GR No.

194589

September 21, 2015

BALAYAN BAY RURAL BANK, INC., represented by its Statutory

Liquidator, THE PHILIPPINE DEPOSIT INSURANCE CORPORATION
v NATIONAL LIVELIHOOD DEVELOPMENT CORPORATION
Commercial Law; Banking; Insolvency. After the Monetary Board has
declared that a bank is insolvent and has ordered it to cease operations, the
Board becomes the trustee of its assets for the equal benefit of all the
creditors, including depositors. The assets of the insolvent banking
institution are held in trust for the equal benefit of all creditors, and after
its insolvency, one cannot obtain an advantage or a preference over another
by an attachment, execution or otherwise.
Same; Same; Same. The properties of an insolvent bank are not transferred
by operation of law to the statutory receiver/liquidator but rather these
assets are just held in trust to be distributed to its creditors after the
liquidation proceedings in accordance with the rules on concurrence and
preference of credits. The debtors properties are then deemed to have
been conveyed to the Liquidator in trust for the benefit of creditors,
stockholders and other persons in interest. This notwithstanding, any lien
or preference to any property shall be recognized by the Liquidator in favor
of the security or lienholder, to the extent allowed by law, in the
implementation of the liquidation plan.
PEREZ, J.:
FACTS: The case sprouts from a collection suit filed by the respondent
against the petitioner bank prior to the declaration of the Monetary Board
that it will be placed on receivership. And during the pendency of the case,
the said declaration was made appointing PDIC as the receiver of the
petitioner bank pursuant to RA 7653. After being placed into receivership,
the respondent filed a motion for substitution invoking Section 19, Rule 3 of
the Revised Rules of Court and claimed that by virtue of transfer of interest
of the petitioner bank to the PDIC, the latter may be substituted as party or
joined with the original party. Despite opposition, the trial court granted the
motion.
Contending that the substitution is not proper in the instant case
since the PDIC is not the real party in interest but was merely tasked to
keep the assets of the bank for the benefit of its creditors, petitioner bank
raised the matter before the SC on question of law via Petition for Review
on Certiorari.
ISSUE: Whether or not substitution of the PDIC as defendant or its
inclusion therein as co-defendant is contrary to law.

HELD: NEGATIVE. Upon the announcement of the Monetary Board that a

particular institution is insolvent, it will become its trustee for all its assets
for the equal advantage of the institutions creditors. The PDIC, being
declared as herein petitioner banks statutory liquidator, shall collate all its
assets and liabilities and be liable for its administration.
With this, the PDIC, being a fiduciary of the petitioner bank, may
prosecute or defend the case as a representative party but, the petitioner
bank will still be included in the case since it still remains as the real party
in interest as stated in Sec. 3, Rule 3 of the Revised Rules of Court. The
PDIC merely remains as a representative party, which, under the New
Central Bank Act is given the authority to conserve and take care of the
petitioner bank to the benefit of all its creditors.
However, the Court firmly disagreed with the reliance of the
respondent with the transfer of interest pendente lite as the justification for
the substitution for it is contrary to law to declare any transfer of interest in
case of receivership. The assets of the insolvent bank is not transferred, but
merely held in trust to be distributed to its creditors after the liquidation
proceedings in accordance with the rules on concurrence and preference of
credits. In addition, there is no dissolution of the insolvents bank legal
personality merely because it is placed under receivership. It is not
replaced nor substituted.
Hence, concluding that PDIC is a mere representative of the
petitioner bank and not the real party in interest, which in this case still
remains to be the petitioner bank, both entities must be named as
defendants in the collection suit filed by the respondent. The petition is
denied.