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In its complaint, the ANDRADA ELECTRIC & ENGINEERING COMPANY plaintiff

THIRD DIVISION
[herein respondent] alleged that it is a partnership duly organized, existing, and
operating under the laws of the Philippines, with office and principal place of
business at Nos. 794-812 Del Monte [A]venue, Quezon City, plaintiff is engaged in
the business of general construction for the repairs and/or construction of different
[G.R. No. 142936. April 17, 2002]
kinds of machineries and buildings;

PHILIPPINE NATIONAL BANK & NATIONAL SUGAR DEVELOPMENT


CORPORATION, petitioners, vs. ANDRADA ELECTRIC & ENGINEERING while the defendant [herein petitioner] Philippine National Bank (herein referred to
COMPANY, respondent. as PNB), is a semi-government corporation duly organized, existing and operating
under the laws of the Philippines, with office and principal place of business at
DECISION Escolta Street, Sta. Cruz, Manila

PANGANIBAN, J.:

Basic is the rule that a corporation has a legal personality distinct and separate ; whereas, the other defendant, the National Sugar Development Corporation
from the persons and entities owning it. The corporate veil may be lifted only if it (NASUDECO in brief), is also a semi-government corporation and the sugar arm of
has been used to shield fraud, defend crime, justify a wrong, defeat public the PNB, with office and principal place of business at the 2 nd Floor, Sampaguita
convenience, insulate bad faith or perpetuate injustice. Thus, the mere fact that the Building, Cubao, Quezon City; a
Philippine National Bank (PNB) acquired ownership or management of some assets
of the Pampanga Sugar Mill (PASUMIL), which had earlier been foreclosed and nd the defendant Pampanga Sugar Mills (PASUMIL in short), is a corporation
purchased at the resulting public auction by the Development Bank of the organized, existing and operating under the 1975 laws of the Philippines, and had
Philippines (DBP), will not make PNB liable for the PASUMILs contractual debts to its business office before 1975 at Del Carmen, Floridablanca, Pampanga;
respondent.

Statement of the Case that the that on August 26, 1975, the defendant PNB acquired the assets of the
defendant PASUMIL that were earlier foreclosed by the Development Bank of the
Philippines (DBP) under LOI No. 311; that the defendant PNB organized the
Before us is a Petition for Review assailing the April 17, 2000 Decision [1] of the
defendant NASUDECO in September, 1975, to take ownership and possession of the
Court of Appeals (CA) in CA-GR CV No. 57610. The decretal portion of the
assets and ultimately to nationalize and consolidate its interest in other PNB
challenged Decision reads as follows:
controlled sugar mills; that prior to October 29, 1971, the defendant PASUMIL
engaged the services of plaintiff for electrical rewinding and repair, most of which
WHEREFORE, the judgment appealed from is hereby AFFIRMED.[2] were partially paid by the defendant PASUMIL, leaving several unpaid accounts with
the plaintiff; that finally, on October 29, 1971, the plaintiff and the defendant
PASUMIL entered into a contract for the plaintiff to perform the following, to wit
The Facts
(a) Construction of one (1) power house building;

The factual antecedents of the case are summarized by the Court of Appeals
(b) Construction of three (3) reinforced concrete foundation for
as follows:
three (3) units 350 KW diesel engine generating set[s];
(c) Construction of three (3) reinforced concrete foundation for the machine copy of which is appended as Annex C of the complaint; that out of said
5,000 KW and 1,250 KW turbo generator sets; unpaid balance of P527,263.80, the defendant PASUMIL made a partial payment to
the plaintiff of P14,000.00, in broken amounts, covering the period from January 5,
(d) Complete overhauling and reconditioning tests sum for three (3) 1974 up to May 23, 1974, leaving an unpaid balance of P513,263.80; that the
350 KW diesel engine generating set[s]; defendant PASUMIL and the defendant PNB, and now the defendant NASUDECO,
failed and refused to pay the plaintiff their just, valid and demandable obligation;
(e) Installation of turbine and diesel generating sets including that the President of the NASUDECO is also the Vice-President of the PNB, and this
transformer, switchboard, electrical wirings and pipe official holds office at the 10th Floor of the PNB, Escolta, Manila, and plaintiff
provided those stated units are completely supplied with besought this official to pay the outstanding obligation of the defendant PASUMIL,
their accessories; inasmuch as the defendant PNB and NASUDECO now owned and possessed the
assets of the defendant PASUMIL, and these defendants all benefited from the
works, and the electrical, as well as the engineering and repairs, performed by the
(f) Relocating of 2,400 V transmission line, demolition of all existing
plaintiff; that because of the failure and refusal of the defendants to pay their just,
concrete foundation and drainage canals, excavation,
valid, and demandable obligations, plaintiff suffered actual damages in the total
and earth fillings all for the total amount of P543,500.00
amount of P513,263.80; and that in order to recover these sums, the plaintiff was
as evidenced by a contract, [a] xerox copy of which is
compelled to engage the professional services of counsel, to whom the plaintiff
hereto attached as Annex A and made an integral part of
agreed to pay a sum equivalent to 25% of the amount of the obligation due by way
this complaint;
of attorneys fees. Accordingly, the plaintiff prayed that judgment be rendered
against the defendants PNB, NASUDECO, and PASUMIL, jointly and severally to wit:
that aside from the work contract mentioned-above, the defendant PASUMIL
required the plaintiff to perform extra work, and provide electrical equipment and
(1) Sentencing the defendants to pay the plaintiffs the sum of P513,263.80, with
spare parts, such as:
annual interest of 14% from the time the obligation falls due and demandable;
(a) Supply of electrical devices;
(2) Condemning the defendants to pay attorneys fees amounting to 25% of the
amount claim;
(b) Extra mechanical works;
(3) Ordering the defendants to pay the costs of the suit.
(c) Extra fabrication works;
The defendants PNB and NASUDECO filed a joint motion to dismiss the complaint
(d) Supply of materials and consumable items;
chiefly on the ground that the complaint failed to state sufficient allegations to
establish a cause of action against both defendants, inasmuch as there is lack or
(e) Electrical shop repair; want of privity of contract between the plaintiff and the two defendants, the PNB
and NASUDECO, said defendants citing Article 1311 of the New Civil Code, and the
(f) Supply of parts and related works for turbine generator; case law ruling in Salonga v. Warner Barnes & Co., 88 Phil. 125; and Manila Port
Service, et al. v. Court of Appeals, et al., 20 SCRA 1214.
(g) Supply of electrical equipment for machinery;
The motion to dismiss was by the court a quo denied in its Order of November 27,
(h) Supply of diesel engine parts and other related works including 1980; in the same order, that court directed the defendants to file their answer to
fabrication of parts. the complaint within 15 days.

that out of the total obligation of P777,263.80, the defendant PASUMIL had paid In their answer, the defendant NASUDECO reiterated the grounds of its motion to
only P250,000.00, leaving an unpaid balance, as of June 27, 1973, amounting dismiss, to wit:
to P527,263.80, as shown in the Certification of the chief accountant of the PNB, a
That the complaint does not state a sufficient cause of action against the defendant independent corporation, all its (PNB) rights and interest in and under the above
NASUDECO because: (a) NASUDECO is not x x x privy to the various electrical Redemption Agreement. This is shown in Annex D which is also made an integral
construction jobs being sued upon by the plaintiff under the present complaint; (b) part of the answer; [7] that as a consequence of the said Deed of Assignment, PNB
the taking over by NASUDECO of the assets of defendant PASUMIL was solely for on October 21, 1975 ceased to managed and operate the above-mentioned assets
the purpose of reconditioning the sugar central of defendant PASUMIL pursuant to of PASUMIL, which function was now actually transferred to NASUDECO. In other
martial law powers of the President under the Constitution; (c) nothing in the LOI words, so asserted PNB, the complaint as to PNB, had become moot and academic
No. 189-A (as well as in LOI No. 311) authorized or commanded the PNB or its because of the execution of the said Deed of Assignment; [8] that moreover, LOI
subsidiary corporation, the NASUDECO, to assume the corporate obligations of No. 311 did not authorize or direct PNB to assume the corporate obligations of
PASUMIL as that being involved in the present case; and, (d) all that was mentioned PASUMIL, including the alleged obligation upon which this present suit was
by the said letter of instruction insofar as the PASUMIL liabilities [were] concerned brought; and [9] that, at most, what was granted to PNB in this respect was the
[was] for the PNB, or its subsidiary corporation the NASUDECO, to make a study of, authority to make a study of and submit recommendation on the problems
and submit [a] recommendation on the problems concerning the same. concerning the claims of PASUMIL creditors, under sub-par. 5 LOI No. 311.

By way of counterclaim, the NASUDECO averred that by reason of the filing by the In its counterclaim, the PNB averred that it was unnecessarily constrained to litigate
plaintiff of the present suit, which it [labeled] as unfounded or baseless, the and to incur expenses in this case, hence it is entitled to claim attorneys fees in the
defendant NASUDECO was constrained to litigate and incur litigation expenses in amount of at least P50,000.00. Accordingly, PNB prayed that the complaint be
the amount of P50,000.00, which plaintiff should be sentenced to pay. Accordingly, dismissed; and that on its counterclaim, that the plaintiff be sentenced to pay
NASUDECO prayed that the complaint be dismissed and on its counterclaim, that defendant PNB the sum of P50,000.00 as attorneys fees, aside from exemplary
the plaintiff be condemned to pay P50,000.00 in concept of attorneys fees as well damages in such amount that the court may seem just and equitable in the
as exemplary damages. premises.

In its answer, the defendant PNB likewise reiterated the grounds of its motion to Summons by publication was made via the Philippines Daily Express, a newspaper
dismiss, namely: (1) the complaint states no cause of action against the defendant with editorial office at 371 Bonifacio Drive, Port Area, Manila, against the defendant
PNB; (2) that PNB is not a party to the contract alleged in par. 6 of the complaint PASUMIL, which was thereafter declared in default as shown in the August 7, 1981
and that the alleged services rendered by the plaintiff to the defendant PASUMIL Order issued by the Trial Court.
upon which plaintiffs suit is erected, was rendered long before PNB took possession
of the assets of the defendant PASUMIL under LOI No. 189-A; (3) that the PNB take- After due proceedings, the Trial Court rendered judgment, the decretal portion of
over of the assets of the defendant PASUMIL under LOI 189-A was solely for the which reads:
purpose of reconditioning the sugar central so that PASUMIL may resume its
operations in time for the 1974-75 milling season, and that nothing in the said LOI WHEREFORE, judgment is hereby rendered in favor of plaintiff and against the
No. 189-A, as well as in LOI No. 311, authorized or directed PNB to assume the defendant Corporation, Philippine National Bank (PNB) NATIONAL SUGAR
corporate obligation/s of PASUMIL, let alone that for which the present action is DEVELOPMENT CORPORATION (NASUDECO) and PAMPANGA SUGAR MILLS
brought; (4) that PNBs management and operation under LOI No. 311 did not refer (PASUMIL), ordering the latter to pay jointly and severally the former the following:
to any asset of PASUMIL which the PNB had to acquire and thereafter [manage],
but only to those which were foreclosed by the DBP and were in turn redeemed by
1. The sum of P513,623.80 plus interest thereon at the rate of
the PNB from the DBP; (5) that conformably to LOI No. 311, on August 15, 1975, the
14% per annum as claimed from September 25, 1980
PNB and the Development Bank of the Philippines (DBP) entered into a Redemption
until fully paid;
Agreement whereby DBP sold, transferred and conveyed in favor of the PNB, by
way of redemption, all its (DBP) rights and interest in and over the foreclosed real
2. The sum of P102,724.76 as attorneys fees; and,
and/or personal properties of PASUMIL, as shown in Annex C which is made an
integral part of the answer; (6) that again, conformably with LOI No. 311, PNB
pursuant to a Deed of Assignment dated October 21, 1975, conveyed, transferred, 3. Costs.
and assigned for valuable consideration, in favor of NASUDECO, a distinct and
SO ORDERED.
Manila, Philippines, September 4, 1986. This Courts Ruling

'(SGD)
ERNESTO S. The Petition is meritorious.
TENGCO
Judg
e[3] Main Issue:
Liability for Corporate Debts

Ruling of the Court of Appeals As a general rule, questions of fact may not be raised in a petition for review
under Rule 45 of the Rules of Court.[7] To this rule, however, there are some
Affirming the trial court, the CA held that it was offensive to the basic tenets exceptions enumerated in Fuentes v. Court of Appeals.[8] After a careful scrutiny of
of justice and equity for a corporation to take over and operate the business of the records and the pleadings submitted by the parties, we find that the lower
another corporation, while disavowing or repudiating any responsibility, obligation courts misappreciated the evidence presented.[9] Overlooked by the CA were
or liability arising therefrom.[4] certain relevant facts that would justify a conclusion different from that reached in
the assailed Decision.[10]
Hence, this Petition.[5]
Petitioners posit that they should not be held liable for the corporate debts of
PASUMIL, because their takeover of the latters foreclosed assets did not make them
assignees. On the other hand, respondent asserts that petitioners and PASUMIL
Issues should be treated as one entity and, as such, jointly and severally held liable for
PASUMILs unpaid obligation.
In their Memorandum, petitioners raise the following errors for the Courts As a rule, a corporation that purchases the assets of another will not be liable
consideration: for the debts of the selling corporation, provided the former acted in good faith and
paid adequate consideration for such assets, except when any of the following
I
circumstances is present: (1) where the purchaser expressly or impliedly agrees to
assume the debts, (2) where the transaction amounts to a consolidation or merger
The Court of Appeals gravely erred in law in holding the herein petitioners of the corporations, (3) where the purchasing corporation is merely a continuation
liable for the unpaid corporate debts of PASUMIL, a corporation whose of the selling corporation, and (4) where the transaction is fraudulently entered into
corporate existence has not been legally extinguished or terminated, simply in order to escape liability for those debts.[11]
because of petitioners[] take-over of the management and operation of
PASUMIL pursuant to the mandates of LOI No. 189-A, as amended by LOI No.
311.
Piercing the Corporate
Veil Not Warranted
II

The Court of Appeals gravely erred in law in not applying [to] the case at A corporation is an artificial being created by operation of law. It possesses the
bench the ruling enunciated in Edward J. Nell Co. v. Pacific Farms, 15 SCRA right of succession and such powers, attributes, and properties expressly authorized
415.[6] by law or incident to its existence.[12] It has a personality separate and distinct from
the persons composing it, as well as from any other legal entity to which it may be
Succinctly put, the aforesaid errors boil down to the principal issue of whether related.[13] This is basic.
PNB is liable for the unpaid debts of PASUMIL to respondent.
Equally well-settled is the principle that the corporate mask may be removed discharge this burden;[35] it failed to establish by competent evidence that
or the corporate veil pierced when the corporation is just an alter ego of a person petitioners separate corporate veil had been used to conceal fraud, illegality or
or of another corporation.[14] For reasons of public policy and in the interest of inequity.[36]
justice, the corporate veil will justifiably be impaled[15] only when it becomes a
While we agree with respondents claim that the assets of the National Sugar
shield for fraud, illegality or inequity committed against third persons. [16]
Development Corporation (NASUDECO) can be easily traced to PASUMIL, [37] we are
Hence, any application of the doctrine of piercing the corporate veil should be not convinced that the transfer of the latters assets to petitioners was fraudulently
done with caution.[17] A court should be mindful of the milieu where it is to be entered into in order to escape liability for its debt to respondent. [38]
applied.[18] It must be certain that the corporate fiction was misused to such an
A careful review of the records reveals that DBP foreclosed the mortgage
extent that injustice, fraud, or crime was committed against another, in disregard of
executed by PASUMIL and acquired the assets as the highest bidder at the public
its rights.[19] The wrongdoing must be clearly and convincingly established; it cannot
be presumed.[20] Otherwise, an injustice that was never unintended may result from auction conducted.[39] The bank was justified in foreclosing the mortgage, because
the PASUMIL account had incurred arrearages of more than 20 percent of the total
an erroneous application.[21]
outstanding obligation.[40] Thus, DBP had not only a right, but also a duty under the
This Court has pierced the corporate veil to ward off a judgment credit, [22] to law to foreclose the subject properties.[41]
avoid inclusion of corporate assets as part of the estate of the decedent, [23] to
Pursuant to LOI No. 189-A[42] as amended by LOI No. 311,[43] PNB acquired
escape liability arising from a debt,[24] or to perpetuate fraud and/or confuse
PASUMILs assets that DBP had foreclosed and purchased in the normal
legitimate issues[25] either to promote or to shield unfair objectives[26] or to cover up
course. Petitioner bank was likewise tasked to manage temporarily the operation of
an otherwise blatant violation of the prohibition against forum-shopping.[27] Only in
these and similar instances may the veil be pierced and disregarded. [28] such assets either by itself or through a subsidiary corporation.[44]
PNB, as the second mortgagee, redeemed from DBP the foreclosed PASUMIL
The question of whether a corporation is a mere alter ego is one of
[29] assets pursuant to Section 6 of Act No. 3135.[45] These assets were later conveyed to
fact. Piercing the veil of corporate fiction may be allowed only if the following
PNB for a consideration, the terms of which were embodied in the Redemption
elements concur: (1) control -- not mere stock control, but complete domination --
not only of finances, but of policy and business practice in respect to the Agreement.[46]PNB, as successor-in-interest, stepped into the shoes of DBP as
PASUMILs creditor.[47] By way of a Deed of Assignment,[48] PNB then transferred to
transaction attacked, must have been such that the corporate entity as to this
NASUDECO all its rights under the Redemption Agreement.
transaction had at the time no separate mind, will or existence of its own; (2) such
control must have been used by the defendant to commit a fraud or a wrong to In Development Bank of the Philippines v. Court of Appeals,[49] we had the
perpetuate the violation of a statutory or other positive legal duty, or a dishonest occasion to resolve a similar issue. We ruled that PNB, DBP and their transferees
and an unjust act in contravention of plaintiffs legal right; and (3) the said control were not liable for Marinduque Minings unpaid obligations to Remington Industrial
and breach of duty must have proximately caused the injury or unjust loss Sales Corporation (Remington) after the two banks had foreclosed the assets of
complained of.[30] Marinduque Mining. We likewise held that Remington failed to discharge its burden
of proving bad faith on the part of Marinduque Mining to justify the piercing of the
We believe that the absence of the foregoing elements in the present case
corporate veil.
precludes the piercing of the corporate veil. First, other than the fact that
petitioners acquired the assets of PASUMIL, there is no showing that their control In the instant case, the CA erred in affirming the trial courts lifting of the
over it warrants the disregard of corporate personalities. [31] Second, there is no corporate mask.[50] The CA did not point to any fact evidencing bad faith on the part
evidence that their juridical personality was used to commit a fraud or to do a of PNB and its transferee.[51] The corporate fiction was not used to defeat public
wrong; or that the separate corporate entity was farcically used as a mere alter ego, convenience, justify a wrong, protect fraud or defend crime.[52] None of the
business conduit or instrumentality of another entity or person. [32] Third, foregoing exceptions was shown to exist in the present case.[53] On the contrary, the
respondent was not defrauded or injured when petitioners acquired the assets of lifting of the corporate veil would result in manifest injustice. This we cannot allow.
PASUMIL.[33]
Being the party that asked for the piercing of the corporate veil, respondent
had the burden of presenting clear and convincing evidence to justify the setting No Merger or Consolidation
aside of the separate corporate personality rule.[34] However, it utterly failed to
Respondent further claims that petitioners should be held liable for the unpaid
obligations of PASUMIL by virtue of LOI Nos. 189-A and 311, which expressly
authorized PASUMIL and PNB to merge or consolidate. On the other hand,
petitioners contend that their takeover of the operations of PASUMIL did not
involve any corporate merger or consolidation, because the latter had never lost its
separate identity as a corporation.
A consolidation is the union of two or more existing entities to form a new
entity called the consolidated corporation. A merger, on the other hand, is a union
whereby one or more existing corporations are absorbed by another corporation
that survives and continues the combined business.[54]
The merger, however, does not become effective upon the mere agreement
of the constituent corporations.[55] Since a merger or consolidation involves
fundamental changes in the corporation, as well as in the rights of stockholders and
creditors, there must be an express provision of law authorizing them. [56] For a valid
merger or consolidation, the approval by the Securities and Exchange Commission
(SEC) of the articles of merger or consolidation is required.[57] These articles must
likewise be duly approved by a majority of the respective stockholders of the
constituent corporations.[58]
In the case at bar, we hold that there is no merger or consolidation with
respect to PASUMIL and PNB. The procedure prescribed under Title IX of the
Corporation Code[59] was not followed.
In fact, PASUMILs corporate existence, as correctly found by the CA, had not
been legally extinguished or terminated.[60] Further, prior to PNBs acquisition of the
foreclosed assets, PASUMIL had previously made partial payments to respondent
for the formers obligation in the amount of P777,263.80. As of June 27, 1973,
PASUMIL had paid P250,000 to respondent and, from January 5, 1974 to May 23,
1974, another P14,000.
Neither did petitioner expressly or impliedly agree to assume the debt of
PASUMIL to respondent.[61] LOI No. 11 explicitly provides that PNB shall study and
submit recommendations on the claims of PASUMILs creditors.[62] Clearly, the
corporate separateness between PASUMIL and PNB remains, despite respondents
insistence to the contrary.[63]
WHEREFORE, the Petition is hereby GRANTED and the assailed Decision SET
ASIDE. No pronouncement as to costs.
SO ORDERED.
Vitug, (Acting Chairman), Sandoval-Gutierrez, and Carpio, JJ., concur.
Melo, (Chairman), J., Abroad, on official leave.
consolidation of the said civil case with Special Proceeding Case No. M-
5290 (liquidation case) before the Regional Trial Court of Makati City, Branch
59 (RTC-Makati).

It appears from the records that on March 17, 2000, petitioner Lucia
Barrameda Vda. De Ballesteros (Lucia) filed a complaint for Annulment of Deed of
SECOND DIVISION
Extrajudicial Partition, Deed of Mortgage and Damages with prayer for Preliminary
Injunction against her children, Roy, Rito, Amy, Arabel, Rico, Abe, Ponce Rex and
LUCIA BARRAMEDA VDA. DE BALLESTEROS, G.R. No. 176260
Petitioner, Adden, all surnamed Ballesteros, and the Rural Bank of Canaman, Inc., Baao
Present: Branch (RBCI) before the RTC-Iriga. The case was docketed as Civil Case No. IR-3128.

CARPIO, J., Chairperson,


- versus - NACHURA,
In her complaint, Lucia alleged that her deceased husband, Eugenio, left two (2)
PERALTA,
ABAD, and parcels of land located in San Nicolas, Baao, Camarines Sur, each with an area of 357
RURAL BANK OF CANAMAN MENDOZA, JJ.
square meters; that on March 6, 1995, without her knowledge and consent, her
INC., represented by its Liquidator, THE
PHILIPPINE DEPOSIT INSURANCE children executed a deed of extrajudicial partition and waiver of the estate of her
CORPORATION,
husband wherein all the heirs, including Lucia, agreed to allot the two parcels to Rico
Respondent. Promulgated:
Ballesteros (Rico); that, still, without her knowledge and consent, Rico mortgaged
November 24, 2010 Parcel B of the estate in favor of RBCI which mortgage was being foreclosed for failure

X -------------------------------------------------------------------------------------- X to settle the loan secured by the lot; and that Lucia was occupying Parcel B and had
no other place to live. She prayed that the deed of extrajudicial partition and waiver,
DECISION
and the subsequent mortgage in favor of RBCI be declared null and void having been
executed without her knowledge and consent. She also prayed for damages.
MENDOZA, J.:

In its Answer, RBCI claimed that in 1979, Lucia sold one of the two parcels to Rico
This is a petition for review on certiorari under Rule 45 of the Revised Rules which represented her share in the estate of her husband. The extrajudicial partition,
[1]
of Civil Procedure assailing the August 15, 2006 Decision of the Court of waiver and mortgage were all executed with the knowledge and consent of Lucia
Appeals (CA) in CA-G.R. No. 82711, modifying the decision of the Regional Trial Court although she was not able to sign the document. RBCI further claimed that Parcel B
of Iriga City, Branch 36 (RTC-Iriga), in Civil Case No. IR-3128, by ordering the
It is in view of this jurisprudential pronouncement made
had already been foreclosed way back in 1999 which fact was known to Lucia through
by no less than the Supreme Court, that this case is, as far as
the auctioning notary public. Attorneys fees were pleaded as counterclaim. defendant Rural Bank of Canaman Inc., is concerned, hereby
ordered DISMISSED without prejudice on the part of the plaintiff to
ventilate their claim before the Liquidation Court now, RTC Branch
The case was then set for pre-trial conference. During the pre-trial, RBCIs counsel 59, Makati City.
filed a motion to withdraw after being informed that Philippine Deposit Insurance
SO ORDERED.
Corporation (PDIC) would handle the case as RBCI had already been closed and
placed under the receivership of the PDIC. Consequently, on February 4, 2002, the Not in conformity, Lucia appealed the RTC ruling to the CA on the ground that the
lawyers of PDIC took over the case of RBCI. RTC-Iriga erred in dismissing the case because it had jurisdiction over Civil Case No.
IR-3128 under the rule on adherence of jurisdiction.
On May 9, 2003, RBCI, through PDIC, filed a motion to dismiss on the ground that the
RTC-Iriga has no jurisdiction over the subject matter of the action. RBCI stated that On August 15, 2006, the CA rendered the questioned decision ordering the
pursuant to Section 30, Republic Act No. 7653 (RA No. 7653), otherwise known as the consolidation of Civil Case No. IR-3128 and the liquidation case pending before RTC-
New Central Bank Act, the RTC-Makati, already constituted itself, per its Order dated Makati. The appellate court ratiocinated thus:
August 10, 2001, as the liquidation court to assist PDIC in undertaking the liquidation
of RBCI. Thus, the subject matter of Civil Case No. IR-3128 fell within the exclusive The consolidation is desirable in order to prevent confusion, to
avoid multiplicity of suits and to save unnecessary cost and
jurisdiction of such liquidation court. Lucia opposed the motion. expense. Needless to add, this procedure is well in accord with the
principle that the rules of procedure shall be liberally construed in
order to promote their object and to assist the parties in obtaining
On July 29, 2003, the RTC-Iriga issued an order[2] granting the Motion to just, speedy and inexpensive determination of every action and
Dismiss, to wit: proceeding (Vallacar Transit, Inc. v. Yap, 126 SCRA 500
[1983]; Suntay v. Aguiluz, 209 SCRA 500 [1992] citing Ramos v.
Ebarle, 182 SCRA 245 [1990]). It would be more in keeping with the
This resolves the Motion to Dismiss filed by the defendant demands of equity if the cases are simply ordered
Rural Bank of Canaman, Inc., premised on the ground that this consolidated. Pursuant to Section 2, Rule 1, Revised Rules of Court,
court has no jurisdiction over the subject matter of the action. This the rules on consolidation should be liberally construed to achieve
issue of jurisdiction was raised in view of the pronouncement of the the object of the parties in obtaining just, speedy and inexpensive
Supreme Court in Ong v. C.A. 253 SCRA 105 and in the case of determination of their cases (Allied Banking Corporation v. Court of
Hernandez v. Rural Bank of Lucena, Inc., G.R. No. L-29791 Appeals, 259 SCRA 371 [1996]).
dated January 10, 1978, wherein it was held that the liquidation
court shall have jurisdiction to adjudicate all claims against the
bank whether they be against assets of the insolvent bank, for The dispositive portion of the decision reads:
Specific Performance, Breach of Contract, Damages or whatever.

IN VIEW OF ALL THE FOREGOING, the appealed decision is


hereby MODIFIED, in such a way that the dismissal of this case
(Civil Case No. IR-3128) is set aside and in lieu thereof another one
is entered ordering the consolidation of said case with the
liquidation case docketed as Special Proceeding No. M-5290 before
Branch 59 of the Regional Trial Court of Makati City, entitled In Re:
Assistance in the Judicial Liquidation of Rural Bank of Canaman, Lucia contends that the RTC-Iriga is vested with jurisdiction over Civil Case
Camarines Sur, Inc., Philippine Deposit Corporation, Petitioner. No
No. 3128, the constitution of the liquidation court notwithstanding. According to her,
pronouncement as to cost.
the case was filed before the RTC-Iriga on March 17, 2000 at the time RBCI was still
SO ORDERED.[3] doing business or before the defendant bank was placed under receivership of PDIC
in January 2001.

Lucia filed a motion for reconsideration[4] but it was denied by the CA in its
She further argues that the consolidation of the two cases is improper. Her
Resolution dated December 14, 2006.[5]
case, which is for annulment of deed of partition and waiver, deed of mortgage and
Hence, the present petition for review on certiorari anchored on the
damages, cannot be legally brought before the RTC-Makati with the liquidation case
following
considering that her cause of action against RBCI is not a simple claim arising out of
GROUNDS a creditor-debtor relationship, but one which involves her rights and interest over a
certain property irregularly acquired by RBCI. Neither is she a creditor of the bank, as
(I) only the creditors of the insolvent bank are allowed to file and ventilate claims before
the liquidator, pursuant to the August 10, 2001 Order of the RTC-Makati which
THE COURT OF APPEALS ERRED IN NOT FINDING THAT granted the petition for assistance in the liquidation of RBCI.
THE REGIONAL TRIAL COURT OF IRIGA CITY, BRANCH 36 IS
VESTED WITH JURISDICTION TO CONTINUE TRYING AND
ULTIMATELY DECIDE CIVIL CASE NO. IR-3128. In its Comment,[7] PDIC, as liquidator of RBCI, counters that the
consolidation of Civil Case No. 3128 with the liquidation proceeding is proper. It
(II) posits that the liquidation court of RBCI, having been established, shall have exclusive
jurisdiction over all claims against the said bank.
THE COURT OF APPEALS ERRED AND GRAVELY ABUSED ITS
DISCRETION IN ORDERING THE CONSOLIDATION OF CIVIL CASE
NO. IR-3128 WITH THE LIQUIDATION CASE DOCKETED AS SPECIAL After due consideration, the Court finds the petition devoid of merit.
PROCEEDINGS NO. M-5290 BEFORE BRANCH 59 OF
THE REGIONAL TRIAL COURT OF MAKATI CITY.[6]
Lucias argument, that the RTC-Iriga is vested with jurisdiction to continue

Given the foregoing arguments, the Court finds that the core issue to be resolved in trying Civil Case No. IR-3128 until its final disposition, evidently falls out from a

this petition involves a determination of whether a liquidation court can take strained interpretation of the law and jurisprudence. She contends that:

cognizance of a case wherein the main cause of action is not a simple money claim
against a bank ordered closed, placed under receivership of the PDIC, and undergoing Since the RTC-Iriga has already obtained jurisdiction over
the case it should continue exercising such jurisdiction until the
a liquidation proceeding.
final termination of the case. The jurisdiction of a court once proceedings filed by the Central Bank is intended
attached cannot be ousted by subsequent happenings or events, to prevent multiplicity of actions against the
although of a character which would have prevented jurisdiction insolvent bank and designed to establish due
from attaching in the first instance, and the Court retains process and orderliness in the liquidation of the
jurisdiction until it finally disposes of the case (Aruego Jr. v. Court bank, to obviate the proliferation of litigations
of Appeals, 254 SCRA 711). and to avoid injustice and arbitrariness
(citing Ong v. CA, 253 SCRA 105 [1996]). The
When a court has already obtained and is exercising lawmaking body contemplated that for
jurisdiction over a controversy, its jurisdiction to proceed to final convenience, only one court, if possible, should
determination of the case is not affected by a new legislation pass upon the claims against the insolvent bank
transferring jurisdiction over such proceedings to another tribunal. and that the liquidation court should assist the
(Alindao v. Joson, 264 SCRA 211). Once jurisdiction is vested, the Superintendents of Banks and regulate his
same is retained up to the end of the litigation (Bernate v. Court of operations (citing Central Bank of the Philippines,
Appeals, 263 SCRA 323).[8] et al. v. CA, et al., 163 SCRA 482 [1988]).[9]

The afore-quoted cases, cited by Lucia to bolster the plea for the
As regards Lucias contention that jurisdiction already attached when Civil Case No.
continuance of her case, find no application in the case at bench.
IR-3128 was filed with, and jurisdiction obtained by, the RTC-Iriga prior to the filing
of the liquidation case before the RTC-Makati, her stance fails to persuade this
Indeed, the Court recognizes the doctrine on adherence of
Court. In refuting this assertion, respondent PDIC cited the case of Lipana v.
jurisdiction. Lucia, however, must be reminded that such principle is not without
Development Bank of Rizal[10] where it was held that the time of the filing of the
exceptions. It is well to quote the ruling of the CA on this matter, thus:
complaint is immaterial, viz:
This Court is not unmindful nor unaware of the doctrine
It is the contention of petitioners, however, that the
on the adherence of jurisdiction. However, the rule on adherence
placing under receivership of Respondent Bank long after the filing
of jurisdiction is not absolute and has exceptions. One of the
of the complaint removed it from the doctrine in the said Morfe
exceptions is that when the change in jurisdiction is curative in
Case.
character (Garcia v. Martinez, 90 SCRA 331 [1979]; Calderon, Sr. v.
Court of Appeals, 100 SCRA 459 [1980]; Atlas Fertilizer Corporation
This contention is untenable. The time of the filing of the
v. Navarro, 149 SCRA 432 [1987]; Abad v. RTC of Manila, Br. Lll, 154
complaint is immaterial. It is the execution that will obviously
SCRA 664 [1987]).
prejudice the other depositors and creditors. Moreover, as stated
in the said Morfe case, the effect of the judgment is only to fix the
For sure, Section 30, R.A. 7653 is curative in character
amount of the debt, and not to give priority over other depositors
when it declared that the liquidation court shall have jurisdiction in
and creditors.
the same proceedings to assist in the adjudication of the disputed
claims against the Bank. The interpretation of this Section
(formerly Section 29, R.A. 265) becomes more obvious in the light
The cited Morfe case[11] held that after the Monetary Board has declared
of its intent. In Manalo v. Court of Appeals (366 SCRA 752, [2001]),
the Supreme Court says: that a bank is insolvent and has ordered it to cease operations, the Board becomes
the trustee of its assets for the equal benefit of all the creditors, including
xxx The requirement that all claims
against the bank be pursued in the liquidation depositors. The assets of the insolvent banking institution are held in trust for the
The receiver shall immediately gather and take charge of
equal benefit of all creditors, and after its insolvency, one cannot obtain an
all the assets and liabilities of the institution, administer the same
advantage or a preference over another by an attachment, execution or otherwise. for the benefit of its creditors, and exercise the general powers of
a receiver under the Revised Rules of Court but shall not, with the
exception of administrative expenditures, pay or commit any act
Thus, to allow Lucias case to proceed independently of the liquidation case,
that will involve the transfer or disposition of any asset of the
a possibility of favorable judgment and execution thereof against the assets of RBCI institution: Provided, That the receiver may deposit or place the
would not only prejudice the other creditors and depositors but would defeat the funds of the institution in non-speculative investments. The
receiver shall determine as soon as possible, but not later than
very purpose for which a liquidation court was constituted as well. ninety (90) days from take over, whether the institution may be
rehabilitated or otherwise placed in such a condition that it may be
Anent the second issue, Lucia faults the CA in directing the consolidation of permitted to resume business with safety to its depositors and
creditors and the general public: Provided, That any determination
Civil Case No. IR-3128 with Special Proceedings No. M-5290. The CA committed no for the resumption of business of the institution shall be subject to
error. Lucias complaint involving annulment of deed of mortgage and damages falls prior approval of the Monetary Board.

within the purview of a disputed claim in contemplation of Section 30 of R.A. 7653 If the receiver determines that the institution cannot be
rehabilitated or permitted to resume business in accordance with
(The New Central Bank Act). The jurisdiction should be lodged with the liquidation the next preceding paragraph, the Monetary Board shall notify in
court. Section 30 provides: writing the board of directors of its findings and direct the receiver
to proceed with the liquidation of the institution. The receiver
Sec. 30. Proceedings in Receivership and Liquidation. - shall:
Whenever, upon report of the head of the supervising or examining
department, the Monetary Board finds that a bank or quasi-bank: (1) file ex parte with the proper regional trial court, and
without requirement of prior notice or any other action, a petition
(a) is unable to pay its liabilities as they become due in the for assistance in the liquidation of the institution pursuant to a
ordinary course of business: Provided, That this shall not include liquidation plan adopted by the Philippine Deposit Insurance
inability to pay caused by extraordinary demands induced by Corporation for general application to all closed banks. In case of
financial panic in the banking community; quasi-banks, the liquidation plan shall be adopted by the Monetary
(b) has insufficient realizable assets, as determined by the Board. Upon acquiring jurisdiction, the court shall, upon motion by
Bangko Sentral, to meet its liabilities; or the receiver after due notice, adjudicate disputed claims against
the institution, assist the enforcement of individual liabilities of the
(c) cannot continue in business without involving probable stockholders, directors and officers, and decide on other issues as
losses to its depositors or creditors; or may be material to implement the liquidation plan adopted. The
receiver shall pay the cost of the proceedings from the assets of the
(d) has wilfully violated a cease and desist order under
institution.
Section 37 that has become final, involving acts or transactions
which amount to fraud or a dissipation of the assets of the (2) convert the assets of the institution to money, dispose
institution; in which cases, the Monetary Board may summarily and of the same to creditors and other parties, for the purpose of
without need for prior hearing forbid the institution from doing paying the debts of such institution in accordance with the rules on
business in the Philippines and designate the Philippine Deposit concurrence and preference of credit under the Civil Code of the
Insurance Corporation as receiver of the banking institution. Philippines and he may, in the name of the institution, and with the
assistance of counsel as he may retain, institute such actions as
For a quasi-bank, any person of recognized competence in
may be necessary to collect and recover accounts and assets of, or
banking or finance may be designated as receiver.
defend any action against, the institution. The assets of an
institution under receivership or liquidation shall be deemed
in custodia legis in the hands of the receiver and shall, from the A liquidation proceeding is commenced by the filing of a
moment the institution was placed under such receivership or single petition by the Solicitor General with a court of competent
liquidation, be exempt from any order of garnishment, levy, jurisdiction entitled, "Petition for Assistance in the Liquidation of
attachment, or execution. [Emphasis supplied] e.g., Pacific Banking Corporation. All claims against the insolvent
are required to be filed with the liquidation court. Although the
xxx claims are litigated in the same proceeding, the treatment is
individual. Each claim is heard separately. And the Order issued
relative to a particular claim applies only to said claim, leaving the
Disputed claims refers to all claims, whether they be against the assets of
other claims unaffected, as each claim is considered separate and
the insolvent bank, for specific performance, breach of contract, damages, or distinct from the others. x x x [Emphasis supplied.]
whatever.[12] Lucias action being a claim against RBCI can properly be consolidated
with the liquidation proceedings before the RTC-Makati. A liquidation proceeding has It is clear, therefore, that the liquidation court has jurisdiction over all
been explained in the case of In Re: Petition For Assistance in the Liquidation of the claims, including that of Lucia against the insolvent bank. As declared in Miranda v.
Rural Bank of BOKOD (Benguet), Inc. v. Bureau of Internal Revenue[13] as follows: Philippine Deposit Insurance Corporation,[14] regular courts do not have jurisdiction
over actions filed by claimants against an insolvent bank, unless there is a clear
A liquidation proceeding is a single proceeding which
consists of a number of cases properly classified as "claims." It is showing that the action taken by the BSP, through the Monetary Board, in the closure
basically a two-phased proceeding. The first phase is concerned
of financial institutions was in excess of jurisdiction, or with grave abuse of
with the approval and disapproval of claims. Upon the approval of
the petition seeking the assistance of the proper court in the discretion.The same is not obtaining in this present case.
liquidation of a closed entity, all money claims against the bank
are required to be filed with the liquidation court. This phase may The power and authority of the Monetary Board to close banks and liquidate
end with the declaration by the liquidation court that the claim is
not proper or without basis. On the other hand, it may also end them thereafter when public interest so requires is an exercise of the police power
with the liquidation court allowing the claim. In the latter case, the of the State. Police power, however, is subject to judicial inquiry. It may not be
claim shall be classified whether it is ordinary or preferred, and
thereafter included Liquidator. In either case, the order allowing exercised arbitrarily or unreasonably and could be set aside if it is either capricious,
or disallowing a particular claim is final order, and may be discriminatory, whimsical, arbitrary, unjust, or is tantamount to a denial of due
appealed by the party aggrieved thereby.
process and equal protection clauses of the Constitution.[15]
The second phase involves the approval by the Court of
the distribution plan prepared by the duly appointed liquidator. In sum, this Court holds that the consolidation is proper considering that the
The distribution plan specifies in detail the total amount available
for distribution to creditors whose claim were earlier allowed. The liquidation court has jurisdiction over Lucias action. It would be more in keeping with
Order finally disposes of the issue of how much property is law and equity if Lucias case is consolidated with the liquidation case in order to
available for disposal. Moreover, it ushers in the final phase of the
liquidation proceeding - payment of all allowed claims in expeditiously determine whether she is entitled to recover the property subject of
accordance with the order of legal priority and the approved mortgage from RBCI and, if so, how much she is entitled to receive from the
distribution plan.
remaining assets of the bank.
xxx
WHEREFORE, the petition is DENIED.

SO ORDERED.