, as amended. 8
Moreover, in Trade & Investment Development Corporation of the Philippines v. Roblett
Industrial Construction Corporation, 9 this Court has ruled that:
With the suspension of the Usury Law and the removal of interest ceiling, the parties
are free to stipulate the interest to be imposed on monetary obligations. Absent any
evidence of fraud, undue influence, or any vice of consent exercised by one party
against the other, the interest rate agreed upon is binding upon them.
There is no indication in the records that any of the incidents which vitiate consent on
the part of petitioners is present. Indeed, the interest rate agreed upon is binding on
them. With respect to the penalty and service charges, the same are unconscionable
or excessive.
Petitioners invoke this Courts rulings in Almeda vs. Court of Appeals 10 and Medel vs.
Court of Appeals 11 to show that the interest rate in the subject promissory note is
unconscionable. Their reliance on these cases is misplaced. In Almeda, what this
Court struck down as being unconscionable and excessive was the unilateral increase
in the interest rates from 18% to 68%. This Court ruled thus:

It is plainly obvious, therefore, from the undisputed facts of the case that respondent
bank unilaterally altered the terms of its contract by increasing the interest rates
of the loan without the prior assent of the latter. In fact, the manner of agreement is
itself explicitly stipulated by the Civil Code when it provides, in Article 1956, that "No
interest shall be due unless it has been expressly stipulated in writing." What has been
"stipulated in writing" from a perusal of the interest rate provision of the credit
agreement signed between the parties is that petitioners were bound merely to pay
21% interest x x x.
Petitioners also cannot find refuge in Medel. In this case, what this Court declared as
unconscionable was the imposition of a 66% interest rate per annum. In the instant
case, the interest rate is only 24% per annum, agreed upon by both parties. By no
means can it be considered unconscionable or excessive.1awphi1.net
Verily, petitioners cannot now renege on their obligation to comply with what is
incumbent upon them under the loan agreement. A contract is the law between the
parties and they are bound by its stipulations. 12
Petitioners further contend that during the closure of respondent bank (from January 1,
1985 to July 1, 1994), it lost its function as a banking institution and, therefore, could
no longer charge interests and institute foreclosure proceedings.
In the case of Banco Filipino Savings & Mortgage Bank vs. Monetary Board, Central
Bank of the Philippines, 13this Court ruled that the banks closure did not diminish the
authority and powers of the designated liquidator to effectuate and carry on the
administration of the bank, thus:
x x x. We did not prohibit however acts such as receiving collectibles and receivables
or paying off creditors claims and other transactions pertaining to the normal
operations of a bank. There is no doubt that that the prosecution of suits for collection
and the foreclosure of mortgages against debtors of the bank by the liquidator are
among the usual and ordinary transactions pertaining to the administration of a bank. x
x x.
Likewise, in Banco Filipino Savings and Mortgage Bank vs. Ybaez, 14 where one of
the issues was whether respondent bank can collect interest on its loans during its
period of liquidation and closure, this Court held:
In Banco Filipino Savings and Mortgage Bank v. Monetary Board, the validity of the
closure and receivership of Banco Filipino was put in issue. But the pendency of the
case did not diminish the authority of the designated liquidator to administer and
continue the banks transactions. The Court allowed the bank liquidator to continue
receiving collectibles and receivables or paying off creditors claims and other
transactions pertaining to normal operations of a bank. Among these transactions were
the prosecution of suits against debtors for collection and for foreclosure of mortgages.

The bank was allowed to collect interests on its loans while under liquidation, provided
that the interests were legal.
In fine, we hold that the interest rate on the loan agreed upon between the parties is
not excessive or unconscionable; and that during the closure of respondent bank, it
could still function as a bonding institution, hence, could continue collecting interests
from petitioners.
WHEREFORE, we DENY the petition and AFFIRM the challenged Decision and
Resolution of the Court of Appeals in CA-G.R. CV No. 47732. Costs against
petitioners.
SO ORDERED.
G.R. No. 150886

February 16, 2007

RURAL BANK OF SAN MIGUEL, INC. and HILARIO P. SORIANO, in his capacity
as majority stockholder in the Rural Bankof San Miguel, Inc., Petitioners,
vs.
MONETARY BOARD, BANGKO SENTRAL NG PILIPINAS and PHILIPPINE
DEPOSIT INSURANCE CORPORATION, Respondents.
DECISION
CORONA, J.:
This is a petition for review on certiorari1 of a decision2 and resolution3 of the Court of
Appeals (CA) dated March 28, 2000 and November 13, 2001, respectively, in CA-G.R.
SP No. 57112.
Petitioner Rural Bank of San Miguel, Inc. (RBSM) was a domestic corporation engaged
in banking. It started operations in 1962 and by year 2000 had 15 branches in
Bulacan.4 Petitioner Hilario P. Soriano claims to be the majority stockholder of its
outstanding shares of stock.5
On January 21, 2000, respondent Monetary Board (MB), the governing board of
respondent Bangko Sentral ng Pilipinas (BSP), issued Resolution No. 105 prohibiting
RBSM from doing business in the Philippines, placing it under receivership and
designating respondent Philippine Deposit Insurance Corporation (PDIC) as receiver:
On the basis of the comptrollership/monitoring report as of October 31, 1999 as
reported by Mr. Wilfredo B. Domo-ong, Director, Department of Rural Banks, in his
memorandum dated January 20, 2000, which report showed that [RBSM] (a) is unable
to pay its liabilities as they become due in the ordinary course of business; (b) cannot
continue in business without involving probable losses to its depositors and creditors;
that the management of the bank had been accordingly informed of the need to infuse

additional capital to place the bank in a solvent financial condition and was given
adequate time within which to make the required infusion and that no infusion of
adequate fresh capital was made, the Board decided as follows:
1. To prohibit the bank from doing business in the Philippines and to place its
assets and affairs under receivership in accordance with Section 30 of [RA 7653];
2. To designate the [PDIC] as receiver of the bank;
xxx xxx xxx6
On January 31, 2000, petitioners filed a petition for certiorari and prohibition in the
Regional Trial Court (RTC) of Malolos, Branch 22 to nullify and set aside Resolution
No. 105.7 However, on February 7, 2000, petitioners filed a notice of withdrawal in the
RTC and, on the same day, filed a special civil action for certiorari and prohibition in the
CA. On February 8, 2000, the RTC dismissed the case pursuant to Section 1, Rule 17
of the Rules of Court.8
The CAs findings of facts were as follows.
To assist its impaired liquidity and operations, the RBSM was granted emergency loans
on different occasions in the aggregate amount of P375 [million].
As early as November 18, 1998, Land Bank of the Philippines (LBP) advised RBSM
that it will terminate the clearing of RBSMs checks in view of the latters frequent
clearing losses and continuing failure to replenish its Special Clearing Demand Deposit
with LBP. The BSP interceded with LBP not to terminate the clearing arrangement of
RBSM to protect the interests of RBSMs depositors and creditors.
After a year, or on November 29, 1999, the LBP informed the BSP of the termination of
the clearing facility of RBSM to take effect on December 29, 1999, in view of the
clearing problems of RBSM.
On December 28, 1999, the MB approved the release of P26.189 [million] which is the
last tranche of the P375 million emergency loan for the sole purpose of servicing and
meeting the withdrawals of its depositors. Of theP26.180 million, xxx P12.6 million xxx
was not used to service withdrawals [and] remains unaccounted for as admitted by
[RBSMs Treasury Officer and Officer-in-Charge of Treasury]. Instead of servicing
withdrawals of depositors, RBSM paid Forcecollect Professional Solution, Inc. and
Surecollect Professional, Inc., entities which are owned and controlled by Hilario P.
Soriano and other RBSM officers.
On January 4, 2000, RBSM declared a bank holiday. RBSM and all of its 15 branches
were closed from doing business.

Alarmed and disturbed by the unilateral declaration of bank holiday, [BSP] wanted to
examine the books and records of RBSM but encountered problems.
Meanwhile, on November 10, 1999, RBSMs designated comptroller, Ms. Zenaida
Cabais of the BSP, submitted to the Department of Rural Banks, BSP, a
Comptrollership Report on her findings on the financial condition and operations of the
bank as of October 31, 1999. Another set of findings was submitted by said comptroller
[and] this second report reflected the financial status of RBSM as of December 31,
1999.
The findings of the comptroller on the financial state of RBSM as of October 31, 1999
in comparison with the financial condition as of December 31, 1999 is summed up
pertinently as follows:
FINANCIAL CONDITION OF RBSM
As of Oct. 31, 1999 As of Dec. 31, 1999
Total obligations/
Liabilities

P1,076,863,000.00 1,009,898,000.00

Realizable Assets 898,588,000.00

796,930,000.00

Deficit

178,275,000.00

212,968,000.00

Cash on Hand

101,441.547.00

8,266,450.00

Required Capital Infusion P252,120,000.00

Capital Infusion P5,000,000.00
(On Dec. 20, 1999)
Actual Breakdown of Total Obligations:
1) Deposits of 20,000 depositors P578,201,000.00
2) Borrowings from BSP P320,907,000.00
3) Unremitted withholding and gross receipt taxes P57,403,000.00.9
Based on these comptrollership reports, the director of the Department of Rural Banks
Supervision and Examination Sector, Wilfredo B. Domo-ong, made a report to the MB
dated January 20, 2000.10 The MB, after evaluating and deliberating on the findings
and recommendation of the Department of Rural Banks Supervision and Examination
Sector, issued Resolution No. 105 on January 21, 2000. 11 Thereafter, PDIC
implemented the closure order and took over the management of RBSMs assets and
affairs.

In their petition12 before the CA, petitioners claimed that respondents MB and BSP
committed grave abuse of discretion in issuing Resolution No. 105. The petition was
dismissed by the CA on March 28, 2000. It held, among others, that the decision of the
MB to issue Resolution No. 105 was based on the findings and recommendations of
the Department of Rural Banks Supervision and Examination Sector, the comptroller
reports as of October 31, 1999 and December 31, 1999 and the declaration of a bank
holiday. Such could be considered as substantial evidence. 13
Pertinently, on June 9, 2000, on the basis of reports prepared by PDIC stating that
RBSM could not resume business with sufficient assurance of protecting the interest of
its depositors, creditors and the general public, the MB passed Resolution No. 966
directing PDIC to proceed with the liquidation of RBSM under Section 30 of RA 7653. 14
Hence this petition.
It is well-settled that the closure of a bank may be considered as an exercise of police
power.15 The action of the MB on this matter is final and executory.16 Such exercise
may nonetheless be subject to judicial inquiry and can be set aside if found to be in
excess of jurisdiction or with such grave abuse of discretion as to amount to lack or
excess of jurisdiction.17
Petitioners argue that Resolution No. 105 was bereft of any basis considering that no
complete examination had been conducted before it was issued. This case essentially
boils down to one core issue: whether Section 30 of RA 7653 (also known as the New
Central Bank Act) and applicable jurisprudence require a current and
completeexamination of the bank before it can be closed and placed under
receivership.
Section 30 of RA 7653 provides:
SECTION 30. Proceedings in Receivership and Liquidation. Whenever, upon
report of the head of the supervising or examining department, the Monetary
Board finds that a bank or quasi-bank:
(a) is unable to pay its liabilities as they become due in the ordinary course of
business: Provided, That this shall not include inability to pay caused by
extraordinary demands induced by financial panic in the banking community;
(b) has insufficient realizable assets, as determined by the [BSP] to meet its
liabilities; or
(c) cannot continue in business without involving probable losses to its depositors
or creditors; or
(d) has willfully violated a cease and desist order under Section 37 that has
become final, involving acts or transactions which amount to fraud or a

dissipation of the assets of the institution; in which cases, the Monetary Board
may summarily and without need for prior hearing forbid the institution
from doing business in the Philippines and designate the Philippine
Deposit Insurance Corporation as receiver of the banking institution.
xxx xxx xxx
The actions of the Monetary Board taken under this section or under Section 29 of this
Act shall be final and executory, and may not be restrained or set aside by the court
except on petition for certiorari on the ground that the action taken was in excess of
jurisdiction or with such grave abuse of discretion as to amount to lack or excess of
jurisdiction. The petition for certiorari may only be filed by the stockholders of record
representing the majority of the capital stock within ten (10) days from receipt by the
board of directors of the institution of the order directing receivership, liquidation or
conservatorship. (Emphasis supplied)
xxx xxx xxx
Petitioners contend that there must be a current, thorough and complete examination
before a bank can be closed under Section 30 of RA 7653. They argue that this section
should be harmonized with Sections 25 and 28 of the same law:
SECTION 25. Supervision and Examination. The [BSP] shall have supervision over,
and conduct periodic or special examinations of, banking institutions and quasibanks, including their subsidiaries and affiliates engaged in allied activities.
xxx xxx xxx
SECTION 28. Examination and Fees. The supervising and examining
department head, personally or by deputy, shall examine the books of every banking
institution once in every twelve (12) months, and at such other time as the Monetary
Board by an affirmative vote of five (5) members may deem expedient and to make a
report on the same to the Monetary Board: Provided that there shall be an interval
of at least twelve (12) months between annual examinations. (Emphasis supplied)
xxx xxx xxx
According to the petitioners, it is clear from these provisions that the "report of the
supervising or examining department" required under Section 30 refers to the report on
the examination of the bank which, under Section 28, must be made to the MB after
the supervising or examining head conducts an examination mandated by Sections 25
and 28.18 They cite Banco Filipino Savings & Mortgage Bank v. Monetary Board,
Central Bank of the Philippines19 wherein the Court ruled:
There is no question that under Section 29 of the Central Bank Act, the following are
the mandatory requirements to be complied with before a bank found to be insolvent

is ordered closed and forbidden to do business in the Philippines: Firstly, an

examination shall be conducted by the head of the appropriate supervising or
examining department or his examiners or agents into the condition of the bank;
secondly, it shall be disclosed in the examination that the condition of the bank is one
of insolvency, or that its continuance in business would involve probable loss to its
depositors or creditors; thirdly, the department head concerned shall inform the
Monetary Board in writing, of the facts; and lastly, the Monetary Board shall find the
statements of the department head to be true.20 (Emphasis supplied)
Petitioners assert that an examination is necessary and not a mere report, otherwise
the decision to close a bank would be arbitrary.
Respondents counter that RA 7653 merely requires a report of the head of the
supervising or examining department. They maintain that the term "report" under
Section 30 and the word "examination" used in Section 29 of the old law are not
synonymous. "Examination" connotes in-depth analysis, evaluation, inquiry or
investigation while "report" connotes a simple disclosure or narration of facts for
informative purposes.21
Petitioners contention has no merit. Banco Filipino and other cases petitioners
cited22 were decided using Section 29 of the old law (RA 265):
SECTION 29. Proceedings upon insolvency. Whenever, upon examination by the
head of the appropriate supervising or examining department or his examiners
or agents into the condition of any bank or non-bank financial intermediary
performing quasi-banking functions, it shall be disclosed that the condition of the same
is one of insolvency, or that its continuance in business would involve probable loss to
its depositors or creditors, it shall be the duty of the department head concerned
forthwith, in writing, to inform the Monetary Board of the facts. The Board may, upon
finding the statements of the department head to be true, forbid the institution to do
business in the Philippines and designate an official of the Central Bank or a person of
recognized competence in banking or finance, as receiver to immediately take charge
of its assets and liabilities, as expeditiously as possible collect and gather all the assets
and administer the same for the benefits of its creditors, and represent the bank
personally or through counsel as he may retain in all actions or proceedings for or
against the institution, exercising all the powers necessary for these purposes
including, but not limited to, bringing and foreclosing mortgages in the name of the
bank or non-bank financial intermediary performing quasi-banking functions.
(Emphasis supplied)
xxx xxx xxx
Thus in Banco Filipino, we ruled that an "examination [conducted] by the head of the
appropriate supervising or examining department or his examiners or agents into the
condition of the bank"23 is necessary before the MB can order its closure.

However, RA 265, including Section 29 thereof, was expressly repealed by RA 7653

which took effect in 1993. Resolution No. 105 was issued on January 21, 2000. Hence,
petitioners reliance on Banco Filipino which was decided under RA 265 was
misplaced.
In RA 7653, only a "report of the head of the supervising or examining department" is
necessary. It is an established rule in statutory construction that where the words of a
statute are clear, plain and free from ambiguity, it must be given its literal meaning and
applied without attempted interpretation:24
This plain meaning rule or verba legis derived from the maxim index animi sermo
est (speech is the index of intention) rests on the valid presumption that the words
employed by the legislature in a statute correctly express its intention or will and
preclude the court from construing it differently. The legislature is presumed to know
the meaning of the words, to have used words advisedly, and to have expressed its
intent by use of such words as are found in the statute. Verba legis non est
recedendum, or from the words of a statute there should be no departure. 25
The word "report" has a definite and unambiguous meaning which is clearly different
from "examination." A report, as a noun, may be defined as "something that gives
information" or "a usually detailed account or statement." 26On the other hand, an
examination is "a search, investigation or scrutiny."27
This Court cannot look for or impose another meaning on the term "report" or to
construe it as synonymous with "examination." From the words used in Section 30, it is
clear that RA 7653 no longer requires that an examination be made before the MB can
issue a closure order. We cannot make it a requirement in the absence of legal basis.
Indeed, the court may consider the spirit and reason of the statute, where a literal
meaning would lead to absurdity, contradiction, injustice, or would defeat the clear
purpose of the lawmakers.28 However, these problems are not present here. Using the
literal meaning of "report" does not lead to absurdity, contradiction or injustice. Neither
does it defeat the intent of the legislators. The purpose of the law is to make the
closure of a bank summary and expeditious in order to protect public interest. This is
also why prior notice and hearing are no longer required before a bank can be closed.29
Laying down the requisites for the closure of a bank under the law is the prerogative of
the legislature and what its wisdom dictates. The lawmakers could have easily retained
the word "examination" (and in the process also preserved the jurisprudence attached
to it) but they did not and instead opted to use the word "report." The insistence on an
examination is not sanctioned by RA 7653 and we would be guilty of judicial legislation
were we to make it a requirement when such is not supported by the language of the
law.

What is being raised here as grave abuse of discretion on the part of the respondents
was the lack of an examination and not the supposed arbitrariness with which the
conclusions of the director of the Department of Rural Banks Supervision and
Examination Sector had been reached in the report which became the basis of
Resolution No. 105.1awphi1.net
The absence of an examination before the closure of RBSM did not mean that there
was no basis for the closure order. Needless to say, the decision of the MB and BSP,
like any other administrative body, must have something to support itself and its
findings of fact must be supported by substantial evidence. But it is clear under RA
7653 that the basis need not arise from an examination as required in the old law.
We thus rule that the MB had sufficient basis to arrive at a sound conclusion that there
were grounds that would justify RBSMs closure. It relied on the report of Mr. Domoong, the head of the supervising or examining department, with the findings that: (1)
RBSM was unable to pay its liabilities as they became due in the ordinary course of
business and (2) that it could not continue in business without incurring probable
losses to its depositors and creditors.30 The report was a 50-page memorandum
detailing the facts supporting those grounds, an extensive chronology of events
revealing the multitude of problems which faced RBSM and the recommendations
based on those findings.
In short, MB and BSP complied with all the requirements of RA 7653. By relying on a
report before placing a bank under receivership, the MB and BSP did not only follow
the letter of the law, they were also faithful to its spirit, which was to act expeditiously.
Accordingly, the issuance of Resolution No. 105 was untainted with arbitrariness.
Having dispensed with the issue decisive of this case, it becomes unnecessary to
resolve the other minor issues raised.31
WHEREFORE, the petition is hereby DENIED. The March 28, 2000 decision and
November 13, 2001 resolution of the Court of Appeals in CA-G.R. SP No. 57112
are AFFIRMED.
Costs against petitioners.
SO ORDERED.

THIRD DIVISION

BANGKO SENTRAL NG
PILIPINAS MONETARY BOARD
and CHUCHI FONACIER,
Petitioners,

G.R. No. 184778

Present:
- versus YNARES-SANTIAGO, J.,
Chairperson,
CHICO-NAZARIO,
VELASCO, JR.,
NACHURA, and
PERALTA, JJ.

HON. NINA G. ANTONIOVALENZUELA, in her capacity as

Regional Trial Court Judge of
Manila, Branch 28; RURAL BANK
OF PARAAQUE, INC.; RURAL
BANK OF SAN JOSE
(BATANGAS), INC.; RURAL
BANK OF CARMEN (CEBU),
INC.; PILIPINO RURAL BANK,
INC.; PHILIPPINE
COUNTRYSIDE RURAL BANK,
INC.; RURAL BANK OF
CALATAGAN (BATANGAS), INC.
(now DYNAMIC RURAL BANK);
RURAL BANK OF DARBCI, INC.;
RURAL BANK OF KANANGA
(LEYTE), INC. (now FIRST
INTERSTATE RURAL BANK);
RURAL BANK OF BISAYAS
MINGLANILLA (now BANK OF
EAST ASIA); and SAN PABLO
CITY DEVELOPMENT BANK,
Promulgated:
INC.,
Respondents.
October 2, 2009
x-----------------------------------------------------------------------------------------x
DECISION
VELASCO, JR., J.:
The Case
This is a Petition for Review on Certiorari under Rule 45 with Prayer for Issuance of a
Temporary Restraining Order (TRO)/Writ of Preliminary Injunction, questioning the Decision
dated September 30, 2008[1] of the Court of Appeals (CA) in CA-G.R. SP No. 103935. The CA
Decision upheld the Order[2] dated June 4, 2008 of the Regional Trial Court (RTC), Branch 28 in
Manila, issuing writs of preliminary injunction in Civil Case Nos. 08-119243, 08-119244, 08-

119245, 08-119246, 08-119247, 08-119248, 08-119249, 08-119250, 08-119251, and 08-119273,

and the Order dated May 21, 2008 that consolidated the civil cases.
The Facts
In September of 2007, the Supervision and Examination Department (SED) of
the Bangko Sentral ng Pilipinas (BSP) conducted examinations of the books of the following
banks: Rural Bank of Paraaque, Inc. (RBPI), Rural Bank of San Jose (Batangas), Inc., Rural
Bank of Carmen (Cebu), Inc., Pilipino Rural Bank, Inc., Philippine Countryside Rural Bank,
Inc., Rural Bank of Calatagan (Batangas), Inc. (now Dynamic Rural Bank), Rural Bank of
Darbci, Inc., Rural Bank of Kananga (Leyte), Inc. (now First Interstate Rural Bank), Rural Bank
de Bisayas Minglanilla (now Bank of East Asia), and San Pablo City Development Bank, Inc.
After the examinations, exit conferences were held with the officers or representatives of
the banks wherein the SED examiners provided them with copies of Lists of
Findings/Exceptions containing the deficiencies discovered during the examinations. These
banks were then required to comment and to undertake the remedial measures stated in these
lists within 30 days from their receipt of the lists, which remedial measures included the
infusion of additional capital. Though the banks claimed that they made the additional capital
infusions, petitioner Chuchi Fonacier, officer-in-charge of the SED, sent separate letters to the
Board of Directors of each bank, informing them that the SED found that the banks failed to
carry out the required remedial measures. In response, the banks requested that they be given
time to obtain BSP approval to amend their Articles of Incorporation, that they have an
opportunity to seek investors. They requested as well that the basis for the capital infusion
figures be disclosed, and noted that none of them had received the Report of Examination
(ROE) which finalizes the audit findings. They also requested meetings with the BSP audit
teams to reconcile audit figures. In response, Fonacier reiterated the banks failure to comply
with the directive for additional capital infusions.
On May 12, 2008, the RBPI filed a complaint for nullification of the BSP ROE with
application for a TRO and writ of preliminary injunction before the RTC docketed as Civil Case
No. 08-119243 against Fonacier, the BSP, Amado M. Tetangco, Jr., Romulo L. Neri, Vicente B.
Valdepenas, Jr., Raul A. Boncan, Juanita D. Amatong, Alfredo C. Antonio, and Nelly F.
Villafuerte. RBPI prayed that Fonacier, her subordinates, agents, or any other person acting in
her behalf be enjoined from submitting the ROE or any similar report to the Monetary Board
(MB), or if the ROE had already been submitted, the MB be enjoined from acting on the basis
of said ROE, on the allegation that the failure to furnish the bank with a copy of the ROE
violated its right to due process.
The Rural Bank of San Jose (Batangas), Inc., Rural Bank of Carmen (Cebu), Inc.,
Pilipino Rural Bank, Inc., Philippine Countryside Rural Bank, Inc., Rural Bank of Calatagan
(Batangas), Inc., Rural Bank of Darbci, Inc., Rural Bank of Kananga (Leyte), Inc., and Rural
Bank de Bisayas Minglanilla followed suit, filing complaints with the RTC substantially similar
to that of RBPI, including the reliefs prayed for, which were raffled to different branches and

docketed as Civil Cases Nos. 08-119244, 08-119245, 08-119246, 08-119247, 08-119248, 08119249, 08-119250, and 08-119251, respectively.
On May 13, 2008, the RTC denied the prayer for a TRO of Pilipino Rural Bank, Inc. The
bank filed a motion for reconsideration the next day.
On May 14, 2008, Fonacier and the BSP filed their opposition to the application for a
TRO and writ of preliminary injunction in Civil Case No. 08-119243 with the RTC. Respondent
Judge Nina Antonio-Valenzuela of Branch 28 granted RBPIs prayer for the issuance of a TRO.
The other banks separately filed motions for consolidation of their cases in Branch 28,
which motions were granted. Judge Valenzuela set the complaint of Rural Bank ofSan
Jose (Batangas), Inc. for hearing on May 15, 2008. Petitioners assailed the validity of the
consolidation of the nine cases before the RTC, alleging that the court had already prejudged the
case by the earlier issuance of a TRO in Civil Case No. 08-119243, and moved for the
inhibition of respondent judge. Petitioners filed a motion for reconsideration regarding the
consolidation of the subject cases.
On May 16, 2008, San Pablo City Development Bank, Inc. filed a similar complaint
against the same defendants with the RTC, and this was docketed as Civil Case No. 08-119273
that was later on consolidated with Civil Case No. 08-119243. Petitioners filed an Urgent
Motion to Lift/Dissolve the TRO and an Opposition to the earlier motion for reconsideration of
Pilipino Rural Bank, Inc.
On May 19, 2008, Judge Valenzuela issued an Order granting the prayer for the issuance
of TROs for the other seven cases consolidated with Civil Case No. 08-119243. On May 21,
2008, Judge Valenzuela issued an Order denying petitioners motion for reconsideration
regarding the consolidation of cases in Branch 28. On May 22, 2008, Judge Valenzuela granted
the urgent motion for reconsideration of Pilipino Rural Bank, Inc. and issued a TRO similar to
the ones earlier issued.
On May 26, 2008, petitioners filed a Motion to Dismiss against all the complaints (except
that of the San Pablo City Development Bank, Inc.), on the grounds that the complaints stated
no cause of action and that a condition precedent for filing the cases had not been complied
with. On May 29, 2008, a hearing was conducted on the application for a TRO and for a writ of
preliminary injunction of San Pablo City Development Bank, Inc.
The Ruling of the RTC
After the parties filed their respective memoranda, the RTC, on June 4, 2008, ruled that
the banks were entitled to the writs of preliminary injunction prayed for. It held that it had been
the practice of the SED to provide the ROEs to the banks before submission to the MB. It
further held that as the banks are the subjects of examinations, they are entitled to copies of the

ROEs. The denial by petitioners of the banks requests for copies of the ROEs was held to be a
denial of the banks right to due process.
The dispositive portion of the RTCs order reads:
WHEREFORE, the Court rules as follows:
1)

Re: Civil Case No. 08-119243. Pursuant to Rule 58, Section 4(b) of the
Revised Rules of Court, plaintiff Rural Bank of Paranaque Inc. is directed to
post a bond executed to the defendants, in the amount of P500,000.00 to the
effect that the plaintiff will pay to the defendants all damages which they may
sustain by reason of the injunction if the Court should finally decide that the
plaintiff was not entitled thereto. After posting of the bond and approval
thereof, let a writ of preliminary injunction be issued to enjoin and restrain the
defendants from submitting the Report of Examination or any other similar
report prepared in connection with the examination conducted on the plaintiff,
to the Monetary Board. In case such a Report on Examination [sic] or any other
similar report prepared in connection with the examination conducted on the
plaintiff has been submitted to the Monetary Board, the latter and its members
(i.e. defendants Tetangco, Neri, Valdepenas, Boncan, Amatong, Antonio, and
Villafuerte) are enjoined and restrained from acting on the basis of said report.

2)

Re: Civil Case No. 08-119244. Pursuant to Rule 58, Section 4(b) of the
Revised Rules of Court, plaintiff Rural Bank of San Jose (Batangas), Inc. is
directed to post a bond executed to the defendants, in the amount of
P500,000.00 to the effect that the plaintiff will pay to the defendants all
damages which they may sustain by reason of the injunction if the Court should
finally decide that the plaintiff was not entitled thereto. After posting of the
bond and approval thereof, let a writ of preliminary injunction be issued to
enjoin and restrain the defendants from submitting the Report of Examination
or any other similar report prepared in connection with the examination
conducted on the plaintiff, to the Monetary Board. In case such a Report on
Examination [sic] or any other similar report prepared in connection with the
examination conducted on the plaintiff has been submitted to the Monetary
Board, the latter and its members (i.e. defendants Tetangco, Neri, Valdepenas,
Boncan, Amatong, Antonio, and Villafuerte) are enjoined and restrained from
acting on the basis of said report.

3)

Re: Civil Case No. 08-119245. Pursuant to Rule 58, Section 4(b) of the
Revised Rules of Court, plaintiff Rural Bank of Carmen (Cebu), Inc. is directed
to post a bond executed to the defendants, in the amount of P500,000.00 to the
effect that the plaintiff will pay to the defendants all damages which they may
sustain by reason of the injunction if the Court should finally decide that the
plaintiff was not entitled thereto. After posting of the bond and approval

thereof, let a writ of preliminary injunction be issued to enjoin and restrain the
defendants from submitting the Report of Examination or any other similar
report prepared in connection with the examination conducted on the plaintiff,
to the Monetary Board. In case such a Report on Examination [sic] or any other
similar report prepared in connection with the examination conducted on the
plaintiff has been submitted to the Monetary Board, the latter and its members
(i.e. defendants Tetangco, Neri, Valdepenas, Boncan, Amatong, Antonio, and
Villafuerte) are enjoined and restrained from acting on the basis of said report.
4)

Re: Civil Case No. 08-119246. Pursuant to Rule 58, Section 4(b) of the
Revised Rules of Court, plaintiff Pilipino Rural Bank Inc. is directed to post a
bond executed to the defendants, in the amount of P500,000.00 to the effect that
the plaintiff will pay to the defendants all damages which they may sustain by
reason of the injunction if the Court should finally decide that the plaintiff was
not entitled thereto. After posting of the bond and approval thereof, let a writ of
preliminary injunction be issued to enjoin and restrain the defendants from
submitting the Report of Examination or any other similar report prepared in
connection with the examination conducted on the plaintiff, to the Monetary
Board. In case such a Report on Examination [sic] or any other similar report
prepared in connection with the examination conducted on the plaintiff has been
submitted to the Monetary Board, the latter and its members (i.e. defendants
Tetangco, Neri, Valdepenas, Boncan, Amatong, Antonio, and Villafuerte) are
enjoined and restrained from acting on the basis of said report.

5)

Re: Civil Case No. 08-119247. Pursuant to Rule 58, Section 4(b) of the
Revised Rules of Court, plaintiff Philippine Countryside Rural Bank Inc. is
directed to post a bond executed to the defendants, in the amount of
P500,000.00 to the effect that the plaintiff will pay to the defendants all
damages which they may sustain by reason of the injunction if the Court should
finally decide that the plaintiff was not entitled thereto. After posting of the
bond and approval thereof, let a writ of preliminary injunction be issued to
enjoin and restrain the defendants from submitting the Report of Examination
or any other similar report prepared in connection with the examination
conducted on the plaintiff, to the Monetary Board. In case such a Report on
Examination [sic] or any other similar report prepared in connection with the
examination conducted on the plaintiff has been submitted to the Monetary
Board, the latter and its members (i.e. defendants Tetangco, Neri, Valdepenas,
Boncan, Amatong, Antonio, and Villafuerte) are enjoined and restrained from
acting on the basis of said report.

6)

Re: Civil Case No. 08-119248. Pursuant to Rule 58, Section 4(b) of the
Revised Rules of Court, plaintiff Dynamic Bank Inc. (Rural Bank of Calatagan)
is directed to post a bond executed to the defendants, in the amount of
P500,000.00 to the effect that the plaintiff will pay to the defendants all

damages which they may sustain by reason of the injunction if the Court should
finally decide that the plaintiff was not entitled thereto. After posting of the
bond and approval thereof, let a writ of preliminary injunction be issued to
enjoin and restrain the defendants from submitting the Report of Examination
or any other similar report prepared in connection with the examination
conducted on the plaintiff, to the Monetary Board. In case such a Report on
Examination [sic] or any other similar report prepared in connection with the
examination conducted on the plaintiff has been submitted to the Monetary
Board, the latter and its members (i.e. defendants Tetangco, Neri, Valdepenas,
Boncan, Amatong, Antonio, and Villafuerte) are enjoined and restrained from
acting on the basis of said report.
7)

Re: Civil Case No. 08-119249. Pursuant to Rule 58, Section 4(b) of the
Revised Rules of Court, plaintiff Rural Bank of DARBCI, Inc. is directed to
post a bond executed to the defendants, in the amount of P500,000.00 to the
effect that the plaintiff will pay to the defendants all damages which they may
sustain by reason of the injunction if the Court should finally decide that the
plaintiff was not entitled thereto. After posting of the bond and approval
thereof, let a writ of preliminary injunction be issued to enjoin and restrain the
defendants from submitting the Report of Examination or any other similar
report prepared in connection with the examination conducted on the plaintiff,
to the Monetary Board. In case such a Report on Examination [sic] or any other
similar report prepared in connection with the examination conducted on the
plaintiff has been submitted to the Monetary Board, the latter and its members
(i.e. defendants Tetangco, Neri, Valdepenas, Boncan, Amatong, Antonio, and
Villafuerte) are enjoined and restrained from acting on the basis of said report.

8)

Re: Civil Case No. 08-119250. Pursuant to Rule 58, Section 4(b) of the
Revised Rules of Court, plaintiff Rural Bank of Kananga Inc. (First Intestate
Bank), is directed to post a bond executed to the defendants, in the amount of
P500,000.00 to the effect that the plaintiff will pay to the defendants all
damages which they may sustain by reason of the injunction if the Court should
finally decide that the plaintiff was not entitled thereto. After posting of the
bond and approval thereof, let a writ of preliminary injunction be issued to
enjoin and restrain the defendants from submitting the Report of Examination
or any other similar report prepared in connection with the examination
conducted on the plaintiff, to the Monetary Board. In case such a Report on
Examination [sic] or any other similar report prepared in connection with the
examination conducted on the plaintiff has been submitted to the Monetary
Board, the latter and its members (i.e. defendants Tetangco, Neri, Valdepenas,
Boncan, Amatong, Antonio, and Villafuerte) are enjoined and restrained from
acting on the basis of said report.

9)

Re: Civil Case No. 08-119251. Pursuant to Rule 58, Section 4(b) of the
Revised Rules of Court, plaintiff Banco Rural De Bisayas Minglanilla (Cebu)
Inc. (Bank of East Asia) is directed to post a bond executed to the defendants, in
the amount of P500,000.00 to the effect that the plaintiff will pay to the
defendants all damages which they may sustain by reason of the injunction if
the Court should finally decide that the plaintiff was not entitled thereto. After
posting of the bond and approval thereof, let a writ of preliminary injunction be
issued to enjoin and restrain the defendants from submitting the Report of
Examination or any other similar report prepared in connection with the
examination conducted on the plaintiff, to the Monetary Board. In case such a
Report on Examination [sic] or any other similar report prepared in connection
with the examination conducted on the plaintiff has been submitted to the
Monetary Board, the latter and its members (i.e. defendants Tetangco, Neri,
Valdepenas, Boncan, Amatong, Antonio, and Villafuerte) are enjoined and
restrained from acting on the basis of said report.

10) Re: Civil Case No. 08-119273. Pursuant to Rule 58, Section 4(b) of the
Revised Rules of Court, plaintiff San Pablo City Development Bank, Inc. is
directed to post a bond executed to the defendants, in the amount of
P500,000.00 to the effect that the plaintiff will pay to the defendants all
damages which they may sustain by reason of the injunction if the Court should
finally decide that the plaintiff was not entitled thereto. After posting of the
bond and approval thereof, let a writ of preliminary injunction be issued to
enjoin and restrain the defendants from submitting the Report of Examination
or any other similar report prepared in connection with the examination
conducted on the plaintiff, to the Monetary Board. In case such a Report on
Examination [sic] or any other similar report prepared in connection with the
examination conducted on the plaintiff has been submitted to the Monetary
Board, the latter and its members (i.e. defendants Tetangco, Neri, Valdepenas,
Boncan, Amatong, Antonio, and Villafuerte) are enjoined and restrained from
acting on the basis of said report.[3]
The Ruling of the CA
Petitioners then brought the matter to the CA via a petition for certiorari under Rule 65
claiming grave abuse of discretion on the part of Judge Valenzuela when she issued the orders
dated May 21, 2008 and June 4, 2008.
The CA ruled that the RTC committed no grave abuse of discretion when it ordered the
issuance of a writ of preliminary injunction and when it ordered the consolidation of the 10
cases.
It held that petitioners should have first filed a motion for reconsideration of the assailed
orders, and failed to justify why they resorted to a special civil action of certiorari instead.

The CA also found that aside from the technical aspect, there was no grave abuse of
discretion on the part of the RTC, and if there was a mistake in the assessment of evidence by
the trial court, that should be characterized as an error of judgment, and should be correctable
via appeal.
The CA held that the principles of fairness and transparency dictate that the respondent
banks are entitled to copies of the ROE.
Regarding the consolidation of the 10 cases, the CA found that there was a similarity of
facts, reliefs sought, issues raised, defendants, and that plaintiffs and defendants were
represented by the same sets of counsels. It found that the joint trial of these cases would
prejudice any substantial right of petitioners.
Finding that no grave abuse of discretion attended the issuance of the orders by the RTC,
the CA denied the petition.
On November 24, 2008, a TRO was issued by this Court, restraining the CA, RTC, and
respondents from implementing and enforcing the CA Decision dated September 30, 2008 in
CA-G.R. SP No. 103935.[4]
By reason of the TRO issued by this Court, the SED was able to submit their ROEs to the
MB. The MB then prohibited the respondent banks from transacting business and placed them
under
receivership
under
[5]
Section 53 of Republic Act No. (RA) 8791 and Sec. 30 of RA
7653[6] through MB Resolution No. 1616 dated December 9, 2008; Resolution Nos. 1637 and
1638 dated December 11, 2008; Resolution Nos. 1647, 1648, and 1649 dated December 12,
2008; Resolution Nos. 1652 and 1653 dated December 16, 2008; and Resolution Nos. 1692 and
1695 dated December 19, 2008, with the Philippine Deposit Insurance Corporation as the
appointed receiver.
Now we resolve the main petition.
Grounds in Support of Petition
I.

II.

THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN

NOT FINDING THAT THE INJUNCTION ISSUED BY THE REGIONAL
TRIAL COURT VIOLATED SECTION 25 OF THE NEW CENTRAL
BANK ACT AND EFFECTIVELY HANDCUFFED THE BANGKO
SENTRAL FROM DISCHARGING ITS FUNCTIONS TO THE GREAT
AND IRREPARABLE DAMAGE OF THE COUNTRYS BANKING
SYSTEM;
THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN
FINDING THAT RESPONDENTS ARE ENTITLED TO BE FURNISHED

III.

COPIES OF THEIR RESPECTIVE ROEsBEFORE THE SAME IS

SUBMITTED TO THE MONETARY BOARD IN VIEW OF THE
PRINCIPLES OF FAIRNESS AND TRANSPARENCY DESPITE LACK
OF EXPRESS PROVISION IN THE NEW CENTRAL BANK ACT
REQUIRING BSP TO DO THE SAME
THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN
DEPARTING FROM WELL-ESTABLISHED PRECEPTS OF LAW AND
JURISPRUDENCE
A.

B.

C.

THE EXCEPTIONS CITED BY PETITIONER JUSTIFIED

RESORT TO PETITION FOR CERTIORARI UNDER RULE 65
INSTEAD
OF
FIRST
FILING
A
MOTION
FOR
RECONSIDERATION
RESPONDENT
BANKS
ACT
OF
RESORTING
IMMEDIATELY TO THE COURT WAS PREMATURE SINCE IT
WAS MADE IN UTTER DISREGARD OF THE PRINCIPLE OF
PRIMARY
JURISDICTION
AND
EXHAUSTION
OF
ADMINISTRATIVE REMEDY
THE ISSUANCE OF A WRIT OF PRELIMINARY
INJUNCTION BY THE REGIONAL TRIAL COURT WAS NOT
ONLY IMPROPER BUT AMOUNTED TO GRAVE ABUSE OF
DISCRETION[7]

Our Ruling
The petition is meritorious.
In Lim v. Court of Appeals it was stated:
The requisites for preliminary injunctive relief are: (a) the invasion of right
sought to be protected is material and substantial; (b) the right of the complainant
is clear and unmistakable; and (c) there is an urgent and paramount necessity for
the writ to prevent serious damage.
As such, a writ of preliminary injunction may be issued only upon clear
showing of an actual existing right to be protected during the pendency of the
principal action. The twin requirements of a valid injunction are the existence of a
right and its actual or threatened violations. Thus, to be entitled to an injunctive
writ, the right to be protected and the violation against that right must be shown.[8]
These requirements are absent in the present case.

In granting the writs of preliminary injunction, the trial court held that the submission of
the ROEs to the MB before the respondent banks would violate the right to due process of said
banks.
This is erroneous.
The respondent banks have failed to show that they are entitled to copies of the
ROEs. They can point to no provision of law, no section in the procedures of the BSP that
shows that the BSP is required to give them copies of the ROEs. Sec. 28 of RA 7653, or the
New Central Bank Act, which governs examinations of banking institutions, provides that the
ROE shall be submitted to the MB; the bank examined is not mentioned as a recipient of the
ROE.
The respondent banks cannot claim a violation of their right to due process if they are not
provided with copies of the ROEs. The same ROEs are based on the lists of
findings/exceptions containing the deficiencies found by the SED examiners when they
examined the books of the respondent banks. As found by the RTC, these lists of
findings/exceptions were furnished to the officers or representatives of the respondent banks,
and the respondent banks were required to comment and to undertake remedial measures stated
in said lists. Despite these instructions, respondent banks failed to comply with the SEDs
directive.
Respondent banks are already aware of what is required of them by the BSP, and cannot
claim violation of their right to due process simply because they are not furnished with copies
of the ROEs. Respondent banks were held by the CA to be entitled to copies of the ROEs prior
to or simultaneously with their submission to the MB, on the principles of fairness and
transparency. Further, the CA held that if the contents of the ROEs are essentially the same as
those of the lists of findings/exceptions provided to said banks, there is no reason not to give
copies of the ROEs to the banks. This is a flawed conclusion, since if the banks are already
aware of the contents of the ROEs, they cannot say that fairness and transparency are not
present. If sanctions are to be imposed upon the respondent banks, they are already well aware
of the reasons for the sanctions, having been informed via the lists of findings/exceptions,
demolishing that particular argument. The ROEs would then be superfluities to the respondent
banks, and should not be the basis for a writ of preliminary injunction. Also, the reliance of the
RTC on Banco Filipino v. Monetary Board[9] is misplaced. The petitioner in that case was held
to be entitled to annexes of the Supervision and Examination Sectors reports, as it already had
a copy of the reports themselves. It was not the subject of the case whether or not the petitioner
was entitled to a copy of the reports. And the ruling was made after the petitioner bank was
ordered closed, and it was allowed to be supplied with annexes of the reports in order to better
prepare its defense. In this instance, at the time the respondent banks requested copies of the
ROEs, no action had yet been taken by the MB with regard to imposing sanctions upon said
banks.

The issuance by the RTC of writs of preliminary injunction is an unwarranted

interference with the powers of the MB. Secs. 29 and 30 of RA 7653[10] refer to the appointment
of a conservator or a receiver for a bank, which is a power of the MB for which they need the
ROEs done by the supervising or examining department. The writs of preliminary injunction
issued by the trial court hinder the MB from fulfilling its function under the law. The actions of
the MB under Secs. 29 and 30 of RA 7653 may not be restrained or set aside by the court
except on petition for certiorari on the ground that the action taken was in excess of jurisdiction
or with such grave abuse of discretion as to amount to lack or excess of jurisdiction. The writs
of preliminary injunction order are precisely what cannot be done under the law by preventing
the MB from taking action under either Sec. 29 or Sec. 30 of RA 7653.
As to the third requirement, the respondent banks have shown no necessity for the writ of
preliminary injunction to prevent serious damage. The serious damage contemplated by the
trial court was the possibility of the imposition of sanctions upon respondent banks, even the
sanction of closure. Under the law, the sanction of closure could be imposed upon a bank by the
BSP even without notice and hearing. The apparent lack of procedural due process would not
result in the invalidity of action by the MB. This was the ruling in Central Bank of
the Philippines v. Court of Appeals.[11] This close now, hear later scheme is grounded on
practical and legal considerations to prevent unwarranted dissipation of the banks assets and as
a valid exercise of police power to protect the depositors, creditors, stockholders, and the
general public. The writ of preliminary injunction cannot, thus, prevent the MB from taking
action, by preventing the submission of the ROEs and worse, by preventing the MB from acting
on such ROEs.
The trial court required the MB to respect the respondent banks right to due process by
allowing the respondent banks to view the ROEs and act upon them to forestall any sanctions
the MB might impose. Such procedure has no basis in law and does in fact violate the close
now, hear later doctrine. We held in Rural Bank of San Miguel, Inc. v. Monetary Board,
Bangko Sentral ng Pilipinas:
It is well-settled that the closure of a bank may be considered as an exercise
of police power. The action of the MB on this matter is final and executory. Such
exercise may nonetheless be subject to judicial inquiry and can be set aside if
found to be in excess of jurisdiction or with such grave abuse of discretion as to
amount to lack or excess of jurisdiction.[12]
The respondent banks cannotthrough seeking a writ of preliminary injunction by
appealing to lack of due process, in a roundabout manner prevent their closure by the
MB. Their remedy, as stated, is a subsequent one, which will determine whether the closure of
the bank was attended by grave abuse of discretion. Judicial review enters the picture only after
the MB has taken action; it cannot prevent such action by the MB. The threat of the imposition
of sanctions, even that of closure, does not violate their right to due process, and cannot be the
basis for a writ of preliminary injunction.

The close now, hear later doctrine has already been justified as a measure for the
protection of the public interest. Swift action is called for on the part of the BSP when it finds
that a bank is in dire straits. Unless adequate and determined efforts are taken by the
government against distressed and mismanaged banks, public faith in the banking system is
certain to deteriorate to the prejudice of the national economy itself, not to mention the losses
suffered by the bank depositors, creditors, and stockholders, who all deserve the protection of
the government.[13]
The respondent banks have failed to show their entitlement to the writ of preliminary
injunction. It must be emphasized that an application for injunctive relief is construed strictly
against the pleader.[14] The respondent banks cannot rely on a simple appeal to procedural due
process to prove entitlement. The requirements for the issuance of the writ have not been
proved. No invasion of the rights of respondent banks has been shown, nor is their right to
copies of the ROEs clear and unmistakable. There is also no necessity for the writ to prevent
serious damage. Indeed the issuance of the writ of preliminary injunction tramples upon the
powers of the MB and prevents it from fulfilling its functions. There is no right that the writ of
preliminary injunction would protect in this particular case. In the absence of a clear legal right,
the issuance of the injunctive writ constitutes grave abuse of discretion. [15] In the absence of
proof of a legal right and the injury sustained by the plaintiff, an order for the issuance of a writ
of preliminary injunction will be nullified.[16]

Courts are hereby reminded to take greater care in issuing injunctive relief to litigants,
that it would not violate any law. The grant of a preliminary injunction in a case rests on the
sound discretion of the court with the caveat that it should be made with great caution. [17] Thus,
the issuance of the writ of preliminary injunction must have basis in and be in accordance with
law. All told, while the grant or denial of an injunction generally rests on the sound discretion
of the lower court, this Court may and should intervene in a clear case of abuse.[18]
WHEREFORE, the petition is hereby GRANTED. The assailed CA Decision dated
September 30, 2008 in CA-G.R. SP No. 103935 is hereby REVERSED. The assailed order and
writ of preliminary injunction of respondent Judge Valenzuela in Civil Case Nos. 08-119243, 08119244, 08-119245, 08-119246, 08-119247, 08-119248, 08-119249, 08-119250, 08-119251, and
08-119273 are hereby declared NULL and VOID.
G.R. No. 141297

October 8, 2001

DOMINGO R. MANALO, petitioner,

vs.
COURT OF APPEALS (Special Twelfth Division) and PAIC SAVINGS AND
MORTGAGE BANK, respondents.
PUNO, J.:
This petition for certiorari seeks the review of the Decision of the Court of Appeals in
C.A.-G.R. SP. No. 50341 promulgated December 23, 1999, which affirmed an Order
issued by the Regional Trial Court, Branch 112, Pasay City, in Civil Case No. 9011
dated December 9, 1998.
On July 19, 1983, S. Villanueva Enterprises, represented by its president, Therese
Villanueva Vargas, obtained a loan of three million pesos (P3,000,000.00) and one
million pesos (P1,000,000.00) from the respondent PAIC Savings and Mortgage Bank
and the Philippine American Investments Corporation (PAIC), respectively. To secure
payment of both debts, Vargas executed in favor of the respondent and PAIC a Joint
First Mortgage1 over two parcels of land registered under her name. One of the lots,
located in Pasay City with an area of nine hundred nineteen square meters (919 sq.
m.) and covered by TCT No. 6076, is the subject of the present case. Section 2 of the
mortgage contract states that "the properties mortgaged therein shall include all
buildings and improvements existing on the mortgaged property at the time of the
execution of the mortgage contract and thereafter." 2
S. Villanueva Enterprises defaulted in paying the amortizations due. Despite repeated
demands from the respondent, it failed to settle its loan obligation. Accordingly,
respondent instituted extrajudicial foreclosure proceedings over the mortgaged lots. On
August 22, 1984, the Pasay City property was sold at a public auction to the
respondent itself, after tendering the highest bid. The respondent then caused the
annotation of the corresponding Sheriff's Certificate of Sale 3 on the title of the land on
December 4, 1984. After the lapse of one year, or the statutory period extended by law
to a mortgagor to exercise his/her right of redemption, title was consolidated in
respondent's name for failure of Vargas to redeem.
On October 29, 1986, the Central Bank of the Philippines filed a Petition 4 for assistance
in the liquidation of the respondent with the Regional Trial Court. The petition was
given due course in an Order5 dated May 19, 1987.
It appears that from the years 1986 to 1991, Vargas negotiated with the respondent
(through its then liquidator, the Central Bank) for the repurchase of the foreclosed
property. The negotiations, however, fizzled out as Vargas cannot afford the
repurchase price fixed by the respondent based on the appraised value of the land at
that time. On October 4, 1991, Vargas filed a case for annulment of mortgage and
extrajudicial foreclosure sale before Branch 116 of the Pasay City Regional Trial Court.
On July 22, 1993, the court rendered a decision 6 dismissing the complaint and

upholding the validity of the mortgage and foreclosure sale. On appeal, the appellate
court upheld the assailed judgment and declared the said mortgage and foreclosure
proceedings to be in accord with law.7 This decision of the Court of Appeals
subsequently became final and executory when we summarily dismissed Vargas'
Petition for Review on Certiorari for having been filed beyond the reglementary period. 8
In the meantime, on June 22, 1992, respondent petitioned the Regional Trial Court,
Branch 112, of Pasay City, herein court a quo, for the issuance of a writ of possession
for the subject property in Civil Case No. 9011. This is in view of the consolidation of its
ownership over the same as mentioned earlier. Vargas and S. Villanueva Enterprises,
Inc. filed their opposition thereto. After which, trial ensued.
During the pendency of Civil Case No. 9011 (for the issuance of a writ of possession),
Vargas, on December 23, 1992, executed a Deed of Absolute Sale 9 selling,
transferring, and conveying ownership of the disputed lot in favor of a certain Armando
Angsico. Notwithstanding this sale, Vargas, still representing herself to be the lawful
owner of the property, leased the same to petitioner Domingo R. Manalo on August 25,
1994. Pertinent provisions of the lease agreement 10 state:
"3. (a) The lease is for a period of ten year lease (sic), involving 450 square
meters, a portion of the above 919 square meter property.
x x x (d) The LESSEE has to introduce into the said 450 square meter premises
improvements thereon (sic) consisting of one story building to house a Karaoke
Music Restaurant Business, which improvements constructed thereof (sic), upon
the termination of the lease contract, by said LESSEE be surrendered in favor of
the LESSOR (sic).''11
Later, on June 29, 1997, Armando Angsico, as buyer of the property, assigned his
rights therein to petitioner.12
On April 21, 1998, the court a quo granted the petition for the issuance of the Writ of
Possession.13 The writ was subsequently issued on April 24, 1998, the pertinent portion
of which reads:14
"NOW THEREFORE you are hereby commanded that you cause oppositors
THERESE VILLANUEVA VARGAS and S. VILLANUEVA ENTERPRISES, INC.
and any and all persons claiming rights or title under them, to forthwith vacate
and surrender the possession of subject premises in question known as that
parcel of land and improvements covered by TCT No. 6076 of the Registry of
Deeds of Pasay City; you are hereby further ordered to take possession and
deliver to the petitioner PAIC SAVINGS AND MORTGAGE BANK the subject
parcel of land and improvements."

Shortly, on May 8, 1998, S. Villanueva Enterprises and Vargas moved for its
quashal.15 Thereafter on June 25, 1998, petitioner, on the strength of the lease contract
and Deed of Assignment made in his favor, submitted a Permission to File an Exparte Motion to Intervene.16 It bears mentioning, however, that before petitioner sought
intervention in the present case, he had separately instituted a Complaint for
Mandamus, docketed as Civil Case No. 98-0868 before another branch 17 of the Pasay
City RTC to compel PAIC Bank to allow him to repurchase the subject property.
On October 7, 1998, the court a quo denied the Motion to Quash and Motion to
Intervene filed respectively by Vargas and petitioner.18 A Motion for Reconsideration
and a Supplemental Motion for Reconsideration were filed by the petitioner which,
however, were similarly denied on December 9, 1998.
Petitioner then sought relief with the Court of Appeals, filing therein a Petition for
Certiorari. While this was awaiting resolution, he entered into another lease
agreement,19 this time with the respondent, represented by its liquidator, over the same
450 sq. m. portion of the lot. The contract fixed a period of one month beginning
January 28, 1999, renewable for another month at the exclusive option of the lessor,
respondent PAIC Bank.
On December 23, 1999, the appellate court rendered the impugned Decision,
dismissing the petition, thus:
"All told, WE find the Order, subject of the instant Petition for Certiorari and
Prohibition, to be not without rational bases and we observe that the court a quo,
in issuing its questioned Order, committed no grave abuse of discretion
amounting to lack of jurisdiction.
WHEREFORE, the Petition for Certiorari and Prohibition is hereby DISMISSED
and the assailed December 9, 1998 Order is AFFIRMED in all respects.
SO ORDERED."20
Hence, this appeal, where petitioner raises and argues the following legal issues:
"I. Whether or not public respondent acted without or in excess of its jurisdiction
and/or was patently in error when it affirmed the denial of petitioner's motion for
intervention, despite the fact that he has a legal interest, being a lessee and an
assignee of the property subject matter of this case.
II. Whether or not the public respondent committed grave abuse of discretion
when it held that what are required to be instituted before the liquidation court are
those claims against the insolvent banks only considering that the private
respondent bank is legally dead due to insolvency and considering further that
there is already a liquidation court (Regional Trial Court of Makati, Branch 57,

docketed as Spec. Pro. No. M-1280) which is exclusively vested with jurisdiction
to hear all matters and incidents on liquidation pursuant to Section 29, Republic
Act No. 265, otherwise known as The Central Bank Act, as amended.
III. Whether or not the public respondent committed grave abuse of discretion
and/or was patently in error in affirming the ruling of the trial court, totally
disregarding the arguments raised in petitioner's supplemental motion for
reconsideration only through a minute order and without taking into consideration
the fact that there is a pending action in another court (RTC, Pasay City, Branch
231 ) which presents a prejudicial question to the case at bar.
IV. Whether or not the petitioner is estopped from questioning private
respondent's ownership when it entered into a contract of lease involving the
property in question."21
We will first resolve the jurisdictional and procedural questions raised by the petitioner.
I.
Petitioner postulates that the lower court should have dismissed respondent's "ExParte Petition for Issuance of Writ of Possession" in Civil Case No. P-9011 for want of
jurisdiction over the subject matter of the claim. The power to hear the same, he
insists, exclusively vests with the Liquidation Court pursuant to Section 29 of Republic
Act No. 265, otherwise known as The Central Bank Act. 22 He then cites our decision
in Valenzuela v. Court of Appeals,23 where we held that "if there is a judicial liquidation
of an insolvent bank, all claims against the bank should be filed in the liquidation
proceeding." For going to another court, the respondent, he accuses, is guilty of forum
shopping.
These contentions can not pass judicial muster. The pertinent portion of Section 29
states:
"x x x The liquidator designated as hereunder provided shall, by the Solicitor
General, file a petition in the Regional Trial Court reciting the proceedings which
have been taken and praying the assistance of the court in the liquidation of such
institution. The court shall have jurisdiction in the same proceedings to assist in
the adjudication of disputed claims against the bank or non-bank financial
intermediary performing quasi-banking functions and the enforcement of
individual liabilities of the stockholders and do all that is necessary to preserve
the assets of such institution and to implement the liquidation plan approved by
the Monetary Board, x x x"24 (emphasis supplied.)
Petitioner apparently failed to appreciate the correct meaning and import of the abovequoted law. The legal provision only finds operation in cases where there are claims
against an insolvent bank. In fine, the exclusive jurisdiction of the liquidation court

pertains only to the adjudication of claims against the bank. It does not cover the
reverse situation where it is the bank which files a claim against another person or
legal entity.
This interpretation of Section 29 becomes more obvious in the light of its intent. The
requirement that all claims against the bank be pursued in the liquidation proceedings
filed by the Central Bank is intended to prevent multiplicity of actions against the
insolvent bank and designed to establish due process and orderliness in the liquidation
of the bank, to obviate the proliferation of litigations and to avoid injustice and
arbitrariness.25 The lawmaking body contemplated that for convenience, only one court,
if possible, should pass upon the claims against the insolvent bank and that the
liquidation court should assist the Superintendents of Banks and regulate his
operations.26
It then ought to follow that petitioner's reliance on Section 29 and the Valenzuela case
is misplaced. The Petition for the Issuance of a Writ of Possession in Civil Case No.
9011 is not in the nature of a disputed claim against the bank. On the contrary, it is an
action instituted by the respondent bank itself for the preservation of its asset and
protection of its property. It was filed upon the instance of the respondent's liquidator in
order to take possession of a tract of land over which it has ownership claims.
To be sure, the liquidator took the proper course of action when it applied for a writ in
the Pasay City RTC. Act 3135,27 entitled An Act to Regulate the Sale of Property Under
Special Powers Inserted In or Annexed To Real Estate Mortgages, mandates that
jurisdiction over a Petition for Writ of Possession lies with the court of the province, city,
or municipality where the property subject thereof is situated. This is sanctioned by
Section 7 of the said Act, thus:
"SECTION 7. In any sale made under the provisions of this Act, the purchaser
may petition the Court of First Instance of the province or place where the
property or any part thereof is situated, to give him possession thereof during the
redemption period, furnishing bond in an amount equivalent to the use of the
property for a period of twelve months, to indemnify the debtor in case it be
shown that the sale was made without violating the mortgage or without
complying with the requirements of this Act x x x"28 (emphasis supplied)
Since the land subject of this controversy is located in Pasay City, then the city's RTC
should rightly take cognizance of the case, to the exclusion of other courts.
Anent petitioner's auxiliary contention that respondent should be held guilty of forum
shopping for not filing the case in the liquidation court, suffice it to state here that the
doctrine only ponders situations where two (or more) cases are pending before
different tribunals.29 Well to point, we have laid down the yardstick to determine
whether a party violated the rule against forum shopping as where the elements of litis
pendentia are present or where a final judgment in one case will amount to res

judicata in the other.30 Inasmuch as the case at bar is the only one filed by the
respondent for the issuance of a writ of possession over the subject property, there is
no occasion for the doctrine to apply.
Petitioner next casts doubt on the capacity of the respondent to continue litigating the
petition for the issuance of the writ. He asserts that, being under liquidation,
respondent bank is already a "dead" corporation that cannot maintain the suit in the
RTC. Hence, no writ may be issued in its favor.
The argument is devoid of merit. A bank which had been ordered closed by the
monetary board retains its juridical personality which can sue and be sued through its
liquidator. The only limitation being that the prosecution or defense of the action must
be done through the liquidator.31 Otherwise, no suit for or against an insolvent entity
would prosper. In such situation, banks in liquidation would lose what justly belongs to
them through a mere technicality.32
That the law allows a bank under liquidation to participate in an action can be
clearly inferred from the third paragraph of the same Section 29 of The Central
Bank Act earlier quoted, which authorizes or empowers a liquidator to institute
actions, thus: "x x x and he (liquidator) may in the name of the bank or non-bank
financial intermediary performing quasi-banking functions and with the assistance
of counsel as he may retain, institute such actions as may be necessary in the
appropriate court to collect and recover accounts and assets of such institution or
defend any action filed against the institution."33 (emphasis supplied.)
It is therefore beyond dispute that respondent was legally capacitated to petition the
court a quo for the issuance of the writ.
II.
Petitioner likewise proffers one other procedural obstacle, which is the pendency of
Civil Case No. 98-0868 in Branch 231 of Pasay City RTC. The said action is the
complaint he filed against the respondent for the latter to receive and accept the
redemption price of eighteen million pesos for the subject property. He argues that the
primary issue therein constitutes a prejudicial question in relation to the present case in
that if the Court therein will grant petitioner's prayer, then this will necessarily negate
the possessory writ issued by the court a quo.
Again, we are not persuaded. A prejudicial question is one which arises in a case the
resolution of which is a logical antecedent of the issue involved therein, and the
cognizance of which pertains to another tribunal. 34 It generally comes into play in
a situation where a civil action and a criminal action are both pending and there exists
in the former an issue which must be preemptively resolved before the criminal action
may proceed, because howsoever the issue raised in the civil action is resolved would
be determinative juris et de jure of the guilt or innocence of the accused in the criminal

case. The rationale behind the principle of prejudicial question is to avoid two
conflicting decisions.35
Here, aside from the fact that Civil Case No. 98-0868 and the present one are both civil
in nature and therefore no prejudicial question can arise from the existence of the two
actions,36 it is apparent that the former action was instituted merely to frustrate the
Court's ruling in the case at bar granting the respondent the right to possess the
subject property. It is but a canny and preemptive maneuver on the part of the
petitioner to delay, if not prevent, the execution of a judgment adverse to his interests.
It bears stressing that the complaint for mandamus was filed only on May 7, 1998,
sixteen days after the lower court granted respondent's petition and thirteen days after
it issued the writ. It cannot then possibly prejudice a decided case.
At any rate, it taxes our imagination why the questions raised in Case No. 98-0868
must be considered determinative of Case No. 9011. The basic issue in the former is
whether the respondent, as the purchaser in the extra-judicial foreclosure proceedings,
may be compelled to have the property repurchased or resold to a mortgagor's
successor-in-interest (petitioner): while that in the latter is merely whether the
respondent, as the purchaser in the extrajudicial foreclosure proceedings, is entitled to
a writ of possession after the statutory period for redemption has expired. The two
cases, assuming both are pending, can proceed separately and take their own
direction independent of each other.
III.
Having disposed of the jurisdictional and procedural issues, we now come to the merits
of the case. Petitioner seeks intervention in this case by virtue of the lease agreement
and the deed of assignment executed in his favor by the mortgagor (Vargas) and an
alleged buyer (Angsico) of the land, respectively. He posits that as a lessee and
assignee in possession of the foreclosed real estate, he automatically acquires interest
over the subject matter of the litigation. This interest is coupled with the fact that he
introduced improvements thereon, consisting of a one-storey building which houses a
karaoke-music restaurant, allegedly to the tune of fifteen million pesos
(P15,000,000.00). Enforcing the writ, he adds, without hearing his side would be an
injustice to him.
Intervention is a remedy by which a third party, not originally impleaded in the
proceeding, becomes a litigant therein to enable him to protect or preserve a right or
interest which may be affected by such proceeding. 37 The pertinent provision is stated
in Section 1, Rule 19 of the 1997 Rules of Civil Procedure, thus:
"SECTION 1. Who may intervene. A person who has a legal interest in the
matter in litigation, or in the success of either of the parties, or an interest against
both, or is so situated as to be adversely affected by a distribution or other
disposition of property in the custody of the court or of an officer thereof may, with

leave of court, be allowed to intervene in the action. The court shall consider
whether or not the intervention will unduly delay or prejudice the adjudication of
the rights of the original parties, and whether or not the intervenor's rights may be
fully protected in a separate proceeding." 38
Intervention is not a matter of right but may be permitted by the courts only when the
statutory conditions for the right to intervene is shown. 39 Thus, the allowance or
disallowance of a motion to intervene is addressed to the sound discretion of the
court.40 In determining the propriety of letting a party intervene in a case, the tribunal
should not limit itself to inquiring whether "a person (1) has a legal interest in the matter
in litigation; (2) or in the success of either of the parties; (3) or an interest against both;
(4) or when is so situated as to be adversely affected by a distribution or other
disposition of property in the custody of the court or of an officer thereof." 41 Just as
important, as we have stated in Big Country Ranch Corporation v. Court of
Appeals,42 is the function to consider whether or not the intervention will unduly delay
or prejudice the adjudication of the rights of the original parties, and whether or not the
intervenor's rights may be fully protected in a separate proceeding.
The period within which a person may intervene is also restricted. Section 2, Rule 19 of
the 1997 Rules of Civil Procedure requires:
"SECTION 2. Time to intervene. The motion to intervene may be filed at any
time before the rendition of judgment by the trial court, x x x"
After the lapse of this period, it will not be warranted anymore. This is because,
basically, intervention is not an independent action but is ancillary and supplemental to
an existing litigation.43
Taking into account these fundamental precepts, we rule that the petitioner may not
properly intervene in the case at bar. His insistence to participate in the proceeding is
an unfortunate case of too little, too late.
In the first place, petitioner's Ex-parte Permission to File a Motion to Intervene was
submitted to the RTC only on June 25, 1998. At that stage, the lower court had already
granted respondent's petition for the writ in an Order dated April 21, 1998. It had issued
the Writ of Possession on April 24, 1998. Petitioner's motion then was clearly out of
time, having been filed only at the execution stage. For that reason alone, it must meet
the consequence of denial. While it is true that on May 8, 1998, Vargas and S.
Villanueva Enterprises moved to quash the writ, that did not in any way affect the
nature of the RTC's Order as an adjudication on the merits. The issuance of the Order
is in essence a rendition of judgment within the purview of Section 2, Rule 19.
Allowing petitioner to intervene, furthermore, will serve no other purpose but to unduly
delay the execution of the writ, to the prejudice of the respondent. This cannot be
countenanced considering that after the consolidation of title in the buyer's name, for

failure of the mortgagor to redeem, the writ of possession becomes a matter of

right.44 Its issuance to a purchaser in an extrajudicial foreclosure is merely a ministerial
function.45 As such, the court neither exercises its official discretion nor judgment. 46 If
only to stress the writ's ministerial character, we have, in previous cases, disallowed
injunction to prohibit its issuance,47 just as we have held that issuance of the same may
not be stayed by a pending action for annulment of mortgage or the foreclosure itself. 48
Even if he anchors his intervention on the purported interest he has over the land and
the improvements thereon, petitioner, still, should not be allowed to do so. He admits
that he is a mere lessee and assignee. Whatever possessory rights he holds only
emanate from that of Vargas, from whom he leased the lot, and from whom his
assignor/predecessor-in-interest bought it. Therein lies the precariousness of his title.
Petitioner cannot validly predicate his supposed interest over the property in litigation
on that of Vargas, for the simple reason that as early as December 4, 1985, the latter
has already been stripped of all her rights over the land when she, as mortgagor, failed
to redeem it. A mortgagor has only one year within which to redeem her foreclosed real
estate.49 After that period, she loses all her interests over it. This is in consonance with
Section 78 of the General Banking Act, 50viz.:
"x x x In the event of foreclosure, whether judicially or extrajudicially, of any
mortgage on real estate which is security for any loan granted before the
passage of this Act or the provisions of this Act, the mortgagor or debtor whose
real property has been sold at public auction, judicially or extrajudicially, for the
full or partial payment of an obligation to any bank, banking or credit institution,
within the purview of this Act shall have the right, within one year after the sale of
the real estate mortgage as a result of the foreclosure of the respective
mortgage, to redeem the property by paying the amount fixed by the court in the
order or execution x x x"51 (emphasis supplied.)
Being herself bereft of valid title and rights, Vargas can not legitimately convey any to
some other person. She could not have lawfully sold the land to Angsico nor leased it
to petitioner for her own account. It is axiomatic that one can not transmit what one
does not have.52 It ought to follow that petitioner could not have acquired any right or
interest from Vargas.
Withal, all is not lost for the petitioner. He can still fully protect his rights in Civil Case
No. 98-0868 or the complaint for mandamus he filed before Branch 231 of the Pasay
City RTC. There, he can ventilate his side to a fuller extent as that would be the more
appropriate venue for elucidating whatever legal basis he alleges in compelling the
respondent to sell to him the currently disputed land.
IV.

This brings us to petitioner's final point. He briefly asserts that his act of entering into a
lease contract with the respondent should not affect his right to redeem the subject
property.
The possible legal implication of the lease on the petitioner's act of trying to redeem the
disputed lot is a question which, in our opinion, can best be resolved in the mandamus
complaint. Whether the agreement must be construed as a waiver on his part of
exercising his purported right of redemption is an issue best left for the court therein to
decide. Whether by acknowledging the legality of the respondent's claim and title over
the land at the time of the execution of the contract, he likewise perpetually barred
himself from redeeming the same is a matter which can be addressed most aptly in
that pending action. Hence, there is presently no need for us to squarely rule on this
ultimate point.
IN VIEW WHEREOF, finding no cogent reason to disturb the assailed Decision, the
instant petition is hereby DENIED.
SO ORDERED.
SECOND DIVISION

[G.R. No. 135706. October 1, 2004]

SPS. CESAR A. LARROBIS, JR. and VIRGINIA S. LARROBIS, petitioners,

vs. PHILIPPINE VETERANS BANK, respondent.
DECISION
AUSTRIA-MARTINEZ, J.:
Before us is a petition for review of the decision of the Regional Trial Court (RTC),
Cebu City, Branch 24, dated April 17, 1998, [1] and the order denying petitioners motion
for reconsideration dated August 25, 1998, raising pure questions of law.[2]
The following facts are uncontroverted:
On March 3, 1980, petitioner spouses contracted a monetary loan with respondent
Philippine Veterans Bank in the amount of P135,000.00, evidenced by a promissory
note, due and demandable on February 27, 1981, and secured by a Real Estate
Mortgage executed on their lot together with the improvements thereon.
On March 23, 1985, the respondent bank went bankrupt and was placed under
receivership/liquidation by the Central Bank from April 25, 1985 until August 1992.[3]

On August 23, 1985, the bank, through Francisco Go, sent the spouses a demand
letter for accounts receivable in the total amount of P6,345.00 as of August 15,
1984,[4] which pertains to the insurance premiums advanced by respondent bank over
the mortgaged property of petitioners.[5]
On August 23, 1995, more than fourteen years from the time the loan became due
and demandable, respondent bank filed a petition for extrajudicial foreclosure of
mortgage of petitioners property.[6] On October 18, 1995, the property was sold in a
public auction by Sheriff Arthur Cabigon with Philippine Veterans Bank as the lone
bidder.
On April 26, 1996, petitioners filed a complaint with the RTC, Cebu City, to declare
the extra-judicial foreclosure and the subsequent sale thereof to respondent bank null
and void.[7]
In the pre-trial conference, the parties agreed to limit the issue to whether or not the
period within which the bank was placed under receivership and liquidation was a
fortuitous event which suspended the running of the ten-year prescriptive period in
bringing actions.[8]
On April 17, 1998, the RTC rendered its decision, the fallo of which reads:
WHEREFORE, premises considered judgment is hereby rendered dismissing the
complaint for lack of merit. Likewise the compulsory counterclaim of defendant is
dismissed for being unmeritorious.[9]
It reasoned that:
defendant bank was placed under receivership by the Central Bank from April 1985
until 1992. The defendant bank was given authority by the Central Bank to operate as
a private commercial bank and became fully operational only on August 3, 1992. From
April 1985 until July 1992, defendant bank was restrained from doing its business.
Doing business as construed by Justice Laurel in 222 SCRA 131 refers to:
.a continuity of commercial dealings and arrangements and contemplates to that
extent, the performance of acts or words or the exercise of some of the functions
normally incident to and in progressive prosecution of the purpose and object of its
organization.
The defendant banks right to foreclose the mortgaged property prescribes in ten (10)
years but such period was interrupted when it was placed under receivership. Article
1154 of the New Civil Code to this effect provides:
The period during which the obligee was prevented by a fortuitous event from
enforcing his right is not reckoned against him.

In the case of Provident Savings Bank vs. Court of Appeals, 222 SCRA 131, the
Supreme Court said.
Having arrived at the conclusion that a foreclosure is part of a banks activity which
could not have been pursued by the receiver then because of the circumstances
discussed in the Central Bank case, we are thus convinced that the prescriptive period
was legally interrupted by fuerza mayor in 1972 on account of the prohibition imposed
by the Monetary Board against petitioner from transacting business, until the directive
of the Board was nullified in 1981. Indeed, the period during which the obligee was
prevented by a caso fortuito from enforcing his right is not reckoned against him. (Art.
1154, NCC) When prescription is interrupted, all the benefits acquired so far from the
possession cease and when prescription starts anew, it will be entirely a new one. This
concept should not be equated with suspension where the past period is included in
the computation being added to the period after the prescription is presumed (4
Tolentino, Commentaries and Jurisprudence on the Civil Code of the Philippines 1991
ed. pp. 18-19), consequently, when the closure of the petitioner was set aside in 1981,
the period of ten years within which to foreclose under Art. 1142 of the N.C.C. began to
run and, therefore, the action filed on August 21, 1986 to compel petitioner to release
the mortgage carried with it the mistaken notion that petitioners own suit for
foreclosure has prescribed.
Even assuming that the liquidation of defendant bank did not affect its right to foreclose
the plaintiffs mortgaged property, the questioned extrajudicial foreclosure was well
within the ten (10) year prescriptive period. It is noteworthy to mention at this point in
time, that defendant bank through authorized Deputy Francisco Go made the first
extrajudicial demand to the plaintiffs on August 1985. Then on March 24, 1995
defendant bank through its officer-in-charge Llanto made the second extrajudicial
demand. And we all know that a written extrajudicial demand wipes out the period that
has already elapsed and starts anew the prescriptive period. (Ledesma vs. C.A., 224
SCRA 175.)[10]
Petitioners filed a motion for reconsideration which the RTC denied on August 25,
1998.[11] Thus, the present petition for review where petitioners claim that the RTC
erred:
I
IN RULING THAT THE PERIOD WITHIN WHICH RESPONDENT BANK WAS PUT
UNDER RECEIVERSHIP AND LIQUIDATION WAS A FORTUITOUS EVENT THAT
INTERRUPTED THE RUNNING OF THE PRESCRIPTIVE PERIOD.
II
IN RULING THAT THE WRITTEN EXTRA-JUDICIAL DEMAND MADE BY
RESPONDENT ON PETITIONERS WIPED OUT THE PERIOD THAT HAD ALREADY
ELAPSED.

III
IN DENYING PETITIONERS MOTION FOR RECONSIDERATION OF ITS HEREIN
ASSAILED DECISION.[12]
Petitioners argue that: since the extra-judicial foreclosure of the real estate
mortgage was effected by the bank on October 18, 1995, which was fourteen years
from the date the obligation became due on February 27, 1981, said foreclosure and
the subsequent sale at public auction should be set aside and declared null and
void ab initio since they are already barred by prescription; the court a quo erred in
sustaining the respondents theory that its having been placed under receivership by
the Central Bank between April 1985 and August 1992 was a fortuitous event that
interrupted the running of the prescriptive period; [13] the court a quos reliance on the
case of Provident Savings Bank vs. Court of Appeals [14] is misplaced since they have
different sets of facts; in the present case, a liquidator was duly appointed for
respondent bank and there was no judgment or court order that would legally or
physically hinder or prohibit it from foreclosing petitioners property; despite the
absence of such legal or physical hindrance, respondent banks receiver or liquidator
failed to foreclose petitioners property and therefore such inaction should bind
respondent bank;[15] foreclosure of mortgages is part of the receivers/liquidators duty
of administering the banks assets for the benefit of its depositors and creditors, thus,
the ten-year prescriptive period which started on February 27, 1981, was not
interrupted by the time during which the respondent bank was placed under
receivership; and the Monetary Boards prohibition from doing business should not be
construed as barring any and all business dealings and transactions by the bank,
otherwise, the specific mandate to foreclose mortgages under Sec. 29 of R.A. No. 265
as amended by Executive Order No. 65 would be rendered nugatory.[16] Said provision
reads:
Section 29. Proceedings upon Insolvency Whenever, upon examination by the head
of the appropriate supervising or examining department or his examiners or agents into
the condition of any bank or non-bank financial intermediary performing quasi-banking
functions, it shall be disclosed that the condition of the same is one of insolvency, or
that its continuance in business would involve probable loss to its depositors or
creditors, it shall be the duty of the department head concerned forthwith, in writing, to
inform the Monetary Board of the facts. The Board may, upon finding the statements of
the department head to be true, forbid the institution to do business in the Philippines
and designate the official of the Central Bank or a person of recognized competence in
banking or finance, as receiver to immediately take charge its assets and liabilities, as
expeditiously as possible, collect and gather all the assets and administer the same for
the benefit of its creditors, and represent the bank personally or through counsel as he
may retain in all actions or proceedings for or against the institution, exercising all the
powers necessary for these purposes including, but not limited to, bringing and
foreclosing mortgages in the name of the bank.

Petitioners further contend that: the demand letter, dated March 24, 1995, was sent
after the ten-year prescriptive period, thus it cannot be deemed to have revived a
period that has already elapsed; it is also not one of the instances enumerated by Art.
1115 of the Civil Code when prescription is interrupted; [17] and the August 23, 1985
letter by Francisco Go demanding P6,345.00, refers to the insurance premium on the
house of petitioners, advanced by respondent bank, thus such demand letter referred
to another obligation and could not have the effect of interrupting the running of the
prescriptive period in favor of herein petitioners insofar as foreclosure of the mortgage
is concerned.[18]
Petitioners then prayed that respondent bank be ordered to pay them P100,000.00
as moral damages, P50,000.00 as exemplary damages and P100,000.00 as attorneys
fees.[19]
Respondent for its part asserts that: the period within which it was placed under
receivership and liquidation was a fortuitous event that interrupted the running of the
prescriptive period for the foreclosure of petitioners mortgaged property; within such
period, it was specifically restrained and immobilized from doing business which
includes foreclosure proceedings; the extra-judicial demand it made on March 24, 1995
wiped out the period that has already lapsed and started anew the prescriptive period;
respondent through its authorized deputy Francisco Go made the first extra-judicial
demand on the petitioners on August 23, 1985; while it is true that the first demand
letter of August 1985 pertained to the insurance premium advanced by it over the
mortgaged property of petitioners, the same however formed part of the latters total
loan obligation with respondent under the mortgage instrument and therefore
constitutes a valid extra-judicial demand made within the prescriptive period. [20]
In their Reply, petitioners reiterate their earlier arguments and add that it was
respondent that insured the mortgaged property thus it should not pass the obligation
to petitioners through the letter dated August 1985. [21]
To resolve this petition, two questions need to be answered: (1) Whether or not the
period within which the respondent bank was placed under receivership and liquidation
proceedings may be considered a fortuitous event which interrupted the running of the
prescriptive period in bringing actions; and (2) Whether or not the demand letter sent
by respondent banks representative on August 23, 1985 is sufficient to interrupt the
running of the prescriptive period.
Anent the first issue, we answer in the negative.
One characteristic of a fortuitous event, in a legal sense and consequently in
relations to contract, is that its occurrence must be such as to render it impossible for a
party to fulfill his obligation in a normal manner.[22]
Respondents claims that because of a fortuitous event, it was not able to exercise
its right to foreclose the mortgage on petitioners property; and that since it was banned
from pursuing its business and was placed under receivership from April 25, 1985 until

August 1992, it could not foreclose the mortgage on petitioners property within such
period since foreclosure is embraced in the phrase doing business, are without merit.
While it is true that foreclosure falls within the broad definition of doing business,
that is:
a continuity of commercial dealings and arrangements and contemplates to that
extent, the performance of acts or words or the exercise of some of the functions
normally incident to and in progressive prosecution of the purpose and object of its
organization.[23]
it should not be considered included, however, in the acts prohibited whenever banks
are prohibited from doing business during receivership and liquidation proceedings.
This we made clear in Banco Filipino Savings & Mortgage Bank vs. Monetary
Board, Central Bank of the Philippines[24] where we explained that:
Section 29 of the Republic Act No. 265, as amended known as the Central Bank Act,
provides that when a bank is forbidden to do business in the Philippines and placed
under receivership, the person designated as receiver shall immediately take charge of
the banks assets and liabilities, as expeditiously as possible, collect and gather all the
assets and administer the same for the benefit of its creditors, and represent the bank
personally or through counsel as he may retain in all actions or proceedings for or
against the institution, exercising all the powers necessary for these purposes
including, but not limited to, bringing and foreclosing mortgages in the name of the
bank.[25]
This is consistent with the purpose of receivership proceedings, i.e., to receive
collectibles and preserve the assets of the bank in substitution of its former
management, and prevent the dissipation of its assets to the detriment of the creditors
of the bank.[26]
When a bank is declared insolvent and placed under receivership, the Central
Bank, through the Monetary Board, determines whether to proceed with the liquidation
or reorganization of the financially distressed bank. A receiver, who concurrently
represents the bank, then takes control and possession of its assets for the benefit of
the banks creditors. A liquidator meanwhile assumes the role of the receiver upon the
determination by the Monetary Board that the bank can no longer resume business.
His task is to dispose of all the assets of the bank and effect partial payments of the
banks obligations in accordance with legal priority. In both receivership and liquidation
proceedings, the bank retains its juridical personality notwithstanding the closure of its
business and may even be sued as its corporate existence is assumed by the receiver
or liquidator. The receiver or liquidator meanwhile acts not only for the benefit of the
bank, but for its creditors as well. [27]
In Provident Savings Bank vs. Court of Appeals,[28] we further stated that:

When a bank is prohibited from continuing to do business by the Central Bank and a
receiver is appointed for such bank, that bank would not be able to do new
business, i.e., to grant new loans or to accept new deposits. However, the receiver of
the bank is in fact obliged to collect debts owing to the bank, which debts form
part of the assets of the bank. The receiver must assemble the assets and pay
the obligation of the bank under receivership, and take steps to prevent
dissipation of such assets. Accordingly, the receiver of the bank is obliged to
collect pre-existing debts due to the bank, and in connection therewith, to
foreclose mortgages securing such debts.[29] (Emphasis supplied.)
It is true that we also held in said case that the period during which the bank was
placed under receivership was deemed fuerza mayor which validly interrupted the
prescriptive period.[30] This is being invoked by the respondent and was used as basis
by the trial court in its decision. Contrary to the position of the respondent and court a
quo however, such ruling does not find application in the case at bar.
A close scrutiny of the Provident case, shows that the Court arrived at said
conclusion, which is an exception to the general rule, due to the peculiar circumstances
of Provident Savings Bank at the time. In said case, we stated that:
Having arrived at the conclusion that a foreclosure is part of a banks business
activity which could not have been pursued by the receiver then because of the
circumstances discussed in the Central Bank case, we are thus convinced that the
prescriptive period was legally interrupted by fuerza mayor in 1972 on account of the
prohibition imposed by the Monetary Board against petitioner from transacting
business, until the directive of the Board was nullified in 1981. [31] (Emphasis supplied.)
Further examination of the Central Bank case reveals that the circumstances of
Provident Savings Bank at the time were peculiar because after the Monetary Board
issued MB Resolution No. 1766 on September 15, 1972, prohibiting it from doing
business in the Philippines, the banks majority stockholders immediately went to the
Court of First Instance of Manila, which prompted the trial court to issue its judgment
dated February 20, 1974, declaring null and void the resolution and ordering the
Central Bank to desist from liquidating Provident. The decision was appealed to and
affirmed by this Court in 1981. Thus, the Superintendent of Banks, which was
instructed to take charge of the assets of the bank in the name of the Monetary Board,
had no power to act as a receiver of the bank and carry out the obligations specified in
Sec. 29 of the Central Bank Act.[32]
In this case, it is not disputed that Philippine Veterans Bank was placed under
receivership by the Monetary Board of the Central Bank by virtue of Resolution No. 364
on April 25, 1985, pursuant to Section 29 of the Central Bank Act on insolvency of
banks. [33]
Unlike Provident Savings Bank, there was no legal prohibition imposed upon herein
respondent to deter its receiver and liquidator from performing their obligations under

the law. Thus, the ruling laid down in the Provident case cannot apply in the case at
bar.
There is also no truth to respondents claim that it could not continue doing
business from the period of April 1985 to August 1992, the time it was under
receivership. As correctly pointed out by petitioner, respondent was even able to send
petitioners a demand letter, through Francisco Go, on August 23, 1985 for accounts
receivable in the total amount of P6,345.00 as of August 15, 1984 for the insurance
premiums advanced by respondent bank over the mortgaged property of petitioners.
How it could send a demand letter on unpaid insurance premiums and not foreclose
the mortgage during the time it was prohibited from doing business was not
adequately explained by respondent.
Settled is the principle that a bank is bound by the acts, or failure to act of its
receiver.[34] As we held in Philippine Veterans Bank vs. NLRC,[35] a labor case which
also involved respondent bank,
all the acts of the receiver and liquidator pertain to petitioner, both having assumed
petitioners corporate existence. Petitioner cannot disclaim liability by arguing that the
non-payment of MOLINAs just wages was committed by the liquidators during the
liquidation period.[36]
However, the bank may go after the receiver who is liable to it for any culpable or
negligent failure to collect the assets of such bank and to safeguard its assets. [37]
Having reached the conclusion that the period within which respondent bank was
placed under receivership and liquidation proceedings does not constitute a fortuitous
event which interrupted the prescriptive period in bringing actions, we now turn to the
second issue on whether or not the extra-judicial demand made by respondent bank,
through Francisco Go, on August 23, 1985 for the amount of P6,345.00, which
pertained to the insurance premiums advanced by the bank over the mortgaged
property, constitutes a valid extra-judicial demand which interrupted the running of the
prescriptive period. Again, we answer this question in the negative.
Prescription of actions is interrupted when they are filed before the court, when
there is a written extra-judicial demand by the creditors, and when there is any written
acknowledgment of the debt by the debtor.[38]
Respondents claim that while its first demand letter dated August 23, 1985
pertained to the insurance premium it advanced over the mortgaged property of
petitioners, the same formed part of the latters total loan obligation with respondent
under the mortgage instrument, and therefore, constitutes a valid extra-judicial demand
which interrupted the running of the prescriptive period, is not plausible.
The real estate mortgage signed by the petitioners expressly states that:
This mortgage is constituted by the Mortgagor to secure the payment of the loan
and/or credit accommodation granted to the spouses Cesar A. Larrobis, Jr. and Virginia

S. Larrobis in the amount of ONE HUNDRED THIRTY FIVE THOUSAND

(P135,000.00) PESOS ONLY Philippine Currency in favor of the herein Mortgagee. [39]
The promissory note, executed by the petitioners, also states that:
FOR VALUE RECEIVED, I/WE, JOINTLY AND SEVERALLY, PROMISE TO PAY
THE PHILIPPINE VETERANS BANK, OR ORDER, AT ITS OFFICE AT CEBU CITY
THE SUM OF ONE HUNDRED THIRTY FIVE THOUSAND PESOS (P135,000.00),
PHILIPPINE CURRENCY WITH INTEREST AT THE RATE OF FOURTEEN PER
CENT (14%) PER ANNUM FROM THIS DATE UNTIL FULLY PAID.[40]
Considering that the mortgage contract and the promissory note refer only to the
loan of petitioners in the amount of P135,000.00, we have no reason to hold that the
insurance premiums, in the amount of P6,345.00, which was the subject of the August
1985 demand letter, should be considered as pertaining to the entire obligation of
petitioners.
In Quirino Gonzales Logging Concessionaire vs. Court of Appeals,[41] we held that
the notices of foreclosure sent by the mortgagee to the mortgagor cannot be
considered tantamount to written extrajudicial demands, which may validly interrupt the
running of the prescriptive period, where it does not appear from the records that the
notes are covered by the mortgage contract.[42]
In this case, it is clear that the advanced payment of the insurance premiums is not
part of the mortgage contract and the promissory note signed by petitioners. They
pertain only to the amount of P135,000.00 which is the principal loan of petitioners plus
interest. The arguments of respondent bank on this point must therefore fail.
As to petitioners claim for damages, however, we find no sufficient basis to award
the same. For moral damages to be awarded, the claimant must satisfactorily prove
the existence of the factual basis of the damage and its causal relation to defendants
acts.[43] Exemplary damages meanwhile, which are imposed as a deterrent against or
as a negative incentive to curb socially deleterious actions, may be awarded only after
the claimant has proven that he is entitled to moral, temperate or compensatory
damages.[44] Finally, as to attorneys fees, it is demanded that there be factual, legal
and equitable justification for its award. [45] Since the bases for these claims were not
adequately proven by the petitioners, we find no reason to grant the same.
WHEREFORE, the decision of the Regional Trial Court, Cebu City, Branch 24,
dated April 17, 1998, and the order denying petitioners motion for reconsideration
dated August 25, 1998 are hereby REVERSED and SET ASIDE. The extra-judicial
foreclosure of the real estate mortgage on October 18, 1995, is hereby declared null
and void and respondent is ordered to return to petitioners their owners duplicate
certificate of title.
Costs against respondent.
FIRST DIVISION

[G.R. No. 130439. October 26, 1999]

PHILIPPINE VETERANS BANK, petitioner, vs. HONORABLE NATIONAL LABOR

RELATIONS COMMISSION, HON. POTENCIANO CAIZARES, JR., and DR.
TEODORICO V. MOLINA, respondents.
DECISION
DAVIDE, JR., C.J.:
In this petition for certiorari under Rule 65 of the Rules of Court, petitioner seeks to set
aside the resolution[1] of the National Labor Relations Commission (NLRC) in NLRC Case No.
05-02940-91 and its order[2]denying the motion for reconsideration thereof.
In 1983, petitioner Philippine Veterans Bank was placed under receivership by the Central
Bank (now Bangko Sentral)[3] by virtue of Resolution No. 334 issued by the Monetary
Board. Petitioner was subsequently placed under liquidation on 15 June 1985. Consequently,
its employees, including private respondent Dr. Jose Teodorico V. Molina (MOLINA), were
terminated from work and given their respective separation pay and other benefits. To assist in
the liquidation, some of petitioners former employees were rehired, among them MOLINA,
whose re-employment commenced on 15 June 1985.
On 11 May 1991, MOLINA filed a complaint [4] against Renan V. Santos,[5] Pacifico U.
Cervantes and Alfredo L. Dizon, members of the liquidation team. [6] Docketed as NLRC-NCR
Case No. 05-02940-91, the complaint demanded the implementation of Wage Orders Nos.
NCR-01 and NCR-02 (hereafter W.O. 1 and W.O. 2) as well as moral damages and attorneys
fees in the amount of P300,000.
In his position paper, MOLINA alleged that he started working for petitioner as a legal
assistant on 17 March 1974. When petitioner was placed under liquidation in 1985, he was
retained as Manager II in the Legal Department, where he continued to receive a monthly salary
of P3,754.60.
Meanwhile, W.O. 1 took effect on 10 November 1990, prescribing a P17-increase in the
daily wage of employees whose monthly salary did not exceed P3,802.08. On the other hand,
W.O. 2, which became effective on 8 January 1991, mandated a P12-increase in the daily wage
of employees whose monthly salary did not exceed P4,319.16. MOLINA claimed that his
salary should have been adjusted in compliance with said wage orders.
In their position paper, the liquidation team countered that MOLINA was not entitled to any
salary increase because he was already receiving a monthly salary of P6,654.60 broken down as
follows: P3,754.60 as basic compensation, P2,000 as representation and transportation
allowance (RATA), and a special allowance of P900.
In his decision,[7] Labor Arbiter Potenciano S. Caizares, Jr. rejected the 26.16 factor used
by the liquidators in computing the daily wage of MOLINA, adopting instead the factor of 365
days. Consequently, they were ordered to pay MOLINA P4,136.64 and P2,190 representing

the wage differentials due him under W.O. 1 and W.O. 2. They were also required to pay
him P100,000 in moral damages and attorneys fees.
On appeal, the NLRC sustained the labor arbiters ruling after concluding that MOLINA
was a regular employee of petitioner with a basic monthly salary of P3,754.60 at the time of his
dismissal on 31 January 1992. He was, therefore, entitled to the wage increases mandated by the
aforesaid wage orders.
In its assailed resolution of 7 April 1997, the NLRC decreed thus:
WHEREFORE, the respondents [members of herein petitioners liquidation team] are hereby
directed to pay the complainant [MOLINA] the total sum [sic] of P112,501.20 broken down as
follows:
WO# NCR-01 & 01-A P17.00/day

Nov. 1990 ~ Jan. 7, 1991

WO# NCR-02 & 02-A P12.00/day

Jan. 8, 1991 ~ Jan.31,1992

(Date of termination)

Wage Differential:
WO# NCR-01 (Nov. 1990 Jan. 31, 1992 ~ 15 mos.)
P17.00 x 365 12 = P517.08 x 15 mos. ~ P7,756.20
WO# NCR-02 (Jan. 8, 1991 Jan. 31, 1992 ~ 13 mos.)
P12.00 x 365 12 = P365.00 x 13 mos. ~ P4,745.00
Total Wage Differential
Moral Damages & Attorneys Fees
TOTAL AWARD

P 12,501.20
P100,000.00
P112,501.20

SO ORDERED.[8]
As MOLINA moved for the execution of the NLRC resolution, petitioner, in turn, moved
for its reconsideration. In its order of 27 June 1997, the NLRC denied petitioners motion,
prompting the latter to file the instant petition with a prayer for the issuance of a temporary
restraining order and writ of preliminary injunction.
In this action, petitioner questions the propriety of its substitution as a party-respondent
below on the pretext that it was thereby deprived of its right to due process. Second, MOLINA
was alluding to acts committed by the representatives of the then Central Bank. Petitioner
emphasizes that he was rehired only to assist in the liquidation process. [9] In fact, all its

employees were dismissed and given their corresponding separation pay and benefits. At that
moment, the employer-employee relationship between petitioner and MOLINA ceased to
exist. Third, petitioner maintains that MOLINA is estopped from claiming that it continued to
be his employer during the rehabilitation period since the admissions in his pleadings, one of
which is that the liquidators were his employers, are binding and conclusive.
Nonetheless, petitioner reiterates the arguments raised by the original respondents,
particularly that the factor of 26.16 should have been applied in determining MOLINAs daily
wage. Doing so would show that MOLINAs daily pay exceeded the minimum wage and,
therefore, was beyond the scope of the wage orders.
Petitioner also avers that the award of P100,000 in moral damages and attorneys fees was
inappropriate since the complaint did not specify the same, and it was clearly excessive,
considering that the case was decided based on the pleadings and without the benefit of trial. In
fact, MOLINA failed to prove his claim for both moral damages and attorneys fees. Even if
due, the amount far surpassed any actual damage that MOLINA may have suffered. In any
event, moral damages may only be recovered in labor cases when the dismissal is attended by
bad faith or fraud, or when it constitutes an act oppressive to labor or committed in a manner
contrary to good morals, good customs or public policy. MOLINAs dismissal was made in the
ordinary course of business.
On the other hand, MOLINA primarily asserts that upon petitioners rehabilitation it
assumed all the rights and obligations of the liquidator, including the NLRCs monetary award
arising from the labor complaint he filed against the liquidation team.
The Office of the Solicitor General supports the NLRCs finding that MOLINA was entitled
to the wage increases because it was never disputed that his salary of P3,754.60 was clearly
covered by the wage orders. The liquidators, however, used the 26.16 instead of the 365 factor
in computing his daily wage. The OSG cites the ruling of the National Wages Council in its
letter[10] to the Philippine Veterans Bank Retained Employees, where the Council opined that the
retained employees were entitled to the wage increase computed on the basis of 365 days. It
also agrees with the NLRCs conclusion that MOLINA is entitled to moral damages and
attorneys fees, although they must be separately specified. Finally, the OSG opines that upon
the rehabilitation of petitioner, it assumed all the assets, liabilities, rights and obligations of the
liquidation team. This would include the salaries of the employees hired for liquidation
purposes, such as MOLINA.
In its reply, petitioner insists that when it was placed under liquidation, it lost its juridical
personality, such that it could no longer enter into contracts or transact business. All its assets
and liabilities were turned over to the Central Bank. MOLINAs complaint pertained to acts
committed during liquidation and so was correctly filed against the liquidation team. Its
substitution as party-respondent was clearly erroneous.
Hence, the issues to be resolved are: (1) Are W.O. 1 and W.O. 2 applicable to MOLINA? (2)
Is MOLINA entitled to moral damages and attorneys fees? (3) If so, who is liable to pay
MOLINAs claims?

We see no reason to disturb the factual finding of the labor arbiter, and affirmed by the
NLRC, that MOLINAs salary was within the coverage of the cited wage orders. Well-settled is
the rule that the findings of fact of quasi-judicial bodies are generally accorded respect and
finality where they are supported by substantial evidence. [11] Indeed, MOLINAs monthly salary
of P3,754.60 was never at issue. What was in dispute was thecomputation of his daily wage.
W.O. 1 expressly states that employees having a monthly salary of not more than P3,802.08
are entitled to receive the mandated wage increase. Undeniably, MOLINA was receiving a
monthly salary of P3,754.60. This fact alone leaves no doubt that he should benefit from said
wage order.
On the other hand, W.O. 2 raised the ceiling for entitlement to the wage increase. If
MOLINA was covered by the earlier wage order, with more reason should the later wage order
apply to him.
Worth mentioning is the opinion[12] rendered by the National Wages Council on the query of
the Philippines Veterans Bank Retained Employees, on whether they were entitled to a wage
increase under Republic Act No. 6640,[13] viz.:
The documents attached to your query show that the Bank has been consistently using the factor
of 365 days in computing your equivalent monthly salary prior to its being placed under
receivership by the Central Bank. This is evident in the wage and allowance increases granted
under previous Presidential Decrees and Wage Orders, which were given by the Bank on
monthly basis, i.e., where the rest days are unworked [sic] but paid. This is also indicated in the
appointment and service records of bank personnel who started out as daily paid employees and
were eventually promoted as permanent employees with fixed monthly salaries. However,
when R.A. 6640 went into force, the Bank unilaterally reduced the factor to 262 instead of
maintaining factor 365 as was the practice/policy long before the effectivity of the Act. And
when R.A 6727 took effect, the Bank reverted to the old practice/policy of using factor 365 days
in computing your equivalent monthly rate salary. xxx
May we add that the old practice of the bank in using factor 365 days in a year in determining
your equivalent monthly salary cannot unilaterally be changed by your employer without the
consent of the employees, such practice being now a part of the terms and conditions of your
employment. An employment agreement, whether written or unwritten, is a bilateral contract
and as such either party thereto cannot change or amend the terms thereof without the consent
of the other party thereto.
From the foregoing, it is clear that you are entitled to the wage increase under R.A. 6440
computed on the basis of 365 paid days and to the corresponding salary differentials as a result
of the application of this factor. [Emphasis supplied]
Evidently, the use of the 365 factor is binding and conclusive, forming as it did part of the
employment contract. Petitioner can no longer invoke the 26.16 factor after it voluntarily
adopted the 365 factor as a policy even prior to its receivership. To abandon such policy and
revert to its old practice of using the 26.16 factor would be a diminution of a labor benefit,

which is prohibited by the Labor Code.[14] It cannot be doubted that the 365 factor favors
petitioners employees, including MOLINA, because it results in a higher determination of their
monthly salary.
As to the second issue, we agree with the NLRC that MOLINA is entitled to moral damages
and attorneys fees. He may have omitted such claims in his complaint, but he certainly
included them in his position paper. We hold that such allegation is sufficient to enable the
complainant to seek an award thereof. The complaint being pro forma, MOLINAs omission to
specify a claim for damages does not bar recovery thereof especially when, as in this case, such
a claim was prayed for in his position paper.[15]
The NLRC, however, did not distinguish between attorneys fees and moral damages in
affirming the award of P100,000 to MOLINA. We hold that awards for moral damages and
attorneys fees cannot be consolidated for they are different in nature and each must be
separately determined.[16] Since the Labor Code limits attorneys fees to ten percent of the wages
awarded,[17] and the total wage differential due MOLINA was computed at P12,501.20,
only P1,250.12 should have been awarded as attorneys fees.
Moving on to the issue of moral damages, the records show that MOLINA based his claim
on the alleged failure of the liquidation team to implement the benefits of the wage orders,
without submitting any proof in support thereof. It is basic, however, that for moral damages to
be awarded, the claimant must satisfactorily prove its factual basis and causal connection with
the respondents acts.[18] In this, MOLINA failed, for which reason the award of moral damages
must be deleted.
Finally, we rule that the payment of MOLINAs claims devolves upon petitioner, not the
liquidation team. When a bank is declared insolvent and placed under receivership, the
Monetary Board of the Central Bank determines whether to proceed with the liquidation or
reorganization of the financially distressed bank.[19] A receiver takes control and possession of
the assets of the bank for the benefit of its creditors [20] and concurrently represents the bank.
[21]
On the other hand, a liquidator assumes the role of the receiver upon the determination by
the Monetary Board that the bank can no longer resume business. His task is to dispose of all
the assets of the bank and effect partial payments of its obligations in accordance with their
legal priority.[22] In both receivership and liquidation proceedings, the bank retains its juridical
personality notwithstanding the closure of its business; in fact, the bank may even be sued. [23] Its
corporate existence is assumed by the receiver or liquidator. The latter, however, acts not only
for the benefit of the bank, but for the banks creditors as well.[24]
In the instant case, petitioner was initially closed and put under receivership and
liquidation. Subsequently, its rehabilitation was effected by virtue of Republic Act No.
7169[25] and Monetary Board Resolution No. 348 dated 10 April 1992. Rehabilitation
contemplates a continuance of corporate life and activities in an effort to restore and reinstate
the corporation to its former position of successful operation and solvency.[26] Upon its
rehabilitation, petitioner assumed the rights and obligations of the receiver and liquidator. This
includes MOLINAs claim for unpaid wages. It must be borne in mind that all the acts of the
receiver and liquidator pertain to petitioner, both having assumed petitioners corporate

existence. Petitioner cannot disclaim liability by arguing that the non-payment of MOLINAs
just wages was committed by the liquidators during the liquidation period.
WHEREFORE, this case is DISMISSED. The assailed Resolution of 7 April 1997 and
Order of 27 June 1997 of the National Labor Relations in NLRC Case No. 05-02940-91 are
AFFIRMED with the MODIFICATION that the award of moral damages is deleted and the
award of attorneys fees is reduced to ONE THOUSAND TWO HUNDRED FIFTY & 12/100
PESOS (P1,250.12).
No pronouncement as to costs.
G.R. No. 114870 May 26, 1995
MIGUELA R. VILLANUEVA, RICHARD R. VILLANUEVA, and MERCEDITA
VILLANUEVA-TIRADOS, petitioners,
vs.
COURT OF APPEALS, CENTRAL BANK OF THE PHILIPPINES, ILDEFONSO C.
ONG, and PHILIPPINE VETERANS BANK, respondents.

DAVIDE, JR., J.:

Do petitioners have a better right than private respondent Ildefonso Ong to purchase
from the Philippine Veterans Bank (PVB) the two parcels of land described as Lot No.
210-D-1 and Lot No. 210-D-2 situated at Muntinglupa, Metro Manila, containing an
area of 529 and 300 square meters, respectively? This is the principal legal issue
raised in this petition.
In its decision of 27 January 1994 in CA-G.R. CV No. 35890, 1 the Court of Appeals
held for Ong, while the trial court, Branch 39 of the Regional Trial Court (RTC) of
Manila, ruled for the petitioners in its joint decision of 31 October 1991 in Civil Case
No. 87-42550 2 and Sp. Proc. No. 85-32311. 3
The operative antecedent facts are set forth in the challenged decision as follows:
The disputed lots were originally owned by the spouses Celestino
Villanueva and Miguela Villanueva, acquired by the latter during her
husband's sojourn in the United States since 1968. Sometime in 1975,
Miguela Villanueva sought the help of one Jose Viudez, the then Officer-inCharge of the PVB branch in Makati if she could obtain a loan from said
bank. Jose Viudez told Miguela Villanueva to surrender the titles of said lots
as collaterals. And to further facilitate a bigger loan, Viudez, in connivance
with one Andres Sebastian, swayed Miguela Villanueva to execute a deed
of sale covering the two (2) disputed lots, which she did but without the
signature of her husband Celestino. Miguela Villanueva, however, never

got the loan she was expecting. Subsequent attempts to contact Jose
Viudez proved futile, until Miguela Villanueva thereafter found out that new
titles over the two (2) lots were already issued in the name of the PVB. It
appeared upon inquiry from the Registry of Deeds that the original titles of
these lots were canceled and new ones were issued to Jose Viudez, which
in turn were again canceled and new titles issued in favor of Andres
Sebastian, until finally new titles were issued in the name of PNB [should
be PVB] after the lots were foreclosed for failure to pay the loan granted in
the name of Andres Sebastian.
Miguela Villanueva sought to repurchase the lots from the PVB after being
informed that the lots were about to be sold at auction. The PVB told her
that she can redeem the lots for the price of P110,416.00. Negotiations for
the repurchase of the lots nevertheless were stalled by the filing of
liquidation proceedings against the PVB on August of 1985.
Plaintiff-appellant [Ong] on the other hand expounds on his claim over the
disputed lots in this manner:
In October 1984, plaintiff-appellant offered to purchase two
pieces of Land that had been acquired by PVB through
foreclosure. To back-up plaintiff-appellant's offer he deposited
the sum of P10,000.00.
In 23 November 1984, while appellant was still abroad, PVB
approved his subject offer under Board Resolution No. 1090184. Among the conditions imposed by PVB is that: "The
purchase price shall be P110,000.00 (Less deposit of
P10,000.00) payable in cash within fifteen (15) days from
receipt of approval of the offer."
In mid-April 1985, appellant returned to the country. He
immediately verified the status of his offer with the PVB, now
under the control of CB, where he was informed that the same
had already been approved. On 16 April 1985, appellant
formally informed CB of his desire to pay the subject balance
provided the bank should execute in his favor the
corresponding deed of conveyance. The letter was not
answered.
Plaintiff-appellant sent follow-up Letters that went unheeded,
the last of which was on 21 May 1987. On 26 May 1987,
appellant's payment for the balance of the subject properties
were accepted by CB under Official Receipt #0816.

On 17 September 1987, plaintiff-appellant through his counsel,

sent a letter to CB demanding for the latter to execute the
corresponding deed of conveyance in favor of appellant. CB did
not bother to answer the same. Hence, the instant case.
While appellant's action for specific performance against CB
was pending, Miguela Villanueva and her children filed their
claims with the Liquidation court. (Appellant's Brief, pp. 3-4). 4
From the pleadings, the following additional or amplificatory facts are established:
The efforts of Miguela Villanueva to reacquire the property began on 8 June 1983
when she offered to purchase the lots for P60,000.00 with a 20%
downpayment and the balance payable in five years on a quarterly amortization basis. 5
Her offer not having been accepted, 6 Miguela Villanueva increased her bid to
P70,000.00. It was only at this time that she disclosed to the bank her private
transactions with Jose Viudez. 7
After this and her subsequent offers were rejected, 8 Miguela sent her sealed bid of
P110,417.00 pursuant to the written advice of the vice president of the PVB. 9
The PVB was placed under receivership pursuant to Monetary Board (MB) Resolution
No. 334 dated 3 April 1985 and later, under liquidation pursuant to MB Resolution No.
612 dated 7 June 1985. Afterwards, a petition for liquidation was filed with the RTC of
Manila, which was docketed as Sp. Proc. No. 85-32311 and assigned to Branch 39 of
the said court.
On 26 May 1987, Ong tendered the sum of P100,000.00 representing the balance of
the purchase price of the litigated lots. 10 An employee of the PVB received the amount
conditioned upon approval by the Central Bank
liquidator. 11 Ong's demand for a deed of conveyance having gone unheeded, he filed
on 23 October 1987 with the RTC of Manila an action for specific performance against
the Central Bank. 12 It was raffled to Branch 47 thereof. Upon learning that the PVB had
been placed under liquidation, the presiding judge of Branch 47 ordered the transfer of
the case to Branch 39, the liquidation court. 13
On 15 June 1989, then Presiding Judge Enrique B. Inting issued an order allowing the
purchase of the two lots at the price of P150,000.00. 14 The Central Bank liquidator of
the PVB moved for the reconsideration of the order asserting that it is contrary to law
as the disposal of the lots should be made through public auction. 15
On 26 July 1989, Miguela Villanueva filed her claim with the liquidation court. She
averred, among others, that she is the lawful and registered owner of the subject lots
which were mortgaged in favor of the PVB thru the falsification committed by Jose

Viudez, the manager of the PVB Makati Branch, in collusion with Andres Sebastian;
that upon discovering this fraudulent transaction, she offered to purchase the property
from the bank; and that she reported the matter to the PC/INP Criminal Investigation
Service Command, Camp Crame, and after investigation, the CIS officer
recommended the filing of a complaint for estafa through falsification of public
documents against Jose Viudez and Andres Sebastian. She then asked that the lots be
excluded from the assets of the PVB and be conveyed back to her. 16 Later, in view of
the death of her husband, she amended her claim to include her children, herein
petitioners Mercedita Villanueva-Tirados and Richard Villanueva. 17
On 31 October 1991, the trial court rendered judgment 18 holding that while the board
resolution approving Ong's offer may have created in his favor a vested right which
may be enforced against the PVB at the time or against the liquidator after the bank
was placed under liquidation proceedings, the said right was no longer enforceable, as
he failed to exercise it within the prescribed 15-day period. As to Miguela's claim, the
court ruled that the principle of estoppel bars her from questioning the transaction with
Viudez and the subsequent transactions because she was a co-participant thereto,
though only with respect to her undivided one-half (1/2) conjugal share in the disputed
lots and her one-third (1/3) hereditary share in the estate of her husband.
Nevertheless, the trial court allowed her to purchase the lots if only to restore their
status as conjugal properties. It further held that by reason of estoppel, the
transactions having been perpetrated by a responsible officer of the PVB, and for
reasons of equity, the PVB should not be allowed to charge interest on the price of the
lots; hence, the purchase price should be the PVB's claim as of 29 August 1984 when
it considered the sealed bids, i.e., P110,416.20, which should be borne by Miguela
Villanueva alone.
The dispositive portion of the decision of the trial court reads as follows:
WHEREFORE, judgment is hereby rendered as follows:
1. Setting aside the order of this court issued on
June 15, 1989 under the caption Civil Case No. 8742550 entitled "Ildefonso Ong vs. Central Bank of
the Phils., et al.;
2. Dismissing the claim of Ildefonso Ong over the
two parcels of land originally covered by TCT No.
438073 and 366364 in the names of Miguela
Villanueva and Celestino Villanueva, respectively
which are now covered by TCT No. 115631 and
115632 in the name of the PVB;

3. Declaring the Deed of Absolute Sale bearing the

signature of Miguela Villanueva and the falsified
signature of Celestino [sic] Viudez under date May
6, 1975 and all transactions and related documents
executed thereafter referring to the two lots covered
by the above stated titles as null and void;
4. Ordering the Register of Deeds of Makati which
has jurisdiction over the two parcels of land in
question to re-instate in his land records, TCT No.
438073 in the name of Miguela Villanueva and TCT
No. 366364 in the name of Celestino Villanueva
who were the registered owners thereof, and to
cancel all subsequent titles emanating therefrom;
and
5. Ordering the Liquidator to reconvey the two lots
described in TCT No. 115631 and 115632 and
executing the corresponding deed of conveyance of
the said lots upon the payment of One Hundred Ten
Thousand Four Hundred Sixteen and 20/100
(P110,416.20) Pesos without interest and less the
amount deposited by the claimant, Miguela
Villanueva in connection with the bidding where she
had participated and conducted by the PVB on
August 29, 1984.
Cost against Ildefonso Ong and the PVB.
SO ORDERED. 19
Only Ong appealed the decision to the Court of Appeals. The appeal was docketed as
CA-G.R. CV No. 35890. In its decision of 27 January 1994, the Court of Appeals
reversed the decision of the trial court and ruled as follows:
WHEREFORE, premises considered, the assailed decision is hereby
REVERSED and SET ASIDE, and a new one entered ordering the
disputed-lots be awarded in favor of plaintiff-appellant Ildefonso Ong upon
defendant-appellee Central Bank's execution of the corresponding deed of
sale in his favor. 20
In support thereof, the Court of Appeals declared that Ong's failure to pay the balance
within the prescribed period was excusable because the PVB neither notified him of the
approval of his bid nor answered his letters manifesting his readiness to pay the
balance, for which reason he could not have known when to reckon the 15-day period

prescribed under its resolution. It went further to suggest that the Central Bank was in
estoppel because it accepted Ong's late-payment of the balance. As to the petitioners'
claim, the Court of Appeals stated:
The conclusion reached by the lower court favorable to Miguela Villanueva
is, as aptly pointed out by plaintiff-appellant, indeed confusing. While the
lower court's decision declared Miguela Villanueva as estopped from
recovering her proportionate share and interest in the two (2) disputed lots
for being a "co-participant" in the fraudulent scheme perpetrated by Jose
Viudez and Andres Sebastian a factual finding which We conform to and
which Miguela Villanueva does not controvert in this appeal by not filing her
appellee's brief, yet it ordered the reconveyance of the disputed lots to
Miguela Villanueva as the victorious party upon her payment of
P110,416.20. Would not estoppel defeat the claim of the party estopped? If
so, which in fact must be so, would it not then be absurd or even defiant for
the lower court to finally entitle Miguela Villanueva to the disputed lots after
having been precluded from assailing their subsequent conveyance in favor
of Jose Viudez by reason of her own negligence and/or complicity therein?
The intended punitive effect of estoppel would merely be a dud if this Court
leaves the lower court's conclusion unrectified. 21
Their motion for reconsideration 22 having been denied, 23 the petitioners filed this
petition for review on certiorari.24
Subsequently, the respondent Central Bank apprised this Court that the PVB was no
longer under receivership or liquidation and that the PVB has been back in operation
since 3 August 1992. It then prayed that it be dropped from this case or at least be
substituted by the PVB, which is the real party in interest. 25
In its Manifestation and Entry of Appearance, the PVB declared that it submits to the
jurisdiction of this Court and that it has no objection to its inclusion as a party
respondent in this case in lieu of the Central Bank. 26 The petitioners did not object to
the substitution. 27
Later, in its Comment dated 10 October 1994, the PVB stated that it "submits to and
shall abide by whatever judgment this Honorable Supreme Tribunal may announce as
to whom said lands may be awarded without any touch of preference in favor of one or
the other party litigant in the instant
case." 28
In support of their contention that the Court of Appeals gravely erred in holding that
Ong is better entitled to purchase the disputed lots, the petitioners maintain that Ong is
a disqualified bidder, his bid of P110,000.00 being lower than the starting price of
P110,417.00 and his deposit of P10,000.00 being less than the required 10% of the bid
price; that Ong failed to pay the balance of the price within the 15-day period from

notice of the approval of his bid; and that his offer of payment is ineffective since it was
conditioned on PVB's execution of the deed of absolute sale in his favor.
On the other hand, Ong submits that his offer, though lower than Miguela ViIlanueva's
bid by P417.00, is much better, as the same is payable in cash, while Villanueva's bid
is payable in installment; that his payment could not be said to have been made after
the expiration of the 15-day period because this period has not even started to run,
there being no notice yet of the approval of his offer; and that he has a legal right to
compel the PVB or its liquidator to execute the corresponding deed of conveyance.
There is no doubt that the approval of Ong's offer constitutes an acceptance, the effect
of which is to perfect the contract of sale upon notice thereof to Ong. 29 The peculiar
circumstances in this case, however, pose a legal obstacle to his claim of a better right
and deny support to the conclusion of the Court of Appeals.
Ong did not receive any notice of the approval of his offer. It was only sometime in midApril 1985 when he returned from the United States and inquired about the status of
his bid that he came to know of the approval.
It must be recalled that the PVB was placed under receivership pursuant to the MB
Resolution of 3 April 1985 after a finding that it was insolvent, illiquid, and could not
operate profitably, and that its continuance in business would involve probable loss to
its depositors and creditors. The PVB was then prohibited from doing business in the
Philippines, and the receiver appointed was directed to "immediately take charge of its
assets and liabilities, as expeditiously as possible collect and gather all the assets and
administer the same for the benefit of its creditors, exercising all the powers necessary
for these purposes."
Under Article 1323 of the Civil Code, an offer becomes ineffective upon the death, civil
interdiction, insanity, or insolvency of either party before acceptance is conveyed. The
reason for this is that:
[T]he contract is not perfected except by the concurrence of two wills which
exist and continue until the moment that they occur. The contract is not yet
perfected at any time before acceptance is conveyed; hence, the
disappearance of either party or his loss of capacity before perfection
prevents the contractual tie from being formed. 30
It has been said that where upon the insolvency of a bank a receiver therefor is
appointed, the assets of the bank pass beyond its control into the possession and
control of the receiver whose duty it is to administer the assets for the benefit of the
creditors of the bank. 31 Thus, the appointment of a receiver operates to suspend the
authority of the bank and of its directors and officers over its property and effects, such
authority being reposed in the receiver, and in this respect, the receivership is

equivalent to an injunction to restrain the bank officers from intermeddling with the
property of the bank in any way. 32
Section 29 of the Central Bank Act, as amended, provides thus:
Sec. 29. Proceedings upon insolvency. Whenever, upon examination by
the head of the appropriate supervising or examining department or his
examiners or agents into the condition of any bank or non-bank financial
intermediary performing quasi-banking functions, it shall be disclosed that
the condition of the same is one of insolvency, or that its continuance in
business would involve probable loss to its depositors or creditors, shall be
the duty of the department head concerned forthwith, in writing, to inform
the Monetary Board of the facts. The Board may, upon finding the
statements of the department head to be true, forbid the institution to do
business in the Philippines and designate an official of the Central Bank or
a person of recognized competence in banking or finance as receiver to
immediately take charge of its assets and liabilities, as expeditiously as
possible collect and gather all the assets and administer the same for the
benefit of its creditors . . . exercising all the powers necessary for these
purposes. . . .
xxx xxx xxx
The assets of an institution under receivership or liquidation shall be
deemed in custodia legis in the hands of the receiver or liquidator and shall,
from the moment of such receivership or liquidation, be exemp from any
order of garnishment, levy, attachment, or execution.
In a nutshell, the insolvency of a bank and the consequent appointment of a receiver
restrict the bank's capacity to act, especially in relation to its property, Applying Article
1323 of the Civil Code, Ong's offer to purchase the subject lots became ineffective
because the PVB became insolvent before the bank's acceptance of the offer came to
his knowledge. Hence, the purported contract of sale between them did not reach the
stage of perfection. Corollarily, he cannot invoke the resolution of the bank approving
his bid as basis for his alleged right to buy the disputed properties.
Nor may the acceptance by an employee of the PVB of Ong's payment of P100,000.00
benefit him since the receipt of the payment was made subject to the approval by the
Central Bank liquidator of the PVB thus:
Payment for the purchase price of the former property of Andres Sebastian
per approved BR No. 10902-84 dated 11/13/84, subject to the approval of
CB liquidator. 33

This payment was disapproved on the ground that the subject property was
already in custodia legis, and hence, disposable only by public auction and
subject to the approval of the liquidation court. 34
The Court of Appeals therefore erred when it held that Ong had a better right than the
petitioners to the purchase of the disputed lots.
Considering then that only Ong appealed the decision of the trial court, the PVB and
the Central Bank, as well as the petitioners, are deemed to have fully and unqualifiedly
accepted the judgment, which thus became final as to them for their failure to appeal.
WHEREFORE, the instant petition is GRANTED and the challenged decision of the
Court of Appeals of 27 January 1994 in CA-G.R. CV No. 35890 is hereby SET ASIDE.
The decision of Branch 39 of the Regional Trial Court of Manila of 31 October 1991 in
Civil Case No. 87-42550 and Sp. Proc. No. 85-32311 is hereby REINSTATED.
Respondent Philippine Veterans Bank is further directed to return to private respondent
Ildefonso C. Ong the amount of P100,000.00.
No pronouncement as to costs.
[Syllabus]
FIRST DIVISION

[G.R. No. 112830. February 1, 1996]

JERRY ONG, petitioner, vs. COURT OF APPEALS and RURAL BANK OF

OLONGAPO, INC., represented by its Liquidator, GUILLERMO G. REYES,
JR. and Deputy Liquidator ABEL ALLANIGUE, respondents.
DECISION
BELLOSILLO, J.:
The jurisdiction of a regular court over a bank undergoing liquidation is the issue in
this petition for review of the decision of the Court of Appeals. [1]
On 5 February 1991 Jerry Ong filed with the Regional Trial Court of Quezon City a
petition for the surrender of TCT Nos. 13769 and 13770 pursuant to the provisions of
Secs. 63(b) and 107 of P.D. 1529[2] against Rural Bank of Olongapo, Inc. (RBO),
represented by its liquidator Guillermo G. Reyes, Jr. and deputy liquidator Abel
Allanigue.[3] The petition averred inter alia that -

2. The RBO was the owner in fee simple of two parcels of land including the improvements
thereon situated in Tagaytay City x x x particularly described in TCT Nos. 13769 and 13770 x x
x
3. Said parcels of land were duly mortgaged by RBO in favor of petitioner on December 29,
1983 to guarantee the payment of Omnibus Finance, Inc., which is likewise now undergoing
liquidation proceedings of its money market obligations to petitioner in the principal amount of
P863,517.02 x x x
4.
Omnibus Finance, Inc., not having seasonably settled its obligations to petitioner, the
latter proceeded to effect the extrajudicial foreclosure of said mortgages, such that on March 23,
1984, the City Sheriff of Tagaytay City issued a Certificate of Sale in favor of petitioner xxx
5.
Said Certificate of Sale x x x was duly registered with the Registry of Deeds of Tagaytay
City on July 16, 1985, as shown in the certified true copies of the aforementioned titles x x x
6. Respondents failed to seasonably redeem said parcels of land, for which reason, petitioner
has executed an Affidavit of Consolidation of Ownership which, to date, has not been submitted
to the Registry of Deeds of Tagaytay City, in view of the fact that possession of the aforesaid
titles or owners duplicate certificates of title remains with the RBO.
7. To date, petitioner has not been able to effect the registration of said parcels of land in his
name in view of the persistent refusal of respondents, despite demand, to surrender RBOs
copies of its owners certificates of title for the parcels of land covered by TCT Nos. 13769 and
13770.[4]
Respondent RBO filed a motion to dismiss on the ground of res judicata alleging
that petitioner had earlier sought a similar relief from Br. 18 of
the Regional Trial Court of Tagaytay City, which case was dismissed with finality on
appeal before the Court of Appeals.
In a supplemental motion to dismiss, respondent RBO contended that it was
undergoing liquidation and, pursuant to prevailing jurisprudence, it is the liquidation
court which has exclusive jurisdiction to take cognizance of petitioners claim.
On 7 May 1991 the trial court denied the motion to dismiss because it found that
the causes of action in the previous and present cases were different although it was
silent on the jurisdictional issue. Accordingly, respondent RBO filed a motion for
reconsideration but the same was similarly rejected in the order of June 11, 1991
holding that: (a) subject parcels of land were sold to petitioner through public bidding
on 23 March 1984 and, consequently, said pieces of realty were no longer part of the
assets of respondent RBO; and, (b) in the same token, subject lots were no longer
considered assets of respondent RBO when its liquidation was commenced by the
Central Bank on 9 November 1984 and when the petition for assistance in its
liquidation was approved by the Regional Trial Court of Olongapo City on 30 May 1985.

On 5 July 1991 respondent RBO filed a manifestation and urgent motion for
reconsideration arguing that the validity of the certificate of sale issued to petitioner
was still at issue in another case between them and therefore the properties covered
by said certificate were still part and parcel of its assets.
Still unpersuaded by respondent RBOs arguments, the trial court denied
reconsideration in its order of 18 September 1991 prompting the bank to elevate the
case to respondent Court of Appeals by way of a petition for certiorari and
prohibition. On 12 February 1992 respondent court rendered a decision annulling the
challenged order of the court a quo dated 19 June 1991 which sustained the
jurisdiction of the trial court as well as the order of 18 September 1991 denying
reconsideration thereof. Moreover, the trial judge was ordered to dismiss Civil Case
No. Q-91-8019 without prejudice to the right of petitioner to file his claim in the
liquidation proceedings (Sp. Proc. No. 170-0-85) pending before Br. 73 of
the Regional Trial Court of Olongapo City.[5]
In reversing the trial court the appellate court noted that Sec. 29, par. 3, of
R.A. 265 as amended by P.D. 1827[6] does not limit the jurisdiction of the liquidation
court to claims against the assets of the insolvent bank. The provision is general in
that it clearly and unqualifiedly states that the liquidation court shall have jurisdiction to
adjudicate disputed claims against the bank. Disputed claims refer to all claims,
whether they be against the assets of the insolvent bank, for specific performance,
breach of contract, damages, or whatever. To limit the jurisdiction of the liquidation
court to those claims against the assets of the bank is to remove significantly and
without basis the cases that may be brought against a bank in case of insolvency.
Respondent court also noted that the certificates of title are still in the name of
respondent RBO. As far as third persons are concerned (and these include claimants
in the liquidation court), registration is the operative act which would convey title to the
property.
Petitioner submits that Civil Case No. Q-91-8019 may proceed independently of Sp.
Proc. No. 170-0-85. He argues that the disputed parcels of land have been
extrajudicially foreclosed and the corresponding certificate of sale issued in his favor;
that considering that respondent RBO failed to redeem said properties he should now
be allowed to consolidate his title thereto; that respondent RBOs mortgage of TCT
Nos. 13769 and 13770 in favor of petitioner and its subsequent foreclosure are
presumed valid and regular; and, that the liquidation court has no jurisdiction over
subject parcels of land since they are no longer assets of respondent RBO.
We find no merit in the petition. Section 29, par. 3, of R.A. 265 as amended by P. D.
1827 provides
If the Monetary Board shall determine and confirm within (sixty days) that the bank x x x is
insolvent or cannot resume business with safety to its depositors, creditors and the general
public, it shall, if the public interest requires, order its liquidation, indicate the manner of its
liquidation and approve a liquidation plan. The Central Bank shall, by the Solicitor General,

file a petition in the Court of First Instance[7] reciting the proceedings which have been taken
and praying the assistance of the court in the liquidation of such institution. The court shall
have jurisdiction in the same proceedings to adjudicate disputed claims against the bank x x x
and enforce individual liabilities of the stockholders and do all that is necessary to preserve the
assets of such institution and to implement the liquidation plan approved by the Monetary
Board (italics supplied).
[8]

Applying the aforequoted provision in Hernandez v. Rural Bank of Lucena, Inc.,

this Court ruled

The fact that the insolvent bank is forbidden to do business, that its assets are turned over to the
Superintendent of Banks, as a receiver, for conversion into cash, and that its liquidation is
undertaken with judicial intervention means that, as far as lawful and practicable, all claims
against the insolvent bank should be filed in the liquidation proceeding (italics supplied).
We explained therein the rationale behind the provision, i.e., the judicial liquidation is
intended to prevent multiplicity of actions against the insolvent bank. It is a pragmatic
arrangement designed to establish due process and orderliness in the liquidation of the
bank, to obviate the proliferation of litigations and to avoid injustice and
arbitrariness. The lawmaking body contemplated that for convenience only one court,
if possible, should pass upon the claims against the insolvent bank and that the
liquidation court should assist the Superintendent of Banks and regulate his
operations.
The phrase (T)he court shall have jurisdiction in the same proceedings to
adjudicate disputed claims against the bank appears to have misled petitioner. He
argues that to the best of his personal knowledge there is no pending action filed
before any court or agency which contests his right over subject properties. Thus his
petition before the Regional Trial Court of Quezon City cannot be considered a
disputed claim as contemplated by law.
It is not necessary that a claim be initially disputed in a court or agency before it is
filed with the liquidation court. As may be gleaned in the Hernandez case, the term
disputed claim in the provision simply connotes that
[n] the course of the liquidation, contentious cases might arise wherein a full-dress hearing
would be required and legal issues would have to be resolved. Hence, it would be necessary
injustice to all concerned that a Court of First Instance (now Regional Trial Court) x x x assist
and supervise the liquidation and x x x act as umpire or arbitrator in the allowance and
disallowance of claims.
Petitioner must have overlooked the fact that since respondent RBO is insolvent
other claimants not privy to their transaction may be involved. As far as those
claimants are concerned, in the absence of certificates of title in the name of petitioner,
subject lots still form part of the assets of the insolvent bank.

On the basis of the Hernandez case as well as Sec. 29, par. 3, of R.A. 265 as
amended by P.D. 1827, respondent Court of Appeals was correct in holding that the
Regional Trial Court of Quezon City, Br. 79, did not have jurisdiction over the petition,
much less in ordering the dismissal of Civil Case No. Q-91-8019, without prejudice to
petitioners right to file his claim in Sp. Proc. No. 170-0-85 before the Regional Trial
Court of Olongapo City, Br. 73.
WHEREFORE, the petition is DENIED. The decision of respondent Court of
Appeals dated 12 February 1992 is AFFIRMED. Costs against petitioner.
G.R. No. 76118 March 30, 1993
THE CENTRAL BANK OF THE PHILIPPINES and RAMON V. TIAOQUI, petitioners,
vs.
COURT OF APPEALS and TRIUMPH SAVINGS BANK, respondents.
Sycip, Salazar, Hernandez & Gatmaitan for petitioners.
Quisumbing, Torres & Evangelista for Triumph Savings Bank.

BELLOSILLO, J.:
May a Monetary Board resolution placing a private bank under receivership be
annulled on the ground of lack of prior notice and hearing?
This petition seeks review of the decision of the Court of Appeals in CA G.R. S.P. No.
07867 entitled "The Central Bank of the Philippines and Ramon V. Tiaoqui vs. Hon.
Jose C. de Guzman and Triumph Savings Bank," promulgated 26 September 1986,
which affirmed the twin orders of the Regional Trial Court of Quezon City issued 11
November 1985 1 denying herein petitioners' motion to dismiss Civil Case No. Q45139, and directing petitioner Ramon V. Tiaoqui to restore the private management of
Triumph Savings Bank (TSB) to its elected board of directors and officers, subject to
Central Bank comptrollership. 2
The antecedent facts: Based on examination reports submitted by the Supervision and
Examination Sector (SES), Department II, of the Central Bank (CB) "that the financial
condition of TSB is one of insolvency and its continuance in business would involve
probable loss to its depositors and creditors," 3 the Monetary Board (MB) issued on 31
May 1985 Resolution No. 596 ordering the closure of TSB, forbidding it from doing
business in the Philippines, placing it under receivership, and appointing Ramon V.
Tiaoqui as receiver. Tiaoqui assumed office on 3 June 1985. 4
On 11 June 1985, TSB filed a complaint with the Regional Trial Court of Quezon City,
docketed as Civil Case No. Q-45139, against Central Bank and Ramon V. Tiaoqui to

annul MB Resolution No. 596, with prayer for injunction, challenging in the process the
constitutionality of Sec. 29 of R.A. 269, otherwise known as "The Central Bank Act," as
amended, insofar as it authorizes the Central Bank to take over a banking institution
even if it is not charged with violation of any law or regulation, much less found guilty
thereof. 5
On 1 July 1985, the trial court temporarily restrained petitioners from implementing MB
Resolution No. 596 "until further orders", thus prompting them to move for the quashal
of the restraining order (TRO) on the ground that it did not comply with said Sec.
29, i.e., that TSB failed to show convincing proof of arbitrariness and bad faith on the
part of petitioners;' and, that TSB failed to post the requisite bond in favor of Central
Bank.
On 19 July 1985, acting on the motion to quash the restraining order, the trial court
granted the relief sought and denied the application of TSB for injunction. Thereafter,
Triumph Savings Bank filed with Us a petition for certiorariunder Rule 65 of the Rules
of Court 6 dated 25 July 1985 seeking to enjoin the continued implementation of the
questioned MB resolution.
Meanwhile, on 9 August 1985; Central Bank and Ramon Tiaoqui filed a motion to
dismiss the complaint before the RTC for failure to state a cause of action, i.e., it did
not allege ultimate facts showing that the action was plainly arbitrary and made in bad
faith, which are the only grounds for the annulment of Monetary Board resolutions
placing a bank under conservatorship, and that TSB was without legal capacity to sue
except through its receiver.7
On 9 September 1985, TSB filed an urgent motion in the RTC to direct receiver Ramon
V. Tiaoqui to restore TSB to its private management. On 11 November 1985, the RTC
in separate orders denied petitioners' motion to dismiss and ordered receiver Tiaoqui to
restore the management of TSB to its elected board of directors and officers, subject to
CB comptrollership.
Since the orders of the trial court rendered moot the petition for certiorari then pending
before this Court, Central Bank and Tiaoqui moved on 2 December 1985 for the
dismissal of G.R. No. 71465 which We granted on 18 December 1985. 8
Instead of proceeding to trial, petitioners elevated the twin orders of the RTC to the
Court of Appeals on a petition for certiorari and prohibition under Rule 65. 9 On 26
September 1986, the appellate court, upheld the orders of the trial court thus
Petitioners' motion to dismiss was premised on two grounds, namely, that
the complaint failed to state a cause of action and that the Triumph Savings
Bank was without capacity to sue except through its appointed receiver.

Concerning the first ground, petitioners themselves admit that the Monetary
Board resolution placing the Triumph Savings Bank under the receivership
of the officials of the Central Bank was done without prior hearing, that is,
without first hearing the side of the bank. They further admit that said
resolution can be the subject of judicial review and may be set aside should
it be found that the same was issued with arbitrariness and in bad faith.
The charge of lack of due process in the complaint may be taken as
constitutive of allegations of arbitrariness and bad faith. This is not of
course to be taken as meaning that there must be previous hearing before
the Monetary Board may exercise its powers under Section 29 of its
Charter. Rather, judicial review of such action not being foreclosed, it would
be best should private respondent be given the chance to show and prove
arbitrariness and bad faith in the issuance of the questioned resolution,
especially so in the light of the statement of private respondent that neither
the bank itself nor its officials were even informed of any charge of violating
banking laws.
In regard to lack of capacity to sue on the part of Triumph Savings Bank,
we view such argument as being specious, for if we get the drift of
petitioners' argument, they mean to convey the impression that only the CB
appointed receiver himself may question the CB resolution appointing him
as such. This may be asking for the impossible, for it cannot be expected
that the master, the CB, will allow the receiver it has appointed to question
that very appointment. Should the argument of petitioners be given
circulation, then judicial review of actions of the CB would be effectively
checked and foreclosed to the very bank officials who may feel, as in the
case at bar, that the CB action ousting them from the bank deserves to be
set aside.
xxx xxx xxx
On the questioned restoration order, this Court must say that it finds
nothing whimsical, despotic, capricious, or arbitrary in its issuance, said
action only being in line and congruent to the action of the Supreme Court
in the Banco Filipino Case (G.R. No. 70054) where management of the
bank was restored to its duly elected directors and officers, but subject to
the Central Bank comptrollership. 10
On 15 October 1986, Central Bank and its appointed receiver, Ramon V. Tiaoqui, filed
this petition under Rule 45 of the Rules of Court praying that the decision of the Court
of Appeals in CA-G.R. SP No. 07867 be set aside, and that the civil case pending
before the RTC of Quezon City, Civil Case No.
Q-45139, be dismissed. Petitioners allege that the Court of Appeals erred

(1) in affirming that an insolvent bank that had been summarily closed by
the Monetary Board should be restored to its private management
supposedly because such summary closure was "arbitrary and in bad faith"
and a denial of "due process";
(2) in holding that the "charge of lack of due process" for "want of prior
hearing" in a complaint to annul a Monetary Board receivership resolution
under Sec. 29 of R.A. 265 "may be taken as . . allegations of arbitrariness
and bad faith"; and
(3) in holding that the owners and former officers of an insolvent bank may
still act or sue in the name and corporate capacity of such bank, even after
it had been ordered closed and placed under receivership. 11
The respondents, on the other hand, allege inter alia that in the Banco
Filipino case, 12 We held that CB violated the rule on administrative due process laid
down in Ang Tibay vs. CIR (69 Phil. 635) and Eastern Telecom Corp. vs. Dans, Jr. (137
SCRA 628) which requires that prior notice and hearing be afforded to all parties in
administrative proceedings. Since MB Resolution No. 596 was adopted without TSB
being previously notified and heard, according to respondents, the same is void for
want of due process; consequently, the bank's management should be restored to its
board of directors and officers. 13
Petitioners claim that it is the essence of Sec. 29 of R.A. 265 that prior notice and
hearing in cases involving bank closures should not be required since in all probability
a hearing would not only cause unnecessary delay but also provide bank "insiders" and
stockholders the opportunity to further dissipate the bank's resources, create liabilities
for the bank up to the insured amount of P40,000.00, and even destroy evidence of
fraud or irregularity in the bank's operations to the prejudice of its depositors and
creditors. 14 Petitioners further argue that the legislative intent of Sec. 29 is to repose in
the Monetary Board exclusive power to determine the existence of statutory grounds
for the closure and liquidation of banks, having the required expertise and specialized
competence to do so.
The first issue raised before Us is whether absence of prior notice and hearing may be
considered acts of arbitrariness and bad faith sufficient to annul a Monetary Board
resolution enjoining a bank from doing business and placing it under receivership.
Otherwise stated, is absence of prior notice and hearing constitutive of acts of
arbitrariness and bad faith?
Under Sec. 29 of R.A. 265, 15 the Central Bank, through the Monetary Board, is vested
with exclusive authority to assess, evaluate and determine the condition of any bank,
and finding such condition to be one of insolvency, or that its continuance in business
would involve probable loss to its depositors or creditors, forbid the bank or non-bank
financial institution to do business in the Philippines; and shall designate an official of

the CB or other competent person as receiver to immediately take charge of its assets
and liabilities. The fourth paragraph, 16which was then in effect at the time the action
was commenced, allows the filing of a case to set aside the actions of the Monetary
Board which are tainted with arbitrariness and bad faith.
Contrary to the notion of private respondent, Sec. 29 does not contemplate prior notice
and hearing before a bank may be directed to stop operations and placed under
receivership. When par. 4 (now par. 5, as amended by E.O. 289) provides for the filing
of a case within ten (10) days after the receiver takes charge of the assets of the bank,
it is unmistakable that the assailed actions should precede the filing of the case.
Plainly, the legislature could not have intended to authorize "no prior notice and
hearing" in the closure of the bank and at the same time allow a suit to annul it on the
basis of absence thereof.
In the early case of Rural Bank of Lucena, Inc. v. Arca [1965], 17 We held that a
previous hearing is nowhere required in Sec. 29 nor does the constitutional
requirement of due process demand that the correctness of the Monetary Board's
resolution to stop operation and proceed to liquidation be first adjudged before making
the resolution effective. It is enough that a subsequent judicial review be provided.
Even in Banco Filipino, 18 We reiterated that Sec. 29 of R.A. 265 does not require a
previous hearing before the Monetary Board can implement its resolution closing a
bank, since its action is subject to judicial scrutiny as provided by law.
It may be emphasized that Sec. 29 does not altogether divest a bank or a non-bank
financial institution placed under receivership of the opportunity to be heard and
present evidence on arbitrariness and bad faith because within ten (10) days from the
date the receiver takes charge of the assets of the bank, resort to judicial review may
be had by filing an appropriate pleading with the court. Respondent TSB did in fact
avail of this remedy by filing a complaint with the RTC of Quezon City on the 8th day
following the takeover by the receiver of the bank's assets on 3 June 1985.
This "close now and hear later" scheme is grounded on practical and legal
considerations to prevent unwarranted dissipation of the bank's assets and as a valid
exercise of police power to protect the depositors, creditors, stockholders and the
general public.
In Rural Bank of Buhi, Inc. v. Court of Appeals, 19 We stated that
. . . due process does not necessarily require a prior hearing; a hearing or
an opportunity to be heard may be subsequent to the closure. One can just
imagine the dire consequences of a prior hearing: bank runs would be the
order of the day, resulting in panic and hysteria. In the process, fortunes
may be wiped out and disillusionment will run the gamut of the entire
banking community.

We stressed in Central Bank of the Philippines v. Court of Appeals 20 that

. . . the banking business is properly subject to reasonable regulation under
the police power of the state because of its nature and relation to the fiscal
affairs of the people and the revenues of the state (9 CJS 32). Banks are
affected with public interest because they receive funds from the general
public in the form of deposits. Due to the nature of their transactions and
functions, a fiduciary relationship is created between the banking
institutions and their depositors. Therefore, banks are under the obligation
to treat with meticulous care and utmost fidelity the accounts of those who
have reposed their trust and confidence in them (Simex International
[Manila], Inc., v. Court of Appeals, 183 SCRA 360 [1990]).
It is then the Government's responsibility to see to it that the financial
interests of those who deal with the banks and banking institutions, as
depositors or otherwise, are protected. In this country, that task is
delegated to the Central Bank which, pursuant to its Charter (R.A. 265, as
amended), is authorized to administer the monetary, banking and credit
system of the Philippines. Under both the 1973 and 1987 Constitutions, the
Central Bank is tasked with providing policy direction in the areas of money,
banking and credit; corollarily, it shall have supervision over the operations
of banks (Sec. 14, Art. XV, 1973 Constitution, and Sec. 20, Art. XII, 1987
Constitution). Under its charter, the CB is further authorized to take the
necessary steps against any banking institution if its continued operation
would cause prejudice to its depositors, creditors and the general public as
well. This power has been expressly recognized by this Court. In Philippine
Veterans Bank Employees Union-NUBE v. Philippine Veterans Banks (189
SCRA 14 [1990], this Court held that:
. . . [u]nless adequate and determined efforts are taken by the
government against distressed and mismanaged banks, public
faith in the banking system is certain to deteriorate to the
prejudice of the national economy itself, not to mention the
losses suffered by the bank depositors, creditors, and
stockholders, who all deserve the protection of the government.
The government cannot simply cross its arms while the assets
of a bank are being depleted through mismanagement or
irregularities. It is the duty of the Central Bank in such an event
to step in and salvage the remaining resources of the bank so
that they may not continue to be dissipated or plundered by
those entrusted with their management.
Section 29 of R.A. 265 should be viewed in this light; otherwise, We would be
subscribing to a situation where the procedural rights invoked by private respondent

would take precedence over the substantive interests of depositors, creditors and
stockholders over the assets of the bank.
Admittedly, the mere filing of a case for receivership by the Central Bank can trigger a
bank run and drain its assets in days or even hours leading to insolvency even if the
bank be actually solvent. The procedure prescribed in Sec. 29 is truly designed to
protect the interest of all concerned, i.e., the depositors, creditors and stockholders, the
bank itself, and the general public, and the summary closure pales in comparison to
the protection afforded public interest. At any rate, the bank is given full opportunity to
prove arbitrariness and bad faith in placing the bank under receivership, in which
event, the resolution may be properly nullified and the receivership lifted as the trial
court may determine.
The heavy reliance of respondents on the Banco Filipino case is misplaced in view of
factual circumstances therein which are not attendant in the present case. We ruled
in Banco Filipino that the closure of the bank was arbitrary and attendant with grave
abuse of discretion, not because of the absence of prior notice and hearing, but that
the Monetary Board had no sufficient basis to arrive at a sound conclusion of
insolvency to justify the closure. In other words, the arbitrariness, bad faith and abuse
of discretion were determined only after the bank was placed under conservatorship
and evidence thereon was received by the trial court. As this Court found in that case,
the Valenzuela, Aurellano and Tiaoqui Reports contained unfounded assumptions and
deductions which did not reflect the true financial condition of the bank. For instance,
the subtraction of an uncertain amount as valuation reserve from the assets of the
bank would merely result in its net worth or the unimpaired capital and surplus; it did
not reflect the total financial condition of Banco Filipino.
Furthermore, the same reports showed that the total assets of Banco Filipino far
exceeded its total liabilities. Consequently, on the basis thereof, the Monetary Board
had no valid reason to liquidate the bank; perhaps it could have merely ordered its
reorganization or rehabilitation, if need be. Clearly, there was in that case a manifest
arbitrariness, abuse of discretion and bad faith in the closure of Banco Filipino by the
Monetary Board. But, this is not the case before Us. For here, what is being raised as
arbitrary by private respondent is the denial of prior notice and hearing by the Monetary
Board, a matter long settled in this jurisdiction, and not the arbitrariness which the
conclusions of the Supervision and Examination Sector (SES), Department II, of the
Central Bank were reached.
Once again We refer to Rural Bank of Buhi, Inc. v. Court of Appeals, 21 and reiterate
Our pronouncement therein that
. . . the law is explicit as to the conditions prerequisite to the action of the
Monetary Board to forbid the institution to do business in the Philippines
and to appoint a receiver to immediately take charge of the bank's assets
and liabilities. They are: (a) an examination made by the examining

department of the Central Bank; (b) report by said department to the

Monetary Board; and (c) prima facieshowing that its continuance in
business would involve probable loss to its depositors or creditors.
In sum, appeal to procedural due process cannot just outweigh the evil sought to be
prevented; hence, We rule that Sec. 29 of R.A. 265 is a sound legislation promulgated
in accordance with the Constitution in the exercise of police power of the state.
Consequently, the absence of notice and hearing is not a valid ground to annul a
Monetary Board resolution placing a bank under receivership. The absence of prior
notice and hearing cannot be deemed acts of arbitrariness and bad faith. Thus, an MB
resolution placing a bank under receivership, or conservatorship for that matter, may
only be annulled after a determination has been made by the trial court that its
issuance was tainted with arbitrariness and bad faith. Until such determination is made,
the status quo shall be maintained, i.e., the bank shall continue to be under
receivership.
As regards the second ground, to rule that only the receiver may bring suit in behalf of
the bank is, to echo the respondent appellate court, "asking for the impossible, for it
cannot be expected that the master, the CB, will allow the receiver it has appointed to
question that very appointment." Consequently, only stockholders of a bank could file
an action for annulment of a Monetary Board resolution placing the bank under
receivership and prohibiting it from continuing operations. 22 In Central Bank v. Court of
Appeals, 23 We explained the purpose of the law
. . . in requiring that only the stockholders of record representing the
majority of the capital stock may bring the action to set aside a resolution to
place a bank under conservatorship is to ensure that it be not frustrated or
defeated by the incumbent Board of Directors or officers who may
immediately resort to court action to prevent its implementation or
enforcement. It is presumed that such a resolution is directed principally
against acts of said Directors and officers which place the bank in a state of
continuing inability to maintain a condition of liquidity adequate to protect
the interest of depositors and creditors. Indirectly, it is likewise intended to
protect and safeguard the rights and interests of the stockholders. Common
sense and public policy dictate then that the authority to decide on whether
to contest the resolution should be lodged with the stockholders owning a
majority of the shares for they are expected to be more objective in
determining whether the resolution is plainly arbitrary and issued in bad
faith.
It is observed that the complaint in this case was filed on 11 June 1985 or two (2) years
prior to 25 July 1987 when E.O. 289 was issued, to be effective sixty (60) days after its
approval (Sec. 5). The implication is that before E.O

. 289, any party in interest could institute court proceedings to question a Monetary
Board resolution placing a bank under receivership. Consequently, since the instant
complaint was filed by parties representing themselves to be officers of respondent
Bank (Officer-in-Charge and Vice President), the case before the trial court should now
take its natural course. However, after the effectivity of E.O. 289, the procedure stated
therein should be followed and observed.
PREMISES considered, the Decision of the Court of Appeals in CA-G.R. SP No. 07867
is AFFIRMED, except insofar as it upholds the Order of the trial court of 11 November
1985 directing petitioner RAMON V. TIAOQUI to restore the management of TRIUMPH
SAVINGS BANK to its elected Board of Directors and Officers, which is hereby SET
ASIDE.
Let this case be remanded to the Regional Trial Court of Quezon City for further
proceedings to determine whether the issuance of Resolution No. 596 of the Monetary
Board was tainted with arbitrariness and bad faith and to decide the case accordingly.
SO ORDERED.
Narvasa, C.J., Cruz, Padilla, Bidin, Grio-Aquino, Regalado, Davide, Jr., Romero,
Nocon, Campos, Jr. and Quiason, JJ., concur.
Feliciano and Melo, JJ., took no part.

[G.R. No. 162270. April 06, 2005]

ABACUS REAL ESTATE DEVELOPMENT CENTER, INC., petitioner, vs. THE

MANILA BANKING CORPORATION, respondent.
DECISION
GARCIA, J.:
Thru this appeal by way of a petition for review on certiorari under Rule 45 of the
Rules of Court, petitioner Abacus Real Estate Development Center, Inc. seeks to set
aside the following issuances of the Court of Appeals in CA-G.R. CV No. 64877, to wit:
1. Decision dated May 26, 2003,[1] reversing an earlier decision of the
Regional Trial Court at Makati City, Branch 59, in an action for specific
performance and damages thereat commenced by the petitioner against the
herein respondent Manila Banking Corporation; and

2. Resolution of February 17, 2004, [2] denying petitioners motion for

reconsideration.
The petition is casts against the following factual backdrop:
Respondent Manila Banking Corporation (Manila Bank, for brevity), owns a 1,435square meter parcel of land located along Gil Puyat Avenue Extension, Makati City and
covered by Transfer Certificate of Title (TCT) No. 132935 of the Registry of Deeds of
Makati. Prior to 1984, the bank began constructing on said land a 14-storey building.
Not long after, however, the bank encountered financial difficulties that rendered it
unable to finish construction of the building.
On May 22, 1987, the Central Bank of the Philippines, now Bangko Sentral ng
Pilipinas, ordered the closure of Manila Bank and placed it under receivership, with
Feliciano Miranda, Jr. being initially appointed as Receiver. The legality of the closure
was contested by the bank before the proper court.
On November 11, 1988, the Central Bank, by virtue of Monetary Board (MB)
Resolution No. 505, ordered the liquidation of Manila Bank and designated Atty. Renan
V. Santos as Liquidator. The liquidation, however, was held in abeyance pending the
outcome of the earlier suit filed by Manila Bank regarding the legality of its closure.
Consequently, the designation of Atty. Renan V. Santos as Liquidator was amended by
the Central Bank on December 22, 1988 to that of Statutory Receiver.
In the interim, Manila Banks then acting president, the late Vicente G. Puyat, in a
bid to save the banks investment, started scouting for possible investors who could
finance the completion of the building earlier mentioned. On August 18, 1989, a group
of investors, represented by Calixto Y. Laureano (hereafter referred to as Laureano
group), wrote Vicente G. Puyat offering to lease the building for ten (10) years and to
advance the cost to complete the same, with the advanced cost to be amortized and
offset against rental payments during the term of the lease. Likewise, the letter-offer
stated that in consideration of advancing the construction cost, the group wanted to be
given the exclusive option to purchase the building and the lot on which it was
constructed.
Since no disposition of assets could be made due to the litigation concerning
Manila Banks closure, an arrangement was thought of whereby the property would first
be leased to Manila Equities Corporation (MEQCO, for brevity), a wholly-owned
subsidiary of Manila Bank, with MEQCO thereafter subleasing the property to the
Laureano group.
In a letter dated August 30, 1989, Vicente G. Puyat accepted the Laureano groups
offer and granted it an exclusive option to purchase the lot and building for One
Hundred Fifty Million Pesos (P150,000,000.00). Later, or on October 31, 1989, the
building was leased to MEQCO for a period of ten (10) years pursuant to a contract of
lease bearing that date. On March 1, 1990, MEQCO subleased the property to
petitioner Abacus Real Estate Development Center, Inc. (Abacus, for short), a

corporation formed by the Laureano group for the purpose, under identical provisions
as that of the October 31, 1989 lease contract between Manila Bank and MEQCO.
The Laureano group was, however, unable to finish the building due to the
economic crisis brought about by the failed December 1989 coup attempt. On account
thereof, the Laureano group offered its rights in Abacus and its exclusive option to
purchase to Benjamin Bitanga (Bitanga hereinafter), for Twenty Million Five Hundred
Thousand Pesos (P20,500,000.00). Bitanga would later allege that because of the
substantial amount involved, he first had to talk with Atty. Renan Santos, the Receiver
appointed by the Central Bank, to discuss Abacus offer. Bitanga further alleged that,
over lunch, Atty. Santos then verbally approved his entry into Abacus and his take-over
of the sublease and option to purchase.
On March 30, 1990, the Laureano group transferred and assigned to Bitanga all of
its rights in Abacus and the exclusive option to purchase the subject land and
building.
On September 16, 1994, Abacus sent a letter to Manila Bank informing the latter of
its desire to exercise its exclusive option to purchase. However, Manila Bank refused
to honor the same.
Such was the state of things when, on November 10, 1995, in the Regional Trial
Court (RTC) at Makati, Abacus Real Estate Development Center, Inc. filed a
complaint[3] for specific performance and damages against Manila Bank and/or the
Estate of Vicente G. Puyat. In its complaint, docketed as Civil Case No. 96-1638 and
raffled to Branch 59 of the court, plaintiff Abacus prayed for a judgment ordering Manila
Bank, inter alia, to sell, transfer and convey unto it for P150,000,000.00 the land and
building in dispute free from all liens and encumbrances, plus payment of damages
and attorneys fees.
Subsequently, defendant Manila Bank, followed a month later by its co-defendant
Estate of Vicente G. Puyat, filed separate motions to dismiss the complaint.
In an Order dated April 15, 1996, the trial court granted the motion to dismiss filed
by the Estate of Vicente G. Puyat, but denied that of Manila Bank and directed the
latter to file its answer.
Before plaintiff Abacus could adduce evidence but after pre-trial, defendant Manila
Bank filed a Motion for Partial Summary Judgment, followed by a Supplement to
Motion for Partial Summary Judgment. While initially opposed, Abacus would later join
Manila Bank in submitting the case for summary judgment.
Eventually, in a decision dated May 27, 1999,[4] the trial court rendered judgment
for Abacus in accordance with the latters prayer in its complaint, thus:
WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiff as
follows:

1.
Ordering the defendant [Manila Bank] to immediately sell to plaintiff the parcel of land
and building, with an area of 1,435 square meters and covered by TCT No. 132935 of the
Makati Registry of Deeds, situated along Sen. Gil J. Puyat Ave. in Makati City, at the price of
One Hundred Fifty Million (P150,000.000.00) Pesos in accordance with the said exclusive
option to purchase, and to execute the appropriate deed of sale therefor in favor of plaintiff;
2.
Ordering the defendant [Manila Bank] to pay plaintiff the amount of Two Million
(P2,000,000.00) Pesos representing reasonable attorneys fees;
3.

Ordering the DISMISSAL of defendants counterclaim, for lack of merit; and

4.

With costs against the defendant.

SO ORDERED.
Its motion for reconsideration of the aforementioned decision having been denied
by the trial court in its Order of August 17, 1999, [5] Manila Bank then went on to the
Court of Appeals whereat its appellate recourse was docketed as CA-G.R. CV No.
64877.
As stated at the threshold hereof, the Court of Appeals, in a decision dated May
26, 2003,[6] reversed and set aside the appealed decision of the trial court, thus:
WHEREFORE, finding serious reversible error, the appeal is GRANTED.
The Decision dated May 27, 1999 of the Regional Trial Court of Makati City, Branch 59
is REVERSED and SET ASIDE.
Cost of the appeal to be paid by the appellee.
SO ORDERED.
On June 25, 2003, Abacus filed a Motion for Reconsideration, followed, with leave
of court, by an Amended Motion for Reconsideration. Pending resolution of its motion
for reconsideration, as amended, Abacus filed a Motion to Dismiss Appeal, [7] therein
praying for the dismissal of Manila Banks appeal from the RTC decision of May 27,
1999, contending that said appeal was filed out of time.
In its Resolution of February 17, 2004,[8] the appellate court denied Abacus
aforementioned motion for reconsideration.
Hence, this recourse by petitioner Abacus Real Estate Development Center, Inc.
As we see it, two (2) issues commend themselves for the resolution of the Court,
namely:
WHETHER OR NOT RESPONDENT BANKS APPEAL TO THE COURT OF APPEALS
WAS FILED ON TIME; and

WHETHER OR NOT PETITIONER ABACUS HAS ACQUIRED THE RIGHT TO

PURCHASE THE LOT AND BUILDING IN QUESTION.
We rule for respondent Manila Bank on both issues.
Addressing the first issue, petitioner submits that respondent banks appeal to the
Court of Appeals from the adverse decision of the trial court was belatedly filed.
Elaborating thereon, petitioner alleges that respondent bank received a copy of the
May 27, 1999 RTC decision on June 22, 1999, hence, petitioner had 15 days, or only
up to July 7, 1999 within which to take an appeal from the same decision or move for
a reconsideration thereof. Petitioner alleges that respondent furnished the trial court
with a copy of its Motion for Reconsideration only on July 7, 1999, the last day for filing
an appeal. Under Section 3, Rule 41 of the 1997 Rules of Civil Procedure, the period
of appeal shall be interrupted by a timely motion for new trial or reconsideration.
Since, according to petitioner, respondent filed its Motion for Reconsideration on the
last day of the period to appeal, it only had one (1) more day within which to file an
appeal, so much so that when it received on August 23, 1999 a copy of the trial courts
order denying its Motion for Reconsideration, respondent bank had only up to August
24, 1999 within which to file the corresponding appeal. As respondent bank appealed
the decision of the trial court only on August 25, 1999, petitioner thus argues that
respondents appeal was filed out of time.
As a counterpoint, respondent alleges that it sent the trial court a copy of its Motion
for Reconsideration on July 6, 1999, through registered mail. Having sent a copy of its
Motion for Reconsideration to the trial court with still two (2) days left to appeal,
respondent then claims that its filing of an appeal on August 25, 1999, two (2) days
after receiving the Order of the trial court denying its Motion for Reconsideration, was
within the reglementary period.
Agreeing with respondent, the appellate court declared that respondents appeal
was filed on time. Explained that court in its Resolution of February 17, 2004, denying
petitioners motion for reconsideration:
Firstly, the file copy of the motion for reconsideration contains the written annotations
Registry Receipt No. 1633 Makati P.O. 7-6-99 in its page 13. The presence of the annotations
proves that the motion for reconsideration was truly filed by registered mail on July 6, 1999
through registry receipt no. 1633.
Secondly, the appellants manifestation filed in the RTC personally on July 7, 1999 contains the
following self-explanatory statements, to wit:
2. Defendant [Manila Bank] also filed with this Honorable Court a Motion for Reconsideration
of the Decision dated 27 May 1999 promulgated by this Honorable Court in this case, and
served a copy thereof to the plaintiff, by registered mail yesterday, 6 July 1999, due to lack of
material time and messenger to effect personal service and filing.

3. In order for this Honorable Court to be able to review defendant [Manila Banks] Motion for
Reconsideration without awaiting the mailed copy, defendant [Manila Bank] is now furnishing
this Honorable Court with a copy of said motion, as well as the entry of appearance, by personal
service.
The aforecited reference in the manifestation to the mailing of the motion for reconsideration on
July 6, 1999, in light of the handwritten annotations adverted to herein, renders beyond doubt
the appellants insistence of filing through registered mail on July 6, 1999.
Thirdly, the registry return cards attached to the envelopes separately addressed and mailed to
the RTC and the appellees counsel, found in pages 728 and 729 of the rollo, indicate that the
contents were the motion for reconsideration and the formal entry of appearance. Although the
appellee argues that the handwritten annotations of what were contained by the envelopes at the
time of mailing was easily self-serving, the fact remains that the envelope addressed to the
appellees counsel appears thereon to have been received on July 6, 1999 (7/6/99), which
enhances the probability of the motion for reconsideration being mailed, hence filed, on July 6,
1999, as claimed by the appellant.
Fourthly, the certification issued on October 2, 2003 by Atty. Jayme M. Luy, Branch Clerk of
Court, Branch 59, RTC in Makati City, has no consequence because Atty. Luy based his data
only on page 3 of the 1995Civil Case Docket Book without reference to the original records
which were already with the Court of Appeals.
Fifthly, since the appellant received the denial of the motion for reconsideration on August 23,
1999, it had until August 25, 1999 within which to perfect its appeal from the decision of the
RTC because 2 days remained in its reglementary period to appeal. It is not disputed that the
appellant filed its notice of appeal and paid the appellate court docket fees on August 25, 1999.
These circumstances preponderantly demonstrate that the appellants appeal was not late by one
day. (Emphasis in the original)
Petitioner would, however, contest the above findings of the appellate court, stating,
among other things, that if it were true that respondent filed its Motion for
Reconsideration by registered mail and then furnished the trial court with a copy of said
Motion the very next day, then the rollo should have had two copies of the Motion for
Reconsideration in question. Respondent, on the other hand, insists that it indeed filed
a Motion for Reconsideration on July 6, 1999 through registered mail.
It is evident that the issue raised by petitioner relates to the correctness of the
factual finding of the Court of Appeals as to the precise date when respondent filed its
motion for reconsideration before the trial court. Such issue, however, is beyond the
province of this Court to review. It is not the function of the Court to analyze or weigh
all over again the evidence or premises supportive of such factual determination. [9] The
Court has consistently held that the findings of the Court of Appeals and other lower
courts are, as a rule, accorded great weight, if not binding upon it, [10] save for the most
compelling and cogent reasons.[11] As nothing in the record indicates any of such

exceptions, the factual conclusion of the appellate court that respondent filed its appeal
on time, supported as it is by substantial evidence, must be affirmed.
Going to the second issue, petitioner insists that the option to purchase the lot and
building in question granted to it by the late Vicente G. Puyat, then acting president of
Manila Bank, was binding upon the latter. On the other hand, respondent has
consistently maintained that the late Vicente G. Puyat had no authority to act for and
represent Manila Bank, the latter having been placed under receivership by the Central
Bank at the time of the granting of the exclusive option to purchase.
There can be no quibbling that respondent Manila Bank was under receivership,
pursuant to Central Banks MB Resolution No. 505 dated May 22, 1987, at the time the
late Vicente G. Puyat granted the exclusive option to purchase to the Laureano group
of investors. Owing to this defining reality, the appellate court was correct in declaring
that Vicente G. Puyat was without authority to grant the exclusive option to purchase
the lot and building in question. The invocation by the appellate court of the following
pronouncement in Villanueva vs. Court of Appeals[12] was apropos, to say the least:
the assets of the bank pass beyond its control into the possession and control of the receiver
whose duty it is to administer the assets for the benefit of the creditors of the bank. Thus, the
appointment of a receiver operates to suspend the authority of the bank and of its directors and
officers over its property and effects, such authority being reposed in the receiver, and in this
respect, the receivership is equivalent to an injunction to restrain the bank officers from
intermeddling with the property of the bank in any way.
With respondent bank having been already placed under receivership, its officers,
inclusive of its acting president, Vicente G. Puyat, were no longer authorized to
transact business in connection with the banks assets and property. Clearly then, the
exclusive option to purchase granted by Vicente G. Puyat was and still is
unenforceable against Manila Bank.[13]
Petitioner, however, asseverates that the exclusive option to purchase was ratified
by Manila Banks receiver, Atty. Renan Santos, during a lunch meeting held with
Benjamin Bitanga in March 1990.
Petitioners argument is tenuous at best. Concededly, a contract unenforceable for
lack of authority by one of the parties may be ratified by the person in whose name the
contract was executed. However, even assuming, in gratia argumenti, that Atty. Renan
Santos, Manila Banks receiver, approved the exclusive option to purchase granted
by Vicente G. Puyat, the same would still be of no force and effect.
Section 29 of the Central Bank Act, as amended, [14] pertinently provides:
Sec. 29. Proceedings upon insolvency. Whenever, upon examination by the head of the
appropriate supervising and examining department or his examiners or agents into the condition
of any banking institution, it shall be disclosed that the condition of the same is one of
insolvency, or that its continuance in business would involve probable loss to its depositors or

creditors, it shall be the duty of the department head concerned forthwith, in writing, to inform
the Monetary Board of the facts, and the Board may, upon finding the statements of the
department head to be true, forbid the institution to do business in the Philippines and shall
designate an official of the Central Bank as receiver to immediately take charge of its assets
and liabilities, as expeditiously as possible collect and gather all the assets and administer the
same for the benefit of its creditors, exercising all the powers necessary for these
purposes including, but not limited to, bringing suits and foreclosing mortgages in the name of
the banking institution. (Emphasis supplied)
Clearly, the receiver appointed by the Central Bank to take charge of the properties
of Manila Bank only had authority to administer the same for the benefit of its
creditors. Granting or approving an exclusive option to purchase is not an act of
administration, but an act of strict ownership, involving, as it does, the disposition of
property of the bank. Not being an act of administration, the so-called approval by
Atty. Renan Santos amounts to no approval at all, a bank receiver not being authorized
to do so on his own.
For sure, Congress itself has recognized that a bank receiver only has powers of
administration. Section 30 of the New Central Bank Act [15] expressly provides that
[t]he receiver shall immediately gather and take charge of all the assets and liabilities
of the institution, administer the same for the benefit of its creditors, and exercise the
general powers of a receiver under the Revised Rules of Court but shall not, with the
exception of administrative expenditures, pay or commit any act that will involve the
transfer or disposition of any asset of the institution
In all, respondent banks receiver was without any power to approve or ratify the
exclusive option to purchase granted by the late Vicente G. Puyat, who, in the first
place, was himself bereft of any authority, to bind the bank under such exclusive
option. Respondent Manila Bank may not thus be compelled to sell the land and
building in question to petitioner Abacus under the terms of the latters exclusive
option to purchase.
WHEREFORE, the instant petition is DENIED and the challenged issuances of the
Court of Appeals AFFIRMED.
Costs against petitioner.
SO ORDERED.
Panganiban,
JJ., concur.

(Chairman),

Sandoval-Gutierrez,

Corona, and Carpio-Morales,