[G.R. No. 102696*. July 12, 2001] ALBERTO LOOYUKO, JUAN C. UY and ATTY. VICTORIA CUYOS, petitioner, vs.

COURT OF APPEALS, F.G.U. INSURANCE CORPORATION and ANTONIO GUTANG, HEIRS and SUCCESSORS-IN-INTEREST,respondents. [G.R No. 102716*. July 12, 2001] FGU INSURANCE CORPORATION, petitioner, vs. COURT OF APPEALS, ANTONIO J. GUTANG, JOSE V. GUTANG, ALBERTO LOOYUKO, JUAN C. UY, VICTORIA ALCANTARA CUYOS and JUDGE WILLIAM H. BAYHON, respondent. [G.R. No. 108257*. July 12, 2001] SCHUBERT TANUNLIONG, petitioner, vs. COURT OF APEALS, ANTONIA GUTANG, DAVID GUTANG, ELIZABETH GUTANG-LEDESMA, ATTY. RAMON A. GONZALES, ATTY. VICTORIA S. ALCANTARA CUYOS and JUDGE RICARDO MOLINA, respondents. [G.R. No. 120954*. July 12, 2001] SCHUBERT TANUNLIONG, petitioner, vs. COURT OF APPEALS, and ANTONIA J. GUTANG, respondents. DECISION KAPUNAN, J.: Disputed in these consolidated cases is a house and lot located in Mandaluyong, Rizal (now Mandaluyong City), formerly covered by Transfer Certificate of Title (TCT) No. 1702, and previously owned by the Spouses Tomas and Linda Mendoza. Bitterly contesting the property are the spouses various creditors as well as the creditors alleged assignee. One set of creditors includes Albert Looyuko and Jose Uy. Their lawyer, Atty. Victoria Cuyos, has also annotated her attorneys lien over the property. Antonia Gutang and her children David and Elizabeth, who have substituted their father,[1] comprise another set. Both sets of creditors rest their claim upon separate levies on execution and their supposed purchase of the property at public auction. A more detailed background that gave rise to Looyuko et al.s and the Gutangs claims over the property is set forth below. Thereafter, a recital of the antecedents that gave rise to the consolidated petitions, including the claims of another creditor, FGU Insurance Corporation, as well as Schubert Tanuliong, who purports to be Looyuko et al.s and the Gutangs assignee, follows. Civil Case No. 82-5792, RTC Manila (Looyuko and Uy vs. Spouses Mendoza)[2] On April 22, 1977, Albert Looyuko and Jose Uy, through their counsel, Atty. Victoria Cuyos, filed a complaint against the Spouses Mendoza before the Regional Trial Court (RTC) of Manila. The Manila RTC issued a writ of preliminary attachment over the property and a notice of levy on attachment bearing the date April 22, 1977 was annotated at the back of the TCT No. 1702.

Antonia Gutang filed a complaint for a sum of money with damages against Tomas Mendoza with the RTC of Iloilo (Civil Case No. 13122). Judgment was rendered in favor of Antonia Gutang and the decision later became final and executory. On July 1, 1981, Antonia Gutang caused to be annotated on the same TCT No. 1702 a notice of levy on execution. On June 8, 1984, the property was sold at public auction to Antonia Gutang. The Deputy Sheriff executed a final deed of sale on November 5, 1985. Antonia Gutang, by virtue of the certificate of sale, filed with the RTC of Rizal a petition for the cancellation of TCT No. 1702 and the issuance of a new title in her name. The case was docketed as LRC Case No. R-3613. On June 15, 1987, the Rizal RTC issued an order granting the petition. Consequently, TCT No. 1702 was cancelled and TCT No. 242 in the name of Antonia Gutang, married to Jose Gutang, was issued on December 23, 1987. The issuance of TCT No. 242, as will be seen later, spawned other cases. Civil Case No. 82-9760, RTC Manila (FGU vs. Spouses Mendoza)

CA-G.R. No. 23849, 7th Division, Court of Appeals

(FGU vs. Judge Bayhon and Spouses Gutang) G.R. No. 102696, Supreme Court (Looyuko et al. vs. Court of Appeals, FGU, et al.) G.R. No. 102716, Supreme Court (FGU vs. Court of Appeals, Spouses Gutang, et al.) On December 2, 1976, spouses Tomas and Linda Mendoza executed a mortgage over the subject property in favor of FGU Insurance Corporation. The mortgage was registered with the Register of Deeds of Pasig, Rizal on December 3, 1976.

As the spouses failed to satisfy the obligation secured by the mortgage, FGU on June 1, 1982 filed an action (Civil Case No. 82-9760) with the RTC of Manila against said spouses. The latter filed an Answer but failed to appear during the pre-trial. Consequently, the Spouses Mendoza were declared as in default and evidence were received ex-parte.
On January 22, 1988, the Manila RTC rendered a decision in favor of FGU, thus: WHEREFORE, judgment is hereby rendered in favor of plaintiff and against defendants, ordering the latter, jointly and severally, to pay the plaintiff the following: 1. The amount of P368,785.80 with interest at 12% per annum compounded monthly from May 5, 1982 until the same is fully paid;

Evidently, Looyuko and Uy prevailed in that action. On February 12, 1986, the Manila RTC issued a writ of execution and the property was sold at public auction with Looyuko and Uy as the highest bidders.
On June 30, 1995, the Register of Deeds of Mandaluyong issued a new TCT over the property, TCT No. 10107, in the name of Looyuko and Uy. The TCT bears the date February 6, 1992, the date of inscription of the final deed of sale in favor of Looyuko and Uy. Civil Case No. 13122, RTC Iloilo (Antonia Gutang vs. Tomas Mendoza) LRC Case No. R-3613, RTC Rizal

2. The amount of P22,501.60 with interest at 12% per annum compounded monthly from December 7, 1977 until the same is fully paid;
3. P5,000.00 as attorneys fees; 4. The costs of suit. SO ORDERED.[3]

FGU filed a motion for partial reconsideration, pointing out that the action was not for a sum of money but for foreclosure of mortgage. It prayed that in accordance with Section 2, Rule 68 of the Rules of Court, the decision be amended by ordering the sale of the property mortgaged in case defendant should not satisfy the judgment in favor of plaintiff within ninety (90) days from notice of decision. On May 19, 1988, the RTC issued an Order granting FGUs motion: Acting on the partial motion for reconsideration of the Decision rendered by the Court on January 22, 1988 and finding the same to be meritorious, the same is hereby granted. Accordingly, the first paragraph and the dispositive portion of said Decision are hereby ordered amended to read as follows: This is an action for foreclosure of real estate mortgage filed by plaintiff, FGU Insurance Corporation against Spouses Tomas Mendoza and Linda A. Mendoza, filed way back on June 1, 1982. WHEREFORE, judgment is hereby rendered in favor of plaintiff and against the defendants, ordering the latter, jointly and severally, to pay the plaintiff the following: 1. The amount of P368,785.80 with interest at 12% per annum compounded monthly from May 5, 1982 until the same is fully paid; 2. The amount of P22,501.60 with interest at 12% per annum compounded monthly from December 7, 1977 until the same is fully paid; 3. P5,000.00 as attorneys fees; 4. the costs of suit. Should defendants fail to pay said amounts within 90 days from receipt of the Decision dated Jan. 22, 1988, the mortgaged property described in par. 6 of the complaint shall be sold in the manner and under the regulations governing sales of real estate under execution. The proceeds of the sale, after deducting the cost of the sale shall be applied to the judgment and any balance shall be turned over to the defendants or their agent.

In an Order dated November 16, 1990, the RTC denied FGUs motion for the reconsideration of the order setting aside its decision. FGU filed a petition for certiorari, prohibition and mandamus in the Court of Appeals, arguing that the trial court committed grave abuse of discretion in granting the Spouses Gutangs motion for intervention since the RTC decision, as amended, was already final and executory. On March 13, 1991, the Court of Appeals received an Urgent Motion by Juan Uy, Alberto Looyuko and their counsel, Atty. Cuyos, praying for leave to file a motion for intervention. They alleged that they were attachment creditors of the spouses Tomas and Linda Mendoza whose property covered by TCT No. 1702 was attached as per entry No. 11728 duly inscribed on April 22, 1977 and subsequently carried over to TCT No. 242 in the name of the Spouses Gutang. On April 26, 1991, the court issued a resolution allowing Looyuko et al.s motion for intervention. In a Decision dated August 12, 1991, the Court of Appeals rendered its Decision, the dispositive portion of which reads: WHEREFORE, the petition for certiorari, mandamus and prohibition is hereby (1) GRANTED insofar as that portion of the Order of February 9, 1990 is concerned reconsidering and setting aside the money judgment is concerned, which judgment [is] final and executory, and in the process of satisfaction, should be maintained and remains as such; and (2) DISMISSING insofar as that portion of the same Order allowing the private respondents to intervene is concerned. SO ORDERED.[6] The Court of Appeals ruled that the action before the RTC was not actually an action for foreclosure but one for collection of a sum of money. The court also affirmed the order of the RTC allowing intervention, thus: The Court, both from the factual, procedural and substantive points, finds that respondent court had just and valid reasons to allow the private respondents to intervene in the case. Had it denied the intervention, the execution in satisfaction of the money judgment against the judgment debtors, would be violative of section 15 of Rule 30, that should be on all the property, real and personal, x x x of the judgment debtor x x x. when, in the case, the ownership of the parcel of land, covered by TCT 45066 is claimed by private respondents as well as movants-intervenors. Finally, even if it is considered, as petitioner claims, petitioner should have impleaded in its action all persons having or claiming an interest in the (mortgage) premises subordinate in right to that of the holder of the mortgage, all of whom shal be made defendants in the action (sec. 1, Rule 68, Rules of Court) and without their inclusion there can be no final determination in the action. Petitioner did not include private respondents as well as movants-intervenors, both of whom hold liens on the same property. Even under this aspect, respondent court should not be faulted for allowing private respondents to intervene, considering its reason that what (is) sought to be safeguarded (is) x x x the provision of Rule 68 of the Rules of Court. And while the time to intervene, under section 2, of Rule 12, is before or during a trial, x x x, in its discretion x x x, or even on the day when the case is submitted for decision (Falcasantos vs. Falcasantos, L-4627, May 13, 1952), or at any time before the rendition of final judgment (Lichauco vs. C.A., ET AL., L-23642, Mar. 13, 1975), in Director of Lands vs. C.A., et al. (L-45168, Sept. 25, 1979), intervention was permitted pending appeal in order to avoid injustice which must have impelled the respondent court to allow the intervention. Be that as it may, insofar as the default judgment dated January 27, 1988, ordering the defendants spouses Mendoza, jointly and severally, to pay petitioner the judgment debt, interest, attorneys fees and

SO ORDERED.[4]
No appeal was taken from the above Order and the same subsequently became final and executory. On September 14, 1988, the Manila RTC issued a writ of execution. On November 24, 1988, the deputy sheriff in a public bidding sold the parcel of land covered by TCT 1702 to FGU, the highest bidder. A certificate of sale was thereafter issued in FGUs favor, which was confirmed by the RTC on March 2, 1989. On August 23, 1989, the RTC issued an order for the cancellation of TCT No. 242 and the issuance of a new TCT in FGUs name. Before the new TCT could be issued, however, the Spouses Gutang filed a motion for intervention and to set aside the judgment of the RTC, alleging that they are the new registered owners of the property. In an Order dated February 9, 1990, the RTC allowed the motion for intervention, holding that the failure of FGU to implead the Spouses in the action for foreclosure deprived the latter of due process. The RTC thus set aside its Decision and all orders issued subsequent and related thereto. WHEREFORE, the motion to intervene filed by the Spouses Gutang is granted and the decision on May 19, 1988 is reconsidered set aside together with all orders subsequent and related thereto.[5] On October 11, 1990, Looyuko et al. filed a motion for intervention, which the RTC granted in its Order dated October 18, 1990.

costs, and which money judgment was restated in the Order dated may 19, 1988, since that judgment had already become final and executory and in the process of execution, what cropped up in the interim on the question of whether or not the money judgment can be enforced against the parcel of land covered by TCT 450666, it appearing that petitioner, private respondents and herein movantsintervenors are all having and claiming interest in that property, a question which has no relevance and would not affect the correctness of the money judgment, the respondent court had no reason to reconsider and set aside the judgment which had already become final and executory, can no longer be altered, amended, reconsidered, set aside. Nothing more can be done therewith. The court which rendered it has no more authority to modify or revoke it, except for its execution, otherwise, there would be not end to the litigation. Hence, the money judgment should be maintained and set at rest as and all that remains to be done in connection therewith is to have the same properly executed against the judgment debtors.[7] On August 16, 1991, the Court of Appeals noted a motion for leave to intervene by Schubert Tanunliong. Subsequently, FGU and Looyuko et al. filed their respective motions for reconsideration. On October 31, 1991 the Court of Appeals issued a resolution denying both motions for reconsideration. Looyuko et al. thus filed a petition for certiorari, prohibition and mandamus before this Court, contending in the main that the failure of FGU to implead them as defendants in Civil Case No. 82-9760 deprived them of due process. Consequently, the entire proceedings conducted before the RTC should have been declared void. The case was docketed herein as G.R. No. 102696. FGU, for its part, filed a petition for review on certiorari with this Court, which was docketed as G.R. No. 102716. FGU contends that the Court of Appeals erred in characterizing Civil Case No. 82-9760 as an action for a sum of money, and not one for foreclosure of mortgage, and in allowing the intervention of the Spouses Gutang and Looyuko et al. in the proceedings before the trial court.

On June 1, 1992, Antonia Gutang and her children filed another petition with the Rizal RTC against Cuyos, Looyuko and Uy praying for the cancellation of certain entries annotated in TCT No. 242. The case was docketed as LRC Case No. 4643. On July 12, 1993, the RTC ordered the setting of the cases for hearing and for compliance with jurisdictional requirements. On October 11, 1993, the court issued an order allowing the intervention of Tanunliong. The Gutangs moved for a reconsideration of both orders. On July 19, 1994, the court issued an Omnibus Order in LRC Case Nos. 4214 and 4643, the dispositive portion of which reads: WHEREFORE, in view of all the foregoing, the Petitioners two (2) Motions for reconsideration dated August 30, 1993 and October 27, 1993; and Respondents Motion for Reconsideration dated November 3, 1993 and the Opposition and Motion to Dismiss dated June 23, 1991, are all DENIED for lack of merit. On the other hand, movant Intervenors Motion for Leave to Intervene with Opposition dated August 29, 1991 is Granted. In the meantime, let a notice of hearing be issued setting these cases for hearing in accordance with the provisions of P.D. 1529. Let copies of the same be furnished the parties in this case, thru their counsels, the Register of Deeds of Mandaluyong, Metro Manila; the Office of the Solicitor General; and Intervenor Schubert Tanunliong, thru his counsel Atty. Nelson Ng.[8] On March 6, 1995, the court issued another order in both LRC cases, thus: Accordingly, let the questioned Omnibus Order dated July 19, 1994 stand, and the Branch Clerk of Court is directed to issue the notice of initial hearing in [this] case with notice to the Office of Solicitor General, the Registry of Deed of the City of Mandaluyong, herein respondents and intervenor Ng, pursuant to Section 108 of the Presidential Decree No. 1529.[9] Yet another order was subsequently issued by the RTC in LRC Case No. 4212, the dispositive portion of which reads: FURTHERMORE, let a copy of this order and the petition be furnished the Solicitor General, Makati, Metro Manila.[10] Antonia Gutang went to the Court of Appeals and questioned, among others, the allowance of the intervention by Tanunliong (CA-G.R. SP No. 36825). In a Decision dated June 30, 1995, the Court of Appeals, through the Special Ninth Division, set aside and declared void the Orders of the Land Registration Court insofar as they allowed the intervention of Tanunliong. Tanunliong now challenges the decision of the Court of Appeals in G. R. No. 120954. He submits that the decision in LRC Case No. R-3613, which issued TCT No. 242 in the name of the Spouses Gutang is void, citing specific grounds therefor. Accordingly, intervention should have been allowed on the principle that a void judgment can be attacked either directly or collaterally. Civil Case No. 61209, Pasig RTC (Tanunliong vs. Gutang et al.) CA-G.R. SP NO. 27972, 4th Division, Court of Appeals

LRC Case No. R-4212, RTC Rizal (Gutang vs. Register of Deeds, et al.)
LRC Case No. R-4643, RTC Rizal (Gutang et al. vs. Looyuko et al.) CA-G.R. SP No. 36825, Division, Court of Appeals (Gutang vs. Judge Trampe, Tanunliong) G.R. No. 120954, Supreme Court (Tanunliong vs. Court of Appeals, Gutang) On November 28, 1989, Antonia Gutang filed with the RTC of Rizal an Amended Petition under Section 108 of Presidential Decree No. 1539 for the cancellation of TCT No. 242 in the name of the Spouses Gutang and the issuance of a new one in the name of Antonia Gutang and her children David and Elizabeth. The cancellation of the TCT was sought on the grounds that the husband, Jose Gutang, had already died, and that the property covered by the TCT was paraphernal. The case was entitled Antonia Gutang versus Register of Deed, Galvanizers Marketing, Inc., Victoria Alcantara Cuyos, Alberto Looyuko and Juan Uy, LRC Case No. R-4212. On August 29, 1991, Schubert Tanunliong, the alleged assignee of FGU and Looyuko et al., filed a motion for leave to intervene, attaching his opposition to the amended petition. 9th

(Gutang et al. vs. Judge Molina and Tanunliong)

G.R. No. 108257, Supreme Court (Tanunliong vs. Court of Appeals, Gutang et al.)
Schubert Tanunliong claims that on December 19, 1985, the Spouses Mendoza sold the subject house and lot to him. Subsequently, on January 9, 1986, Alberto Looyuko and John Uy, the plaintiffs in Civil Case No. 82-5792, allegedly assigned to Tanunliong their rights and interests over the property. The validity of the assignment, however, is refuted by Looyuko, et al.[11] On January 29, 1987, FGU, the plaintiff in Civil Case No. 82-9760 likewise assigned all its rights and interest over said property to Tanunliong. The assignment is not denied by FGU. On August 23, 1991, Tanunliong filed before the RTC of Pasig a complaint for the cancellation of title, accounting and issuance of a writ of preliminary injunction against Antonia Gutang, David Gutang, Elizabeth Gutang Ledesma, Atty. Ramon Gonzales (the counsel for the Gutangs), and Atty. Victoria Cuyos. The case was docketed as Civil Case No. 61209. Tanunliong alleged, among others, that Antonia Gutang obtained the Order in LRC Case No. R-3613, canceling TCT No. 1702 and ordering the issuance of TCT No. 242 in favor of the Gutangs, through fraud and misrepresentation and without notice to FGU. Consequently, said Order was void. The defendants filed a motion to dismiss Tanunliongs complaint on the ground that the RTC had no jurisdiction over the case, the complaint in reality being an action for the annulment of the Order of the Pasig RTC in LRC Case No. R-3613. The RTC denied said motion but the Court of Appeals, upon a petition for certiorari and prohibition by the Gutangs and Gonzales, ruled otherwise. The appellate court held that Tanunliongs action, though denominated as one for cancellation of title, accounting and for issuance of preliminary injunction is, in truth, a case for annulment of judgment. The dispositive portion of the Decision, dated December 16, 1992, reads: WHEREFORE, the Petition for Certiorari and Prohibition, with Temporary Restraining Order, is hereby GRANTED. The Order of the RTC-Pasig, Branch 152, dated May 14, 1992, in Civi9l Case No. 61209, is SET ASIDE, for being null and void. The RTC-Pasig, Branch 152, is ENJOINED from proceeding with Civil Case No. 61209 and is ORDERED to dismiss said case, for lack of jurisidiction. IT IS SO ORDERED.[12] Tanunliong thus assails the ruling of the Court of Appeals in G.R. No. 108257, maintaining, in essence, that the action for cancellation of title, accounting and issuance of a writ of preliminary injunction is proper. The Court finds the principal issue raised in G.R. Nos. 102696 and 102716 dispositive of the consolidated petitions. Was the motion for intervention filed by the Spouses Gutang and Looyuko et al. in Civil Case No. 82-9760 proper considering that the case was already final and executory? We do not deem it necessary to address the issue of whether the complaint filed by FGU against the Spouses Mendoza was an action for foreclosure of mortgage or one for a sum of money. Clearly, if it were the latter, the Gutangs and Looyuko et al. would have no right to intervene therein since the action for sum of money, i.e., damages, would have arisen from the contract secured by mortgage, to which they are not parties. Then Section 2, Rule 12 of the Rules of Court, the law prevailing at the time, read as follows: Intervention. A person may, before or during a trial be permitted by the court, in its discretion, to intervene in an action, if he has legal interest in the matter in litigation, or in the success of either of the

parties, or an interest against both, or when he is so situated as to be adversely affected by a distribution or other disposition of property in the custody of the court or of an officer thereof. [Underscoring supplied.] None of the grounds underscored above are present to warrant their intervention. Accordingly, we assume for purposes of discussion that the action was indeed for the foreclosure of the mortgage over the subject property. The rule stated above also requires that a motion for intervention should be made before or during a trial. Because of varying interpretations of the phrase, the present Rules have clarified that the motion should be filed any time before rendition of judgment.[13] 1. The former rule as to when intervention may be allowed was expressed in Sec. 2, Rule 12 as before or during a trial, and this ambiguity also gave rise to indecisive doctrines. Thus, inceptively it was held that a motion for leave to intervene may be filed before or during a trial even on the day when the case is submitted for decision (Falcasantos vs. Falcasantos, L-4627, May 13, 1952) as long as it will not unduly delay the disposition of the case. The term trial was used in its restricted sense, i.e., the period for the introduction for intervention was filed after the case had already been submitted for decision, the denial threof is proper (Vigan Electric Light Co., Inc. vs. Arciaga, L-29207 and L-29222, July 31, 1974). However, it has also been held that intervention may be allowed at any time before the rendition of final judgment (Lichauco vs. CA, et al., L-23842, Mar. 13, 1975). Further, in the exceptional case of Director of Lands vs. CA, et al. (L-45168, Sept. 25, 1979), the Supreme Court permitted intervention in a case pending before it on appeal in order to avoid injustice and in consideration of the number of parties who may be affected by the dispute involving overlapping of numerous land titles. 2. The uncertainty in these ruling has been eliminated by the present Sec. 2 of this amended Rule which permits the filing of the motion to intervene at any time before the rendition of the judgment in the case, in line with the doctrine in Lichauco above cited. The justification advanced for this is that before judgment is rendered, the court, for god cause shown, may still allow the introduction of additional evidence and that is still within a liberal interpretation of the period for trial. Also, since no judgment has yet been rendered, the matter subject of the intervention may still be readily resolved and integrated in the judgment disposing of all claims in the case, and would not require an overall reassessment of said claims as would be the case if the judgment had already been rendered.[14] In the present case, the motions for intervention were filed after judgment had already been rendered, indeed when the case was already final and executory. Certainly, intervention can no longer be allowed in a case already terminated by final judgment.[15] Intervention is merely collateral or accessory or ancillary to the principal action, and not an independent proceeding; it is an interlocutory proceeding dependent on or subsidiary to the case between the original parties.[16] Where the main action ceases to exist, there is no pending proceeding wherein the intervention may be based.[17] Here, there is no more pending principal action wherein the Spouses Gutang and Looyuko et al. may intervene. A decision was already rendered therein and no appeal having been taken therefrom, the judgment in that main case is now final and executory. Intervention is legally possible only before or during a trial, hence a motion for intervention filed after trialand, a fortiori, when the case has already been submitted, when judgment has been rendered, or worse, when judgment is already final and executoryshould be denied.[18] In exceptional cases, the Court has allowed intervention notwithstanding the rendition of judgment by the trial court. In Director of Lands vs. Court of Appeals,[19] intervention was allowed even when the

petition for review of the assailed judgment was already submitted for decision in the Supreme Court. Recently in Mago vs. Court of Appeals,[20] the Court granted intervention despite the case having become final and executory. Admittedly, petitioners motion for intervention was filed on 2 August 1988 after the amended order of 30 March 1988 had already become final. xxx It must be noted however that petitioners were unaware of the proceedings in Civil Case No. Q52319. Aside from the obvious fact that they were never impleaded, they were also lulled into believing that all was well. After all, there was a previous agreement or Kasunduan ng Paghahati ng Lote which private respondent Asis executed in ther favor on 23 May 1980 or before the disputed lot was awarded to Asis by the NHA. In that agreement private respondent voluntarily agreed to divide the awarded lot into two (2)-on-half (1/2) to be retained by him, and the other one-half (1/2) to belong to petitioners. It can be seen from this that private respondent acted in bad faith when he accepted the award erroneously made to him by NHA knowing fully well that a perfected agreement had been forged earlier between him and petitioners. As a matter of record, the NHA even acknowledged its mistake. xxx These matters should have been taken into account by the courts a quo for being of utmost importance in ruling on petitioners motion for intervention. The permissive tenor of the provision on intervention shows the intention of the Rules to give to the court the full measure of discretion in permitting or disallowing the same. But needless to say, this discretion should be exercised judiciously and only after consideration of all the circumstances obtaining in the case. But it is apparent that the courts a quo only considered the technicalities of the rules on the intervention and of the petition for relief from judgment. The denial of their motion to intervene arising from the strict application of the rule was an injustice to petitioners whose substantial interest in the subject property cannot be disputed. It must be stressed that the trial court granted private respondents petition for prohibition with injunction without petitioners being impleaded, in total disregard of their right to be heard, when on the face of the resolution of the Community Relations and Information Office (CRIO) sought to be enjoined, petitioners were the ones directly to be affected. We need not belabor the point that petitioners are indeed indispensable parties with such an interest in the controversy or subject matter that a final adjudication cannot be made in their absence without affecting, nay injuring, such interest. In Director of Lands v. Court of Appeals where the motions for intervention were filed when the case had already reached this Court, it was declared: It is quite clear and patent that the motions for intervention filed by the movants at this stage of the proceedings where trial had already been concluded x x x and on appeal x x x the same was affirmed by the Court of Appeals and the instant petition for certiorari to review said judgment is already submitted for decision by the Supreme Court, are obviously and manifestly late, beyond the period prescribed under x x x Section 2, Rule 12 of the Rules of Court. But Rule 12 of the Rules of Court, like all other Rules therein promulgated, is simply a rule of procedure, the whole purpose and object of which is to make the powers of the Court fully and completely available for justice. The purpose of procedure is not to thwart justice. Its proper aim is to facilitate the application

of justice to the rival claims of contending parties. It was created not to hinder and delay but to facilitate and promote the administration of justice. It does not constitute the thing itself which courts are always striving to secure to litigants. It is designed as the means best adopted to obtain that thing. In other words, it is a means to an end. In Tahanan Development Corp. v. Court of Appeals this Court allowed intervention almost at the end of the proceedings. Accordingly, there should be no quibbling, much less hesitation or circumvention, on the part of subordinate and inferior courts to abide and conform to the rule enunciated by the Supreme Court. It must be noted, however, that in both these cases, the intervenors were indispensable parties.[21] This is not so in the case at bar. Section 1, Rule 68 of the Rules of Court requires all persons having or claiming an interest in the premises subordinate in right to that of the holder of the mortgage be made defendants in the action for foreclosure. The requirement for joinder of the person claiming an interest subordinate to the mortgage sought to be foreclosed, however, is not mandatory in character but merely directory, in the sense that failure to comply therewith will not invalidate the foreclosure proceedings.[22] A subordinate lien holder is a proper, even a necessary, but not an indispensable, party to a foreclosure proceeding. Appropriate relief could be granted by the court to the mortgagee in the foreclosure proceeding, without affecting the rights of the subordinate lien holders. The effect of the failure on the part of the mortgagee to make the subordinate lien holder a defendant is that the decree entered in the foreclosure proceeding would not deprive the subordinate lien holder of his right of redemption. A decree of foreclosure in a suit to which the holders of a second lien are not parties leaves the equity of redemption in favor of such lien holders unforeclosed and unaffected.[23] The Spouses Gutang make a lot of needless hair-splitting by arguing that cases applying the above principles are not on all fours with the one at bar. They persistently cling to the notion that as purchasers in the execution sale, they stepped into the shoes of the Spouses Gutang and have become, in legal contemplation, the mortgagors of the property. Consequently, their intervention should be allowed. This contention is utterly devoid of merit. Subordinate lien holders like the Spouses Gutang and Looyuko et al. acquire only a lien upon the equity of redemption vested in the mortgagor, and their rights are strictly subordinate to the superior lien of the mortgagee.[24] This principle is reiterated in Top Rate International Services, Inc. vs. Intermediate Appellate Court,[25] where the Court cited a host of precedents in support of its decision: As we have ruled in Northern Motors, Inc. v. Coquia, (66 SCRA 415, 420): To levy upon the mortgagors incorporeal right or equity of redemption, it was not necessary for the sheriff to have taken physical possession of the mortgaged taxicabs. x x x Levying upon the property itself is distinguishable from levying on the judgment debtors interest in it (McCullough & Co. v. Taylor, 25 Phil. 110, 115). Likewise, in the case of Blouse Potenciano v. Mariano, (96 SCRA 463, 469), we ruled: Quirinos interest in the mortgaged lots is merely an equity of redemption, an intangible or incorporeal right (Sun Life Assurance Co. of Canada v. Gonzales Diez, 52 Phil. 271; Santiago v. Dionisio, 92 Phil. 495; Northern Motors Inc. v. Coquia, 66 SCRA 415).

That interest could be levied upon by means of writ of execution issued by the Manila Court as had been done in the case of property encumbered by a chattel mortgage (Levy Hermanos, Inc. v. Ramirez and Casimiro, 60 Phil. 978, 982; McCullough & Co. v. Taylor, 25 Phil. 110).[] It is, therefore, error on the part of the petitioner to say that since private respondents lien is only a total of P343,227.40. they cannot be entitled to the equity of redemption because the exercise of such right would require the payment of an amount which cannot be less than P40,000,000.00. When herein private respondents prayed for the attachment of the properties to secure their respective claims against Consolidated Mines, Inc., the properties had already been mortgaged to the consortium of twelve banks to secure an obligation of US$62,062,720.66. Thus, like subsequent mortgagees, the respondents liens on such properties became inferior to that of the banks, which claims in the event of foreclosure proceedings, must first be satisfied. The appellate court, therefore, was correct in holding that in reality, what was attached by the respondents was merely Consolidated Mines right or equity of redemption. Thus, in the case ofAlpha Insurance and Surety Co., Inc. v. Reyes (106 SCRA 274, 278), we ruled: Deciding the legal question before Us, even if the DBP were just an ordinary first mortgagee without any preferential liens under Republic Act No. 85 or Commonwealth Act 459, the statutes mentioned in the Associated Insurance case relied upon by the trial court, it would be unquestionable that nothing may be done to favor plaintiff-appellant, a mere second mortgage, until after the obligations of the debtorsappellees with the first mortgagee have been fulfilled, satisfied and settled. In law, strictly speaking, what was mortgaged by the Reyeses to Alpha was no more than their equity of redemption. We, therefore, hold that the appellate court did not commit any error in ruling that there was no over-levy on the disputed properties. What was actually attached by respondents was Consolidated Mines right or equity of redemption, an incorporeal or intangible right, the value of which can neither be quantified nor equated with the actual value of the properties upon which it may be exercised. [Underscoring supplied.] Accordingly, an execution creditor who levies his execution upon property that the judgment debtor has mortgaged to another can sell at most only the equity of redemption belonging to the mortgagor. [26] As it is the equity of redemption that the subordinate lien holders had acquired by the levy on execution and that was sold in the public auction, this equity, not the property itself, was what the purchasers, who incidentally are the subordinate lien holders themselves, bought at the execution sale. The failure of the mortgagee to join the subordinate lien holders as defendants in the foreclosure suit, therefore, did not have the effect of nullifying the foreclosure proceeding, but kept alive the equity of redemption acquired by the purchasers in their respective execution sales.[27] If there be any more quibbling on the rights of Looyuko et al. and the Gutangs over the property and their right to intervene in the proceedings, Limpin vs. Intermediate Appellate Court sums up all the principles enunciated above and should lay the matter to rest: Section 2, Rule 68 provides that x x If upon the trial x x the court shall find the facts set forth in the complaint to be true, it shall ascertain the amount due to the plaintiff upon the mortgage debt or obligation, including interest and costs, and shall render judgment to be paid into court within a period of not less than ninety (90) days from the date of the service of such order, and that in default of such payment the property be sold to realize the mortgage debt and costs.

This is the mortgagors equity (not right) of redemption which, as above stated, may be exercised by him even beyond the 90-day period from the date of service of the order, and even after the foreclosure sale itself, provided it be before the order of confirmation of the sale. After such order of confirmation, no redemption can be effected any longer. It is this same equity of redemption that is conferred by law on the mortgagors successors-in-interest, or third persons acquiring right over the mortgaged property subsequent, and therefore subordinate to the mortgagees lien [e.g., by second mortgage or subsequent attachment or judgment]. If these subsequent or junior lien-holders be not joined in the foreclosure action, the judgment in the mortgagors favor is ineffective as to them, of course. In that case, they retain what is known as the unforeclosed equity of redemption, and a separate foreclosure proceeding should be brought to require them to redeem from the first mortgagee, or the party acquiring title to the mortgaged property at the foreclosure sale, within 90 days, [the period fixed in Section 2, Rule 68 for the mortgagor himself to redeem], under penalty of losing that prerogative to redeem. x x x. [Underscoring supplied.] Such equity of redemption does not constitute a bar to the registration of the property in the name of the mortgagee. Registration may be granted in the name of the mortgagee but subject to the subordinate lien holders equity of redemption, which should be exercised within ninety (90) days from the date the decision becomes final.[28] This registration is merely a necessary consequence of the execution of the final deed of sale in the foreclosure proceedings. Consequently, there is no merit in Looyuko et al.s contention that the Manila RTC, which was not acting as a land jurisdiction court, had no authority to order the cancellation of TCT No. 242. For the same reason, neither does the submission of the Gutangs that the foreclosure proceedings was a collateral attack on their TCT deserve any credence. Accordingly, the petition for review (G.R. No. 102716) of the mortgagee FGU, who was the first to register its encumbrance, must be granted. Conversely, the petition for certiorari, prohibition and mandamus (G.R. No. 102696) filed by Looyuko et al. must be dismissed.

In view of the foregoing ruling, the resolution of G.R. Nos. 108257 and 120954 is no longer necessary. G.R. No. 108257 stems from a complaint by Tanunliong for, among others, the cancellation of TCT No. 242 in the name of the Spouses Gutang. G.R. No. 120954 involves the propriety of Tanunliongs intervention in the land registration cases instituted by Antonia Gutang for the cancellation of TCT No. 242 and certain annotations in said TCT. The above ruling has rendered moot the proceedings from which these cases (G.R. Nos. 108257 and 120954) arose.
WHEREFORE: (1) The petition in G.R. No. 102696 is DISMISSED. (2) The petition in G.R. No. 102716 is GRANTED. (3) The petition in G.R. No. 108257 is DENIED.

(4) The petition in G.R. No. 120954 is DENIED.

The Register of Deeds is ordered to cancel TCT No. 10107 in the names of Jose Looyuko and John Uy and to issue a new one in the name of FGU Insurance Corporation, subject to the equity of redemption of Jose Looyuko and John Uy, and Antonia Gutang, respectively. The equity of redemption of Jose Looyuko and John Uy should be exercised within ninety (90) days from the date this decision becomes final. SO ORDERED.

G.R. No. 120098

October 2, 2001

Serial Numbers Size of Machines xxx xxx xxx

RUBY L. TSAI, petitioner, vs. HON. COURT OF APPEALS, EVER TEXTILE MILLS, INC. and MAMERTO R VILLALUZ, respondents. x---------------------------------------------------------x [G.R. No. 120109. October 2, 2001.] PHILIPPINE BANK OF COMMUNICATIONS, petitioner, vs. HON. COURT OF APPEALS, EVER TEXTILE MILLS and MAMERTO R VILLALUZ, respondents. QUISUMBING, J.: These consolidated cases assail the decision1 of the Court of Appeals in CA-G.R. CV No. 32986, affirming the decision2 of the Regional Trial Court of Manila, Branch 7, in Civil Case No. 89-48265. Also assailed is respondent court's resolution denying petitioners' motion for reconsideration. On November 26, 1975, respondent Ever Textile Mills, Inc. (EVERTEX) obtained a three million peso (P3,000,000.00) loan from petitioner Philippine Bank of Communications (PBCom). As security for the loan, EVERTEX executed in favor of PBCom, a deed of Real and Chattel Mortgage over the lot under TCT No. 372097, where its factory stands, and the chattels located therein as enumerated in a schedule attached to the mortgage contract. The pertinent portions of the Real and Chattel Mortgage are quoted below: MORTGAGE (REAL AND CHATTEL) xxx xxx xxx

B. Sixteen (16) sets of Vayrow Knitting Machines made in Taiwan. xxx xxx xxx

C. Two (2) Circular Knitting Machines made in West Germany. xxx xxx xxx

D. Four (4) Winding Machines. xxx xxx xxx SCHEDULE "A" I. TCT # 372097 - RIZAL xxx xxx xxx

II. Any and all buildings and improvements now existing or hereafter to exist on the abovementioned lot. III. MACHINERIES & EQUIPMENT situated, located and/or installed on the above-mentioned lot located at . . . (a) Forty eight sets (48) Vayrow Knitting Machines . . . (b) Sixteen sets (16) Vayrow Knitting Machines . . . (c) Two (2) Circular Knitting Machines . . . (d) Two (2) Winding Machines . . .

The MORTGAGOR(S) hereby transfer(s) and convey(s), by way of First Mortgage, to the MORTGAGEE, . . . certain parcel(s) of land, together with all the buildings and improvements now existing or which may hereafter exist thereon, situated in . . . "Annex A" (Real and Chattel Mortgage executed by Ever Textile Mills in favor of PBCommunications continued) LIST OF MACHINERIES & EQUIPMENT A. Forty Eight (48) units of Vayrow Knitting Machines-Tompkins made in Hongkong:

(e) Two (2) Winding Machines . . .

IV. Any and all replacements, substitutions, additions, increases and accretions to above properties. xxx xxx xxx3

On April 23, 1979, PBCom granted a second loan of P3,356,000.00 to EVERTEX. The loan was secured by a Chattel Mortgage over personal properties enumerated in a list attached thereto. These listed properties were similar to those listed in Annex A of the first mortgage deed. After April 23, 1979, the date of the execution of the second mortgage mentioned above, EVERTEX purchased various machines and equipments. On November 19, 1982, due to business reverses, EVERTEX filed insolvency proceedings docketed as SP Proc. No. LP-3091-P before the defunct Court of First Instance of Pasay City, Branch XXVIII. The CFI issued an order on November 24, 1982 declaring the corporation insolvent. All its assets were taken into the custody of the Insolvency Court, including the collateral, real and personal, securing the two mortgages as abovementioned. In the meantime, upon EVERTEX's failure to meet its obligation to PBCom, the latter commenced extrajudicial foreclosure proceedings against EVERTEX under Act 3135, otherwise known as "An Act to Regulate the Sale of Property under Special Powers Inserted in or Annexed to Real Estate Mortgages" and Act 1506 or "The Chattel Mortgage Law". A Notice of Sheriff's Sale was issued on December 1, 1982. On December 15, 1982, the first public auction was held where petitioner PBCom emerged as the highest bidder and a Certificate of Sale was issued in its favor on the same date. On December 23, 1982, another public auction was held and again, PBCom was the highest bidder. The sheriff issued a Certificate of Sale on the same day. On March 7, 1984, PBCom consolidated its ownership over the lot and all the properties in it. In November 1986, it leased the entire factory premises to petitioner Ruby L. Tsai for P50,000.00 a month. On May 3, 1988, PBCom sold the factory, lock, stock and barrel to Tsai for P9,000,000.00, including the contested machineries. On March 16, 1989, EVERTEX filed a complaint for annulment of sale, reconveyance, and damages with the Regional Trial Court against PBCom, alleging inter alia that the extrajudicial foreclosure of subject mortgage was in violation of the Insolvency Law. EVERTEX claimed that no rights having been transmitted to PBCom over the assets of insolvent EVERTEX, therefore Tsai acquired no rights over such assets sold to her, and should reconvey the assets. Further, EVERTEX averred that PBCom, without any legal or factual basis, appropriated the contested properties, which were not included in the Real and Chattel Mortgage of November 26, 1975 nor in the Chattel Mortgage of April 23, 1979, and neither were those properties included in the Notice of Sheriff's Sale dated December 1, 1982 and Certificate of Sale . . . dated December 15, 1982. The disputed properties, which were valued at P4,000,000.00, are: 14 Interlock Circular Knitting Machines, 1 Jet Drying Equipment, 1 Dryer Equipment, 1 Raisin Equipment and 1 Heatset Equipment. The RTC found that the lease and sale of said personal properties were irregular and illegal because they were not duly foreclosed nor sold at the December 15, 1982 auction sale since these were not included in the schedules attached to the mortgage contracts. The trial court decreed:

WHEREFORE, judgment is hereby rendered in favor of plaintiff corporation and against the defendants: 1. Ordering the annulment of the sale executed by defendant Philippine Bank of Communications in favor of defendant Ruby L. Tsai on May 3, 1988 insofar as it affects the personal properties listed in par. 9 of the complaint, and their return to the plaintiff corporation through its assignee, plaintiff Mamerto R. Villaluz, for disposition by the Insolvency Court, to be done within ten (10) days from finality of this decision; 2. Ordering the defendants to pay jointly and severally the plaintiff corporation the sum of P5,200,000.00 as compensation for the use and possession of the properties in question from November 1986 to February 1991 and P100,000.00 every month thereafter, with interest thereon at the legal rate per annum until full payment;

3. Ordering the defendants to pay jointly and severally the plaintiff corporation the sum of P50,000.00 as and for attorney's fees and expenses of litigation;
4. Ordering the defendants to pay jointly and severally the plaintiff corporation the sum of P200,000.00 by way of exemplary damages; 5. Ordering the dismissal of the counterclaim of the defendants; and 6. Ordering the defendants to proportionately pay the costs of suit. SO ORDERED.4 Dissatisfied, both PBCom and Tsai appealed to the Court of Appeals, which issued its decision dated August 31, 1994, the dispositive portion of which reads: WHEREFORE, except for the deletion therefrom of the award; for exemplary damages, and reduction of the actual damages, from P100,000.00 to P20,000.00 per month, from November 1986 until subject personal properties are restored to appellees, the judgment appealed from is hereby AFFIRMED, in all other respects. No pronouncement as to costs.5 Motion for reconsideration of the above decision having been denied in the resolution of April 28, 1995, PBCom and Tsai filed their separate petitions for review with this Court. In G.R No. 120098, petitioner Tsai ascribed the following errors to the respondent court: I THE HONORABLE COURT OF APPEALS (SECOND DIVISION) ERRED IN EFFECT MAKING A CONTRACT FOR THE PARTIES BY TREATING THE 1981 ACQUIRED MACHINERIES AS CHATTELS INSTEAD OF REAL PROPERTIES WITHIN THEIR EARLIER 1975 DEED OF REAL AND CHATTEL MORTGAGE OR 1979 DEED OF CHATTEL MORTGAGE.

II THE HONORABLE COURT OF APPEALS (SECOND DIVISION) ERRED IN HOLDING THAT THE DISPUTED 1981 MACHINERIES ARE NOT REAL PROPERTIES DEEMED PART OF THE MORTGAGE DESPITE THE CLEAR IMPORT OF THE EVIDENCE AND APPLICABLE RULINGS OF THE SUPREME COURT. III THE HONORABLE COURT OF APPEALS (SECOND DIVISION) ERRED IN DEEMING PETITIONER A PURCHASER IN BAD FAITH. IV THE HONORABLE COURT OF APPEALS (SECOND DIVISION) ERRED IN ASSESSING PETITIONER ACTUAL DAMAGES, ATTORNEY'S FEES AND EXPENSES OF LITIGATION FOR WANT OF VALID FACTUAL AND LEGAL BASIS. V THE HONORABLE COURT OF APPEALS (SECOND DIVISION) ERRED IN HOLDING AGAINST PETITIONER'S ARGUMENTS ON PRESCRIPTION AND LACHES.6 In G.R. No. 120098, PBCom raised the following issues:

The principal issue, in our view, is whether or not the inclusion of the questioned properties in the foreclosed properties is proper. The secondary issue is whether or not the sale of these properties to petitioner Ruby Tsai is valid. For her part, Tsai avers that the Court of Appeals in effect made a contract for the parties by treating the 1981 acquired units of machinery as chattels instead of real properties within their earlier 1975 deed of Real and Chattel Mortgage or 1979 deed of Chattel Mortgage.8 Additionally, Tsai argues that respondent court erred in holding that the disputed 1981 machineries are not real properties.9 Finally, she contends that the Court of Appeals erred in holding against petitioner's arguments on prescription and laches10 and in assessing petitioner actual damages, attorney's fees and expenses of litigation, for want of valid factual and legal basis.11 Essentially, PBCom contends that respondent court erred in affirming the lower court's judgment decreeing that the pieces of machinery in dispute were not duly foreclosed and could not be legally leased nor sold to Ruby Tsai. It further argued that the Court of Appeals' pronouncement that the pieces of machinery in question were personal properties have no factual and legal basis. Finally, it asserts that the Court of Appeals erred in assessing damages and attorney's fees against PBCom. In opposition, private respondents argue that the controverted units of machinery are not "real properties" but chattels, and, therefore, they were not part of the foreclosed real properties, rendering the lease and the subsequent sale thereof to Tsai a nullity.12 Considering the assigned errors and the arguments of the parties, we find the petitions devoid of merit and ought to be denied. Well settled is the rule that the jurisdiction of the Supreme Court in a petition for review on certiorari under Rule 45 of the Revised Rules of Court is limited to reviewing only errors of law, not of fact, unless the factual findings complained of are devoid of support by the evidence on record or the assailed judgment is based on misapprehension of facts.13 This rule is applied more stringently when the findings of fact of the RTC is affirmed by the Court of Appeals.14 The following are the facts as found by the RTC and affirmed by the Court of Appeals that are decisive of the issues: (1) the "controverted machineries" are not covered by, or included in, either of the two mortgages, the Real Estate and Chattel Mortgage, and the pure Chattel Mortgage; (2) the said machineries were not included in the list of properties appended to the Notice of Sale, and neither were they included in the Sheriff's Notice of Sale of the foreclosed properties.15 Petitioners contend that the nature of the disputed machineries, i.e., that they were heavy, bolted or cemented on the real property mortgaged by EVERTEX to PBCom, make them ipso facto immovable under Article 415 (3) and (5) of the New Civil Code. This assertion, however, does not settle the issue. Mere nuts and bolts do not foreclose the controversy. We have to look at the parties' intent. While it is true that the controverted properties appear to be immobile, a perusal of the contract of Real and Chattel Mortgage executed by the parties herein gives us a contrary indication. In the case at bar, both the trial and the appellate courts reached the same finding that the true intention of PBCOM and the owner, EVERTEX, is to treat machinery and equipment as chattels. The pertinent portion of respondent appellate court's ruling is quoted below:

I.
DID THE COURT OF APPEALS VALIDLY DECREE THE MACHINERIES LISTED UNDER PARAGRAPH 9 OF THE COMPLAINT BELOW AS PERSONAL PROPERTY OUTSIDE OF THE 1975 DEED OF REAL ESTATE MORTGAGE AND EXCLUDED THEM FROM THE REAL PROPERTY EXTRAJUDICIALLY FORECLOSED BY PBCOM DESPITE THE PROVISION IN THE 1975 DEED THAT ALL AFTER-ACQUIRED PROPERTIES DURING THE LIFETIME OF THE MORTGAGE SHALL FORM PART THEREOF, AND DESPITE THE UNDISPUTED FACT THAT SAID MACHINERIES ARE BIG AND HEAVY, BOLTED OR CEMENTED ON THE REAL PROPERTY MORTGAGED BY EVER TEXTILE MILLS TO PBCOM, AND WERE ASSESSED FOR REAL ESTATE TAX PURPOSES? II CAN PBCOM, WHO TOOK POSSESSION OF THE MACHINERIES IN QUESTION IN GOOD FAITH, EXTENDED CREDIT FACILITIES TO EVER TEXTILE MILLS WHICH AS OF 1982 TOTALLED P9,547,095.28, WHO HAD SPENT FOR MAINTENANCE AND SECURITY ON THE DISPUTED MACHINERIES AND HAD TO PAY ALL THE BACK TAXES OF EVER TEXTILE MILLS BE LEGALLY COMPELLED TO RETURN TO EVER THE SAID MACHINERIES OR IN LIEU THEREOF BE ASSESSED DAMAGES. IS THAT SITUATION TANTAMOUNT TO A CASE OF UNJUST ENRICHMENT?7

As stressed upon by appellees, appellant bank treated the machineries as chattels; never as real properties. Indeed, the 1975 mortgage contract, which was actually real and chattel mortgage, militates against appellants' posture. It should be noted that the printed form used by appellant bank was mainly for real estate mortgages. But reflective of the true intention of appellant PBCOM and appellee EVERTEX was the typing in capital letters, immediately following the printed caption of mortgage, of the phrase "real and chattel." So also, the "machineries and equipment" in the printed form of the bank had to be inserted in the blank space of the printed contract and connected with the word "building" by typewritten slash marks. Now, then, if the machineries in question were contemplated to be included in the real estate mortgage, there would have been no necessity to ink a chattel mortgage specifically mentioning as part III of Schedule A a listing of the machineries covered thereby. It would have sufficed to list them as immovables in the Deed of Real Estate Mortgage of the land and building involved. As regards the 1979 contract, the intention of the parties is clear and beyond question. It refers solely tochattels. The inventory list of the mortgaged properties is an itemization of sixty-three (63) individually described machineries while the schedule listed only machines and 2,996,880.50 worth of finished cotton fabrics and natural cotton fabrics.16 In the absence of any showing that this conclusion is baseless, erroneous or uncorroborated by the evidence on record, we find no compelling reason to depart therefrom. Too, assuming arguendo that the properties in question are immovable by nature, nothing detracts the parties from treating it as chattels to secure an obligation under the principle of estoppel. As far back as Navarro v. Pineda, 9 SCRA 631 (1963), an immovable may be considered a personal property if there is a stipulation as when it is used as security in the payment of an obligation where a chattel mortgage is executed over it, as in the case at bar. In the instant case, the parties herein: (1) executed a contract styled as "Real Estate Mortgage and Chattel Mortgage," instead of just "Real Estate Mortgage" if indeed their intention is to treat all properties included therein as immovable, and (2) attached to the said contract a separate "LIST OF MACHINERIES & EQUIPMENT". These facts, taken together, evince the conclusion that the parties' intention is to treat these units of machinery as chattels. A fortiori, the contested after-acquired properties, which are of the same description as the units enumerated under the title "LIST OF MACHINERIES & EQUIPMENT," must also be treated as chattels. Accordingly, we find no reversible error in the respondent appellate court's ruling that inasmuch as the subject mortgages were intended by the parties to involve chattels, insofar as equipment and machinery were concerned, the Chattel Mortgage Law applies, which provides in Section 7 thereof that: "a chattel mortgage shall be deemed to cover only the property described therein and not like or substituted property thereafter acquired by the mortgagor and placed in the same depository as the property originally mortgaged, anything in the mortgage to the contrary notwithstanding." And, since the disputed machineries were acquired in 1981 and could not have been involved in the 1975 or 1979 chattel mortgages, it was consequently an error on the part of the Sheriff to include subject machineries with the properties enumerated in said chattel mortgages.

As the auction sale of the subject properties to PBCom is void, no valid title passed in its favor. Consequently, the sale thereof to Tsai is also a nullity under the elementary principle of nemo dat quod non habet, one cannot give what one does not have.17 Petitioner Tsai also argued that assuming that PBCom's title over the contested properties is a nullity, she is nevertheless a purchaser in good faith and for value who now has a better right than EVERTEX. To the contrary, however, are the factual findings and conclusions of the trial court that she is not a purchaser in good faith. Well-settled is the rule that the person who asserts the status of a purchaser in good faith and for value has the burden of proving such assertion.18 Petitioner Tsai failed to discharge this burden persuasively. Moreover, a purchaser in good faith and for value is one who buys the property of another without notice that some other person has a right to or interest in such property and pays a full and fair price for the same, at the time of purchase, or before he has notice of the claims or interest of some other person in the property.19 Records reveal, however, that when Tsai purchased the controverted properties, she knew of respondent's claim thereon. As borne out by the records, she received the letter of respondent's counsel, apprising her of respondent's claim, dated February 27, 1987.20 She replied thereto on March 9, 1987.21 Despite her knowledge of respondent's claim, she proceeded to buy the contested units of machinery on May 3, 1988. Thus, the RTC did not err in finding that she was not a purchaser in good faith. Petitioner Tsai's defense of indefeasibility of Torrens Title of the lot where the disputed properties are located is equally unavailing. This defense refers to sale of lands and not to sale of properties situated therein. Likewise, the mere fact that the lot where the factory and the disputed properties stand is in PBCom's name does not automatically make PBCom the owner of everything found therein, especially in view of EVERTEX's letter to Tsai enunciating its claim. Finally, petitioners' defense of prescription and laches is less than convincing. We find no cogent reason to disturb the consistent findings of both courts below that the case for the reconveyance of the disputed properties was filed within the reglementary period. Here, in our view, the doctrine of laches does not apply. Note that upon petitioners' adamant refusal to heed EVERTEX's claim, respondent company immediately filed an action to recover possession and ownership of the disputed properties. There is no evidence showing any failure or neglect on its part, for an unreasonable and unexplained length of time, to do that which, by exercising due diligence, could or should have been done earlier. The doctrine of stale demands would apply only where by reason of the lapse of time, it would be inequitable to allow a party to enforce his legal rights. Moreover, except for very strong reasons, this Court is not disposed to apply the doctrine of laches to prejudice or defeat the rights of an owner.22 As to the award of damages, the contested damages are the actual compensation, representing rentals for the contested units of machinery, the exemplary damages, and attorney's fees. As regards said actual compensation, the RTC awarded P100,000.00 corresponding to the unpaid rentals of the contested properties based on the testimony of John Chua, who testified that the P100,000.00 was based on the accepted practice in banking and finance, business and investments that the rental price must take into account the cost of money used to buy them. The Court of Appeals did not give full credence to Chua's projection and reduced the award to P20,000.00.

Basic is the rule that to recover actual damages, the amount of loss must not only be capable of proof but must actually be proven with reasonable degree of certainty, premised upon competent proof or best evidence obtainable of the actual amount thereof.23 However, the allegations of respondent company as to the amount of unrealized rentals due them as actual damages remain mere assertions unsupported by documents and other competent evidence. In determining actual damages, the court cannot rely on mere assertions, speculations, conjectures or guesswork but must depend on competent proof and on the best evidence obtainable regarding the actual amount of loss.24 However, we are not prepared to disregard the following dispositions of the respondent appellate court: . . . In the award of actual damages under scrutiny, there is nothing on record warranting the said award of P5,200,000.00, representing monthly rental income of P100,000.00 from November 1986 to February 1991, and the additional award of P100,000.00 per month thereafter.

The amount of P200,000.00 for exemplary damages is, however, excessive. Article 2216 of the Civil Code provides that no proof of pecuniary loss is necessary for the adjudication of exemplary damages, their assessment being left to the discretion of the court in accordance with the circumstances of each case.29 While the imposition of exemplary damages is justified in this case, equity calls for its reduction. In Inhelder Corporation v. Court of Appeals, G.R. No. L-52358, 122 SCRA 576, 585, (May 30, 1983), we laid down the rule that judicial discretion granted to the courts in the assessment of damages must always be exercised with balanced restraint and measured objectivity. Thus, here the award of exemplary damages by way of example for the public good should be reduced to P100,000.00. By the same token, attorney's fees and other expenses of litigation may be recovered when exemplary damages are awarded.30 In our view, RTC's award of P50,000.00 as attorney's fees and expenses of litigation is reasonable, given the circumstances in these cases. WHEREFORE, the petitions are DENIED. The assailed decision and resolution of the Court of Appeals in CA-G.R. CV No. 32986 are AFFIRMED WITH MODIFICATIONS. Petitioners Philippine Bank of Communications and Ruby L. Tsai are hereby ordered to pay jointly and severally Ever Textile Mills, Inc. the following: (1) P20,000.00 per month, as compensation for the use and possession of the properties in question from November 198631 until subject personal properties are restored to respondent corporation; (2) P100,000.00 by way of exemplary damages, and (3) P50,000.00 as attorney's fees and litigation expenses. Costs against petitioners. SO ORDERED. Bellosillo, Mendoza, Buena and De Leon, Jr., JJ., concur.

As pointed out by appellants, the testimonial evidence, consisting of the testimonies of Jonh (sic) Chua and Mamerto Villaluz, is shy of what is necessary to substantiate the actual damages allegedly sustained by appellees, by way of unrealized rental income of subject machineries and equipments.
The testimony of John Cua (sic) is nothing but an opinion or projection based on what is claimed to be a practice in business and industry. But such a testimony cannot serve as the sole basis for assessing the actual damages complained of. What is more, there is no showing that had appellant Tsai not taken possession of the machineries and equipments in question, somebody was willing and ready to rent the same for P100,000.00 a month. xxx xxx xxx

Then, too, even assuming arguendo that the said machineries and equipments could have generated a rental income of P30,000.00 a month, as projected by witness Mamerto Villaluz, the same would have been a gross income. Therefrom should be deducted or removed, expenses for maintenance and repairs . . . Therefore, in the determination of the actual damages or unrealized rental income sued upon, there is a good basis to calculate that at least four months in a year, the machineries in dispute would have been idle due to absence of a lessee or while being repaired. In the light of the foregoing rationalization and computation, We believe that a net unrealized rental income of P20,000.00 a month, since November 1986, is more realistic and fair.25 As to exemplary damages, the RTC awarded P200,000.00 to EVERTEX which the Court of Appeals deleted. But according to the CA, there was no clear showing that petitioners acted malevolently, wantonly and oppressively. The evidence, however, shows otherwise.It is a requisite to award exemplary damages that the wrongful act must be accompanied by bad faith,26 and the guilty acted in a wanton, fraudulent, oppressive, reckless or malevolent manner.27 As previously stressed, petitioner Tsai's act of purchasing the controverted properties despite her knowledge of EVERTEX's claim was oppressive and subjected the already insolvent respondent to gross disadvantage. Petitioner PBCom also received the same letters of Atty. Villaluz, responding thereto on March 24, 1987.28 Thus, PBCom's act of taking all the properties found in the factory of the financially handicapped respondent, including those properties not covered by or included in the mortgages, is equally oppressive and tainted with bad faith. Thus, we are in agreement with the RTC that an award of exemplary damages is proper.

G.R. Nos. 82763-64 March 19, 1990 DEVELOPMENT BANK OF THE PHILIPPINES, petitioner, vs. NATIONAL LABOR RELATIONS COMMISSION, LABOR ARBITER ISABEL P. ORTIGUERRA, and LABOR ALLIANCE FOR NATIONAL DEVELOPMENT, respondents. The Legal Counsel for petitioner. Piorello E. Azura, Errol Ismael, B. Palaci and Maria Lourdes C. Legaspi for APT. Pablo B. Castillon for respondent LAND.

By reason of said foreclosure, the Writ of Execution issued in favor of the complainants remained unsatisfied. A Notice of Levy on Execution on the properties of LIRAG was then entered. On 7 December 1984, LAND filed a "Motion for Writ of Execution and Garnishment" of the proceeds of the foreclosure sale. On 30 May 1985, upon motion of LAND, Labor Arbiter Apolinar L. Sevilla ordered the DBP impleaded "in the interest of justice and due process," and required it to intervene. On 12 February 1986, and over the opposition of DBP, Labor Arbiter Sevilla granted the Writ of Garnishment and directed DBP to remit to the NLRC the sum of P6,292,380.00 out of the proceeds of the foreclosed properties of LIRAG sold at public auction in order to satisfy the judgment previously rendered. DBP sought reconsideration of the above Order on the grounds of NLRC's lack of jurisdiction over it since it was not a party to the case, and that it was deprived of its property without due process of law. Public respondent, Labor Arbiter Isabel P. Ortiguerra denied reconsideration on 25 May 1987. DBP appealed that denial to the NLRC. In the meantime, on 3 February 1987, by virtue of Proclamation Nos. 50 and 50-A, the Asset Privatization Trust (APT) became the transferee of the DBP foreclosed assets of LIRAG. On 12 July 1989, by virtue of that transfer, we deemed APT impleaded as a party-petitioner and gave it time within which to file its pleading. It submitted a Memorandum on 22 November 1989. It appears that on 21 December 1987, a partial Compromise Agreement was entered into between APT and LAND (Litex Chapter) whereby APT paid the complainants-employees, ex gratia, the sum of P750,000.00 "in full settlement of their claims, past and present, with respect to all assets of LITEX transferred by DBP to APT." That amount was received by LAND's local President. Apparently, however, on 25 January 1988, LAND, through its national President, filed its opposition to the Compromise Agreement for being contrary to law, morals and public policy. On 25 March 1988, the NLRC (First Division) affirmed the appealed Order and dismissed the DBP appeal. DBP is now before us seeking a review and reversal. On 30 January 1989, the Court resolved to give due course to the petition and to require the parties to submit simultaneous memoranda. On 1 February 1990, the Court's Second Division referred the case to the Court en banc, which the latter accepted on the same date. It is true that DBP was not an original party and that it was ordered impleaded only after the Writs of Execution were not satisfied because the properties levied upon on execution had been foreclosed extrajudicially by it. DBP had to be impleaded, however, for the proper satisfaction of a final judgment. Being an incident in the execution of the final judgment award, NLRC retained jurisdiction and control over the case and could issue such orders as were necessary for the implementation of that award. Its inclusion as a party could not have been accomplished at the earlier stages of the proceedings because at the time of the filing of the Complaint, private respondents' cause of action was only against LIRAG.

MELENCIO-HERRERA, J.: This Petition for Certiorari addresses itself to the 12 February 1986 Order of the National Labor Relations Commission directing petitioner Development Bank of the Philippines (DBP) to remit the sum of P6,292,380.00 "out of proceeds of the foreclosed properties of Lirag Textile Mills Inc., sold at public auction in order to satisfy the judgment" in NLRC Cases Nos. NCR-3-2581-82 and 2-2090-82. The background facts of these two cases may be summarized as follows: The complainants in the two cases filed below were former employees of Lirag Textile Mills, Inc. (LIRAG, for short). LIRAG was a mortgage debtor of DBP. Private respondent Labor Alliance for National Development (LAND, for brevity) was the bargaining representative of the more or less 800 former rank and file employees of LIRAG. Around September 1981, LIRAG started terminating the services of its employees on the ground of retrenchment. By December of the said year there were already 180 regular employees separated from the service. LIRAG has since ceased operations presumably due to financial reverses. In February 1982, Joselito Albay, one of the employees dismissed in September 1981, filed a complaint before the National Labor Relations Commission (NLRC) against LIRAG for illegal dismissal (Case No. 2-2090-82). On 1 March 1982, LAND, on behalf of 180 dismissed members, also filed a Complaint against LIRAG seeking separation pay, 13th month pay, gratuity pay, sick leave and vacation leave pay and emergency allowance (Case No. 3-2581-82). These two cases were consolidated and jointly heard by the NLRC. Said complainants have since been joined by supervisors and managers. In a Decision, dated 30 July 1982, Labor Arbiter Apolinar L. Sevilla ordered LIRAG to pay the individual complainants. The NLRC (Third Division) affirmed the same on 28 March 1982. That judgment became final and executory. On 15 April 1983, a Writ of Execution was issued. On the same day, DBP extrajudicially foreclosed the mortgaged properties for failure of LIRAG to pay its mortgage obligation. As the only bidder at the foreclosure sale, DBP acquired said mortgaged properties for P31,346,462.90. Since DBP was the sole mortgagee, no actual payment was made, the amount of the bid having been merely credited in partial satisfaction of LIRAG's indebtedness.

DBP cannot rightfully contend that it was deprived of due process. It was given the opportunity to be heard and to present its evidence. It had actually filed its Opposition to the Motion for Execution and Garnishment filed by LAND on 7 January 1985, and the Order granting the Motion was issued only after hearing. DBP had also addressed an appeal to the NLRC. It had submitted, therefore, to the jurisdiction of the NLRC. Now, for the core issue whether or not the NLRC gravely abused its discretion in affirming the Order of the Labor Arbiter granting the Writ of Garnishment out of the proceeds of LIRAG's properties foreclosed by DBP to satisfy the judgment in these cases. We are constrained to rule in the affirmative. Article 110 of the Labor Code provides: Art. 110. Worker preference in case of bankruptcy. In the event of bankruptcy or liquidation of an employer's business, his workers shall enjoy first preference as regards wages due them for services rendered during the period prior to the bankruptcy or liquidation, any provision to the contrary notwithstanding. Unpaid wages shall be paid in full before other creditors may establish any claim to a share in the assets of the employer. In implementation of the foregoing, Section 10, Rule VIII, Book III of the Revised Rules and Regulations Implementing the Labor Code, as amended, provides: Sec. 10. Payment of wages in case of bankruptcy. Unpaid wages earned by the employees before the declaration of bankruptcy or judicial liquidation of the employer's business shall be given first preference and shall be paid in full before other creditors may establish any claim to a share in the assets of the employer. (Emphasis supplied). In interpreting the foregoing provisions, the Court, in Development Bank of the Philippines vs. Santos (G.R. Nos. 78261-62, 8 March 1989), categorically stated: It is quite clear from the provision that a declaration of bankruptcy or a judicial liquidation must be present before the workers preference may be enforced. Thus, Article 110 of the Labor Code and its implementing rule cannot be invoked by the respondents in this case absent a formal declaration of bankruptcy or a liquidation order. . . . Since then, however, Article 110 has been amended by Republic Act No. 6715 and now reads as follows: Sec. 1. Article 110 of Presidential Decree No. 442, as amended, otherwise known as the Labor Code of the Philippines, is hereby further amended to read as follows: Art. 110. Worker preference in case of bankruptcy. In the event of bankruptcy or liquidation of an employer's business, his workers shall enjoy first preference as

regards their unpaid wages and other monetary claims, any provision of law to the contrary notwithstanding. Such unpaid wages and monetary claims shall be paid in full before the claims of the Government and other creditors may be paid. (Amendments emphasized). The amendment expands worker preference to cover not only unpaid wages but also other monetary claims to which even claims of the Government must be deemed subordinate. Section 10, Rule III, Book III of the Omnibus Rules Implementing the Labor Code has also been amended by Section 1 of the Rules and Regulations Implementing RA 6715 as approved by the then Secretary of Labor and Employment on 24 May 1989, and now provides: Sec. 10. Payment of wages and other monetary claims in case of bankruptcy. In case of bankruptcy or liquidation of the employer's business, the unpaid wages and other monetary claims of the employees shall be given first preference and shall be paid in full before the claims of government and other creditors may be paid. Notably, the terms "declaration" of bankruptcy or "judicial" liquidation have been eliminated. Does this mean then that liquidation proceedings have been done away with? We opine in the negative, upon the following considerations: 1. Because of its impact on the entire system of credit, Article 110 of the Labor Code cannot be viewed in isolation but must be read in relation to the Civil Code scheme on classification and preference of credits. Article 110 of the Labor Code, in determining the reach of its terms, cannot be viewed in isolation. Rather, Article 110 must be read in relation to the provisions of the Civil Code concerning the classification, concurrence and preference of credits, which provisions find particular application in insolvency proceedings where the claims of all creditors, preferred or non-preferred, may be adjudicated in a binding manner. . . . Republic vs. Peralta (G.R. No. L-56568, May 20, 1987, 150 SCRA 37). 2. In the same way that the Civil Code provisions on classification of credits and the Insolvency Law have been brought into harmony, so also must the kindred provisions of the Labor Law be made to harmonize with those laws. 3. In the event of insolvency, a principal objective should be to effect an equitable distribution of the insolvent's property among his creditors. To accomplish this there must first be some proceeding where notice to all of the insolvents's creditors may be given and where the claims of preferred creditors may be bindingly adjudicated (De Barretto vs. Villanueva, No. L-14938, December 29, 1962, 6 SCRA 928). The rationale therefore has been expressed in the recent case of DBP vs. Secretary of Labor (G.R. No. 79351, 28 November 1989), which we quote: A preference of credit bestows upon the preferred creditor an advantage of having his credit satisfied first ahead of other claims which may be established against the

debtor. Logically, it becomes material only when the properties and assets of the debtors are insufficient to pay his debts in full; for if the debtor is amply able to pay his various creditors in full, how can the necessity exist to determine which of his creditors shall be paid first or whether they shall be paid out of the proceeds of the sale the debtor's specific property? Indubitably, the preferential right of credit attains significance only after the properties of the debtor have been inventoried and liquidated, and the claims held by his various creditors have been established (Kuenzle & Streiff (Ltd.) vs. Villanueva, 41 Phil 611 (1916); Barretto vs. Villanueva, G.R. No. 14938, 29 December 1962, 6 SCRA 928; Philippine Savings Bank vs. Lantin, G.R. 33929, 2 September 1983, 124 SCRA 476). 4. A distinction should be made between a preference of credit and a lien. A preference applies only to claims which do not attach to specific properties. A lien creates a charge on a particular property. The right of first preference as regards unpaid wages recognized by Article 110 does not constitute a lien on the property of the insolvent debtor in favor of workers. It is but a preference of credit in their favor, a preference in application. It is a method adopted to determine and specify the order in which credits should be paid in the final distribution of the proceeds of the insolvent's assets. It is a right to a first preference in the discharge of the funds of the judgment debtor. In the words of Republic vs. Peralta, supra: Article 110 of the Labor Code does not purport to create a lien in favor of workers or employees for unpaid wages either upon all of the properties or upon any particular property owned by their employer. Claims for unpaid wages do not therefore fall at all within the category of specially preferred claims established under Articles 2241 and 2242 of the Civil Code, except to the extent that such complaints for unpaid wages are already covered by Article 2241, number 6: "claims for laborers wages, on the goods manufactured or the work done;" or by Article 2242, number 3: "claims of laborers and other workers engaged in the construction, reconstruction or repair of buildings, canals and other works, upon said buildings, canals and other works, upon said buildings, canals and other works." To the extent that claims for unpaid wages fall outside the scope of Article 2241, number 6 and 2242, number 3, they would come within the ambit of the category of ordinary preferred credits under Article 2244. 5. The DBP anchors its claim on a mortgage credit. A mortgage directly and immediately subjects the property upon which it is imposed, whoever the possessor may be, to the fulfillment of the obligation for whose security it was constituted (Article 2176, Civil Code). It creates a real right which is enforceable against the whole world. It is a lien on an identified immovable property, which a preference is not. A recorded mortgage credit is a special preferred credit under Article 2242 (5) of the Civil Code on classification of credits. The preference given by Article 110, when not falling within Article 2241 (6) and Article 2242 (3) of the Civil Code and not attached to any specific property, is an ordinary preferred credit although its impact is to move it from second priority to first priority in the order of preference established by Article 2244 of the Civil Code (Republic vs. Peralta, supra). In fact, under the Insolvency Law (Section 29) a creditor holding a mortgage or lien of any kind as security is not permitted to vote in the election of the assignee in insolvency proceedings unless the value of his security is first fixed or he surrenders all such property to the receiver of the insolvent's estate.

6. Even if Article 110 and its Implementing Rule, as amended, should be interpreted to mean "absolute preference," the same should be given only prospective effect in line with the cardinal rule that laws shall have no retroactive effect, unless the contrary is provided (Article 4, Civil Code). Thereby, any infringement on the constitutional guarantee on non-impairment of the obligation of contracts (Section 10, Article III, 1987 Constitution) is also avoided. In point of fact, DBP's mortgage credit antedated by several years the amendatory law, RA No. 6715. To give Article 110 retroactive effect would be to wipe out the mortgage in DBP's favor and expose it to a risk which it sought to protect itself against by requiring a collateral in the form of real property. In fine, the right to preference given to workers under Article 110 of the Labor Code cannot exist in any effective way prior to the time of its presentation in distribution proceedings. It will find application when, in proceedings such as insolvency, such unpaid wages shall be paid in full before the "claims of the Government and other creditors" may be paid. But, for an orderly settlement of a debtor's assets, all creditors must be convened, their claims ascertained and inventoried, and thereafter the preferences determined in the course of judicial proceedings which have for their object the subjection of the property of the debtor to the payment of his debts or other lawful obligations. Thereby, an orderly determination of preference of creditors' claims is assured (Philippine Savings Bank vs. Lantin, No. L-33929, September 2, 1983, 124 SCRA 476); the adjudication made will be binding on all parties-in-interest, since those proceedings are proceedings in rem; and the legal scheme of classification, concurrence and preference of credits in the Civil Code, the Insolvency Law, and the Labor Code is preserved in harmony. WHEREFORE, Certiorari is GRANTED, and the assailed Decision of public respondent, the National Labor Relations Commission (NLRC), dated 25 March 1988, is hereby SET ASIDE. The Development Bank of the Philippines, the Asset Privatization Trust, the Labor Alliance for National Development (LAND), and other creditors who may be so minded, are hereby directed, within sixty (60) days from notice, to institute involuntary insolvency proceedings before the proper Court where all the assets of Lirag Textile Mills, Inc., may be inventoried, the preferences of all its creditors determined, and their claims discharged in a binding and conclusive manner. No costs. SO ORDERED.

G.R. No. 158261

December 18, 2006

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

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 20032 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

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 petitioners 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 ofP8,767.32. 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 Certiorariunder 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. I 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 forcertiorari 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,19an 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 Courts 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

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.

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.

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 quasibank: (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; andappoint 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 latters 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 latters 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.

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.

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-SP0600 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

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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