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 of ₱244,000.00 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 attorney’s 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 ₱412, 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 ₱840,845.61.

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, attorney’s 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. Petitioner’s subsequent motion for reconsideration was denied.

SC

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 non-
inexistent 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 Court’s 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, 13 this Court ruled that the bank’s 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. Ybañez, 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
bank’s transactions. The Court allowed the bank liquidator to continue receiving
collectibles and receivables or paying off creditor’s 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.

ANGELINA SANDOVAL-GUTIERREZ
Associate Justice

WE CONCUR:
 BALAYAN BAY RURAL BANK, INC., REPRESENTED BY ITS STATUTORY
LIQUIDATOR, THE PHILIPPINE DEPOSIT INSURANCE
CORPORATION, Petitioner, v. NATIONAL LIVELIHOOD DEVELOPMENT
CORPORATION, Respondent.

DECISION

PEREZ, J.:

This is a Petition for Review on Certiorari1 filed by petitioner Balayan Bay Rural Bank
(Batangas), Inc. (petitioner bank), seeking to reverse and set aside the 11 June 2010
Order2 of the Regional Trial Court (RTC) of Makati City, Branch 147. In its assailed
Order, the RTC granted the Motion for Substitution of parties filed by respondent National
Livelihood Development Corporation (NLDC) and ordered that the Philippine Deposit
Insurance Corporation (PDIC) be substituted or joined as co-defendant in Civil Case No.
09-917. The dispositive portion of the assailed RTC Order reads: chanRoblesvirtualLawlibrary

WHEREFORE, premises considered, the Motion for

Substitution of Part is hereby GRANTED. Accordingly, PDIC
is hereby ordered substituted or joined as co-defendant
ChanRoblesVirtualawlibrary
in this case.3ChanRoblesVirtualawlibrary

The Facts

Petitioner bank is a banking institution duly authorized by the Central Bank to engage in
banking business before it was placed under receivership by the Bangko Sentral ng
Pilipinas on 26 November 2009.

NLDC, on the other hand, is a government institution created to promote and generate
the development of livelihood and community-based enterprises by virtue of
Executive Order No. 715 (1981).

On 12 October 2009, NLDC filed a complaint for collection of sum of money against
petitioner bank for the latter's unpaid obligation in the amount of P1,603,179.86 before
the RTC of Makati City. The case was docketed as Civil Case No. 09-917 and was raffled
to Branch 147 of the trial court.4

During the pendency of the case before the RTC, the Bangko Sentral ng Pilipinas, thru
the Monetary Board, issued MIN-70-26 November 2009,5 placing the petitioner bank
under receivership and appointed the PDIC as receiver of the bank pursuant to
Section 30 of Republic Act (R.A.) No. 7653.6

After the petitioner bank was placed under receivership, NLDC filed a Motion for
Substitution of Party and Set the Case for Pre-Trial.7 Invoking Section 19, Rule 3 of the
Revised Rules of Court, the NLDC claimed that by virtue of transfer of interest of the
petitioner bank to the PDIC, the latter may be substituted as party or joined with
the original party.

The motion was duly opposed by the petitioner bank contending that the PDIC is
not the real party in interest in the instant case because it does not stand to be
benefited or injured by the judgment in the suit. It argued that the PDIC is merely the
Statutory Receiver/Liquidator of all banks placed by the Monetary Board under
receivership and is merely a representative of the petitioner bank which remains as the
real party in interest. The substitution of the PDIC as defendant in this case is therefore
not proper.8
On 11 June 2010, the RTC issued an Order granting the Motion for Substitution filed by
NLDC and directed that the PDIC be substituted or joined as co-defendant in the case. In
sustaining the NLDC, the court a quo ruled that the prosecution or defense of the
action must be done thru the liquidator, lest, no suit for or against the insolvent entity
would prosper.

Arguing that the substitution is not proper in the instant case since the PDIC is not the
real party in interest but was merely tasked to conserve the assets of the bank for the
benefit of its creditors, petitioner bank elevated the matter before the Court on question of
law via this instant Petition for Review on Certiorari.9

In the interregnum, the RTC issued a Decision10 in Civil Case No. 09-917 dated 18 June
2010 in favor of the NLDC thereby ordering the petitioner bank to pay the former the
amount of P1,603,179.86 representing its unpaid loan obligation. The RTC disposed in
this wise: chanRoblesvirtualLawlibrary

WHEREFORE, premises considered, judgment is hereby

rendered in favor of the [NLDC] and against [petitioner
bank], ordering the [petitioner bank] to pay [NLDC] the
amount of P1,603,179.86 inclusive of interest and
surcharges as actual damages and P30,000.00 as attorney's
fees.11 ChanRoblesVirtualawlibrary

While the petitioner bank made no objection to the afore-quoted ruling, it maintained that
the lower court committed an error of law in issuing the 11 June 2010 Order.12 For the
resolution of the Court is the sole issue of: chanRoblesvirtualLawlibrary

Issue

WHETHER OR NOT THE 11 JUNE 2010 RTC ORDER

WHICH DIRECTED THE SUBSTITUTION OF THE PDIC
AS DEFENDANT OR ITS INCLUSION THEREIN AS CO-
ChanRoblesVirtualawlibrary
DEFENDANT IS CONTRARY TO LAW. ChanRoblesVirtualawlibrary

The Court's Ruling

We deny the petition.

The instant case involves a disputed claim of sum of money against a closed financial
institution. After the Monetary Board has declared that a bank is insolvent and has
ordered it to cease operations, the Board becomes the trustee of its assets for the
equal benefit of all the creditors, including depositors.13The assets of the insolvent
banking institution are held in trust for the equal benefit of all creditors, and after its
insolvency, one cannot obtain an advantage or a preference over another by an
attachment, execution or otherwise.14 Towards this end, the PDIC, as the statutory
receiver/liquidator of the bank, is mandated to immediately gather and take charge
of all the assets and liabilities of the institution and administer the same for the
benefit of its creditors.15

As the fiduciary of the properties of a closed bank, the PDIC may prosecute or defend the
case by or against the said bank as a representative party while the bank will remain as
the real party in interest pursuant to Section 3, Rule 3 of the Revised Rules of Court
which provides: chanRoblesvirtualLawlibrary

SEC. 3. Representatives as parties.- Where the action is

allowed to be prosecuted or defended by a representative
or someone acting in a fiduciary capacity, the
beneficiary shall be included in the title of the case
and shall be deemed to be the real party in interest. A
 representative may be a trustee of an express trust, a
guardian, an executor or administrator, or a party
authorized by law or these Rules. An agent acting in his
own name and for the benefit of an undisclosed principal
may sue or be sued without joining the principal except
when the contract involves things belonging to the
principal. ChanRoblesVirtualawlibrary

The inclusion of the PDIC as a representative party in the case is therefore grounded on
its statutory role as the fiduciary of the closed bank which, under Section 3016 of R.A.
7653 (New Central Bank Act), is authorized to conserve the latter's property for the
benefit of its creditors.

While we agree with the conclusion reached by the RTC that the PDIC should be
included in Civil Case No. 09-917, its reliance on Section 19, Rule 3 of the Revise Rules
of Court on transfer of interest pendente lite as justification for its directive to include the
PDIC in the case is erroneous.

For one, the properties of an insolvent bank are not transferred by operation of law to the
statutory receiver/liquidator but rather these assets are just held in trust to be
distributed to its creditors after the liquidation proceedings in accordance with the
rules on concurrence and preference of credits.17 The debtors properties are then
deemed to have been conveyed to the Liquidator in trust for the benefit of creditors,
stockholders and other persons in interest.18 This notwithstanding, any lien or preference
to any property shall be recognized by the Liquidator in favor of the security or lienholder,
to the extent allowed by law, in the implementation of the liquidation plan.19

In addition, the insolvent bank's legal personality is not dissolved by virtue of being
placed under receivership by the Monetary Board. It must be stressed here that a bank
retains its juridical personality even if placed under conservatorship; it is neither replaced
nor substituted by the conservator who shall only take charge of the assets, liabilities and
the management of the institution.20

It being the fact that the PDIC should not be considered as a substitute or as a co-
defendant of the petitioner bank but rather as a representative party or someone acting in
fiduciary capacity, the insolvent institution shall remain in the case and shall be deemed
as the real party in interest.21 Nowhere in Section 3, Rule 3 of the Revised Rules of Court
is it stated or, at the very least implied, that the representative is likewise deemed as the
real party in interest.22 The said rule simply states that, in actions which are allowed to be
prosecuted or defended by a representative, the beneficiary shall be deemed the real
party in interest and, hence, should be included in the title of the case.

In Manalo v. Court of Appeals,23 the Court validated the right of a bank which was placed
under receivership to continue litigating the petition for the issuance of writ of possession
and dismissed the position assumed by petitioner therein that a closed bank cannot
maintain a suit against its debtor, thus: chanRoblesvirtualLawlibrary

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. 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.24 (Emphasis supplied) ChanRoblesVirtualawlibrary

In fine, the legal personality of the petitioner bank is not ipso facto dissolved by

insolvency; it is not divested of its capacity to sue and be sued after it was ordered by the
Monetary Board to cease operation. The law mandated, however, that the action should
be brought through its statutory liquidator/receiver which in this case is the PDIC. The
authority of the PDIC to represent the insolvent bank in legal actions emanates from the
fiduciary relation created by statute which reposed upon the receiver the task of
preserving and conserving the properties of the insolvent for the benefit of its creditors.

WHEREFORE, premises considered, the instant petition is hereby DENIED.

SO ORDERED.

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
petitioner’s 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 ₱135,000.00, 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 ₱6,345.00 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 bank’s 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 bank’s 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 petitioner’s 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:

…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 respondent’s
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 quo’s reliance on the case of Provident Savings Bank
vs. Court of Appeals14 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
bank’s receiver or liquidator failed to foreclose petitioners’ property and therefore such
inaction should bind respondent bank;15 foreclosure of mortgages is part of the
receiver’s/liquidator’s duty of administering the bank’s 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 Board’s 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 ₱6,345.00, 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 ₱100,000.00 as
moral damages, ₱50,000.00 as exemplary damages and ₱100,000.00 as attorney’s
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 latter’s 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 bank’s 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
Respondent’s 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 Philippines24 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 bank’s 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 bank’s
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 bank’s 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 bank’s 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 bank’s 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 respondent’s 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
₱6,345.00 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
petitioner’s corporate existence. Petitioner cannot disclaim liability by arguing that the
non-payment of MOLINA’s 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 ₱6,345.00, 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

Respondent’s 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 latter’s 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 (₱135,000.00)
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 ₱135,000.00, we have no reason to hold that the insurance
premiums, in the amount of ₱6,345.00, 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 ₱135,000.00 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 defendant’s
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 attorney’s 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 owner’s duplicate certificate of title.

Costs against respondent.

SO ORDERED.

G.R. No. 158261             December 18, 2006

IN RE: PETITION FOR ASSISTANCE IN THE LIQUIDATION OF THE

RURAL BANK OF BOKOD (BENGUET), INC., PHILIPPINE DEPOSIT
INSURANCE CORPORATION, petitioner,
vs.
BUREAU OF INTERNAL REVENUE, respondent.

DECISION

CHICO-NAZARIO, J.:

This is a Petition for Review on Certiorari1 under Rule 45 of the revised Rules of

Court, praying that this Court set aside the Orders, dated 17 January 2003 2 and 13 May
2003,3 of the Regional Trial Court (RTC) of La Trinidad, Benguet, sitting as the
Liquidation Court of the closed Rural Bank of Bokod (Benguet), Inc. (RBBI), in Spec.
Proc. No. 91-SP-0060.

There is no dispute as to the antecedent facts of the case, recounted as follows:

In 1986, a special examination of RBBI was conducted by the Supervision and

Examination Sector (SES) Department III of what is now the Bangko Sentral ng
Pilipinas (BSP),4 wherein various loan irregularities were uncovered. In a letter, dated 20
May 1986, the SES Department III required the RBBI management to infuse fresh capital
into the bank, within 30 days from date of the advice, and to correct all the exceptions
noted. However, up to the termination of the subsequent general examination conducted
by the SES Department III, no concrete action was taken by the RBBI management. In
view of the irregularities noted and the insolvent condition of RBBI, the members of the
RBBI Board of Directors were called for a conference at the BSP on 4 August 1986. Only
one RBBI Director, a certain Mr. Wakit, attended the conference, and the examination
findings and related recommendations were discussed with him. In a letter, dated 4
August 1986, receipt of which was acknowledged by Mr. Wakit, the SES Department III
warned the RBBI Board of Directors that, unless substantial remedial measures are
taken to rehabilitate the bank, it will recommend that the bank be placed under
receivership. In a subsequent letter, dated 17 November 1986, a copy of which was sent
to every member of the RBBI Board of Directors via registered mail, the SES Department
III reiterated its warning that it would recommend the closure of the bank, unless the
needed fresh capital was immediately infused. Despite these notices, the SES
Department III received no word from RBBI or from any of its Directors as of 28
November 1986.5

In a meeting held on 9 January 1987, the Monetary Board of the BSP decided to take the
following action –

Rural Bank of Bokod (Benguet), Inc. – Report on its examination as of June 16, 1986, its
placement under receivership

ACTION TAKEN

Finding to be true the statements of the Special Assistant to the Governor and Head,
Supervision and Examination Sector (SES) Department III, in her memorandum dated 28
November 1986 submitting a report on the general examination of the Rural Bank of
Bokod (Benguet), Inc. as of 16 June 1986, that the financial condition of the rural bank is
one of insolvency and its continuance in business would involve further losses to its
depositors and creditors, x x x

xxxx

[T]he Board decided as follows:

a. To forbid the bank to do business in the Philippines and place its assets and affairs
under receivership in accordance with Section 29 of R.A. No. 265, as amended.

b. To designate the Special Assistant to the Governor and Head, SES Department III, as
Receiver of the bank;

c. To refer the cases of irregularities/frauds to the Office of Special Investigation for

further investigation and possible filing of appropriate charges against the following
present/former officers and employees of the bank:

xxxx

d. To include the names of the above-mentioned present and former officers and
employees of the bank in the list of persons barred from employment in any financial
institution under the supervision of the Central Bank without prior clearance from the
Central Bank.6

A memorandum and report, dated 28 August 1990, were submitted by the Director of the
SES Department III concluding that the RBBI remained in insolvent financial condition
and it can no longer safely resume business with the depositors, creditors, and the
general public. On 7 September 1990, the Monetary Board, after determining and
confirming the said memorandum and report, ordered the liquidation of the bank and
designated the Director of the SES Department III as liquidator.7
On 10 April 1991, the designated BSP liquidator of RBBI caused the filing with the RTC
of a Petition for Assistance in the Liquidation of RBBI, docketed as Spec. Proc. No. 91-
SP-0060.8 Subsequently, on 2 June 1992, the Monetary Board transferred to herein
petitioner Philippine Deposit Insurance Corporation (PDIC) the receivership/liquidation of
RBBI.9

PDIC then filed, on 11 September 2002, a Motion for Approval of Project of

Distribution10 of the assets of RBBI, in accordance with Section 31, in relation to Section
30, of Republic Act No. 7653, otherwise known as the New Central Bank Act. During the
hearing held on 17 January 2003, the respondent Bureau of Internal Revenue (BIR),
through Atty. Justo Reginaldo, manifested that PDIC should secure a tax clearance
certificate from the appropriate BIR Regional Office, pursuant to Section 52(C) of
Republic Act No. 8424, or the Tax Code of 1997, before it could proceed with the
dissolution of RBBI. On even date, the RTC issued one of the assailed Orders,11 directing
PDIC to comply with Section 52(C) of the Tax Code of 1997 within 30 days from receipt
of a copy of the said order. Pending compliance therewith, the RTC held in abeyance the
Motion for Approval of Project of Distribution. On 13 May 2003, the second assailed
Order12 was issued, in which the RTC, in resolving the Motion for Reconsideration filed by
PDIC, ruled as follows –

ORDER

Submitted for resolution is petitioner’s motion for reconsideration of the order of this court
dated January 17, 2003 holding in abeyance the motion for approval of the project of
distribution pending their compliance with a tax clearance from the Bureau of Internal
Revenue.

Petitioner in their motion state that Section 52-C of Republic Act 8424 does not cover
closed banking institutions like the Rural Bank of Bokod as the law that covers liquidation
of closed banks is Section 30 of Republic Act No. 7653 otherwise known as the new
Central Bank Law.

Commenting on the motion for reconsideration the Bureau of Internal Revenue states
that the only logic why the Bureau is requesting for a tax clearance is to determine how
much taxes, if there be any, is due the government.

The court believes and so holds that petitioner should still secure the necessary tax
clearance in order for it to be cleared of all its tax liabilities as regardless of what law
covers the liquidation of closed banks, still these banks are subject to payment of taxes
mandated by law. Also in its motion for approval of the project of distribution, paragraph
2, item 2.2 states that there are unremitted withholding taxes in the amount of P8,767.32.

This shows that indeed there are still taxes to be paid. In order therefore that all taxes
due the government should be paid, petitioner should secure a tax clearance from the
Bureau of Internal Revenue.

Wherefore, based on the foregoing premises, the motion for reconsideration filed by
petitioner is hereby DENIED for lack of merit.13

Hence, PDIC filed the present Petition for Review on Certiorari, under Rule 45 of the
revised Rules of Court, raising pure questions of law. It made a lone assignment of error,
alleging that –

THE COURT A QUO ERRED IN APPLYING THE PROVISION OF SECTION 52-C OF

REPUBLIC ACT NO. 8424 DIRECTING THE SUBMISSION OF TAX CLEARANCE FOR
CORPORATIONS CONTEMPLATING DISSOLUTION ON A BANK ORDERED CLOSED
AND PLACED UNDER RECEIVERSHIP AND, THEREAFTER, UNDER LIQUIDATION,
BY THE MONETARY BOARD PURSUANT TO SECTION 30 OF REPUBLIC ACT NO.
7653.14

PDIC argues that the closure of banks under Section 30 of the New Central Bank Act is
summary in nature and procurement of tax clearance as required under Section 52(C) of
the Tax Code of 1997 is not a condition precedent thereto; that under Section 30, in
relation to Section 31, of the New Central Bank Act, asset distribution of a closed bank
requires only the approval of the liquidation court; and that the BIR is not without
recourse since, subject to the applicable provisions of the Tax Code of 1997, it may
therefore assess the closed RBBI for tax liabilities, if any.

In its Comment, the BIR countered with the following arguments: that the present Petition
for Review on Certiorari under Rule 45 of the revised Rules of Court is not the proper
remedy to question the Order, dated 17 January 2003, of the RTC because said order is
interlocutory and cannot be the subject of an appeal; that Section 52(C) of the Tax Code
of 1997 applies to all corporations, including banks ordered closed by the Monetary
Board pursuant to Section 30 of the New Central Bank Act; that the RTC may order the
PDIC to obtain a tax clearance before proceeding to rule on the Motion for Approval of
Project of Distribution of the assets of RBBI; and that the present controversy should not
have been elevated to this Court since the parties are both government agencies who
should have administratively settled the dispute.

This Court finds that there are only two primary issues for the resolution of the Petition at
bar, one being procedural, and the other substantive. The procedural issue involves the
question of whether the Petition for Review on Certiorari under Rule 45 of the revised
Rules of Court is the proper remedy from the assailed Orders of the RTC. The
substantive issue deals with the determination of whether a bank ordered closed and
placed under receivership by the Monetary Board of the BSP still needs to secure a tax
clearance certificate from the BIR before the liquidation court approves the project of
distribution of the assets of the bank.

This Court shall first proceed with the procedural issue on the appropriateness of the
remedy taken by PDIC from the assailed RTC Orders.

The differences between an appeal by certiorari under Rule 4515 of the revised Rules of
Court and an original action for certiorari under Rule 6516 of the same Rules have been
laid down by this Court in the case of Atty. Paa v. Court of Appeals,17 to wit –

a. In appeal by certiorari, the petition is based on questions of law which the appellant
desires the appellate court to resolve. In certiorari as an original action, the petition raises
the issue as to whether the lower court acted without or in excess of jurisdiction or with
grave abuse of discretion.

b. Certiorari, as a mode of appeal, involves the review of the judgment, award or final
order on the merits. The original action for certiorari may be directed against an
interlocutory order of the court prior to appeal from the judgment or where there is no
appeal or any other plain, speedy or adequate remedy.

c. Appeal by certiorari must be made within the reglementary period for appeal. An

original action for certiorari may be filed not later than sixty (60) days from notice of the
judgment, order or resolution sought to be assailed.
d. Appeal by certiorari stays the judgment, award or order appealed from. An original
action for certiorari, unless a writ of preliminary injunction or a temporary restraining order
shall have been issued, does not stay the challenged proceeding.

e. In appeal by certiorari, the petitioner and respondent are the original parties to the
action, and the lower court or quasi-judicial agency is not to be impleaded. In certiorari as
an original action, the parties are the aggrieved party against the lower court or quasi-
judicial agency and the prevailing parties, who thereby respectively become the petitioner
and respondents.

f. In certiorari for purposes of appeal, the prior filing of a motion for reconsideration is not
required (Sec. 1, Rule 45); while in certiorari as an original action, a motion for
reconsideration is a condition precedent (Villa-Rey Transit vs. Bello, L-18957, April 23,
1963), subject to certain exceptions.

g. In appeal by certiorari, the appellate court is in the exercise of its appellate jurisdiction
and power of review, while in certiorari as an original action, the higher court exercises
original jurisdiction under its power of control and supervision over the proccedings of
lower courts.

Guided by the foregoing distinctions, this Court, in perusing the assailed RTC Orders,
dated 17 January 2003 and 13 May 2003, reaches the conclusion that these are merely
interlocutory in nature and are not the proper subjects of an appeal by certiorari under
Rule 45 of the revised Rules of Court.

This Court has repeatedly and uniformly held that a judgment or order may be appealed
only when it is final, meaning that it completely disposes of the case and definitively
adjudicates the respective rights of the parties, leaving thereafter no substantial
proceeding to be had in connection with the case except the proper execution of the
judgment or order. Conversely, an interlocutory order or judgment is not appealable for it
does not decide the action with finality and leaves substantial proceedings still to be
had.18

The RTC Orders presently questioned before this Court has not disposed of the case nor
has it adjudicated definitively the rights of the parties in Spec. Proc. No. 91-SP-0060.
They only held in abeyance the approval of the Project of Distribution of the assets of
RBBI until PDIC, as liquidator, acquires a tax clearance from the BIR. Indubitably, there
are still substantial proceedings to be had after PDIC presents the required tax clearance
to the trial court, since the Project of Distribution of assets still has to be finalized and
approved.

PDIC avers that the RTC Orders of 17 January 2003 and 13 May 2003 are final because,
as this Court pronounced in the case of Pacific Banking Corporation Employees’
Organization (PaBCEO) v. Court of Appeals,19 an order of the liquidation court allowing or
disallowing a claim is a final order and may be the subject of an appeal. It further asserts
that the legal issue of whether RBBI should secure a tax clearance is a "disputed claim,"
which was already allowed by the RTC in its assailed Orders, thus, making the latter
final.

This Court is unconvinced. The foregoing arguments of PDIC result from a strained
interpretation of law and jurisprudence, and are raised in an apparent attempt to justify a
very obvious faux pas on its part. While it is true that in liquidation proceedings, the
settlement of disputed or contentious claims may require a full-dress hearing and the
resolution of legal issues,20 it does not follow that all legal issues resolved in the course of
the liquidation proceedings would automatically be tantamount to an allowance or
disallowance of a disputed or contentious claim. In Spec. Proc. No. 91-SP-0060 pending
before the RTC, there can be no doubt that the claim of the BIR against RBBI consists of
the unpaid tax liabilities of the latter. The BIR contends that it could only determine the
existence and correct amount of the tax liabilities of RBBI if PDIC, as liquidator of the
bank, secures a tax clearance from the appropriate BIR Regional Office. The
acquirement of a tax clearance is not the claim of the BIR against RBBI, it is only the
means by which to ascertain such claim. Whatever tax liabilities the BIR may claim
against RBBI can still be disputed before the RTC by the PDIC, as liquidator of the bank,
whether as to the existence or computation of the said tax liabilities, and it is the ruling of
the RTC on such matters that may constitute a final order which definitively settles the
claim of the BIR. The mere grant by the RTC of the motion requiring PDIC, as liquidator
of RBBI, to secure a tax clearance, does not yet constitute an adjudication of the claim of
the BIR. Hence, the assailed RTC Orders, dated 17 January 2003 and 13 May 2003, are
clearly interlocutory in nature.

As a general rule, an interlocutory order is not appealable until after the rendition of the
judgment on the merits, given that a contrary rule would delay the administration of
justice and unduly burden the courts. This Court, however, has also held that an original
action for certiorari under Rule 65 of the revised Rules of Court is an appropriate remedy
to assail an interlocutory order when (1) the tribunal issued such order without or in
excess of jurisdiction or with grave abuse of discretion, and (2) the assailed interlocutory
order is patently erroneous and the remedy of appeal would not afford adequate and
expeditious relief.21 Thus, despite this Court’s finding that PDIC, as the liquidator of RBBI,
availed itself of the wrong remedy by filing an appeal by certiorari under Rule 45 of the
revised Rules of Court, We shall adopt a positive and pragmatic approach, and, instead
of dismissing the instant Petition outright, it shall treat the same as an original action
for certiorari under Rule 65 of the same Rules, in consideration of the crucial issues and
substantial arguments already presented by the concerned parties before this Court.22

II

Having disposed of the procedural issue, this Court now addresses the substantive issue
of whether RBBI, as represented by its liquidator, PDIC, still needs to secure a tax
clearance from the BIR before the RTC could approve the Project of Distribution of the
assets of RBBI.

The BIR anchors its position that a tax clearance is necessary on Section 52(C) of the
Tax Code of 1997, which provides –

SEC. 52. Corporation Returns. –

xxxx

(C) Return of Corporation Contemplating Dissolution or Reorganization. – Every

corporation shall, within thirty days (30) after the adoption by the corporation of a
resolution or plan for its dissolution, or for the liquidation of the whole or any part of its
capital stock, including a corporation which has been notified of possible involuntary
dissolution by the Securities and Exchange Commission, or for its reorganization, render
a correct return to the Commissioner, verified under oath, setting forth the terms of such
resolution or plan and such other information as the Secretary of Finance, upon
recommendation of the Commissioner, shall, by rules and regulations, prescribe.

The dissolving or reorganizing corporation shall, prior to the issuance by the Securities
and Exchange Commission of the Certificate of Dissolution or Reorganization, as may be
defined by rules and regulations prescribed by the Secretary of Finance, upon
recommendation of the Commissioner, secure a certificate of tax clearance from the
Bureau of Internal Revenue which certificate shall be submitted to the Securities and
Exchange Commission.

To implement the foregoing provision, the BIR still relies on the regulations it jointly
issued with the Securities and Exchange Commission (SEC) in 1985, when the Tax Code
of 1977 was still in effect and a similar provision could be found in Section 46(C) thereof.
The full text of the regulations is reproduced below –

BIR-SEC REGULATIONS NO. 1

SUBJECT: Regulations to Implement the Provisions of Executive Order No. 1026,

Amending Section 46(c) of the National Internal Revenue Code of 1977, as amended,
Requiring Dissolving Corporations to File Information Returns and Secure Tax Clearance
from the Commissioner of Internal Revenue, and Providing Adequate Penalties for
Violations Thereof.

TO: All Internal Revenue Officers and Others Concerned.

Pursuant to the provisions of Section 277, in relation to Section 4 of the National

Revenue Code of 1977, as amended, the following regulations are hereby promulgated.

Section 1. Scope. – These regulations shall govern the procedure for the issuance of tax
clearance certificates to dissolving corporations. This shall include corporations intending
to dissolve or liquidate the whole or any part of its capital stocks, as well as, corporations
which have been notified of possible involuntary dissolution by the Securities and
Exchange Commission.

Section 2. Requirements in case of dissolution. – a) Every Corporation shall, within thirty

(30) days after

- the adoption by the corporation of a resolution or plan for the dissolution of the
corporation, or for the liquidation of the whole or any part of its capital stock, or

- the receipt of an order of suspension by the Securities and Exchange Commission in

case of involuntary dissolution,

file their income tax returns covering the income earned by them from the beginning of
the taxable year up to date of such dissolution.

In addition thereto, they shall submit within the same period and verified under oath, the
following documents:

1. a copy of the articles of incorporation and by-laws;

2. a copy of the resolution authorizing dissolution; and

3. balance sheet as of the date of dissolution and a profit and loss statement covering the
period from the beginning of the taxable year to the date of dissolution.

b) The Securities and Exchange Commission whenever it issues an order of involuntary

dissolution or suspension of the primary franchise or certificate of registration of a
corporation, shall at the same time furnish the Commissioner of Internal Revenue a copy
of such order.
Section 3. Tax clearance certificate. – a) Within thirty (30) days from receipt of the
documents mentioned in the preceding Section, the Commissioner of Internal Revenue,
or his duly authorized representative, shall issue the corresponding tax clearance
certificate (BIR Form No. 17.61) for the corporation which will be dissolved.

b) The Securities and Exchange Commission shall issue the final order of dissolution
only after a certificate of tax clearance has been submitted by the dissolving
corporation: Provided, that in case of involuntary dissolution, the Securities and
Exchange Commission may nevertheless proceed with the dissolution if thirty (30) days
after receipt of the suspension order no tax clearance has yet been issued.

Section 4. Penalty. – Failure to render the return and secure the certificate of tax
clearance as above-mentioned shall subject the officer(s) of the corporation required by
law to file the return under Section 46(a) of the National Internal Revenue Code of 1977,
as amended, to a fine of not less than P5,000.00 or imprisonment of not less than two (2)
years, and shall make them liable for all outstanding or unpaid tax liabilities of the
dissolving corporation.

Section 5. Effectivity. – These regulations shall apply to all corporate dissolution taking
place on or after May 14, 1985.

Section 6. Repealing Clause. – All revenue regulations, orders and circulars which are
inconsistent herewith are hereby modified accordingly.

The afore-quoted Tax Code provision and regulations refer to a voluntary dissolution
and/or liquidation of a corporation through its adoption of a resolution or plan to that
effect, or an involuntary dissolution of a corporation by order of the SEC. They make no
reference at all to a situation similar to the one at bar in which a banking corporation is
ordered closed and placed under receivership by the BSP and its assets judicially
liquidated. Now, the determining question is, whether Section 52(C) of the Tax Code of
1997 and BIR-SEC Regulations No. 1 could be made to apply to the present case.

This Court rules in the negative.

First, Section 52(C) of the Tax Code of 1997 and the BIR-SEC Regulations No. 1
regulate the relations only as between the SEC and the BIR, making a certificate of tax
clearance a prior requirement before the SEC could approve the dissolution of a
corporation. In Spec. Proc. No. 91-SP-0060 pending before the RTC, RBBI was placed
under receivership and ordered liquidated by the BSP, not the SEC; and the SEC is not
even a party in the said case, although the BIR is. This Court cannot find any basis to
extend the SEC requirements for dissolution of a corporation to the liquidation
proceedings of RBBI before the RTC when the SEC is not even involved therein.

It is conceded that the SEC has the authority to order the dissolution of a corporation
pursuant to Section 121 of Batas Pambansa Blg. 68, otherwise known as the Corporation
Code of the Philippines, which reads –

Sec. 121. Involuntary dissolution. – A corporation may be dissolved by the Securities and

Exchange Commission upon filing of a verified complaint and after proper notice and
hearing on the grounds provided by existing laws, rules and regulations.

The Corporation Code, however, is a general law applying to all types of corporations,
while the New Central Bank Act regulates specifically banks and other financial
institutions, including the dissolution and liquidation thereof. As between a general and
special law, the latter shall prevail – generalia specialibus non derogant. 23
The liquidation of RBBI is undertaken according to Sections 30 of the New Central Bank
Act, viz –

Sec. 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 Bangko Sentral, to meet its
liabilities; or

(c) cannot continue in business without involving probable losses to its depositors or
creditors; or

(d) has wilfully 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.

For a quasi-bank, any person of recognized competence in banking or finance may be

designated as receiver.

The 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: Provided, That the receiver may
deposit or place the funds of the institution in non-speculative investments. The receiver
shall determine as soon as possible, but not later than ninety (90) days from take over,
whether the institution may be rehabilitated or otherwise placed in such a condition that it
may be permitted to resume business with safety to its depositors and creditors and the
general public: Provided, That any determination for the resumption of business of the
institution shall be subject to prior approval of the Monetary Board.

If the receiver determines that the institution cannot be rehabilitated or permitted to

resume business in accordance with the next preceding paragraph, the Monetary Board
shall notify in writing the board of directors of its findings and direct the receiver to
proceed with the liquidation of the institution. The receiver shall:

(1) file ex parte with the proper regional trial court, and without requirement of prior notice
or any other action, a petition for assistance in the liquidation of the institution pursuant to
a liquidation plan adopted by the Philippine Deposit Insurance Corporation for general
application to all closed banks. In case of quasi-banks, the liquidation plan shall be
adopted by the Monetary Board. Upon acquiring jurisdiction, the court shall, upon motion
by the receiver after due notice, adjudicate disputed claims against the institution, assist
the enforcement of individual liabilities of the stockholders, directors and officers, and
decide on other issues as may be material to implement the liquidation plan adopted. The
receiver shall pay the cost of the proceedings from the assets of the institution.

(2) convert the assets of the institution to money, dispose of the same to creditors and
other parties, for the purpose of paying the debts of such institution in accordance with
the rules on concurrence and preference of credit under the Civil Code of the Philippines
and he may, in the name of the institution, and with the assistance of counsel as he may
retain, institute such actions as may be necessary to collect and recover accounts and
assets of, or defend any action against, the institution. The assets of an institution under
receivership or liquidation shall be deemed in custodia legis in the hands of the receiver
and shall, from the moment the institution was placed under such receivership or
liquidation, be exempt from any order of garnishment, levy, attachment, or execution.

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.

The designation of a conservator under Section 29 of this Act or the appointment of a

receiver under this section shall be vested exclusively with the Monetary Board.
Furthermore, the designation of a conservator is not a precondition to the designation of
a receiver.

Section 30 of the New Central Bank Act lays down the proceedings for receivership and
liquidation of a bank. The said provision is silent as regards the securing of a tax
clearance from the BIR. The omission, nonetheless, cannot compel this Court to apply by
analogy the tax clearance requirement of the SEC, as stated in Section 52(C) of the Tax
Code of 1997 and BIR-SEC Regulations No. 1, since, again, the dissolution of a
corporation by the SEC is a totally different proceeding from the receivership and
liquidation of a bank by the BSP. This Court cannot simply replace any reference by
Section 52(C) of the Tax Code of 1997 and the provisions of the BIR-SEC Regulations
No. 1 to the "SEC" with the "BSP." To do so would be to read into the law and the
regulations something that is simply not there, and would be tantamount to judicial
legislation.

It should be noted that there are substantial differences in the procedure for involuntary
dissolution and liquidation of a corporation under the Corporation Code, and that of a
banking corporation under the New Central Bank Act, so that the requirements in one
cannot simply be imposed in the other.

Under the Corporation Code, the SEC may dissolve a corporation, upon the filing of
a verified complaint and after proper notice and hearing, on grounds provided by existing
laws, rules, and regulations.24 Upon receipt by the corporation of the order of
suspension from the SEC, it is required to notify and submit a copy of the said order,
together with its final tax return, to the BIR. The SEC is also required to furnish the BIR a
copy of its order of suspension. The BIR is supposed to issue a tax clearance to the
corporation within 30 days from receipt of the foregoing documentary requirements. The
SEC shall issue the final order of dissolution only after the corporation has submitted its
tax clearance; or in case of involuntary dissolution, the SEC may proceed with the
dissolution after 30 days from receipt by the BIR of the documentary requirements
without a tax clearance having been issued.25 The corporation is allowed to continue as a
body corporate for three years after its dissolution, for the purpose of prosecuting and
defending suits by or against it, to settle and close its affairs, and to dispose of and
convey its property and distribute its assets, but not for the purpose of continuing its
business. The corporation may undertake its own liquidation, or at any time during the
said three years, it may convey all of its property to trustees for the benefit of its
stockholders, members, creditors, and other persons in interest.26
In contrast, the Monetary Board may summarily and without need for prior hearing, forbid
the banking corporation from doing business in the Philippines, for causes enumerated in
Section 30 of the New Central Bank Act; and appoint the PDIC as receiver of the bank.
PDIC shall immediately gather and take charge of all the assets and liabilities of the
closed bank and administer the same for the benefit of its creditors. The summary nature
of the procedure for the involuntary closure of a bank is especially stressed in Section 30
of the New Central Bank Act, which explicitly states that the actions of the Monetary
Board under the said Section or Section 29 shall be final and executory, and may not be
restrained or set aside by the court except on a Petition for Certiorari filed by the
stockholders of record of the bank representing a majority of the capital stock. PDIC, as
the appointed receiver, shall file ex parte with the proper RTC, and without requirement
of prior notice or any other action, a petition for assistance in the liquidation of the bank.
The bank is not given the option to undertake its own liquidation.

Second, the alleged purpose of the BIR in requiring the liquidator PDIC to secure a tax
clearance is to enable it to determine the tax liabilities of the closed bank. It raised the
point that since the PDIC, as receiver and liquidator, failed to file the final return of RBBI
for the year its operations were stopped, the BIR had no way of determining whether the
bank still had outstanding tax liabilities.

To our mind, what the BIR should have requested from the RTC, and what was within the
discretion of the RTC to grant, is not an order for PDIC, as liquidator of RBBI, to secure a
tax clearance; but, rather, for it to submit the final return of RBBI. The first paragraph of
Section 30(C) of the Tax Code of 1997, read in conjunction with Section 54 of the same
Code, clearly imposes upon PDIC, as the receiver and liquidator of RBBI, the duty to file
such a return. The pertinent provisions are reproduced below for reference –

SEC. 52. Corporation Returns. –

xxxx

(C) Return of Corporation Contemplating Dissolution or Reorganization. – Every

corporation shall, within thirty days (30) after the adoption by the corporation of a
resolution or plan for its dissolution, or for the liquidation of the whole or any part of its
capital stock, including a corporation which has been notified of possible involuntary
dissolution by the Securities and Exchange Commission, or for its reorganization, render
a correct return to the Commissioner, verified under oath, setting forth the terms of such
resolution or plan and such other information as the Secretary of Finance, upon
recommendation of the Commissioner, shall, by rules and regulations, prescribe.

xxxx

SEC. 54. Returns of receivers, Trustees in Bankruptcy or Assignees. – In cases wherein

receivers, trustees in bankruptcy or assignees are operating the property or business of a
corporation, subject to the tax imposed by this Title, such receivers, trustees or
assignees shall make returns of net income as and for such corporation, in the same
manner and form as such an organization is hereinbefore required to make returns, and
any tax due on the income as returned by receivers, trustees or assignees shall be
assessed and collected in the same manner as if assessed directly against the
organizations of whose businesses or properties they have custody or control.

Section 54 of the Tax Code of 1997 imposes a general duty on all receivers, trustees in
bankruptcy, and assignees, who operate and preserve the assets of a corporation,
regardless of the circumstances or the law by which they came to hold their positions, to
file the necessary returns on behalf of the corporation under their care.
The filing by PDIC of a final tax return, on behalf of RBBI, should already address the
supposed concern of the BIR and would already enable the latter to determine if RBBI
still had outstanding tax liabilities.

The unreasonableness and impossibility of requiring a tax clearance before the approval
by the RTC of the Project of Distribution of the assets of the RBBI becomes apparent
when the timeline of the proceedings is considered.

The BIR can only issue a certificate of tax clearance when the taxpayer had completely
paid off his tax liabilities. The certificate of tax clearance attests that the taxpayer no
longer has any outstanding tax obligations to the Government.

Should the BIR find that RBBI still had outstanding tax liabilities, PDIC will not be able to
pay the same because the Project of Distribution of the assets of RBBI remains
unapproved by the RTC; and, if RBBI still had outstanding tax liabilities, the BIR will not
issue a tax clearance; but, without the tax clearance, the Project of Distribution of assets,
which allocates the payment for the tax liabilities, will not be approved by the RTC. It will
be a chicken-and-egg dilemma.

The Government, in this case, cannot generally claim preference of credit, and receive
payment ahead of the other creditors of RBBI. Duties, taxes, and fees due the
Government enjoy priority only when they are with reference to a specific movable
property, under Article 2241(1) of the Civil Code, or immovable property, under Article
2242(1) of the same Code. However, with reference to the other real and personal
property of the debtor, sometimes referred to as "free property," the taxes and
assessments due the National Government, other than those in Articles 2241(1) and
2242(1) of the Civil Code, will come only in ninth place in the order of preference.27

Thus, the recourse of the BIR, after assessing the final return and examining all other
pertinent documents of RBBI, and making a determination of the latter’s outstanding tax
liabilities, is to present its claim, on behalf of the National Government, before the RTC
during the liquidation proceedings. The BIR is expected to prove and substantiate its
claim, in the same manner as the other creditors. It is only after the RTC allows the claim
of the BIR, together with the claims of the other creditors, can a Project for Distribution of
the assets of RBBI be finalized and approved. PDIC, then, as liquidator, may proceed
with the disposition of the assets of RBBI and pay the latter’s financial obligations,
including its outstanding tax liabilities. And, finally, only after such payment, can the BIR
issue a certificate of tax clearance in the name of RBBI.

Third, the evident void in current statutes and regulations as to the relations among the
BIR, as tax collector of the National Government; the BSP, as regulator of the banks; and
the PDIC, as the receiver and liquidator of banks ordered closed by the BSP, is not for
this Court to fill in. It is up to the legislature to address the matter through appropriate
legislation, and to the executive to provide the regulations for its implementation.

It is for these reasons that the RTC committed grave abuse of discretion, and committed
patent error, in ordering the PDIC, as the liquidator of RBBI, to first secure a tax
clearance from the appropriate BIR Regional Office, and holding in abeyance the
approval of the Project of Distribution of the assets of the RBBI by virtue thereof.

Although this Court rules in favor of PDIC, in the sense that a tax clearance is not a
prerequisite to the approval of the Project of Distribution of the assets of RBBI, it cannot
uphold its argument that the Spec. Proc. No. 91-SP-0060 is summary in nature.

Section 30(d) of the New Central Bank Act gives the Monetary Board of the BSP the
power to, summarily and without need for prior hearing, forbid a bank or quasi-bank from
doing business in the Philippines and designating the PDIC as receiver of the banking
institution. It bears to emphasize that: (1) the power is granted to the Monetary Board of
the BSP; and (2) what is summary in nature is the power of the Monetary Board of the
BSP to forbid or stop a bank or quasi-bank from doing further business.

Once liquidation proceedings are instituted before the appropriate trial court, and the trial
court assumes jurisdiction over the Petition, then the proceedings take a different
character. Spec. Proc. No. 91-SP-0600 is the liquidation proceedings initiated by the
PDIC before the RTC. Liquidation proceedings have been described in detail in the case
of Pacific Banking Corporation Employees’ Organization (PaBCEO) v. Court of
Appeals,28 to wit –

[A] liquidation proceeding resembles the proceeding for the settlement of estate of
deceased persons under Rules 73 to 91 of the Rules of Court. The two have a common
purpose: the determination of all the assets and the payment of all the debts and
liabilities of the insolvent corporation or the estate. The Liquidator and the administrator
or executor are both charged with the assets for the benefit of the claimants. In both
instances, the liability of the corporation and the estate is not disputed. The court's
concern is with the declaration of creditors and their rights and the determination
of their order of payment

xxxx

A liquidation proceeding is a single proceeding which consists of a number of cases

properly classified as "claims." It is basically a two-phased proceeding. The first phase is
concerned with the approval and disapproval of claims. Upon the approval of the petition
seeking the assistance of the proper court in the liquidation of a closed entity, all money
claims against the bank are required to be filed with the liquidation court. This phase may
end with the declaration by the liquidation court that the claim is not proper or without
basis. On the other hand, it may also end with the liquidation court allowing the claim. In
the latter case, the claim shall be classified whether it is ordinary or preferred, and
thereafter included Liquidator. In either case, the order allowing or disallowing a particular
claim is final order, and may be appealed by the party aggrieved thereby.

The second phase involves the approval by the Court of the distribution plan prepared
by the duly appointed liquidator. The distribution plan specifies in detail the total amount
available for distribution to creditors whose claim were earlier allowed. The Order finally
disposes of the issue of how much property is available for disposal. Moreover, it ushers
in the final phase of the liquidation proceeding - payment of all allowed claims in
accordance with the order of legal priority and the approved distribution plan.

xxxx

A liquidation proceeding is commenced by the filing of a single petition by the Solicitor

General with a court of competent jurisdiction entitled, "Petition for Assistance in the
Liquidation of e.g., Pacific Banking Corporation." All claims against the insolvent are
required to be filed with the liquidation court. Although the claims are litigated in the
same proceeding, the treatment is individual. Each claim is heard separately. And the
Order issued relative to a particular claim applies only to said claim, leaving the other
claims unaffected, as each claim is considered separate and distinct from the others. x x
x [Emphases supplied.]

Irrefragably, liquidation proceedings cannot be summary in nature. It requires the holding

of hearings and presentation of evidence of the parties concerned, i.e., creditors who
must prove and substantiate their claims, and the liquidator disputing the same. It also
allows for multiple appeals, so that each creditor may appeal a final order rendered
against its claim. Hence, liquidation proceedings may very well be highly-contested and
drawn-out, because, at the end of it all, all claims against the corporation undergoing
litigation must be settled definitively and its assets properly disposed off.

WHEREFORE, in view of the foregoing, this Court rules as follows –

(a) The instant Petition is GRANTED and the Orders, dated 17 January 2003 and 13 May
2003, of the RTC, sitting as the Liquidation Court of the closed RBBI, in Spec. Proc. No.
91-SP-0060, are NULLIFIED and SET ASIDE for having been rendered with grave
abuse of discretion;

(b) The PDIC, as liquidator, is ORDERED to submit to the BIR the final tax return of
RBBI, in accordance with the first paragraph of Section 52(C), in connection with Section
54, of the Tax Code of 1997; and

(c) The RTC is ORDERED to resume the liquidation proceedings in Spec. Proc. No. 91-
SP-0060 in order to determine all the claims of the creditors, including that of the National
Government, as determined and presented by the BIR; and, pursuant to such
determination, and guided accordingly by the provisions of the Civil Code on preference
of credit, to review and approve the Project of Distribution of the assets of RBBI.

SO ORDERED.

Ynares-Santiago, (Working Chairperson), Austria-Martinez, and Callejo, Sr., JJ., concur.

Panganiban, C.J., Retired as of 7 December 2006.

Sps. Larrobis v. Philippine Veterans

Bank (G.R. No. 135706 )
Facts:

Petitioner spouses contracted a monetary loan with herein respondent bank

secured by a REM executed on their lot. Respondent bank then went
bankrupt and was placed under receivership/liquidation by the Central Bank.
Sometime after, respondent bank sent a demand letter for the amount of
the insurance premiums advanced by it over the mortgaged property of
petitioners. More than 14 years from the time the loan became due and
demandable, respondent bank moved for the extrajudicial foreclosure of the
mortgaged property and was sold to it as being the lone bidder. Petitioners
moved to declare the foreclosure null and void contending that the respondent
bank being placed under receivership did not interrupt the running of
the prescriptive period. RTC ruled in favor of respondents.

Issues:

(1) Whether or not foreclosure of mortgage is included in the acts prohibited

during receivership/liquidation proceedings.

(2) Whether or not the period within which the respondent bank was placed
under receivership and liquidation proceedings interrupted the running of the
prescriptive period in bringing actions.
Ruling: NO.

(1) While it is true that foreclosure falls within the broad definition of “doing
business,” it should not be considered included, however, in the acts
prohibited whenever banks are “prohibited from doing business” during
receivership and liquidation proceedings. 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.

There is also no truth to respondent’s claim that it could not continue doing
business from 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, 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.

(2) 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. 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.

In this case, it is not disputed that Philippine Veterans Bank was placed under
receivership by the Monetary Board of the Central Bank pursuant to Section
29 of the Central Bank Act on insolvency of banks. 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.

(In contrast to Provident Savings Bank v. CA, this is the General Rule)

In Re: Petition for Assistance in the

Rural Bank of Bokod G.R. No. 158261
December 18, 2006
MARCH 16, 2014LEAVE A COMMENT
The 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

Facts: Rural Bank of Bokod (Benguet), Inc. (RBBI) conducted a special examination
of RBBI was conducted by the Supervision and Examination Sector (SES)
Department III of what is now the Bangko Sentral ng Pilipinas (BSP),4 wherein
various loan irregularities were uncovered. In a letter, dated 20 May 1986, the SES
Department III required the RBBI management to infuse fresh capital into the bank,
within 30 days from date of the advice, and to correct all the exceptions noted.
However, up to the termination of the subsequent general examination conducted by
the SES Department III, no concrete action was taken by the RBBI management. A
memorandum and report, dated 28 August 1990, were submitted by the Director of
the SES Department III concluding that the RBBI remained in insolvent financial
condition and it can no longer safely resume business with the depositors, creditors,
and the general public.

BSP liquidator of RBBI caused the filing with the RTC of a Petition for Assistance in
the Liquidation of RBBI, the Monetary Board transferred to herein petitioner
Philippine Deposit Insurance Corporation (PDIC) the receivership/liquidation of
RBBI.The respondent Bureau of Internal Revenue (BIR), through Atty. Justo
Reginaldo, manifested that PDIC should secure a tax clearance certificate from the
appropriate BIR Regional Office, pursuant to Section 52(C) of Republic Act No. 842.
PDIC argues that the closure of banks under Section 30 of the New Central Bank Act
is summary in nature and procurement of tax clearance as required under Section
52(C) of the Tax Code of 1997 is not a condition precedent.

Issue: Whether or not a bank ordered closed and placed under receivership by the
Monetary Board of the BSP still needs to secure a tax clearance certificate 

Held: Section 52(C) of the Tax Code of 1997 and the BIR-SEC Regulations No. 1
regulate the relations only as between the SEC and the BIR, making a certificate of
tax clearance a prior requirement before the SEC could approve the dissolution of a
corporation. In Spec. Proc. No. 91-SP-0060 pending before the RTC, RBBI was
placed under receivership and ordered liquidated by the BSP, not the SEC; and the
SEC is not even a party in the said case, although the BIR is. This Court cannot find
any basis to extend the SEC requirements for dissolution of a corporation to the
liquidation proceedings of RBBI before the RTC when the SEC is not even involved
therein.

The 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: Provided, That the receiver may
deposit or place the funds of the institution in non-speculative investments. The
receiver shall determine as soon as possible, but not later than ninety (90) days from
take over, whether the institution may be rehabilitated or otherwise placed in such a
condition that it may be permitted to resume business with safety to its depositors
and creditors and the general public: Provided, That any determination for the
resumption of business of the institution shall be subject to prior approval of the
Monetary Board.

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In Re: Petition for Assistance in the
Liquidation of the Rural Bank of Bokod
v. BIR (G.R. No. 158261)
Facts:

Rural Bank of Bokod (RBBI) was placed under receivership following the
special examination conducted by the BSP wherein various loan irregularities
were uncovered. It was later then concluded that RBBI remained in
insolvent financial condition and can no longer safely resume into
business hence its liquidation ordered. Subsequently, the Monetary Board
transferred to herein petitioner PDIC the receivership/liquidation of RBBI.
PDIC then filed a Motion for Approval of Project Distribution before the RTC.
Respondent BIR manifested that PDIC should first secure a tax clearance
certificate before it could proceed with the dissolution of RBBI. RTC ruled in
favor of BIR.

Issue:

Whether or not a bank placed under receivership still needs to secure a tax
clearance certificate before its project of distribution of assets is approved.

Ruling: NO.

First, Section 52(C) of the Tax Code of 1997 and the BIR-SEC Regulations
No. 1 regulate the relations only as between the SEC and the BIR, making a
certificate of tax clearance a prior requirement before the SEC could approve
the dissolution of a corporation. In Spec. Proc. No. 91-SP-0060 pending
before the RTC, RBBI was placed under receivership and ordered liquidated
by the BSP, not the SEC; and the SEC is not even a party in the said case,
although the BIR is. This Court cannot find any basis to extend the SEC
requirements for dissolution of a corporation to the liquidation proceedings of
RBBI before the RTC when the SEC is not even involved therein.

Section 30 of the New Central Bank Act lays down the proceedings for
receivership and liquidation of a bank. The said provision is silent as regards
the securing of a tax clearance from the BIR. The omission, nonetheless,
cannot compel this Court to apply by analogy the tax clearance requirement of
the SEC, as stated in Section 52(C) of the Tax Code of 1997 and BIR-SEC
Regulations No. 1, since, again, the dissolution of a corporation by the SEC is
a totally different proceeding from the receivership and liquidation of a bank
by the BSP. This Court cannot simply replace any reference by Section 52(C)
of the Tax Code of 1997 and the provisions of the BIR-SEC Regulations No. 1
to the “SEC” with the “BSP.” To do so would be to read into the law and the
regulations something that is simply not there, and would be tantamount to
judicial legislation.

It should be noted that there are substantial differences in the procedure for
involuntary dissolution and liquidation of a corporation under the Corporation
Code, and that of a banking corporation under the New Central Bank Act, so
that the requirements in one cannot simply be imposed in the other.