1

ROMEO P. BUSUEGO, CATALINO F. BANEZ and RENATO F. LIM, petitioners, vs. THE HONORABLE COURT OF APPEALS and THE MONETARY BOARD OF
THE CENTRAL BANK OF THE PHILIPPINES, respondents.
Administrative Law; Banks and Banking; Bangko Sentral ng Pilipinas; Monetary Board; The Central Bank of the Philippines (now Bangko
Sentral ng Pilipinas), through the Monetary Board, is the government agency charged with the responsibility of administering the monetary, banking
and credit system of the country and is granted the power of supervision and examination over banks and non-bank financial institutions performing
quasi-banking functions of which savings and loan associations form part of.Petitioners contentions are untenable. It must be remembered that the
Central Bank of the Philippines (now Bangko Sentral ng Pilipinas), through the Monetary Board, is the government agency charged with the
responsibility of administering the monetary, banking and credit system of the country and is granted the power of supervision and examination over
banks and non-bank financial institutions performing quasi-banking functions of which savings and loan associations, such as PESALA, form part of.
[Busuego vs. Court of Appeals, 304 SCRA 473(1999)]
Facts: The 16th regular examination of the books and records of PAL Employees Savings and Loan Association (PESALA) was conducted by a team of CB
Examiners. Several irregularities were found to have been committed by the PESALA officers. Hence, CB sent a letter to petitioners for them to be
present at a meeting specifically for the purpose of investigating said anomalies. Petitioners did not respond. Hence, the Monetary Board adopted a
resolution including the names of the officers of PESALA in the watchlist to prevent them from holding responsible positions in any institution under CB
supervision.
Petitioners filed a petition for injunction against the MB in order to prevent their names from being added in the said watchlist. RTC issued the
TRO. The MB appealed to the CA which reversed RTC. Hence, this petition for certiorari with the SC.
Petitioners contend that the MB resolution was null and void for being violative of their right to due process by imposing administrative sanctions
where the MB is not vested with authority to disqualify persons from occupying positions in institutions under the supervision of CB.
Issue: Whether or not the MB resolution was null and void.
Held: NO. The CB, through the MB, is the government agency charged with the responsibility of administering the monetary, banking and credit system
of the country and is granted the power of supervision and examination over banks and non-bank financial institutions performing quasi-banking
functions of which savings and loan associations, such as PESALA, form part of.
The special law governing savings and loan associations is R.A. 3779, the Savings and Loan Association Act, authorizes the MB to conduct regular yearly
examinations of the books and records of savings and loan associations, to suspend a savings and loan association for violation of law, to decide any
controversy over the obligations and duties of directors and officers, and to take remedial measures. Hence, the CB, through the MB, is empowered to
conduct investigations and examine the records of savings and loan associations. If any irregularity is discovered in the process, the MB may impose
appropriate sanctions, such as suspending the offender from holding office or from being employed with the CB, or placing the names of the offenders
in a watchlist.

2
FIRST PHILIPPINE INTERNATIONAL BANK (Formerly Producers Bank of the Philippines) and MERCURIO RIVERA, petitioners, vs. COURT OF APPEALS,
CARLOS EJERCITO, in substitution of DEMETRIO DEMETRIA, and JOSE JANOLO, respondents.
Same; Same; Same; Central Bank Law (R.A. 265); Section 28-A of R.A. 265 merely gives the conservator power to revoke contracts that are,
under existing law, deemed to be defectivethe conservator merely takes the place of a banks board of directors, and what the said board cannot do,
the conservator cannot do either.Obviously, therefore, Section 28-A merely gives the conservator power to revoke contracts that are, under existing
law, deemed to be defectivei.e., void, voidable, unenforceable or rescissible. Hence, the conservator merely takes the place of a banks board of
directors. What the said board cannot dosuch as repudiating a contract validly entered into under the doctrine of implied authoritythe conservator
cannot do either. Ineluctably, his power is not unilateral and he cannot simply repudiate valid obligations of the Bank. His authority would be only to
bring court actions to assail such contractsas he has already done so in the instant case. A contrary understanding of the law would simply not be
permitted by the Constitution. Neither by common sense. To rule otherwise would be to enable a failing bank to become solvent, at the expense of
third parties, by simply getting the conservator to unilaterally revoke all previous dealings which had one way or another come to be considered
unfavorable to the Bank, yielding nothing to perfected contractual rights nor vested interests of the third parties who had dealt with the Bank. [First
Philippine International Bank vs. Court of Appeals, 252 SCRA 259(1996)]
The Parties
Petitioner First Philippine International Bank (formerly Producers Bank of the Philippines; petitioner Bank, for brevity) is a banking institution organized
and existing under the laws of the Republic of the Philippines. Petitioner Mercurio Rivera (petitioner Rivera, for brevity) is of legal age and was, at all
times material to this case, Head Manager of the Property Management Department of the petitioner Bank.
Respondent Carlos Ejercito (respondent Ejercito, for brevity) is of legal age and is the assignee of original plaintiffs-appellees Demetrio Demetria and
Jose Janolo.
Respondent Court of Appeals is the court which issued the Decision and Resolution sought to be set aside through this petition.
The Facts
(1) In the course of its banking operations, the defendant Producer Bank of the Philippines acquired six parcels of land with a total area of 101
hectares located at Don Jose, Sta. Rosa, Laguna, and covered by Transfer Certificates of Title Nos. T-106932 to T-106937. The property used to be
owned by BYME Investment and Development Corporation which had them mortgaged with the bank as collateral fora loan. The original plaintiffs,
Demetrio Demetria and Jose O. Janolo, wanted to purchase the property and thus initiated negotiations for that purpose.
(2) In the early part of August 1987 said plaintiffs, upon the suggestion of BYME Investments legal counsel, Jose Fajardo, met with defendant Mercurio
Rivera, Manager of the Property Management Department of the defendant bank. The meeting was held pursuant to plaintiffs plan to buy the property
(TSN of Jan. 16, 1990, pp. 7-10). After the meeting, plaintiff Janolo, following the advice of defendant Rivera, made a formal purchase offer to the bank
through a letter dated August 30, 1987.
(3) On September 1, 1987, defendant Rivera made on behalf of the bank a formal reply by letter.
(4)On September 17, 1987, plaintiff Janolo, responding to Riveras aforequoted reply.
(5) There was no reply to Janolos foregoing letter of September 17, 1987. What took place was a meeting on September 28, 1987 between the
plaintiffs and Luis Co, the Senior Vice-President of defendant bank. Rivera as well as Fajardo, the BYME lawyer, attended the meeting. Two days later, or
on September 30, 1987, plaintiff Janolo sent to the bank, through Rivera.
(6) On October 12, 1987, the conservator of the bank (which has been placed under conservatorship by the Central Bank since 1984) was replaced by
an Acting Conservator in the person of defendant Leonida T. Encarnacion. On November 4, 1987, defendant Rivera wrote plaintiff Demetria.
(7) What thereafter transpired was a series of demands by the plaintiffs for compliance by the bank with what plaintiff considered as a perfected
contract of sale, which demands were in one form or another refused by the bank. As detailed by the trial court in its decision, on November 17, 1987,
plaintiffs through a letter to defendant Rivera (Exhibit G) tendered payment of the amount of P5.5 million pursuant to (our) perfected sale
agreement. Defendants refused to receive both the payment and the letter. Instead, the parcels of land involved in the transaction were advertised by
the bank for sale to any interested buyer (Exhs. H and H-1). Plaintiffs demanded the execution by the bank of the documents on what was
considered as a perfected agreement.
(8) Defendant bank, through defendant Rivera, acknowledged receipt of the foregoing letter and stated, in its communication of December 2,
1987 (Exh. I), that said letter has been referred x x x to the office of our Conservator for proper disposition. However, no response came from the
Acting Conservator. On December 14, 1987, the plaintiffs made a second tender of payment (Exhs. L and L-1), this time through the Acting
Conservator, defendant Encarnacion.
(9) The foregoing letter drew no response for more than four months. Then, on May 3, 1988, plaintiff, through counsel, made a final demand for
compliance by the bank with its obligations under the considered perfected contract of sale (Exhibit N). As recounted by the trial court (Original
Record, p. 656), in a reply letter dated May 12, 1988 (Annex 4 of defendants answer to amended complaint), the defendants through Acting
Conservator Encarnacion repudiated the authority of defendant Rivera and claimed that his dealings with the plaintiffs, particularly his counter-offer of

3
P5.5 Million are unauthorized or illegal. On that basis, the defendants justified the refusal of the tenders of payment and the non-compliance with the
obligations under what the plaintiffs considered to be a perfected contract of sale.
(10) On May 16, 1988, plaintiffs filed a suit for specific performance with damages against the bank, its Manager Rivera and Acting Conservator
Encarnacion. The basis of the suit was that the transaction had with the bank resulted in a perfected contract of sale. The defendants took the position
that there was no such perfected sale because the defendant Rivera is not authorized to sell the property, and that there was no meeting of the minds
as to the price.
On March 14, 1991, Henry L. Co (the brother of Luis Co), through counsel Sycip Salazar Hernandez and Gatmaitan, filed a motion to intervene in the trial
court, alleging that as owner of 80% of the Banks outstanding shares of stock, he had a substantial interest in resisting the complaint. On July 8, 1991,
the trial court issued an order denying the motion to intervene on the ground that it was filed after trial had already been concluded. It also denied a
motion for reconsideration filed thereafter. From the trial courts decision, the Bank, petitioner Rivera and conservator Encarnacion appealed to the
Court of Appeals which subsequently affirmed with modification the said judgment. Henry Co did not appeal the denial of his motion for intervention.
In the course of the proceedings in the respondent Court, Carlos Ejercito was substituted in place of Demetria and Janolo, in view of the
assignment of the latters rights in the matter in litigation to said private respondent.
On July 11, 1992, during the pendency of the proceedings in the Court of Appeals, Henry Co and several other stockholders of the Bank, through
counsel Angara Abello Concepcion Regala and Cruz, filed an action (hereafter, the Second Case) -purportedly a derivative suit - with the Regional
Trial Court of Makati, Branch 134, docketed as Civil Case No. 92-1606, against Encarnacion, Demetria and Janolo to declare any perfected sale of the
property as unenforceable and to stop Ejercito from enforcing or implementing the sale.[4] In his answer, Janolo argued that the Second Case was
barred by litis pendentia by virtue of the case then pending in the Court of Appeals. During the pre-trial conference in the Second Case, plaintiffs filed a
Motion for Leave of Court to Dismiss the Case Without Prejudice. Private respondent opposed this motion on the ground, among others, that plaintiffs
act of forum shopping justifies the dismissal of both cases, with prejudice.[5] Private respondent, in his memorandum, averred that this motion is still
pending in the Makati RTC.
In their Petition[6] and Memorandum,[7] petitioners summarized their position as follows:
I.
II.
III.
IV.

The Court of Appeals erred in declaring that a contract of sale was perfected between Ejercito (in substitution of Demetria and Janolo)
and the bank.
The Court of Appeals erred in declaring the existence of an enforceable contract of sale between the parties.
The Court of Appeals erred in declaring that the conservator does not have the power to overrule or revoke acts of previous
management.
The findings and conclusions of the Court of Appeals do not conform to the evidence on record.

On the other hand, private respondents prayed for dismissal of the instant suit on the ground[8] that:
I.
Petitioners have engaged in forum shopping.
II.
The factual findings and conclusions of the Court of Appeals are supported by the evidence on record and may no longer be
questioned in this case.
III.
The Court of Appeals correctly held that there was a perfected contract between Demetria and Janolo (substituted by respondent
Ejercito) and the bank.
IV.
The Court of Appeals has correctly held that the conservator, apart from being estopped from repudiating the agency and the
contract, has no authority to revoke the contract of sale.
The Issues
From the foregoing positions of the parties, the issues in this case may be summed up as follows:
1) Was there forum-shopping on the part of petitioner Bank?
2) Was there a perfected contract of sale between the parties?
3) Assuming there was, was the said contract enforceable under the statute of frauds?
4) Did the bank conservator have the unilateral power to repudiate the authority of the bank officers and/or to revoke the said contract?
5) Did the respondent Court commit any reversible error in its findings of facts?

The Fourth Issue: May the Conservator Revoke

the Perfected and Enforceable Contract?
It is not disputed that the petitioner Bank was under a conservator placed by the Central Bank of the Philippines during the time that the
negotiation and perfection of the contract of sale took place. Petitioners energetically contended that the conservator has the power to revoke or
overrule actions of the management or the board of directors of a bank, under Section 28-A of Republic Act No. 265 (otherwise known as the Central
Bank Act) as follows:
Whenever, on the basis of a report submitted by the appropriate supervising or examining department, the Monetary Board finds that a bank or a
non-bank financial intermediary performing quasi - banking functions is in a state of continuing inability or unwillingness to maintain a state of liquidity
deemed adequate to protect the interest of depositors and creditors, the Monetary Board may appoint a conservator to take charge of the assets,

4
liabilities, and the management of that institution, collect all monies and debts due said institution and exercise all powers necessary to preserve the
assets of the institution, reorganize the management thereof, and restore its viability. He shall have the power to overrule or revoke the actions of the
previous management and board of directors of the bank or non-bank financial intermediary performing quasi-banking functions, any provision of law
to the contrary notwithstanding, and such other powers as the Monetary Board shall deem necessary.
In the first place, this issue of the Conservators alleged authority to revoke or repudiate the perfected contract of sale was raised for the first
time in this Petition - as this was not litigated in the trial court or Court of Appeals. As already stated earlier, issues not raised and/or ventilated in the
trial court, let alone in the Court of Appeals, cannot be raised for the first time on appeal as it would be offensive to the basic rules of fair play, justice
and due process.[43]
In the second place, there is absolutely no evidence that the Conservator, at the time the contract was perfected, actually repudiated or
overruled said contract of sale. The Banks acting conservator at the time, Rodolfo Romey, never objected to the sale of the property to Demetria and
Janolo. What petitioners are really referring to is the letter of Conservator Encarnacion, who took over from Romey after the sale was perfected
on September 30, 1987 (Annex V, petition) which unilaterally repudiated - not the contract - but the authority of Rivera to make a binding offer - and
which unarguably came months after the perfection of the contract.
In the third place, while admittedly, the Central Bank law gives vast and far-reaching powers to the conservator of a bank, it must be pointed out
that such powers must be related to the (preservation of) the assets of the bank, (the reorganization of) the management thereof and (the restoration
of) its viability. Such powers, enormous and extensive as they are, cannot extend to the post-facto repudiation of perfected transactions, otherwise
they would infringe against the non-impairment clause of the Constitution.[44] If the legislature itself cannot revoke an existing valid contract, how can it
delegate such non-existent powers to the conservator under Section 28-A of said law?
Obviously, therefore, Section 28-A merely gives the conservator power to revoke contracts that are, under existing law, deemed to be defective i.e., void, voidable, unenforceable or rescissible. Hence, the conservator merely takes the place of a banks board of directors. What the said board
cannot do - such as repudiating a contract validly entered into under the doctrine of implied authority - the conservator cannot do either. Ineluctably,
his power is not unilateral and he cannot simply repudiate valid obligations of the Bank. His authority would be only to bring court actions to assail such
contracts - as he has already done so in the instant case. A contrary understanding of the law would simply not be permitted by the Constitution.
Neither by common sense. To rule otherwise would be to enable a failing bank to become solvent, at the expense of third parties, by simply getting the
conservator to unilaterally revoke all previous dealings which had one way or another come to be considered unfavorable to the Bank, yielding nothing
to perfected contractual rights nor vested interests of the third parties who had dealt with the Bank.

5
THE CENTRAL BANK OF THE PHILIPPINES and RAMON V. TIAOQUI, petitioners,
vs.
COURT OF APPEALS and TRIUMPH SAVINGS BANK, respondents.
Central Bank Act; Section 29, R.A 265; The Central Bank through Monetary Board is vested exclusive authority to assess, evaluate and
determine condition of any bank; Effects.Under Sec. 29 of R.A. 265, the Central Bank, through the Monetary Board, is vested with exclusive authority
to assess, evaluate and determine the condition of any bank, and finding such condition to be one of insolvency, or that its continuance in business
would involve probable loss to its depositors or creditors, forbid the bank or non-bank financial institution to do business in the Philippines; and shall
designate an official of the CB or other competent person as receiver to immediately take charge of its assets and liabilities. [Central Bank of the
Philippines vs. Court of Appeals, 220 SCRA 536(1993)]
BELLOSILLO, J.:
May a Monetary Board resolution placing a private bank under receivership be annulled on the ground of lack of prior notice and hearing?
This petition seeks review of the decision of the Court of Appeals in CA G.R. S.P. No. 07867 entitled "The Central Bank of the Philippines and Ramon V.
Tiaoqui vs. Hon. Jose C. de Guzman and Triumph Savings Bank," promulgated 26 September 1986, which affirmed the twin orders of the Regional Trial
Court of Quezon City issued 11 November 1985 1 denying herein petitioners' motion to dismiss Civil Case No. Q-45139, and directing petitioner Ramon
V. Tiaoqui to restore the private management of Triumph Savings Bank (TSB) to its elected board of directors and officers, subject to Central Bank
comptrollership. 2
The antecedent facts:
Based on examination reports submitted by the Supervision and Examination Sector (SES), Department II, of the Central Bank (CB) "that the financial
condition of TSB is one of insolvency and its continuance in business would involve probable loss to its depositors and creditors," 3 the Monetary Board
(MB) issued on 31 May 1985 Resolution No. 596 ordering the closure of TSB, forbidding it from doing business in the Philippines, placing it under
receivership, and appointing Ramon V. Tiaoqui as receiver. Tiaoqui assumed office on 3 June 1985. 4
On 11 June 1985, TSB filed a complaint with the Regional Trial Court of Quezon City, docketed as Civil Case No. Q-45139, against Central Bank and
Ramon V. Tiaoqui to annul MB Resolution No. 596, with prayer for injunction, challenging in the process the constitutionality of Sec. 29 of R.A. 269,
otherwise known as "The Central Bank Act," as amended, insofar as it authorizes the Central Bank to take over a banking institution even if it is not
charged with violation of any law or regulation, much less found guilty thereof. 5
On 1 July 1985, the trial court temporarily restrained petitioners from implementing MB Resolution No. 596 "until further orders", thus prompting them
to move for the quashal of the restraining order (TRO) on the ground that it did not comply with said Sec. 29, i.e., that TSB failed to show convincing
proof of arbitrariness and bad faith on the part of petitioners;' and, that TSB failed to post the requisite bond in favor of Central Bank.
On 19 July 1985, acting on the motion to quash the restraining order, the trial court granted the relief sought and denied the application of TSB for
injunction. Thereafter, Triumph Savings Bank filed with Us a petition for certiorariunder Rule 65 of the Rules of Court 6 dated 25 July 1985 seeking to
enjoin the continued implementation of the questioned MB resolution.
Meanwhile, on 9 August 1985; Central Bank and Ramon Tiaoqui filed a motion to dismiss the complaint before the RTC for failure to state a cause of
action, i.e., it did not allege ultimate facts showing that the action was plainly arbitrary and made in bad faith, which are the only grounds for the
annulment of Monetary Board resolutions placing a bank under conservatorship, and that TSB was without legal capacity to sue except through its
receiver. 7
On 9 September 1985, TSB filed an urgent motion in the RTC to direct receiver Ramon V. Tiaoqui to restore TSB to its private management. On 11
November 1985, the RTC in separate orders denied petitioners' motion to dismiss and ordered receiver Tiaoqui to restore the management of TSB to its
elected board of directors and officers, subject to CB comptrollership.
Since the orders of the trial court rendered moot the petition for certiorari then pending before this Court, Central Bank and Tiaoqui moved on 2
December 1985 for the dismissal of G.R. No. 71465 which We granted on 18 December 1985. 8
Instead of proceeding to trial, petitioners elevated the twin orders of the RTC to the Court of Appeals on a petition for certiorari and prohibition under
Rule 65. 9 On 26 September 1986, the appellate court, upheld the orders of the trial court thus
Petitioners' motion to dismiss was premised on two grounds, namely, that the complaint failed to state a cause of action and that
the Triumph Savings Bank was without capacity to sue except through its appointed receiver.

6
Concerning the first ground, petitioners themselves admit that the Monetary Board resolution placing the Triumph Savings Bank
under the receivership of the officials of the Central Bank was done without prior hearing, that is, without first hearing the side of
the bank. They further admit that said resolution can be the subject of judicial review and may be set aside should it be found
that the same was issued with arbitrariness and in bad faith.
The charge of lack of due process in the complaint may be taken as constitutive of allegations of arbitrariness and bad faith. This
is not of course to be taken as meaning that there must be previous hearing before the Monetary Board may exercise its powers
under Section 29 of its Charter. Rather, judicial review of such action not being foreclosed, it would be best should private
respondent be given the chance to show and prove arbitrariness and bad faith in the issuance of the questioned resolution,
especially so in the light of the statement of private respondent that neither the bank itself nor its officials were even informed of
any charge of violating banking laws.
In regard to lack of capacity to sue on the part of Triumph Savings Bank, we view such argument as being specious, for if we get
the drift of petitioners' argument, they mean to convey the impression that only the CB appointed receiver himself may question
the CB resolution appointing him as such. This may be asking for the impossible, for it cannot be expected that the master, the
CB, will allow the receiver it has appointed to question that very appointment. Should the argument of petitioners be given
circulation, then judicial review of actions of the CB would be effectively checked and foreclosed to the very bank officials who
may feel, as in the case at bar, that the CB action ousting them from the bank deserves to be set aside.
On the questioned restoration order, this Court must say that it finds nothing whimsical, despotic, capricious, or arbitrary in its
issuance, said action only being in line and congruent to the action of the Supreme Court in the Banco Filipino Case (G.R. No.
70054) where management of the bank was restored to its duly elected directors and officers, but subject to the Central Bank
comptrollership. 10
On 15 October 1986, Central Bank and its appointed receiver, Ramon V. Tiaoqui, filed this petition under Rule 45 of the Rules of Court praying that the
decision of the Court of Appeals in CA-G.R. SP No. 07867 be set aside, and that the civil case pending before the RTC of Quezon City, Civil Case No.
Q-45139, be dismissed. Petitioners allege that the Court of Appeals erred
(1) in affirming that an insolvent bank that had been summarily closed by the Monetary Board should be restored to its private
management supposedly because such summary closure was "arbitrary and in bad faith" and a denial of "due process";
(2) in holding that the "charge of lack of due process" for "want of prior hearing" in a complaint to annul a Monetary Board
receivership resolution under Sec. 29 of R.A. 265 "may be taken as . . allegations of arbitrariness and bad faith"; and
(3) in holding that the owners and former officers of an insolvent bank may still act or sue in the name and corporate capacity of
such bank, even after it had been ordered closed and placed under receivership. 11
The respondents, on the other hand, allege inter alia that in the Banco Filipino case, 12 We held that CB violated the rule on administrative due process
laid down in Ang Tibay vs. CIR (69 Phil. 635) and Eastern Telecom Corp. vs. Dans, Jr. (137 SCRA 628) which requires that prior notice and hearing be
afforded to all parties in administrative proceedings. Since MB Resolution No. 596 was adopted without TSB being previously notified and heard,
according to respondents, the same is void for want of due process; consequently, the bank's management should be restored to its board of directors
and officers. 13
Petitioners claim that it is the essence of Sec. 29 of R.A. 265 that prior notice and hearing in cases involving bank closures should not be required since
in all probability a hearing would not only cause unnecessary delay but also provide bank "insiders" and stockholders the opportunity to further
dissipate the bank's resources, create liabilities for the bank up to the insured amount of P40,000.00, and even destroy evidence of fraud or irregularity
in the bank's operations to the prejudice of its depositors and creditors. 14 Petitioners further argue that the legislative intent of Sec. 29 is to repose in
the Monetary Board exclusive power to determine the existence of statutory grounds for the closure and liquidation of banks, having the required
expertise and specialized competence to do so.
The first issue raised before Us is whether absence of prior notice and hearing may be considered acts of arbitrariness and bad faith sufficient to annul a
Monetary Board resolution enjoining a bank from doing business and placing it under receivership. Otherwise stated, is absence of prior notice and
hearing constitutive of acts of arbitrariness and bad faith?
Under Sec. 29 of R.A. 265, 15 the Central Bank, through the Monetary Board, is vested with exclusive authority to assess, evaluate and determine the
condition of any bank, and finding such condition to be one of insolvency, or that its continuance in business would involve probable loss to its
depositors or creditors, forbid the bank or non-bank financial institution to do business in the Philippines; and shall designate an official of the CB or
other competent person as receiver to immediately take charge of its assets and liabilities. The fourth paragraph, 16 which was then in effect at the time
the action was commenced, allows the filing of a case to set aside the actions of the Monetary Board which are tainted with arbitrariness and bad faith.

7
Contrary to the notion of private respondent, Sec. 29 does not contemplate prior notice and hearing before a bank may be directed to stop operations
and placed under receivership. When par. 4 (now par. 5, as amended by E.O. 289) provides for the filing of a case within ten (10) days after the receiver
takes charge of the assets of the bank, it is unmistakable that the assailed actions should precede the filing of the case. Plainly, the legislature could not
have intended to authorize "no prior notice and hearing" in the closure of the bank and at the same time allow a suit to annul it on the basis of absence
thereof.
In the early case of Rural Bank of Lucena, Inc. v. Arca [1965], 17 We held that a previous hearing is nowhere required in Sec. 29 nor does the
constitutional requirement of due process demand that the correctness of the Monetary Board's resolution to stop operation and proceed to
liquidation be first adjudged before making the resolution effective. It is enough that a subsequent judicial review be provided.
Even in Banco Filipino, 18 We reiterated that Sec. 29 of R.A. 265 does not require a previous hearing before the Monetary Board can implement its
resolution closing a bank, since its action is subject to judicial scrutiny as provided by law.
It may be emphasized that Sec. 29 does not altogether divest a bank or a non-bank financial institution placed under receivership of the opportunity to
be heard and present evidence on arbitrariness and bad faith because within ten (10) days from the date the receiver takes charge of the assets of the
bank, resort to judicial review may be had by filing an appropriate pleading with the court. Respondent TSB did in fact avail of this remedy by filing a
complaint with the RTC of Quezon City on the 8th day following the takeover by the receiver of the bank's assets on 3 June 1985.
This "close now and hear later" scheme is grounded on practical and legal considerations to prevent unwarranted dissipation of the bank's assets and as
a valid exercise of police power to protect the depositors, creditors, stockholders and the general public.
In Rural Bank of Buhi, Inc. v. Court of Appeals, 19 We stated that
. . . due process does not necessarily require a prior hearing; a hearing or an opportunity to be heard may be subsequent to the
closure. One can just imagine the dire consequences of a prior hearing: bank runs would be the order of the day, resulting in
panic and hysteria. In the process, fortunes may be wiped out and disillusionment will run the gamut of the entire banking
community.
We stressed in Central Bank of the Philippines v. Court of Appeals 20 that
. . . the banking business is properly subject to reasonable regulation under the police power of the state because of its nature and relation
to the fiscal affairs of the people and the revenues of the state (9 CJS 32). Banks are affected with public interest because they receive funds
from the general public in the form of deposits. Due to the nature of their transactions and functions, a fiduciary relationship is created
between the banking institutions and their depositors. Therefore, banks are under the obligation to treat with meticulous care and utmost
fidelity the accounts of those who have reposed their trust and confidence in them (Simex International [Manila], Inc., v. Court of Appeals,
183 SCRA 360 [1990]).
It is then the Government's responsibility to see to it that the financial interests of those who deal with the banks and banking institutions, as
depositors or otherwise, are protected. In this country, that task is delegated to the Central Bank which, pursuant to its Charter (R.A. 265, as
amended), is authorized to administer the monetary, banking and credit system of the Philippines. Under both the 1973 and 1987
Constitutions, the Central Bank is tasked with providing policy direction in the areas of money, banking and credit; corollarily, it shall have
supervision over the operations of banks (Sec. 14, Art. XV, 1973 Constitution, and Sec. 20, Art. XII, 1987 Constitution). Under its charter, the
CB is further authorized to take the necessary steps against any banking institution if its continued operation would cause prejudice to its
depositors, creditors and the general public as well. This power has been expressly recognized by this Court. In Philippine Veterans Bank
Employees Union-NUBE v. Philippine Veterans Banks (189 SCRA 14 [1990], this Court held that:
. . . [u]nless adequate and determined efforts are taken by the government against distressed and mismanaged banks, public faith
in the banking system is certain to deteriorate to the prejudice of the national economy itself, not to mention the losses suffered
by the bank depositors, creditors, and stockholders, who all deserve the protection of the government. The government cannot
simply cross its arms while the assets of a bank are being depleted through mismanagement or irregularities. It is the duty of the
Central Bank in such an event to step in and salvage the remaining resources of the bank so that they may not continue to be
dissipated or plundered by those entrusted with their management.
Section 29 of R.A. 265 should be viewed in this light; otherwise, We would be subscribing to a situation where the procedural rights invoked by private
respondent would take precedence over the substantive interests of depositors, creditors and stockholders over the assets of the bank.
Admittedly, the mere filing of a case for receivership by the Central Bank can trigger a bank run and drain its assets in days or even hours leading to
insolvency even if the bank be actually solvent. The procedure prescribed in Sec. 29 is truly designed to protect the interest of all concerned, i.e., the
depositors, creditors and stockholders, the bank itself, and the general public, and the summary closure pales in comparison to the protection afforded
public interest. At any rate, the bank is given full opportunity to prove arbitrariness and bad faith in placing the bank under receivership, in which event,
the resolution may be properly nullified and the receivership lifted as the trial court may determine.

8
The heavy reliance of respondents on the Banco Filipino case is misplaced in view of factual circumstances therein which are not attendant in the
present case. We ruled in Banco Filipino that the closure of the bank was arbitrary and attendant with grave abuse of discretion, not because of the
absence of prior notice and hearing, but that the Monetary Board had no sufficient basis to arrive at a sound conclusion of insolvency to justify the
closure. In other words, the arbitrariness, bad faith and abuse of discretion were determined only after the bank was placed under conservatorship and
evidence thereon was received by the trial court. As this Court found in that case, the Valenzuela, Aurellano and Tiaoqui Reports contained unfounded
assumptions and deductions which did not reflect the true financial condition of the bank. For instance, the subtraction of an uncertain amount as
valuation reserve from the assets of the bank would merely result in its net worth or the unimpaired capital and surplus; it did not reflect the total
financial condition of Banco Filipino.
Furthermore, the same reports showed that the total assets of Banco Filipino far exceeded its total liabilities. Consequently, on the basis thereof, the
Monetary Board had no valid reason to liquidate the bank; perhaps it could have merely ordered its reorganization or rehabilitation, if need be. Clearly,
there was in that case a manifest arbitrariness, abuse of discretion and bad faith in the closure of Banco Filipino by the Monetary Board. But, this is not
the case before Us. For here, what is being raised as arbitrary by private respondent is the denial of prior notice and hearing by the Monetary Board, a
matter long settled in this jurisdiction, and not the arbitrariness which the conclusions of the Supervision and Examination Sector (SES), Department II,
of the Central Bank were reached.
Once again We refer to Rural Bank of Buhi, Inc. v. Court of Appeals, 21 and reiterate Our pronouncement therein that
. . . the law is explicit as to the conditions prerequisite to the action of the Monetary Board to forbid the institution to do business in the
Philippines and to appoint a receiver to immediately take charge of the bank's assets and liabilities. They are: (a) an examination made by
the examining department of the Central Bank; (b) report by said department to the Monetary Board; and (c) prima facieshowing that its
continuance in business would involve probable loss to its depositors or creditors.
In sum, appeal to procedural due process cannot just outweigh the evil sought to be prevented; hence, We rule that Sec. 29 of R.A. 265 is a sound
legislation promulgated in accordance with the Constitution in the exercise of police power of the state. Consequently, the absence of notice and
hearing is not a valid ground to annul a Monetary Board resolution placing a bank under receivership. The absence of prior notice and hearing cannot
be deemed acts of arbitrariness and bad faith. Thus, an MB resolution placing a bank under receivership, or conservatorship for that matter, may only
be annulled after a determination has been made by the trial court that its issuance was tainted with arbitrariness and bad faith. Until such
determination is made, the status quo shall be maintained, i.e., the bank shall continue to be under receivership.
As regards the second ground, to rule that only the receiver may bring suit in behalf of the bank is, to echo the respondent appellate court, "asking for
the impossible, for it cannot be expected that the master, the CB, will allow the receiver it has appointed to question that very appointment."
Consequently, only stockholders of a bank could file an action for annulment of a Monetary Board resolution placing the bank under receivership and
prohibiting it from continuing operations. 22 In Central Bank v. Court of Appeals, 23 We explained the purpose of the law
. . . in requiring that only the stockholders of record representing the majority of the capital stock may bring the action to set aside a
resolution to place a bank under conservatorship is to ensure that it be not frustrated or defeated by the incumbent Board of Directors or
officers who may immediately resort to court action to prevent its implementation or enforcement. It is presumed that such a resolution is
directed principally against acts of said Directors and officers which place the bank in a state of continuing inability to maintain a condition of
liquidity adequate to protect the interest of depositors and creditors. Indirectly, it is likewise intended to protect and safeguard the rights
and interests of the stockholders. Common sense and public policy dictate then that the authority to decide on whether to contest the
resolution should be lodged with the stockholders owning a majority of the shares for they are expected to be more objective in determining
whether the resolution is plainly arbitrary and issued in bad faith.
It is observed that the complaint in this case was filed on 11 June 1985 or two (2) years prior to 25 July 1987 when E.O. 289 was issued, to be effective
sixty (60) days after its approval (Sec. 5). The implication is that before E.O
. 289, any party in interest could institute court proceedings to question a Monetary Board resolution placing a bank under receivership. Consequently,
since the instant complaint was filed by parties representing themselves to be officers of respondent Bank (Officer-in-Charge and Vice President), the
case before the trial court should now take its natural course. However, after the effectivity of E.O. 289, the procedure stated therein should be
followed and observed.
PREMISES considered, the Decision of the Court of Appeals in CA-G.R. SP No. 07867 is AFFIRMED, except insofar as it upholds the Order of the trial court
of 11 November 1985 directing petitioner RAMON V. TIAOQUI to restore the management of TRIUMPH SAVINGS BANK to its elected Board of Directors
and Officers, which is hereby SET ASIDE.
Let this case be remanded to the Regional Trial Court of Quezon City for further proceedings to determine whether the issuance of Resolution No. 596
of the Monetary Board was tainted with arbitrariness and bad faith and to decide the case accordingly.
SO ORDERED.

9
ANTHONY S. YU, ROSITA G. YU and JASON G. YU, petitioners, vs. JOSEPH S. YUKAYGUAN, NANCY L. YUKAYGUAN, JERALD NERWIN L. YUKAYGUAN, and
JILL NESLIE L. YUKAYGUAN, [on their own behalf and on behalf of] WINCHESTER INDUSTRIAL SUPPLY, INC., respondents. [Yu vs. Yukayguan, 589 SCRA
588(2009)]

Corporation Law; Derivative Suits; Words and Phrases; While the general rule is that where a corporation is an injured party, its power to sue is lodged
with its board of directors or trustees, an individual stockholder is permitted to institute a derivative suit on behalf of the corporation wherein he holds
stocks in order to protect or vindicate corporate rights, whenever the officials of the corporation refuse to sue, or are the ones to be sued, or hold the
control of the corporation; A derivative action is a suit by a shareholder to enforce a corporate cause of action.In one stroke, with the use of sweeping
language, which utterly lacked support, the Court of Appeals converted the derivative suit between the parties into liquidation proceedings. The general
rule is that where a corporation is an injured party, its power to sue is lodged with its board of directors or trustees. Nonetheless, an individual
stockholder is permitted to institute a derivative suit on behalf of the corporation wherein he holds stocks in order to protect or vindicate corporate
rights, whenever the officials of the corporation refuse to sue, or are the ones to be sued, or hold the control of the corporation. In such actions, the
suing stockholder is regarded as a nominal party, with the corporation as the real party in interest. A derivative action is a suit by a shareholder to
enforce a corporate cause of action. The corporation is a necessary party to the suit. And the relief which is granted is a judgment against a third person
in favor of the corporation. Similarly, if a corporation has a defense to an action against it and is not asserting it, a stockholder may intervene and
defend on behalf of the corporation. By virtue of Republic Act No. 8799, otherwise known as the Securities Regulation Code, jurisdiction over intracorporate disputes, including derivative suits, is now vested in the Regional Trial Courts designated by this Court pursuant to A.M. No. 00-11-03-SC
promulgated on 21 November 2000.
Same; Same; Dissolution of Corporations; Liquidation; Words and Phrases; Following the voluntary or involuntary dissolution of a corporation,
liquidation is the process of settling the affairs of said corporation, which consists of adjusting the debts and claims, that is, of collecting all that is due
the corporation, the settlement and adjustment of claims against it and the payment of its just debts.Following the voluntary or involuntary
dissolution of a corporation, liquidation is the process of settling the affairs of said corporation, which consists of adjusting the debts and claims, that is,
of collecting all that is due the corporation, the settlement and adjustment of claims against it and the payment of its just debts. More particularly, it
entails the following: Winding up the affairs of the corporation means the collection of all assets, the payment of all its creditors, and the distribution of
the remaining assets, if any among the stockholders thereof in accordance with their contracts, or if there be no special contract, on the basis of their
respective interests. The manner of liquidation or winding up may be provided for in the corporate by-laws and this would prevail unless it is
inconsistent with law. It may be undertaken by the corporation itself, through its Board of Directors; or by trustees to whom all corporate assets are
conveyed for liquidation; or by a receiver appointed by the SEC upon its decree dissolving the corporation.
Same; Same; Same; Same; A derivative suit is fundamentally distinct and independent from liquidation proceedingsthey are neither part of each
other nor the necessary consequence of the other.A derivative suit is fundamentally distinct and independent from liquidation proceedings. They are
neither part of each other nor the necessary consequence of the other. There is totally no justification for the Court of Appeals to convert what was
supposedly a derivative suit instituted by respondents, on their own behalf and on behalf of Winchester, Inc. against petitioners, to a proceeding for the
liquidation of Winchester, Inc.
Same; Same; A stockholders right to institute a derivative suit is not based on any express provision of the Corporation Code, or even the Securities
Regulation Code, but is impliedly recognized when the said laws make corporate directors or officers liable for damages suffered by the corporation and
its stockholders for violation of their fiduciary duties.The Court has recognized that a stockholders right to institute a derivative suit is not based on
any express provision of the Corporation Code, or even the Securities Regulation Code, but is impliedly recognized when the said laws make corporate
directors or officers liable for damages suffered by the corporation and its stockholders for violation of their fiduciary duties. Hence, a stockholder may
sue for mismanagement, waste or dissipation of corporate assets because of a special injury to him for which he is otherwise without redress. In effect,
the suit is an action for specific performance of an obligation owed by the corporation to the stockholders to assist its rights of action when the
corporation has been put in default by the wrongful refusal of the directors or management to make suitable measures for its protection. The basis of a
stockholders suit is always one in equity. However, it cannot prosper without first complying with the legal requisites for its institution.
Same; Same; Interim Rules of Procedure Governing Intra-Corporate Controversies; Requisites for Filing of Derivative Suits.Section 1, Rule 8 of the
Interim Rules of Procedure Governing Intra-Corporate Controversies lays down the following requirements which a stockholder must comply with in
filing a derivative suit: Sec. 1. Derivative action.A stockholder or member may bring an action in the name of a corporation or association, as the case
may be, provided, that: (1) He was a stockholder or member at the time the acts or transactions subject of the action occurred and at the time the
action was filed; (2) He exerted all reasonable efforts, and alleges the same with particularity in the complaint, to exhaust all remedies available under
the articles of incorporation, by-laws, laws or rules governing the corporation or partnership to obtain the relief he desires; (3) No appraisal rights are
available for the act or acts complained of; and (4) The suit is not a nuisance or harassment suit.
Same; Same; The obvious intent behind the rule requiring the stockholder filing a derivative suit to first exert all reasonable efforts to exhaust all
remedies available under the articles of incorporation, by-laws, laws or rules governing the corporation or partnership to obtain the relief he desires is
to make the derivative suit the final recourse of the stockholder, after all other remedies to obtain the relief sought had failed.The wordings of
Section 1, Rule 8 of the Interim Rules of Procedure Governing Intra-Corporate Controversies are simple and do not leave room for statutory
construction. The second paragraph thereof requires that the stockholder filing a derivative suit should have exerted all reasonable efforts to exhaust all
remedies available under the articles of incorporation, by-laws, laws or rules governing the corporation or partnership to obtain the relief he desires;
and to allege such fact with particularity in the complaint. The obvious intent behind the rule is to make the derivative suit the final recourse of the

10
stockholder, after all other remedies to obtain the relief sought had failed. The allegation of respondent Joseph in his Affidavit of his repeated attempts
to talk to petitioner Anthony regarding their dispute hardly constitutes all reasonable efforts to exhaust all remedies available. Respondents did not
refer to or mention at all any other remedy under the articles of incorporation or by-laws of Winchester, Inc., available for dispute resolution among
stockholders, which respondents unsuccessfully availed themselves of. And the Court is not prepared to conclude that the articles of incorporation and
by-laws of Winchester, Inc. absolutely failed to provide for such remedies.
Same; Same; The fact that Winchester, Inc. is a family corporation does not in any way exempt a stockholder from complying with the clear
requirements and formalities of the rules for filing a derivative suitthere is nothing in the pertinent laws or rules supporting the distinction between,
and the difference in the requirements for, family corporations vis--vis other types of corporations, in the institution by a stockholder of a derivative
suit.Neither can this Court accept the reasons proffered by respondents to excuse themselves from complying with the second requirement under
Section 1, Rule 8 of the Interim Rules of Procedure Governing Intra-Corporate Controversies. They are flimsy and insufficient, compared to the
seriousness of respondents accusations of fraud, misappropriation, and falsification of corporate records against the petitioners. The fact that
Winchester, Inc. is a family corporation should not in any way exempt respondents from complying with the clear requirements and formalities of the
rules for filing a derivative suit. There is nothing in the pertinent laws or rules supporting the distinction between, and the difference in the
requirements for, family corporations vis--vis other types of corporations, in the institution by a stockholder of a derivative suit.
Same; Same; Pleadings and Practice; A partys Supplemental Affidavit and additional evidence are where they were only appended to his Memorandum
before the Regional Trial Court (RTC)parties should attach the affidavits of witnesses and other documentary evidence to the appropriate pleading,
which generally should mean the complaint for the plaintiff and the answer for the respondent.As to respondents second ground in their Motion for
Reconsideration, the Court agrees with the ruling of the Court of Appeals, in its 15 February 2006 Decision, that respondent Josephs Supplemental
Affidavit and additional evidence were inadmissible since they were only appended by respondents to their Memorandum before the RTC. Section 8,
Rule 2 of the Interim Rules of Procedure Governing Intra-Corporate Controversies is crystal clear that: x x x According to the afore-quoted provision, the
parties should attach the affidavits of witnesses and other documentary evidence to the appropriate pleading, which generally should mean the
complaint for the plaintiff and the answer for the respondent. Affidavits and documentary evidence not so submitted must already be attached to the
respective pre-trial briefs of the parties.
Same; Same; Same; Cases wherein the court can render judgment prior to pre-trial, do not depart from or constitute an exception to the requisite that
affidavits of witnesses and documentary evidence should be submitted, at the latest, with the parties pre-trial briefs.True, the parties in the present
case agreed to submit the case for judgment by the RTC, even before pre-trial, in accordance with Section 4, Rule 4 of the Interim Rules of Procedure
Governing Intra-Corporate Controversies: Sec. 4. Judgment before pre-trial.If after submission of the pre-trial briefs, the court determines that, upon
consideration of the pleadings, the affidavits and other evidence submitted by the parties, a judgment may be rendered, the court may order the
parties to file simultaneously their respective memoranda within a non-extendible period of twenty (20) days from receipt of the order. Thereafter, the
court shall render judgment, either full or otherwise, not later than ninety (90) days from the expiration of the period to file the memoranda. Even then,
the afore-quoted provision still requires, before the court makes a determination that it can render judgment before pre-trial, that the parties had
submitted their pre-trial briefs and the court took into consideration the pleadings, affidavits and other evidence submitted by the parties. Hence, cases
wherein the court can render judgment prior to pre-trial, do not depart from or constitute an exception to the requisite that affidavits of witnesses and
documentary evidence should be submitted, at the latest, with the parties pre-trial briefs. Taking further into account that under Section 4, Rule 4 of
the Interim Rules of Procedure Governing Intra-Corporate Controversies parties are required to file their memoranda simultaneously, the same would
mean that a party would no longer have any opportunity to dispute or rebut any new affidavit or evidence attached by the other party to its
memorandum. To violate the above-quoted provision would, thus, irrefragably run afoul the former partys constitutional right to due process. *Yu vs.
Yukayguan, 589 SCRA 588(2009)]
DECISION

CHICO-NAZARIO, J.:

Before Us is a Petition for Review on Certiorari[1] under Rule 45 of the Rules of Court, which seeks to reverse and set aside the Resolutions
dated 18 July 2006[2] and 19 April 2007[3] of the Court of Appeals in CA-G.R. SP No. 00185. Upon herein respondents motion, the Court of Appeals
rendered the assailed Resolution dated 18 July 2006, reconsidering its Decision[4] dated 15 February 2006; and remanding the case to the Regional Trial
Court (RTC) of Cebu City, Branch 11, for necessary proceedings, in effect, reversing the Decision[5] dated 10 November 2004 of the RTC which dismissed
respondents Complaint in SRC Case No. 022-CEB. Herein petitioners Motion for Reconsideration of the Resolution dated 18 July 2006 was denied by
the appellate court in the other assailed Resolution dated 19 April 2007.

Herein petitioners are members of the Yu Family, particularly, the father, Anthony S. Yu (Anthony); the wife, Rosita G. Yu (Rosita); and their
son, Jason G. Yu (Jason).

11

Herein respondents composed the Yukayguan Family, namely, the father, Joseph S. Yukayguan (Joseph); the wife, Nancy L. Yukayguan
(Nancy); and their children Jerald Nerwin L. Yukayguan (Jerald) and Jill Neslie Yukayguan (Jill).

Petitioner Anthony is the older half-brother of respondent Joseph.

Petitioners and the respondents were all stockholders of Winchester Industrial Supply, Inc. (Winchester, Inc.), a domestic corporation
engaged in the operation of a general hardware and industrial supply and equipment business.

On 15 October 2002, respondents filed against petitioners a verified Complaint for Accounting, Inspection of Corporate Books and Damages
through Embezzlement and Falsification of Corporate Records and Accounts[6] before the RTC of Cebu. The said Complaint was filed by respondents, in
their own behalf and as a derivative suit on behalf of Winchester, Inc., and was docketed as SRC Case No. 022-CEB. The factual background of the
Complaint was stated in the attached Affidavit executed by respondent Joseph.

According to respondents,[7] Winchester, Inc. was established and incorporated on 12 September 1977, with petitioner Anthony as one of
the incorporators, holding 1,000 shares of stock worth P100,000.00.[8] Petitioner Anthony paid for the said shares of stock with respondent Josephs
money, thus, making the former a mere trustee of the shares for the latter. On 14 November 1984, petitioner Anthony ceded 800 of his 1,000 shares of
stock in Winchester, Inc. to respondent Joseph, as well as Yu Kay Guan,[9] Siao So Lan, and John S. Yu.[10] Petitioner Anthony remained as trustee for
respondent Joseph of the 200 shares of stock in Winchester, Inc., still in petitioner Anthonys name.

Respondents then alleged that on 30 June 1985, Winchester, Inc. bought from its incorporators, excluding petitioner Anthony, their
accumulated 8,500 shares in the corporation.[11] Subsequently, on 7 November 1995, Winchester, Inc. sold the same 8,500 shares to other persons,
who included respondents Nancy, Jerald, and Jill; and petitioners Rosita and Jason.[12]

Respondents further averred that although respondent Joseph appeared as the Secretary and Treasurer in the corporate records of
Winchester, Inc., petitioners actually controlled and ran the said corporation as if it were their own family business. Petitioner Rosita handled the
money market placements of the corporation to the exclusion of respondent Joseph, the designated Treasurer of Winchester, Inc. Petitioners were also
misappropriating the funds and properties of Winchester, Inc. by understating the sales, charging their personal and family expenses to the said
corporation, and withdrawing stocks for their personal use without paying for the same. Respondents attached to the Complaint various receipts[13] to
prove the personal and family expenses charged by petitioners to Winchester, Inc.

Respondents, therefore, prayed that respondent Joseph be declared the owner of the 200 shares of stock in petitioner Anthonys
name. Respondents also prayed that petitioners be ordered to: (1) deposit the corporate books and records of Winchester, Inc. with the Branch Clerk
of Court of the RTC for respondents inspection; (2) render an accounting of all the funds of Winchester, Inc. which petitioners misappropriated; (3)
reimburse the personal and family expenses which petitioners charged to Winchester, Inc., as well as the properties of the corporation which
petitioners withheld without payment; and (4) pay respondents attorneys fees and litigation expenses. In the meantime, respondents sought the
appointment of a Management Committee and the freezing of all corporate funds by the trial court.

On 13 November 2002, petitioners filed an Answer with Compulsory Counterclaim, [14] attached to which was petitioner Anthonys
Affidavit.[15] Petitioners vehemently denied the allegation that petitioner Anthony was a mere trustee for respondent Joseph of the 1,000 shares of
stock in Winchester, Inc. in petitioner Anthonys name. For the incorporation of Winchester, Inc., petitioner Anthony contributed P25,000.00 paid-up
capital, representing 25% of the total par value of the 1,000 shares he subscribed to, the said amount being paid out of petitioner Anthonys personal
savings and petitioners Anthony and Rositas conjugal funds. Winchester, Inc. was being co-managed by petitioners and respondents, and the attached

12

receipts, allegedly evidencing petitioners use of corporate funds for personal and family expenses, were in fact signed and approved by respondent
Joseph.

By way of special and affirmative defenses, petitioners contended in their Answer with Compulsory Counterclaim that respondents had no
cause of action against them. Respondents Complaint was purely intended for harassment. It should be dismissed under Section 1(j), Rule 16[16] of the
Rules of Court for failure to comply with conditions precedent before its filing. First, there was no allegation in respondents Complaint that earnest
efforts were exerted to settle the dispute between the parties. Second, since respondents Complaint purportedly constituted a derivative suit, it
noticeably failed to allege that respondents exerted effort to exhaust all available remedies in the Articles of Incorporation and By-Laws of Winchester,
Inc., as well as in the Corporation Code. And third, given that respondents Complaint was also for inspection of corporate books, it lacked the
allegation that respondents made a previous demand upon petitioners to inspect the corporate books but petitioners refused. Prayed for by
petitioners, in addition to the dismissal of respondents Complaint, was payment of moral and exemplary damages, attorneys fees, litigation expenses,
and cost of suit.

On 30 October 2002, the hearing on the application for the appointment of a Management Committee was commenced. Respondent Joseph
submitted therein, as his direct testimony, the same Affidavit that he executed, which was attached to the respondents Complaint. On 4 November
2002, respondent Joseph was cross-examined by the counsel for petitioners. Thereafter, the continuation of the hearing was set for 29 November
2002, in order for petitioners to adduce evidence in support of their opposition to the application for the appointment of a Management Committee.[17]

During the hearing on 29 November 2002, the parties manifested before the RTC that there was an ongoing mediation between them, and
so the hearing on the appointment of a Management Committee was reset to another date.

In amicable settlement of their dispute, the petitioners and respondents agreed to a division of the stocks in trade, [18] the real properties,
and the other assets of Winchester, Inc. In partial implementation of the afore-mentioned amicable settlement, the stocks in trade and real properties
in the name of Winchester, Inc. were equally distributed among petitioners and respondents. As a result, the stockholders and members of the Board
of Directors of Winchester, Inc. passed, on 4 January 2003, a unanimous Resolution[19]dissolving the corporation as of said date.

On 22 February 2004, respondents filed their pre-trial brief.[20]

On 25 June 2004, petitioners filed a Manifestation[21] informing the RTC of the existence of their amicable settlement with
respondents. Respondents, however, made their own manifestation before the RTC that they were repudiating said settlement, in view of the failure of
the parties thereto to divide the remaining assets of Winchester, Inc. Consequently, respondents moved to have SRC Case No. 022-CEB set for pre-trial.

On 23 August 2004, petitioners filed their pre-trial brief.[22]

On 26 August 2004, instead of holding a formal pre-trial conference and resuming the hearing on the application for the appointment of a
Management Committee, petitioners and respondents agreed that the RTC may already render a judgment based on the pleadings. In accordance with
the agreement of the parties, the RTC issued, on even date, an Order[23] which stated:

ORDER
During the pre-trial conference held on August 26, 2004, counsels of the parties manifested, agreed and suggested that a
judgment may be rendered by the Court in this case based on the pleadings, affidavits, and other evidences on record, or to be

13
submitted by them, pursuant to the provision of Rule 4, Section 4 of the Rule on Intra-Corporate Controversies. The suggestion of
counsels was approved by the Court.
Accordingly, the Court hereby orders the counsels of the parties to file simultaneously their respective memoranda within
a non-extendible period of twenty (20) days from notice hereof. Thereafter, the instant case will be deemed submitted for
resolution.
xxxx
Cebu City, August 26, 2004.
(signed)
SILVESTRE A. MAAMO, JR.
Acting Presiding Judge

Petitioners and respondents duly filed their respective Memoranda,[24] discussing the arguments already set forth in the pleadings they had
previously submitted to the RTC. Respondents, though, attached to their Memorandum a Supplemental Affidavit[25] of respondent Joseph, containing
assertions that refuted the allegations in petitioner Anthonys Affidavit, which was earlier submitted with petitioners Answer with Compulsory
Counterclaim. Respondents also appended to their Memorandum additional documentary evidence,[26] consisting of original and duplicate cash
invoices and cash disbursement receipts issued by Winchester, Inc., to further substantiate their claim that petitioners were understating sales and
charging their personal expenses to the corporate funds.

The RTC subsequently promulgated its Decision on 10 November 2004 dismissing SRC Case No. 022-CEB. The dispositive portion of said
Decision reads:
WHEREFORE, in view of the foregoing premises and for lack of merit, this Court hereby renders judgment in this
case DISMISSING the complaint filed by the [herein respondents].
The Court also hereby dismisses the *herein petitioners+ counterclaim because it has not been indubitably shown that
the filing by the *respondents+ of the latters complaint was done in bad faith and with malice.[27]

The RTC declared that respondents failed to show that they had complied with the essential requisites for filing a derivative suit as set forth
in Rule 8 of the Interim Rules of Procedure Governing Intra-Corporate Controversies:
(1)

He was a stockholder or member at the time the acts or transactions subject of the action occurred and at the time the
action was filed;

(2)

He exerted all reasonable efforts, and alleges the same with particularity in the complaint, to exhaust all remedies
available under the articles of incorporation, by-laws, laws or rules governing the corporation or partnership to obtain
the relief he desires;

(3)

No appraisal rights are available for the act or acts complained of; and

(4)

The suit is not a nuisance or harassment suit.

As to respondents prayer for the inspection of corporate books and records, the RTC adjudged that they had likewise failed to comply with
the requisites entitling them to the same. Section 2, Rule 7 of the Interim Rules of Procedure Governing Intra-Corporate Controversies requires that the
complaint for inspection of corporate books or records must state that:
(1)

The case is for the enforcement of plaintiff's right of inspection of corporate orders or records and/or to be furnished with
financial statements under Sections 74 and 75 of the Corporation Code of the Philippines;

(2)

A demand for inspection and copying of books and records and/or to be furnished with financial statements made by the
plaintiff upon defendant;

14
(3)

The refusal of defendant to grant the demands of the plaintiff and the reasons given for such refusals, if any; and

(4)

The reasons why the refusal of defendant to grant the demands of the plaintiff is unjustified and illegal, stating the law and
jurisprudence in support thereof.

The RTC further noted that respondent Joseph was the corporate secretary of Winchester, Inc. and, as such, he was supposed to be the
custodian of the corporate books and records; therefore, a court order for respondents inspection of the same was no longer necessary. The RTC
similarly denied respondents demand for accounting as it was clear that Winchester, Inc. had been engaging the services of an audit firm. Respondent
Joseph himself described the audit firm as competent and independent, and believed that the audited financial statements the said audit firm prepared
were true, faithful, and correct.

Finding the claims of the parties for damages against each other to be unsubstantiated, the RTC thereby dismissed the same.

Respondents challenged the foregoing RTC Decision before the Court of Appeals via a Petition for Review under Rule 43 of the Rules of
Court, docketed as CA-G.R. SP No. 00185.

On 15 February 2006, the Court of Appeals rendered its Decision, affirming the 10 December 2004 Decision of the RTC. Said the appellate
court:
After a careful and judicious scrutiny of the extant records of the case, together with the applicable laws and
jurisprudence, WE see no reason or justification for granting the present appeal.
xxxx
x x x [T]his Court sees that the instant petition would still fail taking into consideration all the pleadings and evidence of the
parties except the supplemental affidavit of [herein respondent] Joseph and its corresponding annexes appended in
*respondents+ memorandum before the Court a quo. The Court a quo have (sic) outrightly dismissed the complaint for its failure
to comply with the mandatory provisions of the Interim Rules of Procedure for Intra-Corporate Controversies particularly Rule 2,
Section 4(3), Rule 8, Section [1(2)] and Rule 7, Section 2 thereof, which reads as follows:
RULE 2
COMMENCEMENT OF ACTION AND PLEADINGS
Sec. 4. Complaint. The complaint shall state or contain:
xxxx
(3) the law, rule, or regulation relied upon, violated, or sought to be enforced;
xxxx
RULE 8
DERIVATIVE SUITS
Sec. 1. Derivative action. x x x
xxxx
(2) He exerted all reasonable efforts, and alleges the same with particularity in the complaint, to exhaust all remedies
available under the articles of incorporation, by-laws, laws or rules governing the corporation or partnership to obtain
the relief he desires.
xxxx
RULE 7
INSPECTION OF CORPORATE BOOKS AND RECORDS

15
Sec. 2. Complaint In addition to the requirements in section 4, Rule 2 of these Rules, the complaint must state the
following:
(1) The case is set (sic) for the enforcement of plaintiffs right of inspection of corporate orders or records and/or to
be furnished with financial statements under Section 74 and 75 of the Corporation Code of the Philippines;
(2) A demand for inspection and copying of books [and/or] to be furnished with financial statements made by the
plaintiffs upon defendant;
(3) The refusal of the defendant to grant the demands of the plaintiff and the reasons given for such refusal, if any;
and
(4) The reasons why the refusal of defendant to grant the demands of the plaintiff is unjustified and illegal, stating the
law and jurisprudence in support thereof.
xxxx
A perusal of the extant record shows that [herein respondents] have not complied with the above quoted
provisions. [Respondents] should be mindful that in filing their complaint which, as admitted by them, is a derivative suit, should
have first exhausted all available remedies under its (sic) Articles of Incorporation, or its by-laws, or any laws or rules governing
the corporation. The contention of [respondent Joseph] that he had indeed made several talks to (sic) his brother [herein
petitioner Anthony] to settle their differences is not tantamount to exhaustion of remedies. What the law requires is to bring
the grievance to the Board of Directors or Stockholders for the latter to take the opportunity to settle whatever problem in its
regular meeting or special meeting called for that purpose which [respondents] failed to do. x x x The requirements laid down
by the Interim Rules of Procedure for Intra-Corporate Controversies are mandatory which cannot be dispensed with by any
stockholder of a corporation before filing a derivative suit.[28] (Emphasis ours.)

The Court of Appeals likewise sustained the refusal by the RTC to consider respondent Josephs Supplemental Affidavit and other additional
evidence, which respondents belatedly submitted with their Memorandum to the said trial court. The appellate court ratiocinated that:
With regard to the claim of [herein respondents] that the supplemental affidavit of [respondent] Joseph and its annexes
appended to their memorandum should have been taken into consideration by the Court a quo to support the reliefs prayed [for]
in their complaint. (sic) This Court rules that said supplemental affidavit and its annexes is (sic) inadmissible.
A second hard look of (sic) the extant records show that during the pre-trial conference conducted on August 26, 2004, the
parties through their respective counsels had come up with an agreement that the lower court would render judgment based on
the pleadings and evidence submitted. This agreement is in accordance with Rule 4, Sec. 4 of the Interim Rules of Procedure for
Intra-Corporate Controversies which explicitly states:
SECTION. 4. Judgment before pre-trial. If, after submission of the pre-trial briefs, the court determines
that, upon consideration of the pleadings, the affidavits and other evidence submitted by the parties, a
judgment may be rendered, the court may order the parties to file simultaneously their respective
memoranda within a non-extendible period of twenty (20) days from receipt of the order. Thereafter, the
court shall render judgment, either full or otherwise, not later than ninety (90) days from the expiration of
the period to file the memoranda.
xxxx
Clearly, the supplemental affidavit and its appended documents which were submitted only upon the filing of the memorandum
for the [respondents] were not submitted in the pre-trial briefs for the stipulation of the parties during the pre-trial, hence, it
cannot be accepted pursuant to Rule 2, Sec. 8 of the same rules which reads as follows:
SEC. 8. Affidavits, documentary and other evidence. Affidavits shall be based on personal
knowledge, shall set forth such facts as would be admissible in evidence, and shall show affirmatively that
the affiant is competent to testify on the matters stated therein. The affidavits shall be in question and
answer form, and shall comply with the rules on admissibility of evidence.
Affidavits of witnesses as well as documentary and other evidence shall be attached to the
appropriate pleading; Provided, however, that affidavits, documentary and other evidence not so
submitted may be attached to the pre-trial brief required under these Rules. Affidavits and other evidence
not so submitted shall not be admitted in evidence, except in the following cases:
(1) Testimony of unwilling, hostile, or adverse party witnesses. A witness is presumed prima facie hostile if
he fails or refuses to execute an affidavit after a written request therefor;
(2) If the failure to submit the evidence is for meritorious and compelling reasons; and

16
(3) Newly discovered evidence.
In case of (2) and (3) above, the affidavit and evidence must be submitted not later than five (5) days prior
to its introduction in evidence.
There is no showing in the case at bench that the supplemental affidavit and its annexes falls (sic) within one of the exceptions of
the above quoted proviso, hence, inadmissible.
It must be noted that in the case at bench, like any other civil cases, the party making an allegation in a civil case has the
burden of proving it by preponderance of evidence. Differently stated, upon the plaintiff in [a] civil case, the burden of proof
never parts. That is, appellants must adduce evidence that has greater weight or is more convincing that (sic) which is offered to
oppose it. In the case at bar, no one should be blamed for the dismissal of the complaint but the [respondents] themselves for
their lackadaisical attitude in setting forth and appending their defences belatedly. To admit them would be a denial of due
process for the opposite party which this Court cannot allow.[29]

Ultimately, the Court of Appeals decreed:

WHEREFORE, judgment is hereby rendered DISMISSING the instant petition and the assailed Decision of the Regional
Trial Court (RTC), 7th Judicial Region, Branch II, Cebu City, dated November 10, 2004, in SRC Case No. 022-CEB is AFFIRMED in
toto. Cost against the [herein respondents].[30]

Unperturbed, respondents filed before the Court of Appeals, on 23 February 2006, a Motion for Reconsideration and Motion to Set for Oral
Arguments the Motion for Reconsideration,[31] invoking the following grounds:
(1)

The [herein respondents] have sufficiently exhausted all remedies before filing the present action; and

(2)

[The] Honorable Court erred in holding that the supplemental affidavit and its annexes is (sic) inadmissible because the
rules and the lower court expressly allowed the submission of the same in its order dated August 26, 2004 x x x.[32]

In a Resolution[33] dated 8 March 2006, the Court of Appeals granted respondents Motion to Set for Oral Arguments the Motion for
Reconsideration.

On 4 April 2006, the Court of Appeals issued a Resolution[34] setting forth the events that transpired during the oral arguments, which took place
on 30 March 2006. Counsels for the parties manifested before the appellate court that they were submitting respondents Motion for Reconsideration
for resolution. Justice Magpale, however, still called on the parties to talk about the possible settlement of the case considering their familial
relationship. Independent of the resolution of respondents Motion for Reconsideration, the parties were agreeable to pursue a settlement for the
dissolution of the corporation, which they had actually already started.

In a Resolution[35] dated 11 April 2006, the Court of Appeals ordered the parties to submit, within 10 days from notice, their intended amicable
settlement, since the same would undeniably affect the resolution of respondents pending Motion for Reconsideration. If the said period should lapse
without the parties submitting an amicable settlement, then they were directed by the appellate court to file within 10 days thereafter their position
papers instead.

On 5 May 2006, respondents submitted to the Court of Appeals their Position Paper, [36] stating that the parties did not reach an amicable
settlement. Respondents informed the appellate court that prior to the filing with the Securities and Exchange Commission (SEC) of a petition for
dissolution of Winchester, Inc., the parties already divided the stocks in trade and the real assets of the corporation among themselves. Respondents
posited, though, that the afore-mentioned distribution of the assets of Winchester, Inc. among the parties was null and void, as it violated the last
paragraph of Section 122 of the Corporation Code, which provides that, *e+xcept by a decrease of capital stock and as otherwise allowed by the
Corporation Code, no corporation shall distribute any of its assets or property except upon lawful dissolution and after payment of all its debts and

17

liabilities. At the same time, however, respondents brought to the attention of the Court of Appeals that the parties did eventually file with the SEC a
petition for dissolution of Winchester, Inc., which the SEC approved.[37]

Respondents no longer discussed in their Position Paper the grounds they previously invoked in their Motion for Reconsideration of the Court of
Appeals Decision dated 15 February 2006, affirming in toto the RTC Decision dated 10 November 2004. They instead argued that the RTC Decision in
question was null and void as it did not clearly state the facts and the law on which it was based. Respondents sought the remand of the case to the
RTC for further proceedings on their derivative suit and completion of the dissolution of Winchester, Inc., including the legalization of the prior partial
distribution among the parties of the assets of said corporation.

Petitioners filed their Position Paper[38] on 23 May 2006, wherein they accused respondents of attempting to incorporate extraneous matters into
the latters Motion for Reconsideration. Petitioners pointed out that the issue before the Court of Appeals was not the dissolution and division of assets
of Winchester, Inc., thus, a remand of the case to the RTC was not necessary.

On 18 July 2006, the Court of Appeals rendered the assailed Resolution, granting respondents Motion for Reconsideration. The Court of Appeals
reasoned in this wise:
After a second look and appreciation of the facts of the case, vis--vis the issues raised by the *herein respondents+ motion
for reconsideration and in view of the formal dissolution of the corporation which leaves unresolved up to the present the
settlement of the properties and assets which are now in danger of dissipation due to the unending litigation, this Court finds the
need to remand the instant case to the lower court (commercial court) as the proper forum for the adjudication, disposition,
conveyance and distribution of said properties and assets between and amongst its stockholders as final settlement pursuant to
Sec. 122 of the Corporation Code after payment of all its debts and liabilities as provided for under the same proviso. This is in
accord with the pronouncement of the Supreme Court in the case of Clemente et. al. vs. Court of Appeals, et. al. where the high
court ruled and which WE quote, viz:
the corporation continues to be a body corporate for three (3) years after its dissolution for
purposes of prosecuting and defending suits by and against it and for enabling it to settle and close its
affairs, culminating in the disposition and distribution of its remaining assets. It may, during the three-year
term, appoint a trustee or a receiver who may act beyond that period. The termination of the life of a
juridical entity does not by itself cause the extinction or diminution of the rights and liabilities of such entity
x x x nor those of its owners and creditors. If the three-year extended life has expired without a trustee or
receiver having been expressly designated by the corporation within that period, the board of directors (or
trustees) xxx may be permitted to so continue as "trustees" by legal implication to complete the corporate
liquidation. Still in the absence of a board of directors or trustees, those having any pecuniary interest in
the assets, including not only the shareholders but likewise the creditors of the corporation, acting for and
in its behalf,might make proper representation with the Securities and Exchange Commission, which has
primary and sufficiently broad jurisdiction in matters of this nature, for working out a final settlement of
the corporate concerns.
In the absence of a trustee or board of director in the case at bar for purposes above mentioned, the lower court under
Republic Act No. [8799] (otherwise known as the Securities and Exchange Commission) as implemented by A.M. No. 00-8-10-SC
(Transfer of Cases from the Securities and Exchange Commission to the Regional Trial Courts) which took effect on October 1,
2001, is the proper forum for working out the final settlement of the corporate concern.[39]

Hence, the Court of Appeals ruled:

WHEREFORE, premises considered, the motion for reconsideration is GRANTED. The order dated February 15, 2006 is
hereby SET ASIDE and the instant case is REMANDED to the lower court to take the necessary proceedings in resolving with
deliberate dispatch any and all corporate concerns towards final settlement.[40]

Petitioners filed a Motion for Reconsideration[41] of the foregoing Resolution, but it was denied by the Court of Appeals in its other assailed
Resolution dated 19 April 2007.

18

In the Petition at bar, petitioners raise the following issues:

I.
WHETHER OR NOT THE ASSAILED RESOLUTIONS[,] WHICH VIOLATED THE CONSTITUTION OF THE PHILIPPINES, JURISPRUDENCE
AND THE LAW[,] ARE NULL AND VOID[.]
II.
WHETHER OR NOT THE ASSAILED RESOLUTIONS WAS (sic) ISSUED WITHOUT JURISDICTION[.]
III.
WHETHER OR NOT THE HONORABLE COURT OF APPEALS SERIOUSLY ERRED IN REMANDING THIS CASE TO THE LOWER
COURT FOR THE REASON CITED IN THE ASSAILED RESOLUTIONS, AND WITHOUT RESOLVING THE GROUNDS FOR THE
*RESPONDENTS+ MOTION FOR RECONSIDERATION. (sic) INASMUCH AS [THE] REASON CITED WAS A NON-ISSUE IN THE CASE.

IV.
WHETHER OR NOT REMANDING THIS CASE TO THE REGIONAL TRIAL COURT VIOLATES THE SUMMARY PROCEDURE FOR INTRACORPORATE CASES.[42]

The crux of petitioners contention is that the Court of Appeals committed grievous error in reconsidering its Decision dated 15 February 2006 on
the basis of extraneous matters, which had not been previously raised in respondents Complaint before the RTC, or in their Petition for Review and
Motion for Reconsideration before the appellate court; i.e., the adjudication, disposition, conveyance, and distribution of the properties and assets of
Winchester, Inc. among its stockholders, allegedly pursuant to the amicable settlement of the parties. The fact that the parties were able to agree
before the Court of Appeals to submit for resolution respondents Motion for Reconsideration of the 15 February 2006 Decision of the same court,
independently of any intended settlement between the parties as regards the dissolution of the corporation and distribution of its assets, only proves
the distinction and independence of these matters from one another. Petitioners also contend that the assailed Resolution dated 18 July 2006 of the
Court of Appeals, granting respondents Motion for Reconsideration, failed to clearly and distinctly state the facts and the law on which it was
based. Remanding the case to the RTC, petitioners maintain, will violate the very essence of the summary nature of the Interim Rules of
Procedure Governing Intra-Corporate Controversies, as this will just entail delay, protract litigation, and revert the case to square one.

The Court finds the instant Petition meritorious.

To recapitulate, the case at bar was initiated before the RTC by respondents as a derivative suit, on their own behalf and on behalf of
Winchester, Inc., primarily in order to compel petitioners to account for and reimburse to the said corporation the corporate assets and funds which
the latter allegedly misappropriated for their personal benefit. During the pendency of the proceedings before the court a quo, the parties were able to
reach an amicable settlement wherein they agreed to divide the assets of Winchester, Inc. among themselves. This amicable settlement was already
partially implemented by the parties, when respondents repudiated the same, for which reason the RTC proceeded with the case on its merits. On 10
November 2004, the RTC promulgated its Decision dismissing respondents Complaint for failure to comply with essential pre-requisites before they
could avail themselves of the remedies under the Interim Rules of Procedure Governing Intra-Corporate Controversies; and for inadequate
substantiation of respondents allegations in said Complaint after consideration of the pleadings and evidence on record.

In its Decision dated 15 February 2006, the Court of Appeals affirmed, on appeal, the findings of the RTC that respondents did not abide by
the requirements for a derivative suit, nor were they able to prove their case by a preponderance of evidence. Respondents filed a Motion for
Reconsideration of said judgment of the appellate court, insisting that they were able to meet all the conditions for filing a derivative suit. Pending
resolution of respondents Motion for Reconsideration, the Court of Appeals urged the parties to again strive to reach an amicable settlement of their

19

dispute, but the parties were unable to do so. The parties were not able to submit to the appellate court, within the given period, any amicable
settlement; and filed, instead, their Position Papers. This effectively meant that the parties opted to submit respondents Motion for Reconsideration
of the 15 February 2006 Decision of the Court of Appeals, and petitioners opposition to the same, for resolution by the appellate court on the merits.

It was at this point that the case took an unexpected turn.

In accordance with respondents allegation in their Position Paper that the parties subsequently filed with the SEC, and the SEC already
approved, a petition for dissolution of Winchester, Inc., the Court of Appeals remanded the case to the RTC so that all the corporate concerns between
the parties regarding Winchester, Inc. could be resolved towards final settlement.

In one stroke, with the use of sweeping language, which utterly lacked support, the Court of Appeals converted the derivative suit between
the parties into liquidation proceedings.

The general rule is that where a corporation is an injured party, its power to sue is lodged with its board of directors or
trustees. Nonetheless, an individual stockholder is permitted to institute a derivative suit on behalf of the corporation wherein he holds stocks in order
to protect or vindicate corporate rights, whenever the officials of the corporation refuse to sue, or are the ones to be sued, or hold the control of the
corporation. In such actions, the suing stockholder is regarded as a nominal party, with the corporation as the real party in interest. A derivative action
is a suit by a shareholder to enforce a corporate cause of action. The corporation is a necessary party to the suit. And the relief which is granted is a
judgment against a third person in favor of the corporation. Similarly, if a corporation has a defense to an action against it and is not asserting it, a
stockholder may intervene and defend on behalf of the corporation.[43] By virtue of Republic Act No. 8799, otherwise known as the Securities
Regulation Code, jurisdiction over intra-corporate disputes, including derivative suits, is now vested in the Regional Trial Courts designated by this Court
pursuant to A.M. No. 00-11-03-SC promulgated on21 November 2000.

In contrast, liquidation is a necessary consequence of the dissolution of a corporation. It is specifically governed by Section 122 of the
Corporation Code, which reads:
SEC. 122. Corporate liquidation. Every corporation whose charter expires by its own limitation or is annulled by
forfeiture or otherwise, or whose corporate existence for other purposes is terminated in any other manner, shall nevertheless be
continued as a body corporate for three (3) years after the time when it would have been so dissolved, for the purpose of
prosecuting and defending suits by or against it and enabling it to settle and close its affairs, to dispose of and convey its property
and to distribute its assets, but not for the purpose of continuing the business for which it was established.
At any time during said three (3) years, said corporation is authorized and empowered to convey all of its property to
trustees for the benefit of stockholders, members, creditors, and other persons in interest. From and after any such conveyance
by the corporation of its property in trust for the benefit of its stockholders, members, creditors and others in interest, all interest
which the corporation had in the property terminates, the legal interest vests in the trustees, and the beneficial interest in the
stockholders, members, creditors or other persons in interest.
Upon winding up of the corporate affairs, any asset distributable to any creditor or stockholder or member who is
unknown or cannot be found shall be escheated to the city or municipality where such assets are located.
Except by decrease of capital stock and as otherwise allowed by this Code, no corporation shall distribute any of its
assets or property except upon lawful dissolution and after payment of all its debts and liabilities.

Following the voluntary or involuntary dissolution of a corporation, liquidation is the process of settling the affairs of said corporation, which
consists of adjusting the debts and claims, that is, of collecting all that is due the corporation, the settlement and adjustment of claims against it and the
payment of its just debts.[44] More particularly, it entails the following:

20
Winding up the affairs of the corporation means the collection of all assets, the payment of all its creditors, and the
distribution of the remaining assets, if any among the stockholders thereof in accordance with their contracts, or if there be no
special contract, on the basis of their respective interests. The manner of liquidation or winding up may be provided for in the
corporate by-laws and this would prevail unless it is inconsistent with law.[45]

It may be undertaken by the corporation itself, through its Board of Directors; or by trustees to whom all corporate assets are conveyed for
liquidation; or by a receiver appointed by the SEC upon its decree dissolving the corporation.[46]

Glaringly, a derivative suit is fundamentally distinct and independent from liquidation proceedings. They are neither part of each other nor the
necessary consequence of the other. There is totally no justification for the Court of Appeals to convert what was supposedly a derivative suit instituted
by respondents, on their own behalf and on behalf of Winchester, Inc. against petitioners, to a proceeding for the liquidation of Winchester, Inc.

While it may be true that the parties earlier reached an amicable settlement, in which they agreed to already distribute the assets of Winchester,
Inc., and in effect liquidate said corporation, it must be pointed out that respondents themselves repudiated said amicable settlement before the RTC,
even after the same had been partially implemented; and moved that their case be set for pre-trial. Attempts to again amicably settle the dispute
between the parties before the Court of Appeals were unsuccessful.

Moreover, the decree of the Court of Appeals to remand the case to the RTC for the final settlement of corporate concerns was solely grounded
on respondents allegation in its Position Paper that the parties had already filed before the SEC, and the SEC approved, the petition to dissolve
Winchester, Inc. The Court notes, however, that there is absolute lack of evidence on record to prove said allegation. Respondents failed to submit
copies of such petition for dissolution of Winchester, Inc. and the SEC Certification approving the same. It is a basic rule in evidence that each party
must prove his affirmative allegation. Since it was respondents who alleged the voluntary dissolution of Winchester, Inc., respondents must, therefore,
prove it.[47] This respondents failed to do.

Even assuming arguendo that the parties did submit a petition for the dissolution of Winchester, Inc. and the same was approved by the SEC,
the Court of Appeals was still without jurisdiction to order the final settlement by the RTC of the remaining corporate concerns. It must be remembered
that the Complaint filed by respondents before the RTC essentially prayed for the accounting and reimbursement by petitioners of the corporate funds
and assets which they purportedly misappropriated for their personal use; surrender by the petitioners of the corporate books for the inspection of
respondents; and payment by petitioners to respondents of damages. There was nothing in respondents Complaint which sought the dissolution and
liquidation of Winchester, Inc. Hence, the supposed dissolution of Winchester, Inc. could not have resulted in the conversion of respondents derivative
suit to a proceeding for the liquidation of said corporation, but only in the dismissal of the derivative suit based on either compromise agreement or
mootness of the issues.

Clearly, in issuing its assailed Resolutions dated 18 July 2006 and 19 April 2007, the Court of Appeals already went beyond the issues raised in
respondents Motion for Reconsideration. Instead of focusing on whether it erred in affirming, in its 15 February 2006 Decision, the dismissal by the
RTC of respondents Complaint due to respondents failure to comply with the requirements for a derivative suit and submit evidence to support their
allegations, the Court of Appeals unduly concentrated on respondents unsubstantiated allegation that Winchester, Inc. was already dissolved and
speciously ordered the remand of the case to the RTC for proceedings so vitally different from that originally instituted by respondents.

Despite the foregoing, the Court still deems it appropriate to already look into the merits of respondents Motion for Reconsideration of the
15 February 2006 Decision of the Court of Appeals, for the sake of finally putting an end to the case at bar.

21

In their said Motion for Reconsideration, respondents argued that: (1) they had sufficiently exhausted all remedies before filing the
derivative suit; and (2) respondent Josephs Supplemental Affidavit and its annexes should have been taken into consideration, since the submission
thereof was allowed by the rules of procedure, as well as by the RTC in its Order dated 26 August 2004.

As regards the first ground of sufficient exhaustion by respondents of all remedies before filing a derivative suit, the Court subscribes to the
ruling to the contrary of the Court of Appeals in its Decision dated 16 February 2006.

The Court has recognized that a stockholders right to institute a derivative suit is not based on any express provision of the Corporation
Code, or even the Securities Regulation Code, but is impliedly recognized when the said laws make corporate directors or officers liable for damages
suffered by the corporation and its stockholders for violation of their fiduciary duties. Hence, a stockholder may sue for mismanagement, waste or
dissipation of corporate assets because of a special injury to him for which he is otherwise without redress. In effect, the suit is an action for specific
performance of an obligation owed by the corporation to the stockholders to assist its rights of action when the corporation has been put in default by
the wrongful refusal of the directors or management to make suitable measures for its protection. The basis of a stockholders suit is always one in
equity. However, it cannot prosper without first complying with the legal requisites for its institution.[48]

Section 1, Rule 8 of the Interim Rules of Procedure Governing Intra-Corporate Controversies lays down the following requirements which a
stockholder must comply with in filing a derivative suit:
Sec. 1. Derivative action. A stockholder or member may bring an action in the name of a corporation or association, as
the case may be, provided, that:
(1)

He was a stockholder or member at the time the acts or transactions subject of the action occurred
and at the time the action was filed;

(2)

He exerted all reasonable efforts, and alleges the same with particularity in the complaint, to
exhaust all remedies available under the articles of incorporation, by-laws, laws or rules
governing the corporation or partnership to obtain the relief he desires;

(3)

No appraisal rights are available for the act or acts complained of; and

(4)

The suit is not a nuisance or harassment suit.

A perusal of respondents Complaint before the RTC would reveal that the same did not allege with particularity that respondents exerted all
reasonable efforts to exhaust all remedies available under the articles of incorporation, by-laws, laws or rules governing Winchester, Inc. to obtain the
relief they desire.

Respondents assert that their compliance with said requirement was contained in respondent Josephs Affidavit, which was attached to
respondents Complaint. Respondent Joseph averred in his Affidavit that he tried for a number of times to talk to petitioner Anthony to settle their
differences, but the latter would not listen. Respondents additionally claimed that taking further remedies within the corporation would have been idle
ceremony, considering that Winchester, Inc. was a family corporation and it was impossible to expect petitioners to take action against themselves who
were the ones accused of wrongdoing.

The Court is not persuaded.

The wordings of Section 1, Rule 8 of the Interim Rules of Procedure Governing Intra-Corporate Controversies are simple and do not leave
room for statutory construction. The second paragraph thereof requires that the stockholder filing a derivative suit should have exerted all reasonable
efforts to exhaust all remedies available under the articles of incorporation, by-laws, laws or rules governing the corporation or partnership to obtain

22

the relief he desires; and to allege such fact with particularity in the complaint. The obvious intent behind the rule is to make the derivative suit the
final recourse of the stockholder, after all other remedies to obtain the relief sought had failed.

The allegation of respondent Joseph in his Affidavit of his repeated attempts to talk to petitioner Anthony regarding their dispute hardly
constitutes all reasonable efforts to exhaust all remedies available. Respondents did not refer to or mention at all any other remedy under the
articles of incorporation or by-laws of Winchester, Inc., available for dispute resolution among stockholders, which respondents unsuccessfully availed
themselves of. And the Court is not prepared to conclude that the articles of incorporation and by-laws of Winchester, Inc. absolutely failed to provide
for such remedies.

Neither can this Court accept the reasons proffered by respondents to excuse themselves from complying with the second requirement
under Section 1, Rule 8 of the Interim Rules of Procedure Governing Intra-Corporate Controversies. They are flimsy and insufficient, compared to the
seriousness of respondents accusations of fraud, misappropriation, and falsification of corporate records against the petitioners. The fact that
Winchester, Inc. is a family corporation should not in any way exempt respondents from complying with the clear requirements and formalities of the
rules for filing a derivative suit. There is nothing in the pertinent laws or rules supporting the distinction between, and the difference in the
requirements for, family corporations vis--vis other types of corporations, in the institution by a stockholder of a derivative suit.

The Court further notes that, with respect to the third and fourth requirements of Section 1, Rule 8 of the Interim Rules of Procedure
Governing Intra-Corporate Controversies, the respondents Complaint failed to allege, explicitly or otherwise, the fact that there were no appraisal
rights available for the acts of petitioners complained of, as well as a categorical statement that the suit was not a nuisance or a harassment suit.

As to respondents second ground in their Motion for Reconsideration, the Court agrees with the ruling of the Court of Appeals, in its 15
February 2006 Decision, that respondent Josephs Supplemental Affidavit and additional evidence were inadmissible since they were only appended by
respondents to their Memorandum before the RTC. Section 8, Rule 2 of the Interim Rules of Procedure Governing Intra-Corporate Controversies is
crystal clear that:
Sec. 8. Affidavits, documentary and other evidence. Affidavits shall be based on personal knowledge, shall set forth such
facts as would be admissible in evidence, and shall show affirmatively that the affiant is competent to testify on the matters
stated therein. The affidavits shall be in question and answer form, and shall comply with the rules on admissibility of evidence.
Affidavits of witnesses as well as documentary and other evidence shall be attached to the appropriate pleading,
Provided, however, that affidavits, documentary and other evidence not so submitted may be attached to the pre-trial brief
required under these Rules. Affidavits and other evidence not so submitted shall not be admitted in evidence, except in the
following cases:
(1)

Testimony of unwilling, hostile, or adverse party witnesses. A witness is presumed prima

facie hostile if he fails or refuses to execute an affidavit after a written request therefor;

(2)

If the failure to submit the evidence is for meritorious and compelling reasons; and

(3)

Newly discovered evidence.

In case of (2) and (3) above, the affidavit and evidence must be submitted not later than five (5) days prior to its
introduction in evidence. (Emphasis ours.)

According to the afore-quoted provision, the parties should attach the affidavits of witnesses and other documentary evidence to the
appropriate pleading, which generally should mean the complaint for the plaintiff and the answer for the respondent. Affidavits and documentary
evidence not so submitted must already be attached to the respective pre-trial briefs of the parties. That the parties should have already identified and
submitted to the trial court the affidavits of their witnesses and documentary evidence by the time of pre-trial is strengthened by the fact that Section

23

1, Rule 4 of the Interim Rules of Procedure Governing Intra-Corporate Controversies require that the following matters should already be set forth in
the parties pre-trial briefs:
Section 1. Pre-trial conference, mandatory nature. Within five (5) days after the period for availment of, and compliance
with, the modes of discovery prescribed in Rule 3 hereof, whichever comes later, the court shall issue and serve an order
immediately setting the case for pre-trial conference, and directing the parties to submit their respective pre-trial briefs. The
parties shall file with the court and furnish each other copies of their respective pre-trial brief in such manner as to ensure its
receipt by the court and the other party at least five (5) days before the date set for the pre-trial.
The parties shall set forth in their pre-trial briefs, among other matters, the following:
xxxx
(4) Documents not specifically denied under oath by either or both parties;
xxxx
(7) Names of witnesses to be presented and the summary of their testimony as contained in
their affidavits supporting their positions on each of the issues;
(8) All other pieces of evidence, whether documentary or otherwise and their respective
purposes.

Also, according to Section 2, Rule 4 of the Interim Rules of Procedure Governing Intra-Corporate Controversies,[49] it is the duty of the court
to ensure during the pre-trial conference that the parties consider in detail, among other things, objections to the admissibility of testimonial,
documentary, and other evidence, as well as objections to the form or substance of any affidavit, or part thereof.

Obviously, affidavits of witnesses and other documentary evidence are required to be attached to a partys pre-trial brief, at the very last
instance, so that the opposite party is given the opportunity to object to the form and substance, or the admissibility thereof. This is, of course, to
prevent unfair surprises and/or to avoid the granting of any undue advantage to the other party to the case.

True, the parties in the present case agreed to submit the case for judgment by the RTC, even before pre-trial, in accordance with Section 4,
Rule 4 of the Interim Rules of Procedure Governing Intra-Corporate Controversies:
Sec. 4. Judgment before pre-trial. If after submission of the pre-trial briefs, the court determines that, upon
consideration of the pleadings, the affidavits and other evidence submitted by the parties, a judgment may be rendered, the
court may order the parties to file simultaneously their respective memoranda within a non-extendible period of twenty (20)
days from receipt of the order. Thereafter, the court shall render judgment, either full or otherwise, not later than ninety (90)
days from the expiration of the period to file the memoranda.

Even then, the afore-quoted provision still requires, before the court makes a determination that it can render judgment before pre-trial,
that the parties had submitted their pre-trial briefs and the court took into consideration the pleadings, affidavits and other evidence submitted by the
parties. Hence, cases wherein the court can render judgment prior to pre-trial, do not depart from or constitute an exception to the requisite that
affidavits of witnesses and documentary evidence should be submitted, at the latest, with the parties pre-trial briefs. Taking further into account that
under Section 4, Rule 4 of the Interim Rules of Procedure Governing Intra-Corporate Controversies parties are required to file their memoranda
simultaneously, the same would mean that a party would no longer have any opportunity to dispute or rebut any new affidavit or evidence attached by
the other party to its memorandum. To violate the above-quoted provision would, thus, irrefragably run afoul the former partys constitutional right to
due process.

24

In the instant case, therefore, respondent Josephs Supplemental Affidavit and the additional documentary evidence, appended by
respondents only to their Memorandum submitted to the RTC, were correctly adjudged as inadmissible by the Court of Appeals in its 15 February
2006 Decision for having been belatedly submitted. Respondents neither alleged nor proved that the documents in question fall under any of the three
exceptions to the requirement that affidavits and documentary evidence should be attached to the appropriate pleading or pre-trial brief of the party,
which is particularly recognized under Section 8, Rule 2 of the Interim Rules of Procedure Governing Intra-Corporate Controversies.

WHEREFORE, premises considered, the Petition for Review under Rule 45 of the Rules of Court is hereby GRANTED. The assailed Resolutions
dated 18 July 2006and 19 April 2007 of the Court of Appeals in CA-G.R. SP No. 00185 are hereby REVERSED AND SET ASIDE. The Decision dated 15
February 2006 of the Court of Appealsis hereby AFFIRMED. No costs.
SO ORDERED.

25
G.R. No. 109373 March 20, 1995
PACIFIC BANKING CORPORATION EMPLOYEES ORGANIZATION, PAULA S. PAUG, and its officers and members, petitioners,
vs.
THE HONORABLE COURT OF APPEALS and VITALIANO N. NAAGAS II, as Liquidator of Pacific Banking Corporation, respondents.
G.R. No. 112991 March 20, 1995
THE PRESIDENT OF THE PHILIPPINE DEPOSIT INSURANCE CORPORATION, as Liquidator of the Pacific Banking Corporation , petitioner,
vs.
COURT OF APPEALS, HON. JUDGE REGINO T. VERIDIANO II, DEPUTY SHERIFF RAMON ENRIQUEZ and ANG ENG JOO, ANG KEONG LAN and E.J ANG
INT'L. LTD., represented by their Attorney-in-fact, GONZALO C. SY, respondents.
Remedial Law; Actions; Special Proceedings; Distinction Between an Ordinary Action and a Special Proceeding.Elucidating the crucial distinction
between an ordinary action and a special proceeding, Chief Justice Moran states: Action is the act by which one sues another in a court of justice for the
enforcement or protection of a right, or the prevention or redress of a wrong while special proceeding is the act by which one seeks to establish the
status or right of a party, or a particular fact. Hence, action is distinguished from special proceeding in that the former is a formal demand of a right by
one against another, while the latter is but a petition for a declaration of a status, right or fact. Where a party litigant seeks to recover property from
another, his remedy is to file an action. Where his purpose is to seek the appointment of a guardian for an insane, his remedy is a special proceeding to
establish the fact or status of insanity calling for an appointment of guardianship.
Same; Same; Same; A petition for liquidation of an insolvent corporation should be classified a special proceeding and not an ordinary action.
Considering this distinction, a petition for liquidation of an insolvent corporation should be classified a special proceeding and not an ordinary action.
Such petition does not seek the enforcement or protection of a right nor the prevention or redress of a wrong against a party. It does not pray for
affirmative relief for injury arising from a partys wrongful act or omission nor state a cause of action that can be enforced against any person.
Same; Same; Same; The petition only seeks a declaration of the corporations state of insolvency and the concomitant right of creditors and the order of
payment of their claims in the disposition of the corporations assets.What it seeks is merely a declaration by the trial court of the corporations
insolvency so that its creditors may be able to file their claims in the settlement of the corporations debts and obligations. Put in another way, the
petition only seeks a declaration of the corporations state of insolvency and the concomitant right of creditors and the order of payment of their claims
in the disposition of the corporations assets.
Same; Same; Same; Liquidation proceedings do not resemble petitions for interpleader.Contrary to the rulings of the Fourteenth Division, liquidation
proceedings do not resemble petitions for interpleader. For one, an action for interpleader involves claims on a subject matter against a person who has
no interest therein. This is not the case in a liquidation proceeding where the Liquidator, as representative of the corporation, takes charge of its assets
and liabilities for the benefit of the creditors. He is thus charged with insuring that the assets of the corporation are paid only to rightful claimants and
in the order of payment provided by law.
Same; Same; Same; A liquidation proceeding resembles the proceeding for the settlement of estate of deceased persons under Rules 73 to 91 of the
Rules of Court.Rather, 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 courts concern is with the declaration of creditors and their rights and the
determination of their order of payment.
Same; Same; Same; As in the settlement of estates, multiple appeals are allowed in proceedings for liquidation of an insolvent corporation.
Furthermore, as in the settlement of estates, multiple appeals are allowed in proceedings for liquidation of an insolvent corporation.
Same; Same; Same; Appeals; A record on appeal is required under the Interim Rules and Guidelines in special proceedings and for cases where multiple
appeals are allowed.In G.R. No. 112991 (the case of the Stockholders/Investors), the Liquidators notice of appeal was filed on time, having been filed
on the 23rd day of receipt of the order granting the claims of the Stockholders/Investors. However, the Liquidator did not file a record on appeal with
the result that he failed to perfect his appeal. As already stated, a record on appeal is required under the Interim Rules and Guidelines in special
proceedings and for cases where multiple appeals are allowed. The reason for this is that the several claims are actually separate ones and a decision or
final order with respect to any claim can be appealed. Necessarily the original record on appeal must remain in the trial court where other claims may
still be pending.
Same; Same; Same; Same; In liquidation proceedings, the function of the trial court is not limited to assisting in the implementation of the orders of the
Monetary Board.The Unions contention is untenable. In liquidation proceedings, the function of the trial court is not limited to assisting in the
implementation of the orders of the Monetary Board. Under the same section (29) of the law invoked by the Union, the court has authority to set
aside the decision of the Monetary Board if there is a convincing proof that the action is plainly arbitrary and made in bad faith. *Pacific Banking
Corporation Employees Organization vs. Court of Appeals, 242 SCRA 492(1995)]

26
MENDOZA, J.:
These cases have been consolidated because the principal question involved is the same: whether a petition for liquidation under 29 of Rep. Act No.
265, otherwise known as the Central Bank Act, is a special proceeding or an ordinary civil action. The Fifth and the Fourteenth Divisions of the Court of
Appeals reached opposite results on this question and consequently applied different periods for appealing.
The facts are as follows:
I.
Proceedings in the CB and the RTC
On July 5, 1985, the Pacific Banking Corporation (PaBC) was placed under receivership by the Central Bank of the Philippines pursuant to Resolution No.
699 of its Monetary Board. A few months later, it was placed under liquidation 1 and a Liquidator was appointed. 2
On April 7, 1986, the Central Bank filed with the Regional Trial Court of Manila Branch 31, a petition entitled "Petition for Assistance in the Liquidation
of Pacific Banking Corporation." 3 The petition was approved, after which creditors filed their claims with the court.
On May 17, 1991, a new Liquidator, Vitaliano N. Naagas, 4 President of the Philippine Deposit Insurance Corporation (PDIC), was appointed by the
Central Bank.
On March 13, 1989 the Pacific Banking Corporation Employees Organization (Union for short), petitioner in G.R. No. 109373, filed a complaint-inintervention seeking payment of holiday pay, 13th month pay differential, salary increase differential, Christmas bonus, and cash equivalent of Sick
Leave Benefit due its members as employees of PaBC. In its order dated September 13, 1991, the trial court ordered payment of the principal claims of
the Union. 5
The Liquidator received a copy of the order on September 16, 1991. On October 16, 1991, he filed a Motion for Reconsideration and Clarification of the
order. In his order of December 6, 1991, the judge modified his September 13, 1991 6 but in effect denied the Liquidator's motion for reconsideration.
This order was received by the Liquidator on December 9, 1991. The following day, December 10, 1991, he filed a Notice of Appeal and a Motion for
Additional Time to Submit Record on Appeal. On December 23, 1991, another Notice of Appeal was filed by the Office of the Solicitor General in behalf
of Naagas.
In his order of February 10, 1992, respondent judge disallowed the Liquidator's Notice of Appeal on the ground that it was late, i.e., more than 15 days
after receipt of the decision. The judge declared his September 13, 1991 order and subsequent orders to be final and executory and denied
reconsideration. On March 27, 1992, he granted the Union's Motion for issuance of a writ of Execution.
Ang Keong Lan and E.J. Ang Int'l., private respondents in G.R. No. 112991, likewise filed claims for the payment of investment in the PaBC allegedly in
the form of shares of stocks amounting to US$2,531,632.18. The shares of stocks, consisting of 154,462 common shares, constituted 11% of the total
subscribed capital stock of the PaBC. They alleged that their claim constituted foreign exchange capital investment entitled to preference in payment
under the Foreign Investments Law.
In his order dated September 11, 1992, respondent judge of the RTC directed the Liquidator to pay private respondents the total amount of their claim
as preferred creditors. 7
The Liquidator received the order on September 16, 1992. On September 30, 1992 he moved for reconsideration, but his motion was denied by the
court on October 2, 1992. He received the order denying his Motion for Reconsideration on October 5, 1992. On October 14, 1992 he filed a Notice of
Appeal from the orders of September 16, 1992 and October 2, 1992. As in the case of the Union, however, the judge ordered the Notice of Appeal
stricken off the record on the ground that it had been filed without authority of the Central Bank and beyond 15 days. In his order of October 28, 1992,
the judge directed the execution of his September 11, 1992 order granting the Stockholders/ Investors' claim.
II.
Proceedings in the Court of Appeals
The Liquidator filed separate Petitions for Certiorari, Prohibition and Mandamus in the Court of Appeals to set aside the orders of the trial court denying
his appeal from the orders granting the claims of Union and of the Stockholders/Investors. The two Divisions of the Court of Appeals, to which the cases
were separately raffled, rendered conflicting rulings.

27
In its decision of November 17, 1992 in CA-G.R. SP No. 27751 (now G.R. No. 09373) the Fifth Division 8 held in the case of the Union that the proceeding
before the trial court was a special proceeding and, therefore, the period for appealing from any decision or final order rendered therein is 30 days.
Since the notice of appeal of the Liquidator was filed on the 30th day of his receipt of the decision granting the Union's claims, the appeal was brought
on time. The Fifth Division, therefore, set aside the orders of the lower court and directed the latter to give due course to the appeal of the Liquidator
and set the Record on Appeal he had filed for hearing.
On the other hand, on December 16, 1993, the Fourteenth Division 9 ruled in CA-G.R. SP No. 29351 (now G.R. No. 112991) in the case of the
Stockholders/Investors that a liquidation proceeding is an ordinary action. Therefore, the period for appealing from any decision or final order rendered
therein is 15 days and that since the Liquidator's appeal notice was filed on the 23rd day of his receipt of the order appealed from, deducting the period
during which his motion for reconsideration was pending, the notice of appeal was filed late. Accordingly, the Fourteenth Division dismissed the
Liquidator's petition.
III.
Present Proceedings
The Union and the Liquidator then separately filed petitions before this Court.
In G.R. No. 109373 the Union contends that:
1. The Court of Appeals acted without jurisdiction over the subject matter or nature of the suit.
2. The Court of Appeals gravely erred in taking cognizance of the petition for certiorari filed by Naagas who was without any
legal authority to file it.
3. The Court of Appeals erred in concluding that the case is a special proceeding governed by Rules 72 to 109 of the Revised Rules
of Court.
4. The Court of Appeals erred seriously in concluding that the notice of appeal filed by Naagas was filed on time.
5. The Court of Appeals erred seriously in declaring that the second notice of appeal filed on December 23, 1991 by the Solicitor
General is a superfluity.
On the other hand, in G.R. No. 112991 the Liquidator contends that:
1. The Petition for Assistance in the Liquidation of the Pacific Banking Corporation s a Special Proceeding case and/or one which
allows multiple appeals, in which case the period of appeal is 30 days and not 15 days from receipt of the order/judgment
appealed from.
2. Private respondents are not creditors of PaBC but are plain stockholders whose right to receive payment as such would accrue
only after all the creditors of the insolvent bank have been paid.
3. The claim of private respondents in the amount of US$22,531,632.18 is not in the nature of foreign investment as it is
understood in law.
4. The claim of private respondents has not been clearly established and proved.
5. The issuance of a writ of execution against the assets of PaBC was made with grave abuse of discretion.
The petitions in these cases must be dismissed.
First. As stated in the beginning, the principal question in these cases is whether a petition for liquidation under 29 of Rep. Act No. 265 is in the nature
of a special proceeding. If it is, then the period of appeal is 30 days and the party appealing must, in addition to a notice of appeal, file with the trial
court a record on appeal in order to perfect his appeal. Otherwise, if a liquidation proceeding is an ordinary action, the period of appeal is 15 days from
notice of the decision or final order appealed from.
BP Blg. 129 provides:

28
39. Appeals. The period for appeal from final orders, resolutions, awards, judgments, or decisions of any court in all cases
shall be fifteen (15) days counted from the notice of the final order, resolution, award, judgment or decision appealed
from: Provided, however, that in habeas corpuscases the period for appeal shall be forty-eight (48) hours from the notice of the
judgment appealed from.
No record on appeal shall be required to take an appeal. In lieu thereof, the entire record shall be transmitted with all the pages
prominently numbered consecutively, together with an index of the contents thereof.
This section shall not apply in appeals in special proceedings and in other cases wherein multiple appeals are allowed under
applicable provisions of the Rules of Court.
The Interim Rules and Guidelines to implement BP Blg. 129 provides:
19. Period of Appeals.
(a) All appeals, except in habeas corpus cases and in the cases referred to in paragraph (b) hereof, must be
taken within fifteen (15) days from notice of the judgment, order, resolution or award appealed from.
(b) In appeals in special proceedings in accordance with Rule 109 of the Rules of Court and other cases
wherein multiple appeals are allowed, the period of appeals shall be thirty (30) days, a record on appeal
being required.
The Fourteenth Division of the Court of Appeals held that the proceeding is an ordinary action similar to an action for interpleader under Rule 63. 10 The
Fourteenth Division stated:
The petition filed is akin to an interpleader under Rule 63 of the Rules of Court where there are conflicting claimants or several
claims upon the same subject matter, a person who claims no interest thereon may file an action for interpleader to compel the
claimants to "interplead" and litigate their several claims among themselves. (Section I Rule 63).
An interpleader is in the category of a special civil action under Rule 62 which, like an ordinary action, may be appealed only
within fifteen (15) days from notice of the judgment or order appealed from. Under Rule 62, the preceding rules covering
ordinary civil actions which are not inconsistent with or may serve to supplement the provisions of the rule relating to such civil
actions are applicable to special civil actions. This embraces Rule 41 covering appeals from the regional trial court to the Court of
Appeals.
xxx xxx xxx
Thus, under Section 1 Rule 2 of the Rules of Court, an action is defined as "an ordinary suit in a court of justice by which one party
prosecutes another for the enforcement or protection of a right or the prevention or redress of a wrong." On the other hand,
Section 2 of the same Rule states that "every other remedy including one to establish the status or right of a party or a particular
fact shall be by special proceeding."
To our mind, from the aforequoted definitions of an action and a special proceeding, the petition for assistance of the court in the
liquidation of an asset of a bank is not "one to establish the status or right of a party or a particular fact." Contrary to the
submission of the petitioner, the petition is not intended to establish the fact of insolvency of the bank. The insolvency of the
bank had already been previously determined by the Central Bank in accordance with Section 9 of the CB Act before the petition
was filed. All that needs to be done is to liquidate the assets of the bank and thus the assistance of the respondent court is sought
for that purpose.
It should be pointed out that this petition filed is not among the cases categorized as a special proceeding under Section 1, Rule
72 of the Rules of Court, nor among the special proceedings that may be appealed under Section 1, Rule 109 of the Rules.
We disagree with the foregoing view of the Fourteenth Division. Rule 2 of the Rules of Court provide:
1. Action defined. Action means an ordinary suit in a court of justice, by which the party prosecutes another for the
enforcement or protection of a right, or the prevention or redress of a wrong.
2. Special Proceeding Distinguished. Every other remedy, including one to establish the status or right of a party or a particular
fact, shall be by special proceeding.

29
Elucidating the crucial distinction between an ordinary action and a special proceeding, Chief Justice Moran states:" 11
Action is the act by which one sues another in a court of justice for the enforcement or protection of a right, or the prevention or
redress of a wrong while special proceeding is the act by which one seeks to establish the status or right of a party, or a particular
fact. Hence, action is distinguished from special proceeding in that the former is a formal demand of a right by one against
another, while the latter is but a petition for a declaration of a status, right or fact. Where a party litigant seeks to recover
property from another, his remedy is to file an action. Where his purpose is to seek the appointment of a guardian for an insane,
his remedy is a special proceeding to establish the fact or status of insanity calling for an appointment of guardianship.
Considering this distinction, a petition for liquidation of an insolvent corporation should be classified a special proceeding and not an ordinary action.
Such petition does not seek the enforcement or protection of a right nor the prevention or redress of a wrong against a party. It does not pray for
affirmative relief for injury arising from a party's wrongful act or omission nor state a cause of action that can be enforced against any person.
What it seeks is merely a declaration by the trial court of the corporation's insolvency so that its creditors may be able to file their claims in the
settlement of the corporation's debts and obligations. Put in another way, the petition only seeks a declaration of the corporation's debts and
obligations. Put in another way, the petition only seeks a declaration of the corporation's state of insolvency and the concomitant right of creditors and
the order of payment of their claims in the disposition of the corporation's assets.
Contrary to the rulings of the Fourteenth Division, liquidation proceedings do not resemble petitions for interpleader. For one, an action for
interpleader involves claims on a subject matter against a person who has no interest therein. 12 This is not the case in a liquidation proceeding where
the Liquidator, as representative of the corporation, takes charge of its assets and liabilities for the benefit of the creditors. 13 He is thus charged with
insuring that the assets of the corporation are paid only to rightful claimants and in the order of payment provided by law.
Rather, a liquidation proceeding resembles the proceeding for the settlement of state 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.
Furthermore, as in the settlement of estates, multiple appeals are allowed in proceedings for liquidation of an insolvent corporation. As the Fifth
Division of the Court of Appeals, quoting the Liquidator, correctly noted:
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 close entity, all money claims against the bank are
required to be filed with the liquidation court. This phase may end with the declaration by the liquidation court that the claim is
not proper or without basis. On the other hand, it may also end with the liquidation court allowing the claim. In the latter case,
the claim shall be classified whether it is ordinary or preferred, and thereafter included Liquidator. In either case, the order
allowing or disallowing a particular claim is final order, and may be appealed by the party aggrieved thereby.
The second phase involves the approval by the Court of the distribution plan prepared by the duly appointed liquidator. The
distribution plan specifies in detail the total amount available for distribution to creditors whose claim were earlier allowed. The
Order finally disposes of the issue of how much property is available for disposal. Moreover, it ushers in the final phase of the
liquidation proceeding payment of all allowed claims in accordance with the order of legal priority and the approved
distribution plan.
Verily, the import of the final character of an Order of allowance or disallowance of a particular claim cannot be overemphasized.
It is the operative fact that constitutes a liquidation proceeding a "case where multiple appeals are allowed by law." The issuance
of an Order which, by its nature, affects only the particular claims involved, and which may assume finality if no appeal is made
therefrom,ipso facto creates a situation where multiple appeals are allowed.
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. Obviously, in the event that an appeal
from an Order allowing or disallowing a particular claim is made, only said claim is affected, leaving the others to proceed with
their ordinary course. In such case, the original records of the proceeding are not elevated to the appellate court. They remain
with the liquidation court. In lieu of the original record, a record of appeal is instead required to be prepared and transmitted to
the appellate court.

30
Inevitably, multiple appeals are allowed in liquidation proceedings. Consequently, a record on appeal is necessary in each and
every appeal made. Hence, the period to appeal therefrom should be thirty (30) days, a record on appeal being required. (Record
pp. 162-164).
In G.R. No. 112991 (the case of the Stockholders/Investors), the Liquidator's notice of appeal was filed on time, having been filed on the 23rd day of
receipt of the order granting the claims of the Stockholders/Investors. However, the Liquidator did not file a record on appeal with the result that he
failed to perfect his appeal. As already stated a record on appeal is required under the Interim Rules and Guidelines in special proceedings and for cases
where multiple appeals are allowed. The reason for this is that the several claims are actually separate ones and a decision or final order with respect to
any claim can be appealed. Necessarily the original record on appeal must remain in the trial court where other claims may still be pending.
Because of the Liquidator's failure to perfect his appeal, the order granting the claims of the Stockholders/Investors became final. Consequently. the
Fourteenth Division's decision dismissing the Liquidator's Petition for Certiorari, Prohibition and Mandamus must be affirmed albeit for a different
reason.
On the other hand, in G.R. No. 109373 (case of the Labor Union), we find that the Fifth Division correctly granted the Liquidator's Petition for Certiorari.
Prohibition and Mandamus. As already noted, the Liquidator filed a notice of appeal and a motion for extension to file a record on appeal on December
10, 1991, i.e., within 30 days of his receipt of the order granting the Union's claim. Without waiting for the resolution of his motion for extension, he
filed on December 20, 1991 within the extension sought a record on appeal. Respondent judge thus erred in disallowing the notice on appeal and
denying the Liquidator's motion for extension to file a record on appeal.
The Fifth Division of the Court of Appeals correctly granted the Liquidator's Petition for Certiorari, Prohibition andMandamus and its decision should,
therefore, be affirmed.
Second. In G.R. No. 109373, The Union claims that under 29 of Rep. Act No. 265, the court merely assists in adjudicating the claims of
creditors, preserves the assets of the institution, and implements the liquidation plan approved by the Monetary Board and that, therefore, as
representative of the Monetary Board, the Liquidator cannot question the order of the court or appeal from it. It contends that since the Monetary
Board had previously admitted PaBC's liability to the laborers by in fact setting aside the amount of P112,234,292.44 for the payment of their claims,
there was nothing else for the Liquidator to do except to comply with the order of the court.
The Union's contention is untenable. In liquidation proceedings, the function of the trial court is not limited to assisting in the implementation of the
orders of the Monetary Board. Under the same section (29) of the law invoked by the Union, the court has authority to set aside the decision of the
Monetary Board "if there is a convincing proof that the action is plainly arbitrary and made in bad faith." 14 As this Court held in Rural Bank of Buhi,
Inc. v. Court of Appeals: 15
There is no question, that the action of the monetary Board in this regard may be subject to judicial review. Thus, it has been held
that the Court's may interfere with the Central Bank's exercise of discretion in determining whether or not a distressed bank shall
be supported or liquidated. Discretion has its limits and has never been held to include arbitrariness, discrimination or bad faith
(Ramos v. Central Bank of the Philippines, 41 SCRA 567 [1971]).
In truth, the Liquidator is the representative not only of the Central Bank but also of the insolvent bank. Under 28A-29 of Rep. Act No. 265 he acts in
behalf of the bank "personally or through counsel as he may retain, in all actions or proceedings or against the corporation" and he has authority "to do
whatever may be necessary for these purposes." This authority includes the power to appeal from the decisions or final orders of the court which he
believes to be contrary to the interest of the bank.
Finally the Union contends that the notice of appeal and motion for extension of time to file the record on appeal filed in behalf of the Central Bank was
not filed by the office of the Solicitor General as counsel for the Central Bank. This contention has no merit. On October 22, 1992, as Assistant Solicitor
General Cecilio O. Estoesta informed the trial court in March 27, 1992, the OSG had previously authorized lawyers of the PDIC to prepare and sign
pleadings in the case. 16 Conformably thereto the Notice of Appeal and the Motion for Additional Time to submit Record on Appeal filed were jointly
signed by Solicitor Reynaldo I. Saludares in behalf of the OSG and by lawyers of the PDIC. 17
WHEREFORE, in G.R. No. 109373 and G.R. No 112991, the decisions appealed from are AFFIRMED.
SO ORDERED.
JERRY ONG, petitioner vs. COURT OF APPEALS and RURAL BANK OF OLONGAPO, INC., represented by its Liquidator, GUILLERMO G. REYES, JR. and
Deputy Liquidator ABEL ALLANIGUE, respondents.
Remedial Law; Jurisdiction; The court shall have jurisdiction in the same proceedings to adjudicate disputed claims against the bank.Section 29, par. 3
of R.A. 265 as amended by P.D. 1827 providesIf the Monetary Board shall determine and confirm within (sixty days) that the bank x x x is insolvent or
cannot resume business with safety to its depositors, creditors and the general public, it shall, if the public interest requires, order its liquidation,

31
indicate the manner of its liquidation and approve a liquidation plan. The Central Bank shall, by the Solicitor General, file a petition in the Court of First
Instance reciting the proceedings which have been taken and praying the assistance of the court in the liquidation of such institution. The court shall
have jurisdiction in the same proceedings to adjudicate disputed claims against the bank x x x and enforce individual liabilities of the stockholders and
do all that is necessary to preserve the assets of such institution and to implement the liquidation plan approved by the Monetary Board.
Same; Same; All claims against the insolvent bank should be filed in the liquidation proceeding.Applying the aforequoted provision in Hernandez v.
Rural Bank of Lucena, Inc., this Court ruledThe fact that the insolvent bank is forbidden to do business, that its assets are turned over to the
Superintendent of Banks, as a receiver, for conversion into cash, and that its liquidation is undertaken with judicial intervention means that, as far as
lawful and practicable, all claims against the insolvent bank should be filed in the liquidation proceeding.
Same; Same; It is not necessary that a claim be initially disputed in a court or agency before it is filed with the liquidation court.The phrase (T)he
court shall have jurisdiction in the same proceedings to adjudicate disputed claims against the bank appears to have misled petitioner. He argues that
to the best of his personal knowledge there is no pending action filed before any court or agency which contests his right over subject properties. Thus
his petition before the Regional Trial Court of Quezon City cannot be considered a disputed claim as contemplated by law. It is not necessary that a
claim be initially disputed in a court or agency before it is filed with the liquidation court. As may be gleaned in the Hernandez case, the term disputed
claim in the provision simply connotes that[i]n the course of the liquidation, contentious cases might arise wherein a full-dress hearing would be
required and legal issues would have to be resolved. Hence, it would be necessary in justice to all concerned that a Court of First Instance (now Regional
Trial Court) x x x assist and supervise the liquidation and x x x act as umpire or arbitrator in the allowance and disallowance of claims. [Ong vs. Court of
Appeals, 253 SCRA 105(1996)]
All claims against the insolvent bank should be filed in the liquidation proceeding. The judicial liquidation is intended to prevent multiplicity of
actions against the insolvent bank. It is a pragmatic arrangement designed to establish due process and orderliness in the liquidation of the bank, to
obviate the proliferation of litigations and to avoid injustice and arbitrariness.
Facts: Jerry Ong filed with the Regional Trial Court of Quezon City a petition for the surrender of 2 TCTs against Rural Bank of Olongapo, Inc. (RBO),
represented by its liquidator Guillermo G. Reyes, Jr. and deputy liquidator Abel Allanigue. The complaint stemed from 2 parcels of land which was duly
mortgaged by RBO in favor of petitioner to guarantee the payment of Omnibus Finance, Inc., which is likewise now undergoing liquidation proceedings
of its money market obligations to petitioner. Omnibus Finance, Inc., not having seasonably settled its obligations to petitioner, the latter proceeded to
effect the extrajudicial foreclosure of said mortgages and the city sheriff of TagaytayCity issued a certificate of sale in favor of petitioner which were
duly registered.

Respondents failed to seasonably redeem said parcels of land, for which reason, petitioner has executed an affidavit of consolidation of ownership
which has not been submitted to the Registry of Deeds of Tagaytay City, in view of the fact that possession of the aforesaid titles or owners duplicate
certificates of title remains with the RBO. To date, petitioner has not been able to effect the registration of said parcels of land in his name in view of
the persistent refusal of respondentsto surrender RBOs copies of its owners certificates of title for the parcels of land covered by the two TCTs.

Respondent RBO filed a motion to dismiss on the ground of res judicata and that it was undergoing liquidation and it is the liquidation court which has
exclusive jurisdiction to take cognizance of petitioners claim. Trial court denied the motion to dismiss because it found that the causes of action in the
previous and present cases were different although it was silent on the jurisdictional issue. RBO filed a motion for reconsideration but was similarly
rejected. The Court of Appeals, through a certiorari filed by RBO, annulled the challenged orders of the trial court which sustained the jurisdiction of the
trial court and denied reconsideration thereof. Moreover, the trial judge was ordered to dismiss the civil case without prejudice to the right of
petitioner to file his claim in the liquidation proceedings pending before the RegionalTrialCourtofOlongapoCity.

32

Issue: Whether or not the civil case against RBO may proceed independently from the liquidation proceedings.

Held: Section 29, par. 3, of R.A. 265 as amended by P. D. 1827 provides If the Monetary Board shall determine and confirm within (sixty days) that
the bank x x x is insolvent or cannot resume business with safety to its depositors, creditors and the general public, it shall, if the public interest
requires, order its liquidation, indicate the manner of its liquidation and approve a liquidation plan. The Central Bank shall, by the Solicitor General, file
a petition in the Court of First Instance[7] reciting the proceedings which have been taken and praying the assistance of the court in the liquidation of
such institution. The court shall have jurisdiction in the same proceedings to adjudicate disputed claims against the bank x x x and enforce individual
liabilities of the stockholders and do all that is necessary to preserve the assets of such institution and to implement the liquidation plan approved by
the Monetary Board

All claims against the insolvent bank should be filed in the liquidation proceeding. The judicial liquidation is intended to prevent multiplicity of actions
against the insolvent bank. It is a pragmatic arrangement designed to establish due process and orderliness in the liquidation of the bank, to obviate the
proliferation of litigations and to avoid injustice and arbitrariness. It is not necessary that a claim be initially disputed in a court or agency before it is
filed with the liquidation court.

33
KAREN E. SALVACION, minor, thru Federico N. Salvacion, Jr., father and Natural Guardian, and Spouses FEDERICO N. SALVACION, JR., and EVELINA E.
SALVACION, petitioners, vs. CENTRAL BANK OF THE PHILIPPINES, CHINA BANKING CORPORATION and GREG BARTELLI y NORTHCOTT, respondents
Remedial Law; Jurisdiction; Declaratory Relief; Court has no original and exclusive jurisdiction over a petition for declaratory relief.This Court has no
original and exclusive jurisdiction over a petition for declaratory relief. However, exceptions to this rule have been recognized. Thus, where the petition
has far-reaching implications and raises questions that should be resolved, it may be treated as one for mandamus.
Statutory Construction; Statutes; In case of doubt in the interpretation or application of laws, it is presumed that the lawmaking body intended right
and justice to prevail.In fine, the application of the law depends on the extent of its justice. Eventually, if we rule that the questioned Section 113 of
Central Bank Circular No. 960 which exempts from attachment, garnishment, or any other order or process of any court, legislative body, government
agency or any administrative body whatsoever, is applicable to a foreign transient, injustice would result especially to a citizen aggrieved by a foreign
guest like accused Greg Bartelli. This would negate Article 10 of the New Civil Code which provides that in case of doubt in the interpretation or
application of laws, it is presumed that the lawmaking body intended right and justice to prevail. Ninguno non deue enriquecerse tortizeramente con
dano de otro. Simply stated, when the statute is silent or ambiguous, this is one of those fundamental solutions that would respond to the vehement
urge of conscience. [Salvacion vs. Central Bank of the Philippines, 278 SCRA 27(1997)]
FACTS:
Greg Bartelli, an American tourist, was arrested for committing four counts of rape and serious illegal detention against Karen Salvacion. Police
recovered from him several dollar checks and a dollar account in the China Banking Corp. He was, however, able to escape from prison. In a civil
case filed against him, the trial court awarded Salvacion moral, exemplary and attorneys fees amounting to almost P1,000,000.00.
Salvacion tried to execute the judgment on the dollar deposit of Bartelli with the China Banking Corp. but the latter refused arguing that Section 11 of
Central Bank Circular No. 960 exempts foreign currency deposits fromattachment, garnishment, or any other order or process of any court, legislative
body, government agency or any administrative body whatsoever. Salvacion therefore filed this action for declaratory relief in the Supreme Court.

ISSUE:
Should Section 113 of Central Bank Circular No. 960 and Section 8 of Republic Act No. 6426, as amended by PD 1246, otherwise known as the Foreign
Currency Deposit Act be made applicable to a foreign transient?
HELD: The provisions of Section 113 of Central Bank Circular No. 960 and PD No. 1246, insofar as it amends Section 8 of Republic Act No. 6426, are
hereby held to be INAPPLICABLE to this case because of its peculiar circumstances. Respondents are hereby required to comply with the writ of
execution issued in the civil case and to release to petitioners the dollar deposit of Bartelli in such amount as would satisfy the judgment.
RATIO:
Supreme Court ruled that the questioned law makes futile the favorable judgment and award of damages that Salvacion and her parents fully deserve.
It then proceeded to show that the economic basis for the enactment of RA No. 6426 is not anymore present; and even if it still exists, the questioned
law still denies those entitled to due process of law for being unreasonable and oppressive. The intention of the law may be good when enacted. The
law failed to anticipate the iniquitous effects producing outright injustice and inequality such as the case before us.
The SC adopted the comment of the Solicitor General who argued that the Offshore Banking System and the Foreign Currency Deposit System were
designed to draw deposits from foreign lenders and investors and, subsequently, to give the latter protection. However, the foreign currency deposit
made by a transient or a tourist is not the kind of deposit encouraged by PD Nos. 1034 and 1035 and given incentives and protection by said laws
because such depositor stays only for a few days in the country and, therefore, will maintain his deposit in the bank only for a short time. Considering
that Bartelli is just a tourist or a transient, he is not entitled to the protection of Section 113 of Central Bank Circular No. 960 and PD No. 1246
against attachment, garnishment or other court processes.
Further, the SC said: In fine, the application of the law depends on the extent of its justice. Eventually, if we rule that the questioned Section 113 of
Central Bank Circular No. 960 which exempts from attachment, garnishment, or any other order or process of any court, legislative body, government
agency or any administrative body whatsoever, is applicable to a foreign transient, injustice would result especially to a citizen aggrieved by a foreign
guest like accused Greg Bartelli. This would negate Article 10 of the New Civil Code which provides that in case of doubt in the interpretation
or application of laws, it is presumed that the lawmaking body intended right and justice to prevail.

34
ANA MARIA A. KORUGA, petitioner, vs. TEODORO O. ARCENAS, JR., ALBERT C. AGUIRRE, CESAR S. PAGUIO, FRANCISCO A. RIVERA, and THE HONORABLE
COURT OF APPEALS, THIRD DIVISION, respondents
Banks and Banking; General Banking Law of 2000 (R.A. No. 8971); New Central Bank Act; Bangko Sentral ng Pilipinas (BSP); Jurisdiction; The law vests in
the Bangko Sentral ng Pilipinas (BSP) the supervision over operations and activities of banks.The law vests in the BSP the supervision over operations
and activities of banks. The New Central Bank Act provides: Section 25. Supervision and Examination.The Bangko Sentral shall have supervision over,
and conduct periodic or special examinations of, banking institutions and quasi-banks, including their subsidiaries and affiliates engaged in allied
activities.
Same; Same; Same; Same; Same; Allegations regarding the questionable loans are not ordinary intra-corporate matters; rather, they involve banking
activities which are, by law, regulated and supervised by the Bangko Sentral ng Pilipinas (BSP).Koruga alleges that the dispute in the trial court
involves the manner with which the Directors (sic) have handled the Banks affairs, specifically the fraudulent loans and dacion en pago authorized by
the Directors in favor of several dummy corporations known to have close ties and are indirectly controlled by the Directors. Her allegations, then, call
for the examination of the allegedly questionable loans. Whether these loans are covered by the prohibition on self-dealing is a matter for the BSP to
determine. These are not ordinary intra-corporate matters; rather, they involve banking activities which are, by law, regulated and supervised by the
BSP.
Same; Same; Same; Same; Same; The authority to determine whether a bank is conducting business in an unsafe or unsound manner is also vested in
the Monetary Board.The authority to determine whether a bank is conducting business in an unsafe or unsound manner is also vested in the
Monetary Board.
Same; Same; Same; Same; Same; Receivership; The appointment of a receiver under Section 30 shall be vested exclusively with the Monetary Board.
Crystal clear in Section 30 is the provision that says the appointment of a receiver under this section shall be vested exclusively with the Monetary
Board. The term exclusively connotes that only the Monetary Board can resolve the issue of whether a bank is to be placed under receivership and,
upon an affirmative finding, it also has authority to appoint a receiver. This is further affirmed by the fact that the law allows the Monetary Board to
take action summarily and without need for prior hearing.
Same; Same; Same; Same; Same; Same; There is no doubt that the Regional Trial Court (RTC) has no jurisdiction to hear and decide a suit that seeks to
place Banco Filipino under receivership.There is no doubt that the RTC has no jurisdiction to hear and decide a suit that seeks to place Banco Filipino
under receivership.
Same; Same; Same; Same; Same; Same; Courts jurisdiction could only have been invoked after the Monetary Board had taken action on the matter and
only 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 courts jurisdiction could only have been invoked after the Monetary Board had taken action on the matter and only 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. [Koruga vs.
Arcenas, Jr., 590 SCRA 49(2009)]
DECISION
NACHURA, J.:

Before this Court are two petitions that originated from a Complaint filed by Ana Maria A. Koruga (Koruga) before the Regional Trial Court
(RTC) of Makati City against the Board of Directors of Banco Filipino and the Members of the Monetary Board of the Bangko Sentral ng Pilipinas (BSP)
for violation of the Corporation Code, for inspection of records of a corporation by a stockholder, for receivership, and for the creation of a
management committee.

G.R. No. 168332

35

The first is a Petition for Certiorari under Rule 65 of the Rules of Court, docketed as G.R. No. 168332, praying for the annulment of the Court
of Appeals (CA) Resolution[1] in CA-G.R. SP No. 88422 dated April 18, 2005 granting the prayer for a Writ of Preliminary Injunction of therein petitioners
Teodoro O. Arcenas, Jr., Albert C. Aguirre, Cesar S. Paguio, and Francisco A. Rivera (Arcenas, et al.).

Koruga is a minority stockholder of Banco Filipino Savings and Mortgage Bank. On August 20, 2003, she filed a complaint before the Makati
RTC which was raffled to Branch 138, presided over by Judge Sixto Marella, Jr.[2] Korugas complaint alleged:
10. 1 Violation of Sections 31 to 34 of the Corporation Code (Code) which prohibit self-dealing and conflicts of
interest of directors and officers, thus:
(a)
For engaging in unsafe, unsound, and fraudulent banking practices that have jeopardized the
welfare of the Bank, its shareholders, who includes among others, the Petitioner, and depositors. (sic)
(b)
For granting and approving loans and/or loaned sums of money to six (6) dummy borrower
corporations (Borrower Corporations) which, at the time of loan approval, had no financial capacity to justify the
loans. (sic)
(c)
For approving and accepting a dacion en pago, or payment of loans with property instead of
cash, resulting to a diminished future cumulative interest income by the Bank and a decline in its liquidity position.
(sic)
(d)
For knowingly giving favorable treatment to the Borrower Corporations in which some or most
of them have interests, i.e. interlocking directors/officers thereof, interlocking ownerships. (sic)
(e)
For employing their respective offices and functions as the Banks officers and directors, or
omitting to perform their functions and duties, with negligence, unfaithfulness or abuse of confidence of fiduciary
duty, misappropriated or misapplied or ratified by inaction the misappropriation or misappropriations, of (sic)
almost P1.6 Billion Pesos (sic) constituting the Banks funds placed under their trust and administration, by unlawfully
releasing loans to the Borrower Corporations or refusing or failing to impugn these, knowing before the loans were
released or thereafter that the Banks cash resources would be dissipated thereby, to the prejudice of the Petitioner,
other Banco Filipino depositors, and the public.
10.2 Right of a stockholder to inspect the records of a corporation (including financial statements) under Sections 74
and 75 of the Code, as implemented by the Interim Rules;
(a)
Unlawful refusal to allow the Petitioner from inspecting or otherwise accessing the corporate
records of the bank despite repeated demand in writing, where she is a stockholder. (sic)
10.3 Receivership and Creation of a Management Committee pursuant to:
(a)

Rule 59 of the 1997 Rules of Civil Procedure (Rules);

(b)

Section 5.2 of R.A. No. 8799;

(c)

Rule 1, Section 1(a)(1) of the Interim Rules;

(d)

Rule 1, Section 1(a)(2) of the Interim Rules;

(e)

Rule 7 of the Interim Rules;

(f)

Rule 9 of the Interim Rules; and

(g)

The General Banking Law of 2000 and the New Central Bank Act.[3]

On September 12, 2003, Arcenas, et al. filed their Answer raising, among others, the trial courts lack of jurisdiction to take cognizance of the
case. They also filed a Manifestation and Motion seeking the dismissal of the case on the following grounds: (a) lack of jurisdiction over the subject

36

matter; (b) lack of jurisdiction over the persons of the defendants; (c) forum-shopping; and (d) for being a nuisance/harassment suit. They then moved
that the trial court rule on their affirmative defenses, dismiss the intra-corporate case, and set the case for preliminary hearing.

In an Order dated October 18, 2004, the trial court denied the Manifestation and Motion, ruling thus:
The result of the procedure sought by defendants Arcenas, et al. (sic) is for the Court to conduct a preliminary hearing on the
affirmative defenses raised by them in their Answer. This [is] proscribed by the Interim Rules of Procedure on Intracorporate (sic)
Controversies because when a preliminary hearing is conducted it is as if a Motion to Dismiss was filed (Rule 16, Section 6, 1997
Rules of Civil Procedure). A Motion to Dismiss is a prohibited pleading under the Interim Rules, for which reason, no favorable
consideration can be given to the Manifestation and Motion of defendants, Arcenas, et al.
The Court finds no merit to (sic) the claim that the instant case is a nuisance or harassment suit.
WHEREFORE, the Court defers resolution of the affirmative defenses raised by the defendants Arcenas, et al.[4]

Arcenas, et al. moved for reconsideration[5] but, on January 18, 2005, the RTC denied the motion.[6] This prompted Arcenas, et al. to file
before the CA a Petition forCertiorari and Prohibition under Rule 65 of the Rules of Court with a prayer for the issuance of a writ of preliminary
injunction and a temporary retraining order (TRO).[7]

On February 9, 2005, the CA issued a 60-day TRO enjoining Judge Marella from conducting further proceedings in the case.[8]

On February 22, 2005, the RTC issued a Notice of Pre-trial[9] setting the case for pre-trial on June 2 and 9, 2005. Arcenas, et al. filed a
Manifestation and Motion[10]before the CA, reiterating their application for a writ of preliminary injunction. Thus, on April 18, 2005, the CA issued the
assailed Resolution, which reads in part:
(C)onsidering that the Temporary Restraining Order issued by this Court on February 9, 2005 expired on April 10, 2005, it is
necessary that a writ of preliminary injunction be issued in order not to render ineffectual whatever final resolution this Court
may render in this case, after the petitioners shall have posted a bond in the amount of FIVE HUNDRED THOUSAND (P500,000.00)
PESOS.
SO ORDERED.[11]

Dissatisfied, Koruga filed this Petition for Certiorari under Rule 65 of the Rules of Court. Koruga alleged that the CA effectively gave due
course to Arcenas, et al.s petition when it issued a writ of preliminary injunction without factual or legal basis, either in the April 18, 2005 Resolution
itself or in the records of the case. She prayed that this Court restrain the CA from implementing the writ of preliminary injunction and, after due
proceedings, make the injunction against the assailed CA Resolution permanent.[12]

In their Comment, Arcenas, et al. raised several procedural and substantive issues. They alleged that the Verification and Certification against
Forum-Shopping attached to the Petition was not executed in the manner prescribed by Philippine law since, as admitted by Korugas counsel himself,
the same was only a facsimile.

37

They also averred that Koruga had admitted in the Petition that she never asked for reconsideration of the CAs April 18, 2005 Resolution,
contending that the Petition did not raise pure questions of law as to constitute an exception to the requirement of filing a Motion for Reconsideration
before a Petition for Certiorari is filed.

They, likewise, alleged that the Petition may have already been rendered moot and academic by the July 20, 2005 CA Decision,[13] which
denied their Petition, and held that the RTC did not commit grave abuse of discretion in issuing the assailed orders, and thus ordered the RTC to
proceed with the trial of the case.

Meanwhile, on March 13, 2006, this Court issued a Resolution granting the prayer for a TRO and enjoining the Presiding Judge of Makati RTC,
Branch 138, from proceeding with the hearing of the case upon the filing by Arcenas, et al. of a P50,000.00 bond. Koruga filed a motion to lift the TRO,
which this Court denied on July 5, 2006.

On the other hand, respondents Dr. Conrado P. Banzon and Gen. Ramon Montao also filed their Comment on Korugas Petition, raising
substantially the same arguments as Arcenas, et al.

G.R. No. 169053

G.R. No. 169053 is a Petition for Review on Certiorari under Rule 45 of the Rules of Court, with prayer for the issuance of a TRO and a writ of
preliminary injunction filed by Arcenas, et al.

In their Petition, Arcenas, et al. asked the Court to set aside the Decision[14] dated July 20, 2005 of the CA in CA-G.R. SP No. 88422, which
denied their petition, having found no grave abuse of discretion on the part of the Makati RTC. The CA said that the RTC Orders were interlocutory in
nature and, thus, may be assailed by certiorari or prohibition only when it is shown that the court acted without or in excess of jurisdiction or with grave
abuse of discretion. It added that the Supreme Court frowns upon resort to remedial measures against interlocutory orders.

Arcenas, et al. anchored their prayer on the following grounds: that, in their Answer before the RTC, they had raised the issue of failure of
the court to acquire jurisdiction over them due to improper service of summons; that the Koruga action is a nuisance or harassment suit; that there is
another case involving the same parties for the same cause pending before the Monetary Board of the BSP, and this constituted forum-shopping; and
that jurisdiction over the subject matter of the case is vested by law in the BSP.[15]

Arcenas, et al. assign the following errors:

I.

THE COURT OF APPEALS, IN FINDING NO GRAVE ABUSE OF DISCRETION COMMITTED BY PUBLIC RESPONDENT
REGIONAL TRIAL COURT OF MAKATI, BRANCH 138, IN ISSUING THE ASSAILED ORDERS, FAILED TO CONSIDER AND
MERELY GLOSSED OVER THE MORE TRANSCENDENT ISSUES OF THE LACK OF JURISDICTION ON THE PART OF SAID
PUBLIC RESPONDENT OVER THE SUBJECT MATTER OF THE CASE BEFORE IT, LITIS PENDENTIA AND FORUM SHOPPING,
AND THE CASE BELOW BEING A NUISANCE OR HARASSMENT SUIT, EITHER ONE AND ALL OF WHICH GOES/GO TO
RENDER THE ISSUANCE BY PUBLIC RESPONDENT OF THE ASSAILED ORDERS A GRAVE ABUSE OF DISCRETION.

38
II.

THE FINDING OF THE COURT OF APPEALS OF NO GRAVE ABUSE OF DISCRETION COMMITTED BY PUBLIC RESPONDENT
REGIONAL TRIAL COURT OF MAKATI, BRANCH 138, IN ISSUING THE ASSAILED ORDERS, IS NOT IN ACCORD WITH LAW
OR WITH THE APPLICABLE DECISIONS OF THIS HONORABLE COURT.[16]

Meanwhile, in a Manifestation and Motion filed on August 31, 2005, Koruga prayed for, among others, the consolidation of her Petition with
the Petition for Review onCertiorari under Rule 45 filed by Arcenas, et al., docketed as G.R. No. 169053. The motion was granted by this Court in a
Resolution dated September 26, 2005.

Our Ruling

Initially, we will discuss the procedural issue.

Arcenas, et al. argue that Korugas petition should be dismissed for its defective Verification and Certification Against Forum-Shopping, since
only a facsimile of the same was attached to the Petition. They also claim that the Verification and Certification Against Forum-Shopping, allegedly
executed in Seattle, Washington, was not authenticated in the manner prescribed by Philippine law and not certified by the Philippine Consulate in
the United States.

This contention deserves scant consideration.

On the last page of the Petition in G.R. No. 168332, Korugas counsel executed an Undertaking, which reads as follows:
In view of that fact that the Petitioner is currently in the United States, undersigned counsel is attaching a facsimile
copy of the Verification and Certification Against Forum-Shopping duly signed by the Petitioner and notarized by Stephanie N.
Goggin, a Notary Public for the Sate (sic) of Washington. Upon arrival of the original copy of the Verification and Certification as
certified by the Office of the Philippine Consul, the undersigned counsel shall immediately provide duplicate copies thereof to the
Honorable Court.[17]

Thus, in a Compliance[18] filed with the Court on September 5, 2005, petitioner submitted the original copy of the duly notarized and
authenticated Verification and Certification Against Forum-Shopping she had executed.[19] This Court noted and considered the Compliance satisfactory
in its Resolution dated November 16, 2005. There is, therefore, no need to further belabor this issue.

We now discuss the substantive issues in this case.

First, we resolve the prayer to nullify the CAs April 18, 2005 Resolution.
We hold that the Petition in G.R. No. 168332 has become moot and academic. The writ of preliminary injunction being questioned had
effectively been dissolved by the CAs July 20, 2005 Decision. The dispositive portion of the Decision reads in part:
The case is REMANDED to the court a quo for further proceedings and to resolve with deliberate dispatch the intracorporate controversies and determine whether there was actually a valid service of summons. If, after hearing, such service is
found to have been improper, then new summons should be served forthwith.[20]

39

Accordingly, there is no necessity to restrain the implementation of the writ of preliminary injunction issued by the CA on April 18, 2005, since it no
longer exists.

However, this Court finds that the CA erred in upholding the jurisdiction of, and remanding the case to, the RTC.

The resolution of these petitions rests mainly on the determination of one fundamental issue: Which body has jurisdiction over the Koruga
Complaint, the RTC or the BSP?

We hold that it is the BSP that has jurisdiction over the case.

A reexamination of the Complaint is in order.

Korugas Complaint charged defendants with violation of Sections 31 to 34 of the Corporation Code, prohibiting self-dealing and conflict of
interest of directors and officers; invoked her right to inspect the corporations records under Sections 74 and 75 of the Corporation Code; and prayed
for Receivership and Creation of a Management Committee, pursuant to Rule 59 of the Rules of Civil Procedure, the Securities Regulation Code, the
Interim Rules of Procedure Governing Intra-Corporate Controversies, the General Banking Law of 2000, and the New Central Bank Act. She accused the
directors and officers of Banco Filipino of engaging in unsafe, unsound, and fraudulent banking practices, more particularly, acts that violate the
prohibition on self-dealing.

It is clear that the acts complained of pertain to the conduct of Banco Filipinos banking business. A bank, as defined in the General Banking
Law,[21] refers to an entity engaged in the lending of funds obtained in the form of deposits.[22] The banking business is properly subject to reasonable
regulation under the police power of the state because of its nature and relation to the fiscal affairs of the people and the revenues of the state. Banks
are affected with public interest because they receive funds from the general public in the form of deposits. It is the Governments responsibility to see
to it that the financial interests of those who deal with banks and banking institutions, as depositors or otherwise, are protected. In this country, that
task is delegated to the BSP, which pursuant to its Charter, is authorized to administer the monetary, banking, and credit system of the Philippines. It is
further authorized to take the necessary steps against any banking institution if its continued operation would cause prejudice to its depositors,
creditors and the general public as well.[23]

The law vests in the BSP the supervision over operations and activities of banks. The New Central Bank Act provides:
Section 25. Supervision and Examination. - The Bangko Sentral shall have supervision over, and conduct periodic or
special examinations of, banking institutions and quasi-banks, including their subsidiaries and affiliates engaged in allied
activities.[24]

Specifically, the BSPs supervisory and regulatory powers include:

40
4.1

The issuance of rules of conduct or the establishment of standards of operation for uniform application to all institutions
or functions covered, taking into consideration the distinctive character of the operations of institutions and the
substantive similarities of specific functions to which such rules, modes or standards are to be applied;

4.2

The conduct of examination to determine compliance with laws and regulations if the circumstances so warrant as
determined by the Monetary Board;

4.3

Overseeing to ascertain that laws and Regulations are complied with;

4.4

Regular investigation which shall not be oftener than once a year from the last date of examination to determine
whether an institution is conducting its business on a safe or sound basis: Provided, That
the deficiencies/irregularities found by or discovered by an audit shall be immediately addressed;

4.5

Inquiring into the solvency and liquidity of the institution (2-D); or

4.6

Enforcing prompt corrective action.[25]

Koruga alleges that the dispute in the trial court involves the manner with which the Directors (sic) have handled the Banks affairs,
specifically the fraudulent loans anddacion en pago authorized by the Directors in favor of several dummy corporations known to have close ties and
are indirectly controlled by the Directors.[26] Her allegations, then, call for the examination of the allegedly questionable loans. Whether these loans
are covered by the prohibition on self-dealing is a matter for the BSP to determine. These are not ordinary intra-corporate matters; rather, they involve
banking activities which are, by law, regulated and supervised by the BSP. As the Court has previously held:
It is well-settled in both law and jurisprudence that the Central Monetary Authority, through the Monetary Board, is
vested with exclusive authority to assess, evaluate and determine the condition of any bank, and finding such condition to be one
of insolvency, or that its continuance in business would involve a probable loss to its depositors or creditors, forbid bank or nonbank financial institution to do business in the Philippines; and shall designate an official of the BSP or other competent person as
receiver to immediately take charge of its assets and liabilities.[27]

Correlatively, the General Banking Law of 2000 specifically deals with loans contracted by bank directors or officers, thus:
SECTION 36. Restriction on Bank Exposure to Directors, Officers, Stockholders and Their Related Interests. No
director or officer of any bank shall, directly or indirectly, for himself or as the representative or agent of others, borrow from
such bank nor shall he become a guarantor, indorser or surety for loans from such bank to others, or in any manner be an obligor
or incur any contractual liability to the bank except with the written approval of the majority of all the directors of the bank,
excluding the director concerned: Provided, That such written approval shall not be required for loans, other credit
accommodations and advances granted to officers under a fringe benefit plan approved by the Bangko Sentral. The required
approval shall be entered upon the records of the bank and a copy of such entry shall be transmitted forthwith to the appropriate
supervising and examining department of the Bangko Sentral.
Dealings of a bank with any of its directors, officers or stockholders and their related interests shall be upon terms not
less favorable to the bank than those offered to others.
After due notice to the board of directors of the bank, the office of any bank director or officer who violates the
provisions of this Section may be declared vacant and the director or officer shall be subject to the penal provisions of the New
Central Bank Act.
The Monetary Board may regulate the amount of loans, credit accommodations and guarantees that may be
extended, directly or indirectly, by a bank to its directors, officers, stockholders and their related interests, as well as
investments of such bank in enterprises owned or controlled by said directors, officers, stockholders and their related
interests. However, the outstanding loans, credit accommodations and guarantees which a bank may extend to each of its
stockholders, directors, or officers and their related interests, shall be limited to an amount equivalent to their respective
unencumbered deposits and book value of their paid-in capital contribution in the bank: Provided, however, That loans, credit
accommodations and guarantees secured by assets considered as non-risk by the Monetary Board shall be excluded from such
limit: Provided, further, That loans, credit accommodations and advances to officers in the form of fringe benefits granted in
accordance with rules as may be prescribed by the Monetary Board shall not be subject to the individual limit.

41
The Monetary Board shall define the term related interests.
The limit on loans, credit accommodations and guarantees prescribed herein shall not apply to loans, credit
accommodations and guarantees extended by a cooperative bank to its cooperative shareholders.[28]

Furthermore, the authority to determine whether a bank is conducting business in an unsafe or unsound manner is also vested in the
Monetary Board. The General Banking Law of 2000 provides:
SECTION 56. Conducting Business in an Unsafe or Unsound Manner. In determining whether a particular act or
omission, which is not otherwise prohibited by any law, rule or regulation affecting banks, quasi-banks or trust entities, may be
deemed as conducting business in an unsafe or unsound manner for purposes of this Section, the Monetary Board shall consider
any of the following circumstances:
56.1. The act or omission has resulted or may result in material loss or damage, or abnormal risk or danger to the
safety, stability, liquidity or solvency of the institution;
56.2. The act or omission has resulted or may result in material loss or damage or abnormal risk to the institution's
depositors, creditors, investors, stockholders or to the Bangko Sentral or to the public in general;
56.3. The act or omission has caused any undue injury, or has given any unwarranted benefits, advantage or
preference to the bank or any party in the discharge by the director or officer of his duties and
responsibilities through manifest partiality, evident bad faith or gross inexcusable negligence; or
56.4. The act or omission involves entering into any contract or transaction manifestly and grossly disadvantageous
to the bank, quasi-bank or trust entity, whether or not the director or officer profited or will profit thereby.
Whenever a bank, quasi-bank or trust entity persists in conducting its business in an unsafe or unsound manner, the
Monetary Board may, without prejudice to the administrative sanctions provided in Section 37 of the New Central Bank Act, take
action under Section 30 of the same Act and/or immediately exclude the erring bank from clearing, the provisions of law to the
contrary notwithstanding.

Finally, the New Central Bank Act grants the Monetary Board the power to impose administrative sanctions on the erring bank:
Section 37. Administrative Sanctions on Banks and Quasi-banks. - Without prejudice to the criminal sanctions against
the culpable persons provided in Sections 34, 35, and 36 of this Act, the Monetary Board may, at its discretion, impose upon any
bank or quasi-bank, their directors and/or officers, for any willful violation of its charter or by-laws, willful delay in the
submission of reports or publications thereof as required by law, rules and regulations; any refusal to permit examination into the
affairs of the institution; any willful making of a false or misleading statement to the Board or the appropriate supervising and
examining department or its examiners; any willful failure or refusal to comply with, or violation of, any banking law or any order,
instruction or regulation issued by the Monetary Board, or any order, instruction or ruling by the Governor; or any commission of
irregularities, and/or conducting business in an unsafe or unsound manner as may be determined by the Monetary Board, the
following administrative sanctions, whenever applicable:
(a) fines in amounts as may be determined by the Monetary Board to be appropriate, but in no case to exceed Thirty
thousand pesos (P30,000) a day for each violation, taking into consideration the attendant circumstances, such as the
nature and gravity of the violation or irregularity and the size of the bank or quasi-bank;
(b) suspension of rediscounting privileges or access to Bangko Sentral credit facilities;
(c) suspension of lending or foreign exchange operations or authority to accept new deposits or make new
investments;
(d) suspension of interbank clearing privileges; and/or
(e) revocation of quasi-banking license.
Resignation or termination from office shall not exempt such director or officer from administrative or criminal
sanctions.

42
The Monetary Board may, whenever warranted by circumstances, preventively suspend any director or officer of a
bank or quasi-bank pending an investigation: Provided, That should the case be not finally decided by the Bangko Sentral within a
period of one hundred twenty (120) days after the date of suspension, said director or officer shall be reinstated in his position:
Provided, further, That when the delay in the disposition of the case is due to the fault, negligence or petition of the director or
officer, the period of delay shall not be counted in computing the period of suspension herein provided.
The above administrative sanctions need not be applied in the order of their severity.
Whether or not there is an administrative proceeding, if the institution and/or the directors and/or officers concerned
continue with or otherwise persist in the commission of the indicated practice or violation, the Monetary Board may issue an
order requiring the institution and/or the directors and/or officers concerned to cease and desist from the indicated practice or
violation, and may further order that immediate action be taken to correct the conditions resulting from such practice or
violation. The cease and desist order shall be immediately effective upon service on the respondents.
The respondents shall be afforded an opportunity to defend their action in a hearing before the Monetary Board or
any committee chaired by any Monetary Board member created for the purpose, upon request made by the respondents within
five (5) days from their receipt of the order. If no such hearing is requested within said period, the order shall be final. If a hearing
is conducted, all issues shall be determined on the basis of records, after which the Monetary Board may either reconsider or
make final its order.
The Governor is hereby authorized, at his discretion, to impose upon banking institutions, for any failure to comply
with the requirements of law, Monetary Board regulations and policies, and/or instructions issued by the Monetary Board or by
the Governor, fines not in excess of Ten thousand pesos (P10,000) a day for each violation, the imposition of which shall be final
and executory until reversed, modified or lifted by the Monetary Board on appeal.[29]

43

Koruga also accused Arcenas, et al. of violation of the Corporation Codes provisions on self-dealing and conflict of interest. She invoked
Section 31 of the Corporation Code, which defines the liability of directors, trustees, or officers of a corporation for, among others, acquiring any
personal or pecuniary interest in conflict with their duty as directors or trustees, and Section 32, which prescribes the conditions under which a contract
of the corporation with one or more of its directors or trustees the so-called self-dealing directors[30] would be valid. She also alleged that Banco
Filipinos directors violated Sections 33 and 34 in approving the loans of corporations with interlocking ownerships, i.e., owned, directed, or managed by
close associates of Albert C. Aguirre.
Sections 31 to 34 of the Corporation Code provide:

Section 31. Liability of directors, trustees or officers. - Directors or trustees who wilfully and knowingly vote for or
assent to patently unlawful acts of the corporation or who are guilty of gross negligence or bad faith in directing the affairs of the
corporation or acquire any personal or pecuniary interest in conflict with their duty as such directors or trustees shall be liable
jointly and severally for all damages resulting therefrom suffered by the corporation, its stockholders or members and other
persons.
When a director, trustee or officer attempts to acquire or acquires, in violation of his duty, any interest adverse to the
corporation in respect of any matter which has been reposed in him in confidence, as to which equity imposes a disability upon
him to deal in his own behalf, he shall be liable as a trustee for the corporation and must account for the profits which otherwise
would have accrued to the corporation.
Section 32. Dealings of directors, trustees or officers with the corporation. - A contract of the corporation with one or
more of its directors or trustees or officers is voidable, at the option of such corporation, unless all the following conditions are
present:
1. That the presence of such director or trustee in the board meeting in which the contract was approved was not
necessary to constitute a quorum for such meeting;
2. That the vote of such director or trustee was not necessary for the approval of the contract;
3. That the contract is fair and reasonable under the circumstances; and
4. That in case of an officer, the contract has been previously authorized by the board of directors.
Where any of the first two conditions set forth in the preceding paragraph is absent, in the case of a contract with a
director or trustee, such contract may be ratified by the vote of the stockholders representing at least two-thirds (2/3) of the
outstanding capital stock or of at least two-thirds (2/3) of the members in a meeting called for the purpose: Provided, That full
disclosure of the adverse interest of the directors or trustees involved is made at such meeting: Provided, however, That the
contract is fair and reasonable under the circumstances.
Section 33. Contracts between corporations with interlocking directors. - Except in cases of fraud, and provided the
contract is fair and reasonable under the circumstances, a contract between two or more corporations having interlocking
directors shall not be invalidated on that ground alone: Provided, That if the interest of the interlocking director in one
corporation is substantial and his interest in the other corporation or corporations is merely nominal, he shall be subject to the
provisions of the preceding section insofar as the latter corporation or corporations are concerned.
Stockholdings exceeding twenty (20%) percent of the outstanding capital stock shall be considered substantial for
purposes of interlocking directors.
Section 34. Disloyalty of a director. - Where a director, by virtue of his office, acquires for himself a business
opportunity which should belong to the corporation, thereby obtaining profits to the prejudice of such corporation, he must
account to the latter for all such profits by refunding the same, unless his act has been ratified by a vote of the stockholders
owning or representing at least two-thirds (2/3) of the outstanding capital stock. This provision shall be applicable,
notwithstanding the fact that the director risked his own funds in the venture.

Korugas invocation of the provisions of the Corporation Code is misplaced. In an earlier case with similar antecedents, we ruled that:

44
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.[31]

Consequently, it is not the Interim Rules of Procedure on Intra-Corporate Controversies,[32] or Rule 59 of the Rules of Civil Procedure on
Receivership, that would apply to this case. Instead, Sections 29 and 30 of the New Central Bank Act should be followed, viz.:
Section 29. Appointment of Conservator. - Whenever, on the basis of a report submitted by the appropriate
supervising or examining department, the Monetary Board finds that a bank or a quasi-bank is in a state of continuing inability or
unwillingness to maintain a condition of liquidity deemed adequate to protect the interest of depositors and creditors, the
Monetary Board may appoint a conservator with such powers as the Monetary Board shall deem necessary to take charge of the
assets, liabilities, and the management thereof, reorganize the management, collect all monies and debts due said institution, and
exercise all powers necessary to restore its viability. The conservator shall report and be responsible to the Monetary Board and
shall have the power to overrule or revoke the actions of the previous management and board of directors of the bank or quasibank.
xxxx
The Monetary Board shall terminate the conservatorship when it is satisfied that the institution can continue to
operate on its own and the conservatorship is no longer necessary. The conservatorship shall likewise be terminated should the
Monetary Board, on the basis of the report of the conservator or of its own findings, determine that the continuance in business
of the institution would involve probable loss to its depositors or creditors, in which case the provisions of Section 30 shall apply.
Section 30. Proceedings in Receivership and Liquidation. - Whenever, upon report of the head of the supervising or
examining department, the Monetary Board finds that a bank or quasi-bank:
(a) is unable to pay its liabilities as they become due in the ordinary course of business: Provided, That this
shall not include inability to pay caused by extraordinary demands induced by financial panic in the banking
community;
(b) has insufficient realizable assets, as determined by the Bangko Sentral, to meet its liabilities; or
(c) cannot continue in business without involving probable losses to its depositors or creditors; or
(d) has willfully violated a cease and desist order under Section 37 that has become final, involving acts or
transactions which amount to fraud or a dissipation of the assets of the institution; in which cases, the
Monetary Board may summarily and without need for prior hearing forbid the institution from doing
business in the Philippines and designate the Philippine Deposit Insurance Corporation as receiver of the
banking institution.
xxxx
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.[33]

On the strength of these provisions, it is the Monetary Board that exercises exclusive jurisdiction over proceedings for receivership of
banks.

Crystal clear in Section 30 is the provision that says the appointment of a receiver under this section shall be vested exclusively with the
Monetary Board. The term exclusively connotes that only the Monetary Board can resolve the issue of whether a bank is to be placed under

45

receivership and, upon an affirmative finding, it also has authority to appoint a receiver. This is further affirmed by the fact that the law allows the
Monetary Board to take action summarily and without need for prior hearing.

And, as a clincher, the law explicitly provides that 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 a 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.

From the foregoing disquisition, there is no doubt that the RTC has no jurisdiction to hear and decide a suit that seeks to place Banco Filipino
under receivership.
Koruga herself recognizes the BSPs power over the allegedly unlawful acts of Banco Filipinos directors. The records of this case bear out
that Koruga, through her legal counsel, wrote the Monetary Board[34] on April 21, 2003 to bring to its attention the acts she had enumerated in her
complaint before the RTC. The letter reads in part:
Banco Filipino and the current members of its Board of Directors should be placed under investigation for violations of
banking laws, the commission of irregularities, and for conducting business in an unsafe or unsound manner. They should likewise
be placed under preventive suspension by virtue of the powers granted to the Monetary Board under Section 37 of the Central
Bank Act. These blatant violations of banking laws should not go by without penalty. They have put Banco Filipino, its depositors
and stockholders, and the entire banking system (sic) in jeopardy.
xxxx
We urge you to look into the matter in your capacity as regulators. Our clients, a minority stockholders, (sic) and many
depositors of Banco Filipino are prejudiced by a failure to regulate, and taxpayers are prejudiced by accommodations granted by
the BSP to Banco Filipino[35]

In a letter dated May 6, 2003, BSP Supervision and Examination Department III Director Candon B. Guerrero referred Korugas letter to
Arcenas for comment.[36] On June 6, 2003, Banco Filipinos then Executive Vice President and Corporate Secretary Francisco A. Rivera submitted the
banks comments essentially arguing that Korugas accusations lacked legal and factual bases.[37]

On the other hand, the BSP, in its Answer before the RTC, said that it had been looking into Banco Filipinos activities. An October 2002
Report of Examination (ROE) prepared by the Supervision and Examination Department (SED) noted certain dacion payments, out-of-the-ordinary
expenses, among other dealings. On July 24, 2003, the Monetary Board passed Resolution No. 1034 furnishing Banco Filipino a copy of the ROE with
instructions for the bank to file its comment or explanation within 30 to 90 days under threat of being fined or of being subjected to other remedial
actions. The ROE, the BSP said, covers substantially the same matters raised in Korugas complaint. At the time of the filing of Korugas complaint on
August 20, 2003, the period for Banco Filipino to submit its explanation had not yet expired.[38]

Thus, the courts jurisdiction could only have been invoked after the Monetary Board had taken action on the matter and only 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.

46

Finally, there is one other reason why Korugas complaint before the RTC cannot prosper. Given her own admission and the same is
likewise supported by evidence that she is merely a minority stockholder of Banco Filipino, she would not have the standing to question the Monetary
Boards action. Section 30 of the New Central Bank Act provides:
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.

All the foregoing discussion yields the inevitable conclusion that the CA erred in upholding the jurisdiction of, and remanding the case to, the
RTC. Given that the RTC does not have jurisdiction over the subject matter of the case, its refusal to dismiss the case on that ground amounted to grave
abuse of discretion.

WHEREFORE, the foregoing premises considered, the Petition in G.R. No. 168332 is DISMISSED, while the Petition in G.R. No. 169053
is GRANTED. The Decision of the Court of Appeals dated July 20, 2005 in CA-G.R. SP No. 88422 is hereby SET ASIDE. The Temporary Restraining Order
issued

by

this

Court

on

March

13,

2006

the Regional Trial Court of Makati City, is DISMISSED.

SO ORDERED.

is

madePERMANENT.

Consequently,

Civil

Case

No.

03-985,

pending

before

47
PHILIPPINE NATIONAL BANK, petitioner, vs. COURT OF APPEALS, REMEDIOS JAYME-FERNANDEZ and AMADO FERNANDEZ, respondents.
Civil Law; Contracts; P.D. No. 1684 and C.B. Circular No. 905 did not authorize either party to unilaterally raise the interest rate without the others
consent.P.D. No. 1684 and C.B. Circular No. 905 no more than allow contracting parties to stipulate freely regarding any subsequent adjustment in
the interest rate that shall accrue on a loan or forbearance of money, goods or credits. In fine, they can agree to adjust, upward or downward, the
interest previously stipulated. However, contrary to the stubborn insistence of petitioner bank, the said law and circular did not authorize either party
to unilaterally raise the interest rate without the others consent.
Same; Same; It is basic that there can be no contract in the true sense in the absence of the element of agreement, or of mutual assent of the parties.
It is basic that there can be no contract in the true sense in the absence of the element of agreement, or of mutual assent of the parties. If this assent is
wanting on the part of one who contracts, his act has no more efficacy than if it had been done under duress or by a person of unsound mind.
Same; Same; Contract changes must be made with the consent of the contracting parties.Similarly, contract changes must be made with the consent
of the contracting parties. The minds of all the parties must meet as to the proposed modification, especially when it affects an important aspect of the
agreement. In the case of loan contracts, it cannot be gainsaid that the rate of interest is always a vital component, for it can make or break a capital
venture. Thus, any change must be mutually agreed upon, otherwise, it is bereft of any binding effect.
Same; Same; No one receiving a proposal to change a contract to which he is a party, is obliged to answer the proposal, and his silence per se cannot be
construed as an acceptance.Private respondents are not also estopped from assailing the unilateral increases in interest rate made by petitioner
bank. No one receiving a proposal to change a contract to which he is a party, is obliged to answer the proposal, and his silenceper se cannot be
construed as an acceptance. In the case at bench, the circumstances do not show that private respondents implicitly agreed to the proposed increases
in interest rate which by any standard were too sudden and too stiff. [Philippine National Bank vs. Court of Appeals, 238 SCRA 20(1994)]
PUNO, J.:
Petitioner bank seeks the review of the decision, dated October 15, 1992, of the Court of Appeals 1 in CA G.R. CV No. 27195, the dispositive portion of
which reads as follows:
WHEREFORE, the judgment appealed from is hereby SET ASIDE and a new one is entered ordering defendant-appellee PNB to reapply the interest rate of 12% per annum to plaintiffs-appellants' (referring to herein private respondents) indebtedness and to
accordingly take the appropriate charges from plaintiffs-appellants' (private respondents') payment of P81,000.00 made on
December 26, 1985. Any balance on the indebtedness should, likewise, be charged interest at the rate of 12%per annum.
SO ORDERED.
The parties do not dispute the facts as laid down by respondent court in its impugned decision, viz.:
On April 7, 1982, (private respondents) as owners of a NACIDA-registered enterprise, obtained a loan under the Cottage Industry
Guaranty Loan Fund (CIGLF) from the Philippine National Bank (PNB) in the amount of Fifty Thousand (P50,000.00) Pesos, as
evidenced by a Credit Agreement. Under the Promissory Note covering the loan, the loan was to be amortized over a period of
three (3) years to end on March 29, 1985, at twelve (12%) percent interest annually.
To secure the loan, (private respondents) executed a Real Estate Mortgage over a 1.5542-hectare parcel of unregistered
agricultural land located at Cambang-ug, Toledo City, which was appraised by the PNB at P1,062.52 and given a loan value of
P531.26 by the Bank. In addition, (private respondents) executed a Chattel Mortgage over a thermo plastic-forming machine,
which had an appraisal value of P8,800 and a loan value of P4,400.00.
The Credit Agreement provided inter alia, that
(a) The BANK reserves the right to increase the interest rate within the limits allowed by law at any time
depending on whatever policy it may adopt in the future; Provided, that the interest rate on this
accommodation shall be correspondingly decreased in the event that the applicable maximum interest is
reduced by law or by the Monetary Board. In either case, the adjustment in the interest rate agreed upon
shall take effect on the effectivity date of the increase or decrease in the maximum interest rate.
The Promissory Note, in turn, authorized the PNB to raise the rate of interest, at any time without notice, beyond the stipulated
rate of 12% but only "within the limits allowed by law."
The Real Estate Mortgage contract likewise provided that

48
(k) INCREASE OF INTEREST RATE: The rate of interest charged on the obligation secured by this mortgage as
well as the interest on the amount which may have been advanced by the MORTGAGE, in accordance with
the provision hereof, shall be subject during the life of this contract to such an increase within the rate
allowed by law, as the Board of Directors of the MORTGAGEE may prescribe for its debtors.
On February 17, 1983, (private respondents) were granted an additional NACIDA loan of Fifty Thousand (P50,000.00) Pesos by the
PNB, for which (private respondents) executed another Promissory Note, which was to mature on April 1, 1985. Other than the
date of maturity, the second promissory note contained the same terms and stipulations as the previous note. The parties
likewise executed a new Credit Agreement, changing the amount of the loan from P50,000.00 to P100,000.00, but otherwise
preserving the stipulations contained in the original agreement.
As additional security for the loan, (private respondents) constituted another real estate mortgage over 2 parcels of registered
land, with a combined area of 311 square meters, located at Guadalupe, Cebu City. The land, upon which several buildings are
standing, was appraised by the PNB to have a value of P40,000.00 and a loan value of P28,000.00.
In a letter dated August 1, 1984, the PNB informed (private respondents) "that the interest rate of your CIGLF loan account with
us is now 25% per annum plus a penalty of 6% per annum on past dues." The PNB further increased this interest rate to 30% on
October 15, 1984; and to 42% on October 25, 1984.
The records show that as of December 1985, (private respondents) had an outstanding principal account of P81,000.00 of which
P18,523.14 was credited to the principal, P57,488.89 to the interest, and the rest to penalty and other charges. Thus, as of said
date, the unpaid principal obligation of (private respondent) amounted to P62,830.32.
Thereafter, (private respondents) exerted efforts to get the PNB to re-adopt the 12% interest and to condone the present interest
and penalties due; but to no avail. 2 (Citations omitted.)
On December 15, 1987, private respondents filed a suit for specific performance against petitioner PNB and the NACIDA. It was docketed as Civil Case
No. CEB-5610, and raffled to the Regional Trial Court, 7th Judicial Region, Cebu City, Br. 7. 3 Private respondents prayed the trial court to order:
1. The PNB and NACIDA to issue in (private respondents') favor, a release of mortgage;
2. The PNB to pay pecuniary consequential damages for the destruction of (private respondents') enterprise;
3. The PNB to pay moral and exemplary damages as well as the costs of suit; and
4. Granting (private respondents') such other relief as may be found just and equitable in the premises. 4
On February 26, 1990, the trial court dismissed private respondents' complaint in Civil Case No. CEB-5610. On October 15, 1992, the Court of Appeals
reversed the dismissal with respect to petitioner bank, and disallowed the increases in interest rates.
Petitioner bank now contends that "respondent Court of Appeals committed grave error when it ruled (1) that the increase in interest rates are
unauthorized; (2) that the Credit Agreement and the Promissory Notes are not the law between the parties; (3) that CB Circular No. 773 and CB Circular
No. 905 are not applicable; and (4) that private respondents are not estopped from questioning the increase of rate interest made by petitioner." 5
The petition is bereft of merit.
In making the unilateral increases in interest rates, petitioner bank relied on the escalation clause contained in their credit agreement which provides,
as follows:
The Bank reserves the right to increase the interest rate within the limits allowed by law at any time depending on whatever
policy it may adopt in the future and provided, that, the interest rate on this accommodation shall be correspondingly decreased
in the event that the applicable maximum interest rate is reduced by law or by the Monetary Board. In either case, the
adjustment in the interest rate agreed upon shall take effect on the effectivity date of the increase or decrease in maximum
interest rate.
This clause is authorized by Section 2 of Presidential Decree (P.D.)
No. 1684 which further amended Act No. 2655 ("The Usury Law"), as amended, thus:

49
Section 2. The same Act is hereby amended by adding a new section after Section 7, to read as follows:
Sec. 7-a. Parties to an agreement pertaining to a loan or forbearance of money, goods or credits may stipulate that the rate of
interest agreed upon may be increased in the event that the applicable maximum rate of interest is increased by law or by the
Monetary Board; Provided, That such stipulation shall be valid only if there is also a stipulation in the agreement that the rate of
interest agreed upon shall be reduced in the event that the applicable maximum rate of interest is reduced by law or by the
Monetary Board; Provided further, That the adjustment in the rate of interest agreed upon shall take effect on or after the
effectivity of the increase or decrease in the maximum rate of interest.
Section 1 of P.D. No. 1684 also empowered the Central Bank's Monetary Board to prescribe the maximum rates of interest for loans and certain
forbearances. Pursuant to such authority, the Monetary Board issued Central Bank (C.B.) Circular No. 905, series of 1982, Section 5 of which provides:
Sec. 5. Section 1303 of the Manual of Regulations (for Banks and Other Financial Intermediaries) is hereby amended to read as
follows:
Sec. 1303. Interest and Other Charges. The rate of interest, including commissions, premiums, fees and
other charges, on any loan, or forbearance of any money, goods or credits, regardless of maturity and
whether secured or unsecured, shall not be subject to any ceiling prescribed under or pursuant to the Usury
Law, as amended.
P.D. No. 1684 and C.B. Circular No. 905 no more than allow contracting parties to stipulate freely regarding any subsequent adjustment in the interest
rate that shall accrue on a loan or forbearance of money, goods or credits. In fine, they can agree to adjust, upward or downward, the interest
previously stipulated. However, contrary to the stubborn insistence of petitioner bank, the said law and circular did not authorize either party
to unilaterally raise the interest rate without the other's consent.
It is basic that there can be no contract in the true sense in the absence of the element of agreement, or of mutual assent of the parties. If this assent is
wanting on the part of the one who contracts, his act has no more efficacy than if it had been done under duress or by a person of unsound mind. 6
Similarly, contract changes must be made with the consent of the contracting parties. The minds of all the parties must meet as to the proposed
modification, especially when it affects an important aspect of the agreement. In the case of loan contracts, it cannot be gainsaid that the rate of
interest is always a vital component, for it can make or break a capital venture. Thus, any change must be mutually agreed upon, otherwise, it is bereft
of any binding effect.
We cannot countenance petitioner bank's posturing that the escalation clause at bench gives it unbridled right tounilaterally upwardly adjust the
interest on private respondents' loan. That would completely take away from private respondents the right to assent to an important modification in
their agreement, and would negate the element of mutuality in contracts. In Philippine National Bank v. Court of Appeals, et al., 196 SCRA 536, 544-545
(1991) we held
. . . The unilateral action of the PNB in increasing the interest rate on the private respondent's loan violated the mutuality of
contracts ordained in Article 1308 of the Civil Code:
Art. 1308. The contract must bind both contracting parties; its validity or compliance cannot be left to the
will of one of them.
In order that obligations arising from contracts may have the force or law between the parties, there must be mutuality between
the parties based on their essential equality. A contract containing a condition which makes its fulfillment dependent exclusively
upon the uncontrolled will of one of the contracting parties, is void . . . . Hence, even assuming that
the . . . loan agreement between the PNB and the private respondent gave the PNB a license (although in fact there was none) to
increase the interest rate at will during the term of the loan, that license would have been null and void for being violative of the
principle of mutuality essential in contracts. It would have invested the loan agreement with the character of a contract of
adhesion, where the parties do not bargain on equal footing, the weaker party's (the debtor) participation being reduced to the
alternative "to take it or leave it" . . . . Such a contract is a veritable trap for the weaker party whom the courts of justice must
protect against abuse and imposition. (Citation omitted.)
Private respondents are not also estopped from assailing the unilateral increases in interest rate made by petitioner bank. No one receiving a proposal
to change a contract to which he is a party, is obliged to answer the proposal, and his silence per se cannot be construed as an acceptance. 7 In the case
at bench, the circumstances do not show that private respondents implicitly agreed to the proposed increases in interest rate which by any standard
were too sudden and too stiff.

50
IN VIEW THEREOF, the instant petition is DENIED for lack of merit, and the decision of the Court of Appeals in CA-G.R. CV No. 27195, dated October 15,
1992, is AFFIRMED. Costs against petitioner.
SO ORDERED.