SECOND DIVISION

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

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

vs. PHILIPPINE VETERANS BANK, respondent.

DECISION
AUSTRIA-MARTINEZ, J.:

Before us is a petition for review of the decision of the Regional Trial Court
(RTC), Cebu City, Branch 24, dated April 17, 1998,[1] and the order denying
petitioners motion for reconsideration dated August 25, 1998, raising pure
questions of law.[2]
The following facts are uncontroverted:
On March 3, 1980, petitioner spouses contracted a monetary loan with
respondent Philippine Veterans Bank in the amount of P135,000.00, evidenced
by a promissory note, due and demandable on February 27, 1981, and secured
by a Real Estate Mortgage executed on their lot together with the improvements
thereon.
On March 23, 1985, the respondent bank went bankrupt and was placed
under receivership/liquidation by the Central Bank from April 25, 1985 until
August 1992.[3]
On August 23, 1985, the bank, through Francisco Go, sent the spouses a
demand letter for accounts receivable in the total amount of P6,345.00 as of
August 15, 1984,[4] which pertains to the insurance premiums advanced by
respondent bank over the mortgaged property of petitioners.[5]
On August 23, 1995, more than fourteen years from the time the loan
became due and demandable, respondent bank filed a petition for extrajudicial
foreclosure of mortgage of petitioners property.[6] On October 18, 1995, the
property was sold in a public auction by Sheriff Arthur Cabigon with Philippine
Veterans Bank as the lone bidder.
On April 26, 1996, petitioners filed a complaint with the RTC, Cebu City, to
declare the extra-judicial foreclosure and the subsequent sale thereof to
respondent bank null and void.[7]
In the pre-trial conference, the parties agreed to limit the issue to whether or
not the period within which the bank was placed under receivership and
1
liquidation was a fortuitous event which suspended the running of the ten-year
prescriptive period in bringing actions.[8]
On April 17, 1998, the RTC rendered its decision, the fallo of which reads:

WHEREFORE, premises considered judgment is hereby rendered dismissing the

complaint for lack of merit. Likewise the compulsory counterclaim of defendant is
dismissed for being unmeritorious.[9]

It reasoned that:

defendant bank was placed under receivership by the Central Bank from April
1985 until 1992. The defendant bank was given authority by the Central Bank to
operate as a private commercial bank and became fully operational only on
August 3, 1992. From April 1985 until July 1992, defendant bank was restrained
from doing its business. Doing business as construed by Justice Laurel in 222
SCRA 131 refers to:

.a continuity of commercial dealings and arrangements and contemplates to that

extent, the performance of acts or words or the exercise of some of the functions
normally incident to and in progressive prosecution of the purpose and object of
its organization.

The defendant banks right to foreclose the mortgaged property prescribes in ten
(10) years but such period was interrupted when it was placed under
receivership. Article 1154 of the New Civil Code to this effect provides:

The period during which the obligee was prevented by a fortuitous event from
enforcing his right is not reckoned against him.

In the case of Provident Savings Bank vs. Court of Appeals, 222 SCRA 131, the
Supreme Court said.

Having arrived at the conclusion that a foreclosure is part of a banks activity

which could not have been pursued by the receiver then because of the
circumstances discussed in the Central Bank case, we are thus convinced that
the prescriptive period was legally interrupted by fuerza mayor in 1972 on
account of the prohibition imposed by the Monetary Board against petitioner from
transacting business, until the directive of the Board was nullified in 1981.
Indeed, the period during which the obligee was prevented by a caso fortuito
from enforcing his right is not reckoned against him. (Art. 1154, NCC) When
prescription is interrupted, all the benefits acquired so far from the possession
cease and when prescription starts anew, it will be entirely a new one. This
concept should not be equated with suspension where the past period is included
in the computation being added to the period after the prescription is presumed

2
(4 Tolentino, Commentaries and Jurisprudence on the Civil Code of the
Philippines 1991 ed. pp. 18-19), consequently, when the closure of the petitioner
was set aside in 1981, the period of ten years within which to foreclose under
Art. 1142 of the N.C.C. began to run and, therefore, the action filed on August
21, 1986 to compel petitioner to release the mortgage carried with it the
mistaken notion that petitioners own suit for foreclosure has prescribed.

Even assuming that the liquidation of defendant bank did not affect its right to
foreclose the plaintiffs mortgaged property, the questioned extrajudicial
foreclosure was well within the ten (10) year prescriptive period. It is noteworthy
to mention at this point in time, that defendant bank through authorized Deputy
Francisco Go made the first extrajudicial demand to the plaintiffs on August
1985. Then on March 24, 1995 defendant bank through its officer-in-charge
Llanto made the second extrajudicial demand. And we all know that a written
extrajudicial demand wipes out the period that has already elapsed and starts
anew the prescriptive period. (Ledesma vs. C.A., 224 SCRA 175.)[10]

Petitioners filed a motion for reconsideration which the RTC denied on August
25, 1998.[11] Thus, the present petition for review where petitioners claim that
the RTC erred:
I

IN RULING THAT THE PERIOD WITHIN WHICH RESPONDENT BANK WAS PUT
UNDER RECEIVERSHIP AND LIQUIDATION WAS A FORTUITOUS EVENT THAT
INTERRUPTED THE RUNNING OF THE PRESCRIPTIVE PERIOD.

II

IN RULING THAT THE WRITTEN EXTRA-JUDICIAL DEMAND MADE BY

RESPONDENT ON PETITIONERS WIPED OUT THE PERIOD THAT HAD ALREADY
ELAPSED.

III

IN DENYING PETITIONERS MOTION FOR RECONSIDERATION OF ITS HEREIN

ASSAILED DECISION.[12]

Petitioners argue that: since the extra-judicial foreclosure of the real estate
mortgage was effected by the bank on October 18, 1995, which was fourteen
years from the date the obligation became due on February 27, 1981, said
foreclosure and the subsequent sale at public auction should be set aside and
declared null and void ab initio since they are already barred by prescription; the
court a quo erred in sustaining the respondents theory that its having been
placed under receivership by the Central Bank between April 1985 and August

3
1992 was a fortuitous event that interrupted the running of the prescriptive
period;[13] the court a quos reliance on the case of Provident Savings Bank vs.
Court of Appeals[14] is misplaced since they have different sets of facts; in the
present case, a liquidator was duly appointed for respondent bank and there was
no judgment or court order that would legally or physically hinder or prohibit it
from foreclosing petitioners property; despite the absence of such legal or
physical hindrance, respondent banks receiver or liquidator failed to foreclose
petitioners property and therefore such inaction should bind respondent
bank;[15] foreclosure of mortgages is part of the receivers/liquidators duty of
administering the banks assets for the benefit of its depositors and creditors,
thus, the ten-year prescriptive period which started on February 27, 1981, was
not interrupted by the time during which the respondent bank was placed under
receivership; and the Monetary Boards prohibition from doing business should
not be construed as barring any and all business dealings and transactions by the
bank, otherwise, the specific mandate to foreclose mortgages under Sec. 29 of
R.A. No. 265 as amended by Executive Order No. 65 would be rendered
nugatory.[16] Said provision reads:

Section 29. Proceedings upon Insolvency Whenever, upon examination by the

head of the appropriate supervising or examining department or his examiners or
agents into the condition of any bank or non-bank financial intermediary
performing quasi-banking functions, it shall be disclosed that the condition of the
same is one of insolvency, or that its continuance in business would involve
probable loss to its depositors or creditors, it shall be the duty of the department
head concerned forthwith, in writing, to inform the Monetary Board of the facts.
The Board may, upon finding the statements of the department head to be true,
forbid the institution to do business in the Philippines and designate the official of
the Central Bank or a person of recognized competence in banking or finance, as
receiver to immediately take charge its assets and liabilities, as expeditiously as
possible, collect and gather all the assets and administer the same for the benefit
of its creditors, and represent the bank personally or through counsel as he may
retain in all actions or proceedings for or against the institution, exercising all the
powers necessary for these purposes including, but not limited to, bringing and
foreclosing mortgages in the name of the bank.

Petitioners further contend that: the demand letter, dated March 24, 1995,
was sent after the ten-year prescriptive period, thus it cannot be deemed to have
revived a period that has already elapsed; it is also not one of the instances
enumerated by Art. 1115 of the Civil Code when prescription is
interrupted;[17] and the August 23, 1985 letter by Francisco Go
demanding P6,345.00, refers to the insurance premium on the house of
petitioners, advanced by respondent bank, thus such demand letter referred to
another obligation and could not have the effect of interrupting the running of

4
the prescriptive period in favor of herein petitioners insofar as foreclosure of the
mortgage is concerned.[18]
Petitioners then prayed that respondent bank be ordered to pay
them P100,000.00 as moral damages, P50,000.00 as exemplary damages
and P100,000.00 as attorneys fees.[19]
Respondent for its part asserts that: the period within which it was placed
under receivership and liquidation was a fortuitous event that interrupted the
running of the prescriptive period for the foreclosure of petitioners mortgaged
property; within such period, it was specifically restrained and immobilized from
doing business which includes foreclosure proceedings; the extra-judicial demand
it made on March 24, 1995 wiped out the period that has already lapsed and
started anew the prescriptive period; respondent through its authorized deputy
Francisco Go made the first extra-judicial demand on the petitioners on August
23, 1985; while it is true that the first demand letter of August 1985 pertained to
the insurance premium advanced by it over the mortgaged property of
petitioners, the same however formed part of the latters total loan obligation
with respondent under the mortgage instrument and therefore constitutes a valid
extra-judicial demand made within the prescriptive period.[20]
In their Reply, petitioners reiterate their earlier arguments and add that it
was respondent that insured the mortgaged property thus it should not pass the
obligation to petitioners through the letter dated August 1985.[21]
To resolve this petition, two questions need to be answered: (1) Whether or
not the period within which the respondent bank was placed under receivership
and liquidation proceedings may be considered a fortuitous event which
interrupted the running of the prescriptive period in bringing actions; and (2)
Whether or not the demand letter sent by respondent banks representative on
August 23, 1985 is sufficient to interrupt the running of the prescriptive period.
Anent the first issue, we answer in the negative.
One characteristic of a fortuitous event, in a legal sense and consequently in
relations to contract, is that its occurrence must be such as to render it
impossible for a party to fulfill his obligation in a normal manner.[22]
Respondents claims that because of a fortuitous event, it was not able to
exercise its right to foreclose the mortgage on petitioners property; and that
since it was banned from pursuing its business and was placed under
receivership from April 25, 1985 until August 1992, it could not foreclose the
mortgage on petitioners property within such period since foreclosure is
embraced in the phrase doing business, are without merit.
While it is true that foreclosure falls within the broad definition of doing
business, that is:

5
a continuity of commercial dealings and arrangements and contemplates to that
extent, the performance of acts or words or the exercise of some of the functions
normally incident to and in progressive prosecution of the purpose and object of
its organization.[23]

it should not be considered included, however, in the acts prohibited whenever

banks are prohibited from doing business during receivership and liquidation
proceedings.
This we made clear in Banco Filipino Savings & Mortgage Bank vs. Monetary
Board, Central Bank of the Philippines[24] where we explained that:

Section 29 of the Republic Act No. 265, as amended known as the Central Bank
Act, provides that when a bank is forbidden to do business in the Philippines and
placed under receivership, the person designated as receiver shall immediately
take charge of the banks assets and liabilities, as expeditiously as possible,
collect and gather all the assets and administer the same for the benefit of its
creditors, and represent the bank personally or through counsel as he may retain
in all actions or proceedings for or against the institution, exercising all the
powers necessary for these purposes including, but not limited to, bringing and
foreclosing mortgages in the name of the bank.[25]

This is consistent with the purpose of receivership proceedings, i.e., to

receive collectibles and preserve the assets of the bank in substitution of its
former management, and prevent the dissipation of its assets to the detriment of
the creditors of the bank.[26]
When a bank is declared insolvent and placed under receivership, the Central
Bank, through the Monetary Board, determines whether to proceed with the
liquidation or reorganization of the financially distressed bank. A receiver, who
concurrently represents the bank, then takes control and possession of its assets
for the benefit of the banks creditors. A liquidator meanwhile assumes the role of
the receiver upon the determination by the Monetary Board that the bank can no
longer resume business. His task is to dispose of all the assets of the bank and
effect partial payments of the banks obligations in accordance with legal priority.
In both receivership and liquidation proceedings, the bank retains its juridical
personality notwithstanding the closure of its business and may even be sued as
its corporate existence is assumed by the receiver or liquidator. The receiver or
liquidator meanwhile acts not only for the benefit of the bank, but for its
creditors as well.[27]
In Provident Savings Bank vs. Court of Appeals,[28] we further stated that:

When a bank is prohibited from continuing to do business by the Central Bank

and a receiver is appointed for such bank, that bank would not be able to do new
business, i.e., to grant new loans or to accept new deposits. However, the
6
receiver of the bank is in fact obliged to collect debts owing to the bank,
which debts form part of the assets of the bank. The receiver must
assemble the assets and pay the obligation of the bank under
receivership, and take steps to prevent dissipation of such assets.
Accordingly, the receiver of the bank is obliged to collect pre-existing
debts due to the bank, and in connection therewith, to foreclose
mortgages securing such debts.[29] (Emphasis supplied.)

It is true that we also held in said case that the period during which the bank
was placed under receivership was deemed fuerza mayorwhich validly
interrupted the prescriptive period.[30] This is being invoked by the respondent
and was used as basis by the trial court in its decision. Contrary to the position of
the respondent and court a quo however, such ruling does not find application in
the case at bar.
A close scrutiny of the Provident case, shows that the Court arrived at said
conclusion, which is an exception to the general rule, due to the peculiar
circumstances of Provident Savings Bank at the time. In said case, we stated
that:

Having arrived at the conclusion that a foreclosure is part of a banks business

activity which could not have been pursued by the receiver then because
of the circumstances discussed in the Central Bank case, we are thus
convinced that the prescriptive period was legally interrupted by fuerza mayor in
1972 on account of the prohibition imposed by the Monetary Board against
petitioner from transacting business, until the directive of the Board was nullified
in 1981.[31] (Emphasis supplied.)

Further examination of the Central Bank case reveals that the circumstances
of Provident Savings Bank at the time were peculiar because after the Monetary
Board issued MB Resolution No. 1766 on September 15, 1972, prohibiting it from
doing business in the Philippines, the banks majority stockholders immediately
went to the Court of First Instance of Manila, which prompted the trial court to
issue its judgment dated February 20, 1974, declaring null and void the
resolution and ordering the Central Bank to desist from liquidating Provident. The
decision was appealed to and affirmed by this Court in 1981. Thus, the
Superintendent of Banks, which was instructed to take charge of the assets of
the bank in the name of the Monetary Board, had no power to act as a receiver
of the bank and carry out the obligations specified in Sec. 29 of the Central Bank
Act.[32]
In this case, it is not disputed that Philippine Veterans Bank was placed under
receivership by the Monetary Board of the Central Bank by virtue of Resolution
No. 364 on April 25, 1985, pursuant to Section 29 of the Central Bank Act on
insolvency of banks. [33]

7
 Unlike Provident Savings Bank, there was no legal prohibition imposed upon
herein respondent to deter its receiver and liquidator from performing their
obligations under the law. Thus, the ruling laid down in the Provident case cannot
apply in the case at bar.
There is also no truth to respondents claim that it could not continue doing
business from the period of April 1985 to August 1992, the time it was under
receivership. As correctly pointed out by petitioner, respondent was even able to
send petitioners a demand letter, through Francisco Go, on August 23, 1985 for
accounts receivable in the total amount of P6,345.00 as of August 15, 1984 for
the insurance premiums advanced by respondent bank over the mortgaged
property of petitioners. How it could send a demand letter on unpaid insurance
premiums and not foreclose the mortgage during the time it was prohibited from
doing business was not adequately explained by respondent.
Settled is the principle that a bank is bound by the acts, or failure to act of its
receiver.[34] As we held in Philippine Veterans Bank vs. NLRC,[35] a labor case
which also involved respondent bank,

all the acts of the receiver and liquidator pertain to petitioner, both having
assumed petitioners corporate existence. Petitioner cannot disclaim liability by
arguing that the non-payment of MOLINAs just wages was committed by the
liquidators during the liquidation period.[36]

However, the bank may go after the receiver who is liable to it for any
culpable or negligent failure to collect the assets of such bank and to safeguard
its assets.[37]
Having reached the conclusion that the period within which respondent bank
was placed under receivership and liquidation proceedings does not constitute a
fortuitous event which interrupted the prescriptive period in bringing actions, we
now turn to the second issue on whether or not the extra-judicial demand made
by respondent bank, through Francisco Go, on August 23, 1985 for the amount
of P6,345.00, which pertained to the insurance premiums advanced by the bank
over the mortgaged property, constitutes a valid extra-judicial demand which
interrupted the running of the prescriptive period. Again, we answer this question
in the negative.
Prescription of actions is interrupted when they are filed before the court,
when there is a written extra-judicial demand by the creditors, and when there is
any written acknowledgment of the debt by the debtor.[38]
Respondents claim that while its first demand letter dated August 23, 1985
pertained to the insurance premium it advanced over the mortgaged property of
petitioners, the same formed part of the latters total loan obligation with
respondent under the mortgage instrument, and therefore, constitutes a valid

8
extra-judicial demand which interrupted the running of the prescriptive period, is
not plausible.
The real estate mortgage signed by the petitioners expressly states that:

This mortgage is constituted by the Mortgagor to secure the payment of the loan
and/or credit accommodation granted to the spouses Cesar A. Larrobis, Jr. and
Virginia S. Larrobis in the amount of ONE HUNDRED THIRTY FIVE THOUSAND
(P135,000.00) PESOS ONLY Philippine Currency in favor of the herein
Mortgagee.[39]

The promissory note, executed by the petitioners, also states that:

FOR VALUE RECEIVED, I/WE, JOINTLY AND SEVERALLY, PROMISE TO PAY THE
PHILIPPINE VETERANS BANK, OR ORDER, AT ITS OFFICE AT CEBU CITY THE
SUM OF ONE HUNDRED THIRTY FIVE THOUSAND PESOS (P135,000.00),
PHILIPPINE CURRENCY WITH INTEREST AT THE RATE OF FOURTEEN PER CENT
(14%) PER ANNUM FROM THIS DATE UNTIL FULLY PAID.[40]

Considering that the mortgage contract and the promissory note refer only to
the loan of petitioners in the amount of P135,000.00, we have no reason to hold
that the insurance premiums, in the amount of P6,345.00, which was the subject
of the August 1985 demand letter, should be considered as pertaining to the
entire obligation of petitioners.
In Quirino Gonzales Logging Concessionaire vs. Court of Appeals,[41] we held
that the notices of foreclosure sent by the mortgagee to the mortgagor cannot be
considered tantamount to written extrajudicial demands, which may validly
interrupt the running of the prescriptive period, where it does not appear from
the records that the notes are covered by the mortgage contract.[42]
In this case, it is clear that the advanced payment of the insurance premiums
is not part of the mortgage contract and the promissory note signed by
petitioners. They pertain only to the amount of P135,000.00 which is the
principal loan of petitioners plus interest. The arguments of respondent bank on
this point must therefore fail.
As to petitioners claim for damages, however, we find no sufficient basis to
award the same. For moral damages to be awarded, the claimant must
satisfactorily prove the existence of the factual basis of the damage and its
causal relation to defendants acts.[43] Exemplary damages meanwhile, which are
imposed as a deterrent against or as a negative incentive to curb socially
deleterious actions, may be awarded only after the claimant has proven that he
is entitled to moral, temperate or compensatory damages.[44] Finally, as to
attorneys fees, it is demanded that there be factual, legal and equitable

9
justification for its award.[45] Since the bases for these claims were not
adequately proven by the petitioners, we find no reason to grant the same.
WHEREFORE, the decision of the Regional Trial Court, Cebu City, Branch 24,
dated April 17, 1998, and the order denying petitioners motion for
reconsideration dated August 25, 1998 are hereby REVERSED and SET ASIDE.
The extra-judicial foreclosure of the real estate mortgage on October 18, 1995, is
hereby declared null and void and respondent is ordered to return to petitioners
their owners duplicate certificate of title.
Costs against respondent.
SO ORDERED.

10
 SECOND DIVISION

EVELINA G. CHAVEZ and G.R. No. 174356

AIDA CHAVEZ-DELES,
Petitioners, Present:
Carpio, J., Chairperson,
- versus - Brion,
Del Castillo,
Abad, and
Perez, JJ.
COURT OF APPEALS and
ATTY. FIDELA Y. VARGAS, Promulgated:
Respondents.
January 20, 2010
x ---------------------------------------------------------------------------------------
x

DECISION

ABAD, J.:

This case is about the propriety of the Court of Appeals (CA), which hears
the case on appeal, placing the property in dispute under receivership upon a
claim that the defendant has been remiss in making an accounting to the plaintiff
of the fruits of such property.

The Facts and the Case

Respondent Fidela Y. Vargas owned a five-hectare mixed coconut land and rice
fields in Sorsogon. Petitioner Evelina G. Chavez had been staying in a remote

11
portion of the land with her family, planting coconut seedlings on the land and
supervising the harvest of coconut and palay. Fidela and Evelina agreed to divide
the gross sales of all products from the land between themselves. Since Fidela
was busy with her law practice, Evelina undertook to hold in trust for Fidela her
half of the profits.

But Fidela claimed that Evelina had failed to remit her share of the profits and,
despite demand to turn over the administration of the property to Fidela, had
refused to do so. Consequently, Fidela filed a complaint against Evelina and her
daughter, Aida C. Deles, who was assisting her mother, for recovery of
possession, rent, and damages with prayer for the immediate appointment of a
receiver before the Regional Trial Court (RTC) of Bulan, Sorsogon. [1] In their
answer, Evelina and Aida claimed that the RTC did not have jurisdiction over the
subject matter of the case since it actually involved an agrarian dispute.

After hearing, the RTC dismissed the complaint for lack of jurisdiction based on
Fidelas admission that Evelina and Aida were tenants who helped plant coconut
seedlings on the land and supervised the harvest of coconut and palay. As
tenants, the defendants also shared in the gross sales of the harvest. The court
threw out Fidelas claim that, since Evelina and her family received the land
already planted with fruit-bearing trees, they could not be regarded as
tenants. Cultivation, said the court, included the tending and caring of the
trees. The court also regarded as relevant Fidelas pending application for a five-
hectare retention and Evelinas pending protest relative to her three-hectare
beneficiary share.[2]

Dissatisfied, Fidela appealed to the CA. She also filed with that court a
motion for the appointment of a receiver. On April 12, 2006 the CA granted the
motion and ordained receivership of the land, noting that there appeared to be a
need to preserve the property and its fruits in light of Fidelas allegation that
Evelina and Aida failed to account for her share of such fruits.[3]

Parenthetically, Fidela also filed three estafa cases with the RTC of Olongapo City
and a complaint for dispossession with the Department of Agrarian Reform

12
Adjudication Board (DARAB) against Evelina and Aida. In all these cases, Fidela
asked for the immediate appointment of a receiver for the property.

The Issues Presented

Petitioners present the following issues:

1. Whether or not respondent Fidela is guilty of forum shopping

considering that she had earlier filed identical applications for receivership
over the subject properties in the criminal cases she filed with the RTC of
Olongapo City against petitioners Evelina and Aida and in the
administrative case that she filed against them before the DARAB; and

2. Whether or not the CA erred in granting respondent Fidelas

application for receivership.

The Courts Ruling

One. By forum shopping, a party initiates two or more actions in separate

tribunals, grounded on the same cause, trusting that one or the other tribunal
would favorably dispose of the matter.[4] The elements of forum shopping are the
same as in litis pendentiawhere the final judgment in one case will amount
to res judicata in the other. The elements of forum shopping are: (1) identity of
parties, or at least such parties as would represent the same interest in both
actions; (2) identity of rights asserted and relief prayed for, the relief being
founded on the same facts; and (3) identity of the two preceding particulars such
that any judgment rendered in the other action will, regardless of which party is
successful, amount to res judicata in the action under consideration.[5]

Here, however, the various suits Fidela initiated against Evelina and Aida
involved different causes of action and sought different reliefs. The present civil
action that she filed with the RTC sought to recover possession of the property
based on Evelina and Aidas failure to account for its fruits. The estafa cases she
filed with the RTC accused the two of misappropriating and converting her share

13
in the harvests for their own benefit. Her complaint for dispossession under
Republic Act 8048 with the DARAB sought to dispossess the two for allegedly
cutting coconut trees without the prior authority of Fidela or of the Philippine
Coconut Authority.

The above cases are similar only in that they involved the same parties and
Fidela sought the placing of the properties under receivership in all of them. But
receivership is not an action. It is but an auxiliary remedy, a mere incident of the
suit to help achieve its purpose. Consequently, it cannot be said that the grant of
receivership in one case will amount to res judicata on the merits of the other
cases. The grant or denial of this provisional remedy will still depend on the need
for it in the particular action.

Two. In any event, we hold that the CA erred in granting receivership over
the property in dispute in this case. For one thing, a petition for receivership
under Section 1(b), Rule 59 of the Rules of Civil Procedure requires that the
property or fund subject of the action is in danger of being lost, removed, or
materially injured, necessitating its protection or preservation. Its object is the
prevention of imminent danger to the property. If the action does not require
such protection or preservation, the remedy is not receivership.[6]

Here Fidelas main gripe is that Evelina and Aida deprived her of her share
of the lands produce. She does not claim that the land or its productive capacity
would disappear or be wasted if not entrusted to a receiver. Nor does Fidela
claim that the land has been materially injured, necessitating its protection and
preservation. Because receivership is a harsh remedy that can be granted only in
extreme situations,[7] Fidela must prove a clear right to its issuance. But she has
not. Indeed, in none of the other cases she filed against Evelina and Aida has
that remedy been granted her.[8]

Besides, the RTC dismissed Fidelas action for lack of jurisdiction over the
case, holding that the issues it raised properly belong to the DARAB. The case
before the CA is but an offshoot of that RTC case. Given that the RTC has found
that it had no jurisdiction over the case, it would seem more prudent for the CA

14
to first provisionally determine that the RTC had jurisdiction before granting
receivership which is but an incident of the main action.

WHEREFORE, the Court GRANTS the petition. The Resolutions dated April
12, 2006 and July 7, 2006 of the Court of Appeals in CA-G.R. CV 85552,
are REVERSED and SET ASIDE.

The receivership is LIFTED and the Court of Appeals is directed to resolve

CA-G.R. CV 85552 with utmost dispatch.

SO ORDERED.

15
 THIRD DIVISION

ANA MARIA A. KORUGA, G.R. No. 168332

Petitioner,

- versus -

TEODORO O. ARCENAS, JR., ALBERT C.

AGUIRRE, CESAR S. PAGUIO, FRANCISCO
A. RIVERA, and THE HONORABLE COURT
OF APPEALS, THIRD DIVISION,
Respondents.
x----------------------------
-x
TEODORO O. ARCENAS, JR., ALBERT C. G.R. No. 169053
AGUIRRE, CESAR S. PAGUIO, and
FRANCISCO A. RIVERA, Present:
Petitioners,
YNARES-SANTIAGO, J.,
Chairperson,
- versus - CARPIO,*
CORONA,**
NACHURA, and
HON. SIXTO MARELLA, JR., Presiding PERALTA, JJ.
Judge, Branch
138, Regional Trial Courtof Makati City, Promulgated:
and ANA MARIA A. KORUGA,
Respondents. June 19, 2009

x------------------------------------------------------------------------------------x

DECISION

16
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

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:

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 (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);

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 (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 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.

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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 for Certiorari 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

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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.

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

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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

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 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.

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 on Certiorari 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

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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

24
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 intra-corporate 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]

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

25
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:

26
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 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.[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

27
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 non-bank 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,

28
 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.

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

29
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;

30
(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.

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,

31
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]

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

32
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

33
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:

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 quasi-bank.

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

34
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

35
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 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

36
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 dacionpayments, 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

37
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.

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

38
hereby SET ASIDE. The Temporary Restraining Order issued by this Court on
March 13, 2006 is made PERMANENT. Consequently, Civil Case No. 03-985,
pending before the Regional Trial Court of Makati City, is DISMISSED.

SO ORDERED.

39
 THIRD DIVISION

G.R. No. 203585 July 29, 2013

MILA CABOVERDE TANTANO and ROSELLER CABOVERDE, Petitioners,

vs.
DOMINALDA ESPINA-CABOVERDE, EVE CABOVERDE-YU, FE CABOVERDE-
LABRADOR, and JOSEPHINE E. CABOVERDE, Respondents.

DECISION

VELASCO, JR., J.:

The Case

Assailed in this petition for review under Rule 45 are the Decision and Resolution
of the Court of Appeals (CA) rendered on June 25, 2012 and September 21,
2012, respectively, in CA-G.R. SP. No. 03834, which effectively affirmed the
Resolutions dated February 8, 20 I 0 and July 19, 2010 of the Regional Trial
Court (RTC) of Sindangan, Zamboanga del Norte, Branch 11, in Civil Case No. S-
760, approving respondent Dominalda Espina-Caboverde's application for
receivership and appointing the receivers over the disputed properties.

The Facts

Petitioners Mila Caboverde Tantano (Mila) and Roseller Caboverde (Roseller) are
children of respondent Dominalda Espina-Caboverde (Dominalda) and siblings of
other respondents in this case, namely: Eve Caboverde-Yu (Eve), Fe Caboverde-
Labrador (Fe), and Josephine E. Caboverde (Josephine).

Petitioners and their siblings, Ferdinand, Jeanny and Laluna, are the registered
owners and in possession of certain parcels of land, identified as Lots 2, 3 and 4
located at Bantayan, Sindangan and Poblacion, Sindangan in Zamboanga del
Norte, having purchased them from their parents, Maximo and Dominalda
Caboverde.1

The present controversy started when on March 7, 2005, respondents Eve and Fe
filed a complaint before the RTC of Sindangan, Zamboanga del Norte where they
prayed for the annulment of the Deed of Sale purportedly transferring Lots 2, 3
and 4 from their parents Maximo and Dominalda in favor of petitioners Mila and
Roseller and their other siblings, Jeanny, Laluna and Ferdinand. Docketed as Civil
Case No. S-760, the case was raffled to Branch 11 of the court.

40
In their verified Answer, the defendants therein, including Maximo and
Dominalda, posited the validity and due execution of the contested Deed of Sale.

During the pendency of Civil Case No. S-760, Maximo died. On May 30, 2007,
Eve and Fe filed an Amended Complaint with Maximo substituted by his eight (8)
children and his wife Dominalda. The Amended Complaint reproduced the
allegations in the original complaint but added eight (8) more real properties of
the Caboverde estate in the original list.

As encouraged by the RTC, the parties executed a Partial Settlement Agreement

(PSA) where they fixed the sharing of the uncontroverted properties among
themselves, in particular, the adverted additional eight (8) parcels of land
including their respective products and improvements. Under the PSA,
Dominalda’s daughter, Josephine, shall be appointed as Administrator. The PSA
provided that Dominalda shall be entitled to receive a share of one-half (1/2) of
the net income derived from the uncontroverted properties. The PSA also
provided that Josephine shall have special authority, among others, to provide
for the medicine of her mother.

The parties submitted the PSA to the court on or about March 10, 2008 for
approval.2

Before the RTC could act on the PSA, Dominalda, who, despite being impleaded
in the case as defendant, filed a Motion to Intervene separately in the case.
Mainly, she claimed that the verified Answer which she filed with her co-
defendants contained several material averments which were not representative
of the true events and facts of the case. This document, she added, was never
explained to her or even read to her when it was presented to her for her
signature.

On May 12, 2008, Dominalda filed a Motion for Leave to Admit Amended Answer,
attaching her Amended Answer where she contradicted the contents of the
aforesaid verified Answer by declaring that there never was a sale of the three
(3) contested parcels of land in favor of Ferdinand, Mila, Laluna, Jeanny and
Roseller and that she and her husband never received any consideration from
them. She made it clear that they intended to divide all their properties equally
among all their children without favor. In sum, Dominalda prayed that the reliefs
asked for in the Amended Complaint be granted with the modification that her
conjugal share and share as intestate heir of Maximo over the contested
properties be recognized.3

The RTC would later issue a Resolution granting the Motion to Admit Amended
Answer.4

41
On May 13, 2008, the court approved the PSA, leaving three (3) contested
properties, Lots 2, 3, and 4, for further proceedings in the main case.

Fearing that the contested properties would be squandered, Dominalda filed with
the RTC on July 15, 2008 a Verified Urgent Petition/Application to place the
controverted Lots 2, 3 and 4 under receivership. Mainly, she claimed that while
she had a legal interest in the controverted properties and their produce, she
could not enjoy them, since the income derived was solely appropriated by
petitioner Mila in connivance with her selected kin. She alleged that she
immediately needs her legal share in the income of these properties for her daily
sustenance and medical expenses. Also, she insisted that unless a receiver is
appointed by the court, the income or produce from these properties is in grave
danger of being totally dissipated, lost and entirely spent solely by Mila and some
of her selected kin. Paragraphs 5, 6, 7, and 8 of the Verified Urgent
Petition/Application for Receivership5 (Application for Receivership) capture
Dominalda’s angst and apprehensions:

5. That all the income of Lot Nos. 2, 3 and 4 are collected by Mila Tantano, thru
her collector Melinda Bajalla, and solely appropriated by Mila Tantano and her
selected kins, presumably with Roseller E. Caboverde, Ferdinand E. Caboverde,
Jeanny Caboverde and Laluna Caboverde, for their personal use and benefit;

6. That defendant Dominalda Espina Caboverde, who is now sickly, in dire need
of constant medication or medical attention, not to mention the check-ups,
vitamins and other basic needs for daily sustenance, yet despite the fact that she
is the conjugal owner of the said land, could not even enjoy the proceeds or
income as these are all appropriated solely by Mila Tantano in connivance with
some of her selected kins;

7. That unless a receiver is appointed by the court, the income or produce from
these lands, are in grave danger of being totally dissipated, lost and entirely
spent solely by Mila Tantano in connivance with some of her selected kins, to the
great damage and prejudice of defendant Dominalda Espina Caboverde, hence,
there is no other most feasible, convenient, practicable and easy way to get,
collect, preserve, administer and dispose of the legal share or interest of
defendant Dominalda Espina Caboverde except the appointment of a receiver x x
x;

xxxx

9. That insofar as the defendant Dominalda Espina Caboverde is concerned, time

is of the utmost essence. She immediately needs her legal share and legal
interest over the income and produce of these lands so that she can provide and
pay for her vitamins, medicines, constant regular medical check-up and daily

42
sustenance in life. To grant her share and interest after she may have passed
away would render everything that she had worked for to naught and waste, akin
to the saying "aanhin pa ang damo kung patay na ang kabayo."

On August 27, 2009, the court heard the Application for Receivership and
persuaded the parties to discuss among themselves and agree on how to address
the immediate needs of their mother.6

On October 9, 2009, petitioners and their siblings filed a Manifestation formally

expressing their concurrence to the proposal for receivership on the condition,
inter alia, that Mila be appointed the receiver, and that, after getting the 2/10
share of Dominalda from the income of the three (3) parcels of land, the
remainder shall be divided only by and among Mila, Roseller, Ferdinand, Laluna
and Jeanny. The court, however, expressed its aversion to a party to the action
acting as receiver and accordingly asked the parties to nominate neutral
persons.7

On February 8, 2010, the trial court issued a Resolution granting Dominalda’s

application for receivership over Lot Nos. 2, 3 and 4. The Resolution reads:

As regards the second motion, the Court notes the urgency of placing Lot 2
situated at Bantayan, covered by TCT No. 46307; Lot 3 situated at Poblacion,
covered by TCT No. T-8140 and Lot 4 also situated at Poblacion covered by TCT
No. T-8140, all of Sindangan, Zamboanga del Norte under receivership as
defendant Dominalda Espina Caboverde (the old and sickly mother of the rest of
the parties) who claims to be the owner of the one-half portion of the properties
under litigation as her conjugal share and a portion of the estate of her deceased
husband Maximo, is in dire need for her medication and daily sustenance. As
agreed by the parties, Dominalda Espina Caboverde shall be given 2/10 shares of
the net monthly income and products of the said properties.8

In the same Resolution, the trial court again noted that Mila, the nominee of
petitioners, could not discharge the duties of a receiver, she being a party in the
case.9 Thus, Dominalda nominated her husband’s relative, Annabelle Saldia,
while Eve nominated a former barangay kagawad, Jesus Tan.10

Petitioners thereafter moved for reconsideration raising the arguments that the
concerns raised by Dominalda in her Application for Receivership are not grounds
for placing the properties in the hands of a receiver and that she failed to prove
her claim that the income she has been receiving is insufficient to support her
medication and medical needs. By Resolution11 of July 19, 2010, the trial court
denied the motion for reconsideration and at the same time appointed Annabelle
Saldia as the receiver for Dominalda and Jesus Tan as the receiver for Eve. The
trial court stated:

43
As to the issue of receivership, the Court stands by its ruling in granting the
same, there being no cogent reason to overturn it. As intimated by the movant-
defendant Dominalda Caboverde, Lots 2, 3 and 4 sought to be under receivership
are not among those lots covered by the adverted Partial Amicable Settlement.
To the mind of the Court, the fulfilment or non-fulfilment of the terms and
conditions laid therein nonetheless have no bearing on these three lots. Further,
as correctly pointed out by her, there is possibility that these Lots 2, 3, and 4, of
which the applicant has interest, but are in possession of other defendants who
are the ones enjoying the natural and civil fruits thereof which might be in the
danger of being lost, removed or materially injured. Under this precarious
condition, they must be under receivership, pursuant to Sec. 1 (a) of Rule 59.
Also, the purpose of the receivership is to procure money from the proceeds of
these properties to spend for medicines and other needs of the movant
defendant Dominalda Caboverde who is old and sickly. This circumstance falls
within the purview of Sec. 1(d), that is, "Whenever in other cases it appears that
the appointment of a receiver is the most convenient and feasible means of
preserving, administering, or disposing of the property in litigation."

Both Annabelle Saldia and Jesus Tan then took their respective oaths of office
and filed a motion to fix and approve bond which was approved by the trial court
over petitioners’ opposition.

Undaunted, petitioners filed an Urgent Precautionary Motion to Stay Assumption

of Receivers dated August 9, 2010 reiterating what they stated in their motion
for reconsideration and expressing the view that the grant of receivership is not
warranted under the circumstances and is not consistent with applicable rules
and jurisprudence. The RTC, on the postulate that the motion partakes of the
nature of a second motion for reconsideration, thus, a prohibited pleading,
denied it via a Resolution dated October 7, 2011 where it likewise fixed the
receiver’s bond at PhP 100,000 each. The RTC stated:

[1] The appointed receivers, JESUS A. TAN and ANNABELLE DIAMANTE-SALDIA,

are considered duly appointed by this Court, not only because their appointments
were made upon their proper nomination from the parties in this case, but
because their appointments have been duly upheld by the Court of Appeals in its
Resolution dated 24 May 2011 denying the herein defendants’ (petitioners
therein) application for a writ of preliminary injunction against the 8 February
2010 Resolution of this Court placing the properties (Lots 2, 3 and 4) under
receivership by the said JESUS A. TAN and ANNABELLE DIAMANTE-SALDIA, and
Resolution dated 29 July 2011 denying the herein defendants’ (petitioners
therein) motion for reconsideration of the 24 May 2011 Resolution, both, for lack
of merit. In its latter Resolution, the Court of Appeals states:

44
A writ of preliminary injunction, as an ancillary or preventive remedy, may only
be resorted to by a litigant to protect or preserve his rights or interests and for
no other purpose during the pendency of the principal action. But before a writ of
preliminary injunction may be issued, there must be a clear showing that there
exists a right to be protected and that the acts against which the writ is to be
directed are violative of the said right and will cause irreparable injury.

Unfortunately, petitioners failed to show that the acts of the receivers in this case
are inimical to their rights as owners of the property. They also failed to show
that the non-issuance of the writ of injunction will cause them irreparable injury.
The court-appointed receivers merely performed their duties as administrators of
the disputed lots. It must be stressed that the trial court specifically appointed
these receivers to preserve the properties and its proceeds to avoid any
prejudice to the parties until the main case is resolved, Hence, there is no urgent
need to issue the injunction.

ACCORDINGLY, the motion for reconsideration is DENIED for lack of merit.

SO ORDERED.

xxxx

WHEREFORE, premises considered, this Court RESOLVES, as it is hereby

RESOLVED, that:

1. The defendants’ "Urgent Precautionary Motion to Stay Assumption of

Receivers" be DENIED for lack of merit. Accordingly, it being patently a second
motion for reconsideration, a prohibited pleading, the same is hereby ordered
EXPUNGED from the records;

2. The "Motion to Fix the Bond, Acceptance and Approval of the Oath of Office,
and Bond of the Receiver" of defendant Dominalda Espina Caboverde, be
GRANTED with the receivers’ bond set and fixed at ONE HUNDRED THOUSAND
PESOS (Ph₱100,000.00) each.12

It should be stated at this juncture that after filing their Urgent Precautionary
Motion to Stay Assumption of Receivers but before the RTC could rule on it,
petitioners filed a petition for certiorari with the CA dated September 29, 2010
seeking to declare null and void the February 8, 2010 Resolution of the RTC
granting the Application for Receivership and its July 19, 2010 Resolution
denying the motion for reconsideration filed by petitioners and appointing the
receivers nominated by respondents. The petition was anchored on two grounds,
namely: (1) non-compliance with the substantial requirements under Section 2,
Rule 59 of the 1997 Rules of Civil

45
Procedure because the trial court appointed a receiver without requiring the
applicant to file a bond; and (2) lack of factual or legal basis to place the
properties under receivership because the applicant presented support and
medication as grounds in her application which are not valid grounds for
receivership under the rules.

On June 25, 2012, the CA rendered the assailed Decision denying the petition on
the strength of the following premises and ratiocination:

Petitioners harp on the fact that the court a quo failed to require Dominalda to
post a bond prior to the issuance of the order appointing a receiver, in violation
of Section 2, Rule 59 of the Rules of court which provides that:

SEC. 2. Bond on appointment of receiver.-- Before issuing the order appointing a

receiver the court shall require the applicant to file a bond executed to the party
against whom the application is presented, in an amount to be fixed by the court,
to the effect that the applicant will pay such party all damages he may sustain by
reason of the appointment of such receiver in case the applicant shall have
procured such appointment without sufficient cause; and the court may, in its
discretion, at any time after the appointment, require an additional bond as
further security for such damages.

The Manifestation dated September 30, 2009 filed by petitioners wherein "they
formally manifested their concurrence" to the settlement on the application for
receivership estops them from questioning the sufficiency of the cause for the
appointment of the receiver since they themselves agreed to have the properties
placed under receivership albeit on the condition that the same be placed under
the administration of Mila. Thus, the filing of the bond by Dominalda for this
purpose becomes unnecessary.

It must be emphasized that the bond filed by the applicant for receivership
answers only for all damages that the adverse party may sustain by reason of
the appointment of such receiver in case the applicant shall have procured such
appointment without sufficient cause; it does not answer for damages suffered
by reason of the failure of the receiver to discharge his duties faithfully or to
obey the orders of the court, inasmuch as such damages are covered by the
bond of the receiver.

As to the second ground, petitioners insist that there is no justification for placing
the properties under receivership since there was neither allegation nor proof
that the said properties, not the fruits thereof, were in danger of being lost or
materially injured. They believe that the public respondent went out of line when
he granted the application for receivership for the purpose of procuring money

46
for the medications and basic needs of Dominalda despite the income she’s
supposed to receive under the Partial Settlement Agreement.

The court a quo has the discretion to decide whether or not the appointment of a
receiver is necessary. In this case, the public respondent took into consideration
that the applicant is already an octogenarian who may not live up to the day
when this conflict will be finally settled. Thus, We find that he did not act with
grave abuse of discretion amounting to lack or excess of jurisdiction when he
granted the application for receivership based on Section 1(d) of Rule 59 of the
Rules of Court.

A final note, a petition for certiorari may be availed of only when there is no
appeal, nor any plain, speedy and adequate remedy in the ordinary course of
law. In this case, petitioners may still avail of the remedy provided in Section 3,
Rule 59 of the said Rule where they can seek for the discharge of the receiver.

FOR REASONS STATED, the petition for certiorari is DENIED.

SO ORDERED.13

Petitioners’ Motion for Reconsideration was also denied by the CA on September

21, 2012.14

Hence, the instant petition, petitioners effectively praying that the approval of
respondent Dominalda’s application for receivership and necessarily the
concomitant appointment of receivers be revoked.

The Issues

Petitioners raise the following issues in their petition:

(1) Whether or not the CA committed grave abuse of discretion in sustaining the
appointment of a receiver despite clear showing that the reasons advanced by
the applicant are not any of those enumerated by the rules; and

(2) Whether or not the CA committed grave abuse of discretion in upholding the
Resolution of the RTC and ruling that the receivership bond is not required prior
to appointment despite clear dictates of the rules.

The Court’s Ruling

The petition is impressed with merit.

47
We have repeatedly held that receivership is a harsh remedy to be granted with
utmost circumspection and only in extreme situations. The doctrinal
pronouncement in Velasco & Co. v. Gochico & Co is instructive:

The power to appoint a receiver is a delicate one and should be exercised with
extreme caution and only under circumstances requiring summary relief or where
the court is satisfied that there is imminent danger of loss, lest the injury thereby
caused be far greater than the injury sought to be averted. The court should
consider the consequences to all of the parties and the power should not be
exercised when it is likely to produce irreparable injustice or injury to private
rights or the facts demonstrate that the appointment will injure the interests of
others whose rights are entitled to as much consideration from the court as those
of the complainant.15

To recall, the RTC approved the application for receivership on the stated
rationale that receivership was the most convenient and feasible means to
preserve and administer the disputed properties. As a corollary, the RTC,
agreeing with the applicant Dominalda, held that placing the disputed properties
under receivership would ensure that she would receive her share in the income
which she supposedly needed in order to pay for her vitamins, medicines, her
regular check-ups and daily sustenance. Considering that, as the CA put it, the
applicant was already an octogenarian who may not live up to the day when the
conflict will be finally settled, the RTC did not act with grave abuse of discretion
amounting to lack or excess of jurisdiction when it granted the application for
receivership since it was justified under Sec. 1(d), Rule 59 of the Rules of Court,
which states:

Section 1. Appointment of a receiver. – Upon a verified application, one or more

receivers of the property subject of the action or proceeding may be appointed
by the court where the action is pending, or by the Court of Appeals or by the
Supreme Court, or a member thereof, in the following cases:

xxxx

(d) Whenever in other cases it appears that the appointment of a receiver is the
most convenient and feasible means of preserving, administering, or disposing of
the property in litigation. (Emphasis supplied.)

Indeed, Sec. 1(d) above is couched in general terms and broad in scope,
encompassing instances not covered by the other grounds enumerated under the
said section.16 However, in granting applications for receivership on the basis of
this section, courts must remain mindful of the basic principle that receivership
may be granted only when the circumstances so demand, either because the
property sought to be placed in the hands of a receiver is in danger of being lost

48
or because they run the risk of being impaired,17 and that being a drastic and
harsh remedy, receivership must be granted only when there is a clear showing
of necessity for it in order to save the plaintiff from grave and immediate loss or
damage.18

Before appointing a receiver, courts should consider: (1) whether or not the
injury resulting from such appointment would probably be greater than the injury
ensuing if the status quo is left undisturbed; and (2) whether or not the
appointment will imperil the interest of others whose rights deserve as much a
consideration from the court as those of the person requesting for receivership.19

Moreover, this Court has consistently ruled that where the effect of the
appointment of a receiver is to take real estate out of the possession of the
defendant before the final adjudication of the rights of the parties, the
appointment should be made only in extreme cases.20

After carefully considering the foregoing principles and the facts and
circumstances of this case, We find that the grant of Dominalda’s Application for
Receivership has no leg to stand on for reasons discussed below.

First, Dominalda’s alleged need for income to defray her medical expenses and
support is not a valid justification for the appointment of a receiver. The approval
of an application for receivership merely on this ground is not only unwarranted
but also an arbitrary exercise of discretion because financial need and like
reasons are not found in Sec. 1 of Rule 59 which prescribes specific grounds or
reasons for granting receivership. The RTC’s insistence that the approval of the
receivership is justified under Sec. 1(d) of Rule 59, which seems to be a catch-all
provision, is far from convincing. To be clear, even in cases falling under such
provision, it is essential that there is a clear showing that there is imminent
danger that the properties sought to be placed under receivership will be lost,
wasted or injured.

Second, there is no clear showing that the disputed properties are in danger of
being lost or materially impaired and that placing them under receivership is
most convenient and feasible means to preserve, administer or dispose of them.

Based on the allegations in her application, it appears that Dominalda sought

receivership mainly because she considers this the best remedy to ensure that
she would receive her share in the income of the disputed properties. Much
emphasis has been placed on the fact that she needed this income for her
medical expenses and daily sustenance. But it can be gleaned from her
application that, aside from her bare assertion that petitioner Mila solely
appropriated the fruits and rentals earned from the disputed properties in
connivance with some of her siblings, Dominalda has not presented or alleged

49
anything else to prove that the disputed properties were in danger of being
wasted or materially injured and that the appointment of a receiver was the most
convenient and feasible means to preserve their integrity.

Further, there is nothing in the RTC’s February 8 and July 19, 2010 Resolutions
that says why the disputed properties might be in danger of being lost, removed
or materially injured while in the hands of the defendants a quo. Neither did the
RTC explain the reasons which compelled it to have them placed under
receivership. The RTC simply declared that placing the disputed properties under
receivership was urgent and merely anchored its approval on the fact that
Dominalda was an elderly in need of funds for her medication and sustenance.
The RTC plainly concluded that since the purpose of the receivership is to procure
money from the proceeds of these properties to spend for medicines and other
needs of the Dominalda, who is old and sickly, this circumstance falls within the
purview of Sec. 1(d), that is, "Whenever in other cases it appears that the
appointment of a receiver is the most convenient and feasible means of
preserving, administering, or disposing of the property in litigation."

Verily, the RTC’s purported determination that the appointment of a receiver is

the most convenient and feasible means of preserving, administering or
disposing of the properties is nothing but a hollow conclusion drawn from
inexistent factual considerations.

Third, placing the disputed properties under receivership is not necessary to save
Dominalda from grave and immediate loss or irremediable damage. Contrary to
her assertions, Dominalda is assured of receiving income under the PSA
approved by the RTC providing that she was entitled to receive a share of one-
half (1/2) of the net income derived from the uncontroverted properties.
Pursuant to the PSA, Josephine, the daughter of Dominalda, was appointed by
the court as administrator of the eight (8) uncontested lots with special authority
to provide for the medicine of her mother. Thus, it was patently erroneous for
the RTC to grant the Application for Receivership in order to ensure Dominalda of
income to support herself because precisely, the PSA already provided for that. It
cannot be over-emphasized that the parties in Civil Case No. S-760 were willing
to make arrangements to ensure that Dominalda was provided with sufficient
income. In fact, the RTC, in its February 8, 2010 Resolution granting the
Application for Receivership, noted the agreement of the parties that "Dominalda
Espina Caboverde shall be given 2/10 shares of the net monthly income and
products of said properties."21

Finally, it must be noted that the defendants in Civil Case No. S-760 are the
registered owners of the disputed properties that were in their possession. In
cases such as this, it is settled jurisprudence that the appointment should be

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made only in extreme cases and on a clear showing of necessity in order to save
the plaintiff from grave and irremediable loss or damage.22

This Court has held that a receiver should not be appointed to deprive a party
who is in possession of the property in litigation, just as a writ of preliminary
injunction should not be issued to transfer property in litigation from the
possession of one party to another where the legal title is in dispute and the
party having possession asserts ownership in himself, except in a very clear case
of evident usurpation.23

Furthermore, this Court has declared that the appointment of a receiver is not
proper when the rights of the parties, one of whom is in possession of the
property, depend on the determination of their respective claims to the title of
such property24 unless such property is in danger of being materially injured or
lost, as by the prospective foreclosure of a mortgage on it or its portions are
being occupied by third persons claiming adverse title.25

It must be underscored that in this case, Dominalda’s claim to the disputed

properties and her share in the properties’ income and produce is at best
speculative precisely because the ownership of the disputed properties is yet to
be determined in Civil Case No. S-760. Also, except for Dominalda’s claim that
she has an interest in the disputed properties, Dominalda has no relation to their
produce or income.1âwphi1

By placing the disputed properties and their income under receivership, it is as if

the applicant has obtained indirectly what she could not obtain directly, which is
to deprive the other parties of the possession of the property until the
controversy between them in the main case is finally settled.26 This Court cannot
countenance this arrangement.

To reiterate, the RTC’s approval of the application for receivership and the
deprivation of petitioners of possession over the disputed properties would be
justified only if compelling reasons exist. Unfortunately, no such reasons were
alleged, much less proved in this case.

In any event, Dominalda’s rights may be amply protected during the pendency of
Civil Case No. S-760 by causing her adverse claim to be annotated on the
certificates of title covering the disputed properties.27

As regards the issue of whether or not the CA was correct in ruling that a bond
was not required prior to the appointment of the receivers in this case, We rule
in the negative.

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Respondents Eve and Fe claim that there are sufficient grounds for the
appointment of receivers in this case and that in fact, petitioners agreed with
them on the existence of these grounds when they acquiesced to Dominalda’s
Application for Receivership. Thus, respondents insist that where there is
sufficient cause to appoint a receiver, there is no need for an applicant’s bond
because under Sec. 2 of Rule 59, the very purpose of the bond is to answer for
all damages that may be sustained by a party by reason of the appointment of a
receiver in case the applicant shall have procured such appointment without
sufficient cause. Thus, they further argue that what is needed is the receiver’s
bond which was already fixed and approved by the RTC.28 Also, the CA found
that there was no need for Dominalda to file a bond considering that petitioners
filed a Manifestation where they formally consented to the receivership. Hence, it
was as if petitioners agreed that there was sufficient cause to place the disputed
properties under receivership; thus, the CA declared that petitioners were
estopped from challenging the sufficiency of such cause.

The foregoing arguments are misplaced. Sec. 2 of Rule 59 is very clear in that
before issuing the order appointing a receiver the court shall require the
applicant to file a bond executed to the party against whom the application is
presented. The use of the word "shall" denotes its mandatory nature; thus, the
consent of the other party, or as in this case, the consent of petitioners, is of no
moment. Hence, the filing of an applicant’s bond is required at all times. On the
other hand, the requirement of a receiver’s bond rests upon the discretion of the
court. Sec. 2 of Rule 59 clearly states that the court may, in its discretion, at any
time after the appointment, require an additional bond as further security for
such damages.

WHEREFORE, upon the foregoing considerations, this petition is GRANTED. The

assailed CA June 25, 2012 Decision and September 21, 2012 Resolution in CA-
G.R. SP No. 03834 are hereby REVERSED and SET ASIDE. The Resolutions dated
February 8, 2010 and July 19, 2010 of the RTC, Branch 11 in Sindangan,
Zamboanga del Norte, in Civil Case No. S-760, approving respondent Dominalda
Espina-Caboverde’s application for receivership and appointing the receivers over
the disputed properties are likewise SET ASIDE.

SO ORDERED.

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