banking cases 0507.docx

8/12/2019 Banking Cases 0507.docx

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Now the question that remains to be answered is whether the foreign bankcan use the principle for a reverse purpose, in order to extend the liability ofa client to the foreign banks Philippine branch to its head office, as well asto its branches in other countries. Thus, if a client obtains a loan from the

foreign banks Philippine branch, does it absolutely and automatically makethe client a debtor, not just of the Philippine branch, but also of the headoffice and all other branches of the foreign bank around the world? This

Court rules in the negative.Section 25 of the United States Federal Reserve Act states that Every national banking association operating foreign branches shallconduct the accounts of each foreign branch independently of the

accounts of other foreign branches established by it and of its homeoffice, and shall at the end of each fiscal period transfer to itsgeneral ledger the profit or loss accrued at each branch as aseparate item.v. Head Office GuaranteeSec. 75, GBL : In order to provide effective protection of the

interests of the depositors and other creditors of Philippinebranches of a foreign bank, the head office of such branchesshall fully guarantee the prompt payment of all liabilities of itsPhilippine branch. (69) Residents and citizens of the

Philippines who are creditors of a branch in the Philippines of aforeign bank shall have preferential rights to the assets ofsuch branch in accordance with the existing laws.Sec. 5, Foreign Bank s L iberal izat ion Ac t

The head office of foreign bank branches shall guaranteeprompt payment of all liabilities of its Philippine branches.vi. License to Do BusinessSec. 133, Corp orat ion Code

No foreign corporation transacting business in the Philippineswithout a license, or its successors or assigns, shall bepermitted to maintain or intervene in any action, suit orproceeding in any court or administrative agency of thePhilippines; but such corporation may be sued or proceededagainst before Philippine courts or administrative tribunals on

any valid cause of action recognized under Philippine laws.

Bangko Sentral ng Pi l ip inas Monetary Bo ard v. Antonio -Valenzuela,

602 SCRA 698 (2009)

FACTS

The BSP conducted examinations of the books of a lot of rural banks. Theyrequired these banks to infuse fresh capital. Though the banks claimed thatthey did, the BSP informed them that they failed to comply with theremedial requirements imposed by the BSP. The banks asked for moretime, and told BSP that they have not received the Report of Examination(ROE), which finalizes the audit findings. The Rural Bank of Paranaque fileda complaint for nullification of the BSP ROE, with application for TRO and

preliminary Injunction, which was raffled with Judge Nina Antonio-Valenzuela. Other banks followed suit with their respective RTC branches.The TRO application of RBPI was granted, and the other banks filed forconsolidation, where both the consolidation, and their TRO application were

granted. BSP filed a petition for certiorari, annulling the grant of injunctionagainst them. The CA dismissed the petition.

ISSUE

Whether or not the submission of the ROE with the MB for the closure of thebanks may be prevented by an injunction


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RULING

NO. The issuance by the RTC of an injunction is an unwarranted

interference with the powers of the MB. The actions of the MB under theNew Central Bank Act may not be restrained or set aside by the courtexcept on petition for certiorari on the ground that the action was takenwith grave abuse of discretion as to amount to lack or excess of jurisdiction.

This close now, hear later scheme is grounded on practical and legalconsiderations to prevent unwarranted dissipation of the banks assets andas a valid exercise of police power to protect the depositors, creditors,stockholders, and the general public. Such power of the MB to close banksmay be considered as an exercise of police power.

Central Bank of the Phi l ippines v. Court of Appeals, 220 SCRA 536

(1993)

FACTS

Based on examination reports submitted by the Supervision andExamination Sector of the Central Bank "that the financial condition of TSBis one of insolvency and its continuance in business would involve probable

loss to its depositors and creditors," the Monetary Board issued aRESOLUTION ordering the closure of Triumph Savings Bank, forbidding itfrom doing business in the Philippines, placing it under receivership, andappointing Ramon V. Tiaoqui as receiver. One week later, TSB filed acomplaint against Central Bank and Ramon V. Tiaoqui challenging in theprocess the constitutionality of Sec. 29 of R.A. 269, otherwise known as"The Central Bank Act," as amended, insofar as it authorizes the CentralBank to take over a banking institution even if it is not charged withviolation of any law or regulation, much less found guilty thereof. The RTCgranted a TRO against the CB resolution.Central Bank filed a motion to dismiss the complaint before the RTC forfailure to state a cause of action, i.e., it did not allege ultimate facts showingthat the action was plainly arbitrary and made in bad faith, which are theonly grounds for the annulment of Monetary Board resolutions placing a

bank under conservatorship, and that TSB was without legal capacity to sueexcept through its receiver. These were denied. The denial was elevated tothe CA, which upheld the orders of the RTC. Thus, this petition for (Rule 45)certiorari.

Central BAnk claims that it is the essence of Sec. 29 of R.A. 265 that priornotice and hearing in cases involving bank closures should not be requiredsince in all probability a hearing would not only cause unnecessary delay butalso provide bank "insiders" and stockholders the opportunity to furtherdissipate the bank's resources, create liabilities for the bank and evendestroy evidence of fraud or irregularity in the bank's operations to theprejudice of its depositors and creditors.

ISSUES

1) Is absence of prior notice and hearing constitutive of acts of

arbitrariness and bad faith, as to annul the MB resolution?2) Is it only the receiver who has a right of action to question theresolution of the CB, and not the stockholders of the corporation?

HELD

NO. Contrary to the notion of private respondent, Sec. 29 does not

contemplate prior notice and hearing before a bank may be directed to stopoperations and placed under receivership. When par. 4 provides for thefiling of a case within ten (10) days after the receiver takes charge of theassets of the bank, it is unmistakable that the assailed actions should


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precede the filing of the case. Plainly, the legislature could not haveintended to authorize "no prior notice and hearing" in the closure of thebank and at the same time allow a suit to annul it on the basis of absencethereof. A previous hearing is NOT required. It is enough that a subsequent

judicial review be provided.This "close now and hear later" scheme is grounded on practical and legalconsiderations to prevent unwarranted dissipation of the bank's assets and

as a valid exercise of police power to protect the depositors, creditors,stockholders and the general public. The mere filing of a case forreceivership by the Central Bank can trigger a bank run and drain its assetsin days or even hours leading to insolvency even if the bank be actually

solvent. The procedure prescribed in Sec. 29 is truly designed to protect theinterest of all concerned, i.e., the depositors, creditors and stockholders, thebank itself, and the general public.The absence of notice and hearing is not a valid ground to annul a MonetaryBoard resolution placing a bank under receivership. The absence of priornotice and hearing cannot be deemed acts of arbitrariness and bad faith.

2) As regards the second ground, to rule that only the receiver may bringsuit in behalf of the bank is, to echo the respondent appellate court, "askingfor the impossible, for it cannot be expected that the master, the CB, willallow the receiver it has appointed to question that very appointment."

Consequently, only stockholders of a bank could file an action for annulmentof a Monetary Board resolution placing the bank under receivership andprohibiting it from continuing operations.

First Phi l ippine Internat ional Bank v. Court of Appeals, 252 SCRA 259

(1996)

FACTS

Producer Bank (now FPIB) obtained six parcels of land with a size o totalingto 101 hectares. Demetrio Demeteria and Jose Janolo wanted to buy theproperty, for which they wrote a letter with Mercurio Rivera, Manager of theProperty Management Department of the bank, offering P3.5M. Rivera wroteback, making a counter-offer worth P5.5M. Demetria and Janolo madeanother counter-offer worth P4.25M for which the bank did not reply to. Two

weeks later, they met with the majority stockholder, Mr. Co and Rivera, andeventually accepted the P5.5M counter-offer. Two weeks had passed, thebank was put under conservatorship. Demetria and Janolo demanded thecompliance for their agreement, which the bank ignored. After multipledemands, they filed a case for specific performance, tendering payment withthe court. The bank lost with the RTC and CA level.

ISSUES

Whether there was a perfected contract of sale

RULING

1. Yes. Although a counter-offer was made for P4.25M and was rejected bythe bank, the previous offer of P5.5M was revived when the respondentsmet with Co and Rivera, to which they acceded two days after. This was

evidenced by the letter and their meetings. Since there was meeting of theminds, when the bank offered a price, to which respondents accepted,object, the six parcels of land, and price, worth P5.5M, there was aperfected contract of sale.

***Petitioners contend that Rivera did not have the authority to negotiateas to the property involved in the litigation. There had been an apparentauthority when Rivera was the Manager of the Property ManagementDepartment; he was the one who talks to potential buyers of such property;he referred the prices offered to him to the committee that decided thecounter-offer worth P5.5M; he was present in all transactions involving the


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property. The bank cannot feign ignorance to the acts of its Manager thathandled the property.

CENTRAL B ANK v. MORFE, 63 SCRA 114 (1975)

FACTS

Monetary Board found the Fidelity Savings Bank to be insolvent. The Board

directed the Superintendent of Banks to take charge of its assets, forbade itto do business and instructed the Central Bank Legal Counsel to take legalactions.Prior to the institution of the liquidation proceeding but after the declarationof insolvency, or, specifically, the spouses Job Elizes and Marcela P. Elizesfiled a complaint in the Court of First Instance of Manila against the FidelitySavings Bank for the recovery of the sum of P50, 584 as the balance of theirtime deposits. In the judgment rendered in that case on December 13, 1972the Fidelity Savings Bank was ordered to pay the Elizes spouses the sum ofP50,584 plus accumulated interest.In another case, assigned to Branch XXX of the Court of First Instance ofManila, the spouses Augusta A. Padilla and Adelaida Padilla secured on April14, 1972 a judgment against the Fidelity Savings Bank for the sums ofP80,000 as the balance of their time deposits, plus interests, P70,000 as

moral and exemplary damages and P9,600 as attorney's fees (Civil Case No.84200 where the action was filed on September 6, 1971).The Central Bank appealed to SC by certiorari. It contends that the final

judgments secured by the Elizes and Padilla spouses do not enjoy anypreference because (a) they were rendered after the Fidelity Savings Bankwas declared insolvent and (b) under the charter of the Central Bank andthe General Banking Law, no final judgment can be validly obtained againstan insolvent bank.The lower court, in justifying the award for damages to the spouses,reasoned out that, because such actions are not suspended, judgmentsagainst insolvent banks could be considered as preferred credits underarticle 2244(14)(b) of the Civil Code. It further noted that, in contrast withthe Central Act, section 18 of the Insolvency Law provides that upon theissuance by the court of an order declaring a person insolvent "all civil

proceedings against the said insolvent shall be stayed."On the other hand, the Central Bank argues that after the Monetary Boardhas declared that a bank is insolvent and has ordered it to cease operations,the Board becomes the trustee of its assets "for the equal benefit of all thecreditors, including the depositors". The Central Bank cites the ruling that"the assets of an insolvent banking institution are held in trust for the equalbenefit of all creditors, and after its insolvency, one cannot obtain anadvantage or a preference over another by an attachment, execution orotherwise"

ISSUE

1) Whether deposits are deemed as preferred credits and if not, 2) maythey be elevated to the level of preferred credits by acquiring a courtjudgment?

RULING

NO to both. It should be noted that fixed, savings, and current deposits of

money in banks and similar institutions are not true deposits. They areconsidered simple loans and, as such, are not preferred credits.Evidently, one purpose in prohibiting the insolvent bank from doing businessis to prevent some depositors from having an undue or fraudulentpreference over other creditors and depositors.That purpose would be nullified if, as in this case, after the bank is declared

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would be rendered for the payment of their deposits and then suchjudgments would be considered preferred credits under article 2244 (14) (b)of the Civil Code.A contrary rule or practice would be productive of injustice, mischief and

confusion. To recognize such judgments as entitled to priority would meanthat depositors in insolvent banks, after learning that the bank is insolventas shown by the fact that it can no longer pay withdrawals or that it has

closed its doors or has been enjoined by the Monetary Board from doingbusiness, would rush to the courts to secure judgments for the payment oftheir deposits.In such an eventuality, the courts would be swamped with suits of that

character. Some of the judgments would be default judgments. Depositorsarmed with such judgments would pester the liquidation court with claimsfor preference on the basis of article 2244(14)(b). Less alert depositorswould be prejudiced. That inequitable situation could not have beencontemplated by the framers of section 29.The general principle of equity that the assets of an insolvent are to be

distributed ratably among general creditors applies with full force to thedistribution of the assets of a bank. A general depositor of a bank is merelya general creditor, and, as such, is not entitled to any preference or priorityover other general creditors

Considering that the deposits in question, in their inception, werenot preferred credits, it does not seem logical and just that theyshould be raised to the category of preferred credits simply becausethe depositors, taking advantage of the long interval between thedeclaration of insolvency and the filing of the petition for judicialassistance and supervision, were able to secure judgments for thepayment of their time deposits.

The circumstance that the Fidelity Savings Bank, having stopped operationssince February 19, 1969, was forbidden to do business (and that ban wouldinclude the payment of time deposits) implies that suits for the payment ofsuch deposits were prohibited. What was directly prohibited should not beencompassed indirectly.

Rural Bank of Buhi VS Ca

Larrobis Vs. Phil. Veterans Bank

Provident Savings Bank v. Court of Ap peals, 222 SCRA 125 (1993)

FACTS

On 16 February 1967, the spouses Lorenzo K. Guarin and Liwayway J.Guarin (Guarins) obtained a loan from provident bank in the amount ofP62,500.00 payable on or before 20 June 1967. As security for the loan,they executed a real estate mortgage in favor of provident bank over a

parcel of land.In September, 1972, provident bank was placed under receivership by theCentral Bank of the Philippines until 27 July 1981 when the receivership wasset aside by the Honorable Supreme Court.On 10 July 1986, the Guarins and respondent Wilson Chua executed a Deedof Absolute Sale With Assumption of Mortgaged whereby the Guarins soldthe mortgaged property to Guarins sold the appellant for the sum ofP250,000.00 and plaintiff-appellant undertook to assume the mortgagedobligation of the Guarins with defendant-appellant which as of 15 February1985 amounted to P591,088.80


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parties in administrative proceedings. Since MB Resolution No. 596 wasadopted without TSB being previously notified and heard, according torespondents, the same is void for want of due process; consequently, thebank's management should be restored to its board of directors and officers.

ISSUE

May a Monetary Board resolution placing a private bank under receivership

be annulled on the ground of lack of prior notice and hearing?

RULING

NO. Under Sec. 29 of R.A. 265, the Central Bank, through the Monetary

Board, is vested with exclusive authority to assess, evaluate and determinethe condition of any bank, and finding such condition to be one ofinsolvency, or that its continuance in business would involve probable lossto its depositors or creditors, forbid the bank or non-bank financialinstitution to do business in the Philippines; and shall designate an official ofthe CB or other competent person as receiver to immediately take charge ofits assets and liabilities. The fourth paragraph, which was then in effect atthe time the action was commenced, allows the filing of a case to set asidethe actions of the Monetary Board, which are tainted with arbitrariness andbad faith.

Sec. 29 does not contemplate prior notice and hearing before a bank maybe directed to stop operations and placed under receivership. It may beemphasized that Sec. 29 does not altogether divest a bank or a non-bankfinancial institution placed under receivership of the opportunity to be heardand present evidence on arbitrariness and bad faith because within ten (10)days from the date the receiver takes charge of the assets of the bank,resort to judicial review may be had by filing an appropriate pleading withthe court. Respondent TSB did in fact avail of this remedy by filing acomplaint with the RTC of Quezon City on the 8th day following the takeoverby the receiver of the bank's assets on 3 June 1985.This "close now and hear later" scheme is grounded on practical and legalconsiderations to prevent unwarranted dissipation of the bank's assets andas a valid exercise of police power to protect the depositors, creditors,

stockholders and the general public.

Admittedly, the mere filing of a case for receivership by the Central Bankcan trigger a bank run and drain its assets in days or even hours leading toinsolvency even if the bank be actually solvent. The procedure prescribed inSec. 29 is truly designed to protect the interest of all concerned, i.e., the

depositors, creditors and stockholders, the bank itself, and the generalpublic, and the summary closure pales in comparison to the protectionafforded public interest. At any rate, the bank is given full opportunity toprove arbitrariness and bad faith in placing the bank under receivership, in

which event, the resolution may be properly nullified and the receivershiplifted as the trial court may determine.The Court ruled in Banco Filipino (as relied upon by TSB) that the closure of

the bank was arbitrary and attendant with grave abuse of discretion, notbecause of the absence of prior notice and hearing, but that the MonetaryBoard had no sufficient basis to arrive at a sound conclusion of insolvency to

justify the closure. In other words, the arbitrariness, bad faith and abuse ofdiscretion were determined only after the bank was placed under

conservatorship and evidence thereon was received by the trial court.We rule that Sec. 29 of R.A. 265 is a sound legislation promulgated inaccordance with the Constitution in the exercise of police power of the state.Consequently, the absence of notice and hearing is not a valid ground toannul a Monetary Board resolution placing a bank under receivership. Theabsence of prior notice and hearing cannot be deemed acts of arbitrarinessand bad faith. Thus, an MB resolution placing a bank under receivership, orconservatorship for that matter, may only be annulled after a determination


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has been made by the trial court that its issuance was tainted witharbitrariness and bad faith. Until such determination is made, the status quoshall be maintained, i.e., the bank shall continue to be under receivership.

G.R. No. 156132 October 12, 2006

CITIBANK, N.A. (Formerly First National City Bank) and INVESTORS' FINANCE

CORPORATION, doing business under the name and style of FNCB Finance, petitioners, vs.MODESTA R. SABENIANO, respondent.D E C I S I O N

CHICO-NAZARIO, J.:

Before this Court is a Petition for Review on Certiorari,1 under Rule 45 of the Revised Rules ofCourt, of the Decision2 of the Court of Appeals in CA-G.R. CV No. 51930, dated 26 March 2002,and the Resolution,3 dated 20 November 2002, of the same court which, although modifying itsearlier Decision, still denied for the most part the Motion for Reconsideration of herein petitioners.Petitioner Citibank, N.A. (formerly known as the First National City Bank) is a banking corporationduly authorized and existing under the laws of the United States of America and licensed to docommercial banking activities and perform trust functions in the Philippines.Petitioner Investor's Finance Corporation, which did business under the name and style of FNCBFinance, was an affiliate company of petitioner Citibank, specifically handling money marketplacements for its clients. It is now, by virtue of a merger, doing business as part of its successor-in-interest, BPI Card Finance Corporation. However, so as to consistently establish its identity in thePetition at bar, the said petitioner shall still be referred to herein as FNCB Finance.4Respondent Modesta R. Sabeniano was a client of both petitioners Citibank and FNCB Finance.Regrettably, the business relations among the parties subsequently went awry.On 8 August 1985, respondent filed a Complaint5 against petitioners, docketed as Civil Case No.11336, before the Regional Trial Court (RTC) of Makati City. Respondent claimed to have

substantial deposits and money market placements with the petitioners, as well as money marketplacements with the Ayala Investment and Development Corporation (AIDC), the proceeds of whichwere supposedly deposited automatically and directly to respondent's accounts with petitionerCitibank. Respondent alleged that petitioners refused to return her deposits and the proceeds of hermoney market placements despite her repeated demands, thus, compelling respondent to file CivilCase No. 11336 against petitioners for "Accounting, Sum of Money and Damages." Respondenteventually filed an Amended Complaint6 on 9 October 1985 to include additional claims to depositsand money market placements inadvertently left out from her original Complaint.In their joint Answer7 and Answer to Amended Complaint,8 filed on 12 September 1985 and 6November 1985, respectively, petitioners admitted that respondent had deposits and money market


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Wherefore, premises considered, the assailed 24 August 1995 Decision of the court a quo is herebyAFFIRMED with MODIFICATION, as follows:1. Declaring as illegal, null and void the set-off effected by the defendant-appellant Bank of theplaintiff-appellant's dollar deposit with Citibank, Switzerland, in the amount of US$149,632.99, andordering defendant-appellant Citibank to refund the said amount to the plaintiff-appellant with legalinterest at the rate of twelve percent (12%) per annum, compounded yearly, from 31 October 1979until fully paid, or its peso equivalent at the time of payment;2. As defendant-appellant Citibank failed to establish by competent evidence the allegedindebtedness of plaintiff-appellant, the set-off of P1,069,847.40 in the account of Ms. Sabeniano ishereby declared as without legal and factual basis;3. As defendants-appellants failed to account the following plaintiff-appellant's money marketplacements, savings account and current accounts, the former is hereby ordered to return the same, inaccordance with the terms and conditions agreed upon by the contending parties as evidenced by thecertificates of investments, to wit:(i) Citibank NNPN Serial No. 023356 (Cancels and Supersedes NNPN No. 22526) issued on 17March 1977, P318,897.34 with 14.50% interest p.a.;(ii) Citibank NNPN Serial No. 23357 (Cancels and Supersedes NNPN No. 22528) issued on 17

March 1977, P203,150.00 with 14.50 interest p.a.;(iii) FNCB NNPN Serial No. 05757 (Cancels and Supersedes NNPN No. 04952), issued on 02 June1977, P500,000.00 with 17% interest p.a.;(iv) FNCB NNPN Serial No. 05758 (Cancels and Supersedes NNPN No. 04962), issued on 02 June1977, P500,000.00 with 17% interest per annum;(v) The Two Million (P2,000,000.00) money market placements of Ms. Sabeniano with the AyalaInvestment & Development Corporation (AIDC) with legal interest at the rate of twelve percent(12%) per annum compounded yearly, from 30 September 1976 until fully paid;4. Ordering defendants-appellants to jointly and severally pay the plaintiff-appellant the sum of FIVEHUNDRED THOUSAND PESOS (P500,000.00) by way of moral damages, FIVE HUNDREDTHOUSAND PESOS (P500,000.00) as exemplary damages, and ONE HUNDRED THOUSANDPESOS (P100,000.00) as attorney's fees.

Apparently, the parties to the case, namely, the respondent, on one hand, and the petitioners, on theother, made separate attempts to bring the aforementioned Decision of the Court of Appeals, dated 26March 2002, before this Court for review.G.R. No. 152985Respondent no longer sought a reconsideration of the Decision of the Court of Appeals in CA-G.R.CV No. 51930, dated 26 March 2002, and instead, filed immediately with this Court on 3 May 2002a Motion for Extension of Time to File a Petition for Review,13 which, after payment of the docketand other lawful fees, was assigned the docket number G.R. No. 152985. In the said Motion,respondent alleged that she received a copy of the assailed Court of Appeals Decision on 18 April2002 and, thus,


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had 15 days therefrom or until 3 May 2002 within which to file her Petition for Review. Since sheinformed her counsel of her desire to pursue an appeal of the Court of Appeals Decision only on 29April 2002, her counsel neither had enough time to file a motion for reconsideration of the saidDecision with the Court of Appeals, nor a Petition for Certiorari with this Court. Yet, the Motionfailed to state the exact extension period respondent was requesting for.Since this Court did not act upon respondent's Motion for Extension of Time to file her Petition forReview, then the period for appeal continued to run and still expired on 3 May 2002.14 Respondentfailed to file any Petition for Review within the prescribed period for appeal and, hence, this Courtissued a Resolution,15 dated 13 November 2002, in which it pronounced that G.R. No. 152985 (Modesta R. Sabeniano vs. Court of Appeals, et al.). It appearing that petitionerfailed to file the intended petition for review on certiorari within the period which expired on May 3,2002, the Court Resolves to DECLARE THI S CASE TERMINATED and DIRECT the DivisionClerk of Court to INFORM the parties that the judgment sought to be reviewed has become final andexecutory.The said Resolution was duly recorded in the Book of Entries of Judgments on 3 January 2003.G.R. No. 156132Meanwhile, petitioners filed with the Court of Appeals a Motion for Reconsideration of its Decision

in CA-G.R. CV No. 51930, dated 26 March 2002. Acting upon the said Motion, the Court of Appealsissued the Resolution,16 dated 20 November 2002, modifying its Decision of 26 March 2002, asfollows WHEREFORE, premises considered, the instant Motion for Reconsideration is PARTIALLYGRANTED as Sub-paragraph (V) paragraph 3 of the assailed Decision's dispositive portion ishereby ordered DELETED.The challenged 26 March 2002Decision of the Court is AFFIRMED with MODIFICATION.Assailing the Decision and Resolution of the Court of Appeals in CA-G.R. CV No. 51930, dated 26March 2002 and 20 November 2002, respectively, petitioners filed the present Petition, docketed asG.R. No. 156132. The Petition was initially denied17 by this Court for failure of the petitioners toattach thereto a Certification against Forum Shopping. However, upon petitioners' Motion andcompliance with the requirements, this Court resolved18 to reinstate the Petition.

The Petition presented fourteen (14) assignments of errors allegedly committed by the Court ofAppeals in its Decision, dated 26 March 2002, involving both questions of fact and questions of lawwhich this Court, for the sake of expediency, discusses jointly, whenever possible, in the succeedingparagraphs.

I

The Resolution of this Court, dated 13 November 2002, in G.R. No. 152985, declaring the

Decision of the Court of Appeals, dated 26 March 2002, fi nal and executory, pertains to

respondent Sabeniano alone.

Before proceeding to a discussion of the merits of the instant Petition, this Court wishes to addressfirst the argument, persistently advanced by respondent in her pleadings on record, as well as hernumerous personal and unofficial letters to this Court which were no longer made part of the record,

that the Decision of the Court of Appeals in CA-G.R. CV No. 51930, dated 26 March 2002, hadalready become final and executory by virtue of the Resolution of this Court in G.R. No. 152985,dated 13 November 2002.G.R. No. 152985 was the docket number assigned by this Court to respondent's Motion for Extension


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of Time to File a Petition for Review. Respondent, though, did not file her supposed Petition. Thus,after the lapse of the prescribed period for the filing of the Petition, this Court issued the Resolution,dated 13 November 2002, declaring the Decision of the Court of Appeals, dated 26 March 2002, finaland executory. It should be pointed out, however, that the Resolution, dated 13 November 2002,referred only to G.R. No. 152985, respondent's appeal, which she failed to perfect through the filingof a Petition for Review within the prescribed period. The declaration of this Court in the sameResolution would bind respondent solely, and not petitioners which filed their own separate appealbefore this Court, docketed as G.R. No. 156132, the Petition at bar. This would mean thatrespondent, on her part, should be bound by the findings of fact and law of the Court of Appeals,including the monetary amounts consequently awarded to her by the appellate court in its Decision,dated 26 March 2002; and she can no longer refute or assail any part thereof. 19This Court already explained the matter to respondent when it issued a Resolution20 in G.R. No.156132, dated 2 February 2004, which addressed her Urgent Motion for the Release of the Decisionwith the Implementation of the Entry of Judgment in the following manner [A]cting on Citibank's and FNCB Finance's Motion for Reconsideration, we resolved to grant themotion, reinstate the petition and require Sabeniano to file a comment thereto in our Resolution ofJune 23, 2003. Sabeniano filed a Comment dated July 17, 2003 to which Citibank and FNCB Finance

filed aReply dated August 20, 2003.From the foregoing, it is clear that Sabeniano had knowledge of, and in fact participated in, theproceedings in G.R. No. 156132. She cannot feign ignorance of the proceedings therein and claimthat the Decision of the Court of Appeals has become final and executory. More precisely, theDecisionbecame final and executory only with regard to Sabeniano in view of her failure to file apetition for review within the extended period granted by the Court, and not to Citibank and FNCBFinance whosePetition for Review was duly reinstated and is now submitted for decision.Accordingly, the instant Urgent Motion is hereby DENIED. (Emphasis supplied.)To sustain the argument of respondent would result in an unjust and incongruous situation whereinone party may frustrate the efforts of the opposing party to appeal the case by merely filing with thisCourt a Motion for Extension of Time to File a Petition for Review, ahead of the opposing party,then not actually filing the intended Petition.21 The party who fails to file its intended Petition within

the reglementary or extended period should solely bear the consequences of such failure.Respondent Sabeniano did not commi t forum shopping.

Another issue that does not directly involve the merits of the present Petition, but raised bypetitioners, is whether respondent should be held liable for forum shopping.Petitioners contend that respondent committed forum shopping on the basis of the following facts:While petitioners' Motion for Reconsideration of the Decision in CA-G.R. CV No. 51930, dated 26March 2002, was still pending before the Court of Appeals, respondent already filed with this Courton 3 May 2002 her Motion for Extension of Time to File a Petition for Review of the same Court ofAppeals Decision, docketed as G.R. No. 152985. Thereafter, respondent continued to participate inthe proceedings before the Court of Appeals in CA-G.R. CV No. 51930 by filing her Comment,dated 17 July 2002, to petitioners' Motion for Reconsideration; and a Rejoinder, dated 23 September

2002, to petitioners' Reply. Thus, petitioners argue that by seeking relief concurrently from this Courtand the Court of Appeals, respondent is undeniably guilty of forum shopping, if not indirectcontempt.This Court, however, finds no sufficient basis to hold respondent liable for forum shopping.


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settled that the decision of a judge who did not try the case is not by that reason alone erroneous.It is true that the judge who ultimately decided the case had not heard the controversy at all, the trialhaving been conducted by then Judge Emilio L. Polig, who was indefinitely suspended by this Court.Nonetheless, the transcripts of stenographic notes taken during the trial were complete and werepresumably examined and studied by Judge Baguilat before he rendered his decision. It is notunusual for a judge who did not try a case to decide it on the basis of the record. The fact that he didnot have the opportunity to observe the demeanor of the witnesses during the trial but merely reliedon the transcript of their testimonies does not for that reason alone render the judgment erroneous.(People vs. Jaymalin, 214 SCRA 685, 692 [1992])Although it is true that the judge who heard the witnesses testify is in a better position to observe thewitnesses on the stand and determine by their demeanor whether they are telling the truth ormouthing falsehood, it does not necessarily follow that a judge who was not present during the trialcannot render a valid decision since he can rely on the transcript of stenographic notes taken duringthe trial as basis of his decision.Accused-appellant's contention that the trial judge did not have the opportunity to observe theconduct and demeanor of the witnesses since he was not the same judge who conducted the hearingis also untenable. While it is true that the trial judge who conducted the hearing would be in a better

position to ascertain the truth and falsity of the testimonies of the witnesses, it does not necessarilyfollow that a judge who was not present during the trial cannot render a valid and just decision sincethe latter can also rely on the transcribed stenographic notes taken during the trial as the basis of hisdecision.(People vs. De Paz, 212 SCRA 56, 63 [1992])At any rate, the test to determine the value of the testimony of the witness is whether or not such is inconformity with knowledge and consistent with the experience of mankind (People vs. Morre, 217SCRA 219 [1993]). Further, the credibility of witnesses can also be assessed on the basis of thesubstance of their testimony and the surrounding circumstances (People v. Gonzales, 210 SCRA 44[1992]). A critical evaluation of the testimony of the prosecution witnesses reveals that theirtestimony accords with the aforementioned tests, and carries with it the ring of truth end perforce,must be given full weight and credit.

Irrefragably, by reason alone that the judge who penned the RTC Decision was not the same judgewho heard the case and received the evidence therein would not render the findings in the saidDecision erroneous and unreliable. While the conduct and demeanor of witnesses may sway a trialcourt judge in deciding a case, it is not, and should not be, his only consideration. Even more vital forthe trial court judge's decision are the contents and substance of the witnesses' testimonies, as borneout by the TSNs, as well as the object and documentary evidence submitted and made part of therecords of the case.

This Court proceeds to making its own findings of fact.

Since the Decision of the Court of Appeals in CA-G.R. CV No. 51930, dated 26 March 2002, hasbecome final and executory as to the respondent, due to her failure to interpose an appeal therefromwithin the reglementary period, she is already bound by the factual findings in the said Decision.

Likewise, respondent's failure to file, within the reglementary period, a Motion for Reconsiderationor an appeal of the Resolution of the Court of Appeals in the same case, dated 20 November 2002,which modified its earlier Decision by deleting paragraph 3(v) of its dispositive portion, orderingpetitioners to return to respondent the proceeds of her money market placement with AIDC, shallalready bar her


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Meanwhile, respondent Central Bank filed on September 15, 1981, in Civil Case No. IR-428 a Supplemental Motion To Dismiss onthe ground that the receivership ofBuhi,in view of the issuance of the Monetary Board Resolution No. 1514 had completely becomemoot and academic (Rollo, p. 68) and the fact that Case SP-IR-553 for the liquidation of Buhiwas already pending with the sameCourt (Rollo, p. 69).

On October 16, 1981, petitioners herein filed their amended complaint in Civil Case No. IR-428 alleging that the issuance ofMonetary Board Resolution No. 583 was plainly arbitrary and in bad faith under aforequoted Section 29 of Republic Act No. 265 asamended, among others (Rollo, p. 28). On the same day, petitioner herein filed a rejoinder to its opposition to the motion to dismiss

(Rollo, p. 145).

On March 9,1982, herein petitioner Judge Buenviaje, issued an order denying the respondents' motion to dismiss, supplementalmotion to dismiss and granting a temporary restraining order enjoining respondents from further managing and administering theRural Bank of Buhi and to deliver the possession and control thereof to the petitioner Bank under the same conditions and with thesame financial status as when the same was taken over by herein respondents (defendants) on April 16, 1980 and further enjoiningpetitioner to post a bond in the amount of three hundred thousand pesos (P300,000.00) (Rollo, p. 72).

The dispositive portion of said decision reads:

WHEREFORE, premises considered, the motion to dismiss and supplemental motion to dismiss, in the light ofpetitioners' opposition, for want of sufficient merit is denied. Respondents are hereby directed to file theiranswer within ten (10) days from receipt of a copy of this order. (Rollo, p. 4).

On March 11, 1982, petitioner Buhi through counsel, conformably with the above-mentioned order, filed a Motion to Admit Bond inthe amount of P300,220.00 (Rollo, pp. 78-80).

On March 15,1982, herein petitioner Judge issued the order admitting the bond of P300,220.00 filed by the petitioner, and dir ectingthe respondents to surrender the possession of the Rural Bank of Buhi, together with all its equipments, accessories, etc. to thepetitioners (Rollo, p. 6).

Consequently, on March 16, 1982, herein petitioner Judge issued the writ of execution directing the Acting Provincial Sheriff ofCamarines Sur to implement the Court's order of March 9, 1982 (Rollo, p. 268). Complying with the said order of the Court, theDeputy Provincial Sheriff went to the Buhi premises to implement the writ of execution but the vault of the petitioner bank was lockedand no inventory was made, as evidenced by the Sheriffs Report (Rollo, pp. 83-84). Thus, the petitioner herein filed with the Courtan "Urgent Ex-Parte Motion to Allow Sheriff Calope to Force Open Bank Vault" on the same day (Rollo, p. 268). Accordingly, onMarch 17, 1982, herein petitioner Judge granted the aforesaid Ex-Parte Motion to Force Open the Bank Vault (Rollo, p. 269).

On March 18, 1982, counsel for petitioner filed another "Urgent Ex-Parte Motion to Order Manager of City Trust to Allow Petitioner to

Withdraw Rural Bank Deposits" while a separate "Urgent Ex-Parte Motion to Order Manager of Metrobank to Release Deposits ofPetitioners" was filed on the same date. The motion was granted by the Court in an order directing the Manager of Metro Bank-NagaCity (Rollo, p. 269) to comply as prayed for.

In view thereof, herein respondents filed in the Court of Appeals a petition for certiorari and prohibition with preliminary injunctiondocketed as CA-G.R. No. 13944 against herein petitioners, seeking to set aside the restraining order and reiterating therein thatpetitioner Buhi's complaint in the lower court be dismissed (Rollo, p. 270).

On March 19, 1982, the Court of Appeals issued a Resolution (KAPASIYAHAN) in tagalog, restraining the Hon. Judge Carlos R.Buenviaje, from enforcing his order of March 9,1982 and suspending further proceedings in Sp. Proc. No. IR-428 pending beforehim while giving the Central Bank counsel, Atty. Ricardo Quintos, authority to carry out personally said orders and directing the"Punong Kawani" of the Court of Appeals to send telegrams to the Office of the President and the Supreme Court (Rollo, p. 168).

Herein petitioners did not comply with the Court of Appeals' order of March 19, 1982, but filed instead on March 21, 1982 a motionfor reconsideration of said order of the Court of Appeals, claiming that the lower court's order of March 9, 1982 referred only to the

denial of therein respondents' motion to dismiss and supplemental motion to dismiss and that the return of Buhi to the petitionerswas already an accomplished fact. The motion was denied by the respondent court in a resolution dated June 1, 1982 (Rollo, p.301).

In view of petitioners' refusal to obey the Court of Appeals' Order of March 19, 1982, herein respondents filed with the Court ofAppeals a Motion to Cite Petitioners in Contempt, dated April 22, 1982 (Rollo, p. 174).

The Court of Appeals issued on May 24, 1982 an order requiring herein petitioner Rural Bank of Buhi, Inc., through its then ActingManager, Imelda del Rosario and herein petitioner Judge Carlos Buenviaje, as well as Manuel Genova and Rodolfo Sosa, to showcause within ten (10) days from notice why they should not be held in contempt of court and further directing the Ministry of National


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Defense or its representative to cause the return of possession and management of the Rural Bank to the respondents Central Bankand Consolacion Odra (Rollo, p. 180).

On June 9, 1982, petitioners filed their objection to respondents' motion for contempt dated June 5, 1982 claiming that theproperties, subject of the order, had already been returned to the herein petitioners who are the lawful owners thereof and that thereturning could no longer be undone (Rollo, p. 181).

Later, petitioners filed another motion dated June 17, 1982 for the reconsideration of the resolution of June 1, 1982 of the Court ofAppeals alleging that the same contravened and departed from the rulings of the Supreme Court that consummated acts or actsalready done could no longer be the subject of mandatory injunction and that the respondent Court of Appeals had no jurisdict ion toissue the order unless it was in aid of its appellate jurisdiction, claiming that the case (CA-G.R. No. 13944) did not come to it onappeal (Rollo, p. 302).

As aforestated, on June 17, 1982, respondent Court of Appeals rendered its decision (HATOL) setting aside the lower court'srestraining order dated March 9,1982 and ordering the dismissal of herein petitioners' amended complaint in Civil Case No. IR-428(Rollo, p. 186).

On July 9, 1982, petitioners (respondents in CA-G.R. No. 13944) filed a Motion for Reconsideration of the Decision dated June 17,1982 insofar as the complaint with the lower court (Civil Case No. IR-428 was ordered dismissed (Rollo, p. 305).

On August 23, 1982, the respondent Court of Appeals issued its Resolution denying for lack of merit, herein petitioners' motion forreconsideration of the resolution issued by the respondent Court of Appeals on June 1, 1982 and set on August 31, 1982 the

hearing of the motion to cite the respondents in CA-G.R. No. SP-13944 (herein petitioner) for contempt (Rollo, p. 193).

At said hearing, counsel for Rural Bank of Buhi agreed and promised in open court to restore and return to the Central Bank thepossession and control of the Bank within three (3) days from August 31, 1982.

However on September 3,1982, Rosalia Guevara, Manager thereof, vigorously and adamantly refused to surrender the premisesunless she received a written order from the Court.

In a subsequent hearing of the contempt incident, the Court of Appeals issued its Order dated October 13,1982, but RosaliaGuevara still refused to obey, whereupon she was placed under arrest and the Court of Appeals ordered her to be detained until shedecided to obey the Court's Order (Rollo, pp. 273-274).

Earlier, on September 14, 1982 petitioners had filed this petition even while a motion for reconsideration of the decision of June17,1982 was still pending consideration in the Court of Appeals.

In the resolution of October 20, 1982, the Second Division of this Court without giving due course to the petition requiredrespondents to COMMENT (Rollo, p. 225).

Counsel for respondents manifested (Rollo, p. 226) that they could not file the required comment because they were not given acopy of the petition. Meanwhile, they filed an urgent motion dated October 28, 1982 with the Court of Appeals to place the bankthrough its representatives in possession of the Rural Bank of Buhi (Camarines Sur), Inc. (Rollo, p. 237).

On December 9, 1982, petitioners filed a Supplemental Petition with urgent motion for the issuance of a restraining order datedDecember 2, 1982 praying that the restraining order be issued against respondent court (Rollo, p. 229).

In the resolution of December 15,1982, the Court resolved to require petitioners to furnish the respondents with a copy of thepetition and to require the respondents to comment on both the original and the supplemental petitions (Rollo, p. 243).

In a resolution of February 21, 1983, the Court NOTED Rosalia V. Guevara's letter dated February 4, 1983 (Rollo, p. 252)

addressed to Hon. Chief Justice Enrique M. Fernando, requesting that she be allowed to file a petition for the issuance of a writof habeas corpus(Rollo, p. 256).

At the hearing of the said petition on February 23, 1983 where the counsel of both parties appeared, this Court noted the Return ofthe Writ of Habeas Corpus as well as the release of petitioner Rosalia V. Guevara from detention by the National Bureau ofInvestigation. After hearing aforesaid counsel and petitioner herself, and it appearing that the latter had resigned since January18,1983 as Manager of the Rural Bank of Buhi, Inc. and that the Central Bank might avail of more than adequate legal measures totake over the management, possession and control of the said bank (and not through contempt proceedings and detention andconfinement of petitioner), with Assistant Solicitor General Andin manifesting that respondents were not insisting on the continueddetention of petitioner, the Court Resolved to SET the petitioner at liberty and to consider the contempt incident closed (Rollo, p.339).


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concept should not be equated with suspension where the past period is included in thecomputation being added to the period after the prescription is presumed (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 periodof 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 themortgage carried with it the mistaken notion that petitioners own suit for foreclosure hasprescribed.

Even assuming that the liquidation of defendant bank did not affect its right to foreclosethe plaintiffs mortgaged property, the questioned extrajudicial foreclosure was wellwithin the ten (10) year prescriptive period. It is noteworthy to mention at this point intime, that defendant bank through authorized Deputy Francisco Go made the firstextrajudicial demand to the plaintiffs on August 1985. Then on March 24, 1995defendant bank through its officer-in-charge Llanto made the second extrajudicialdemand. 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., 224SCRA 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 PUTUNDER RECEIVERSHIP AND LIQUIDATION WAS A FORTUITOUS EVENT THATINTERRUPTED THE RUNNING OF THE PRESCRIPTIVE PERIOD.

II

IN RULING THAT THE WRITTEN EXTRA-JUDICIAL DEMAND MADE BYRESPONDENT ON PETITIONERS WIPED OUT THE PERIOD THAT HAD ALREADYELAPSED.

III

IN DENYING PETITIONERS MOTION FOR RECONSIDERATION OF ITS HEREINASSAILED DECISION.[12]

Petitioners argue that: since the extra-judicial foreclosure of the real estatemortgage was effected by the bank on October 18, 1995, which was fourteen yearsfrom the date the obligation became due on February 27, 1981, said foreclosure and thesubsequent sale at public auction should be set aside and declared null and void abinitiosince they are already barred by prescription; the court a quoerred in sustainingthe respondents theory that its having been placed under receivership by the CentralBank between April 1985 and August 1992 was a fortuitous event that interrupted therunning of the prescriptive period;[13]the court a quosreliance on the case
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prescriptive period for the foreclosure of petitioners mortgaged property; within suchperiod, it was specifically restrained and immobilized from doing business whichincludes foreclosure proceedings; the extra-judicial demand it made on March 24, 1995wiped 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 demandletter of August 1985 pertained to the insurance premium advanced by it over themortgaged property of petitioners, the same however formed part of the latters totalloan obligation with respondent under the mortgage instrument and thereforeconstitutes a valid extra-judicial demand made within the prescriptive period.[20]

In their Reply, petitioners reiterate their earlier arguments and add that it wasrespondent that insured the mortgaged property thus it should not pass the obligation topetitioners through the letter dated August 1985.[21]

To resolve this petition, two questions need to be answered: (1) Whether or not theperiod within which the respondent bank was placed under receivership and liquidation

proceedings may be considered a fortuitous event which interrupted the running of theprescriptive period in bringing actions; and (2) Whether or not the demand letter sent byrespondent banks representative on August 23, 1985 is sufficient to interrupt therunning 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 inrelations to contract, is that its occurrence must be such as to render it impossible for aparty to fulfill his obligation in a normal manner.[22]

Respondents claims that because of a fortuitous event, it was not able to exerciseits 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 untilAugust 1992, it could not foreclose the mortgage on petitioners property within suchperiod since foreclosure is embraced in the phrase doing business, are without merit.

While it is true that foreclosurefalls within the broad definition of doing business,that is:

a continuity of commercial dealings and arrangements and contemplates to thatextent, the performance of acts or words or the exercise of some of the functionsnormally incident to and in progressive prosecution of the purpose and object of itsorganization.[23]

it should not be considered included, however, in the acts prohibited whenever banksare prohibited from doing business during receivership and liquidation proceedings.

This we made clear in Banco Filipino Savings & Mortgage Bank vs. MonetaryBoard, 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
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under receivership, the person designated as receiver shall immediately take charge ofthe banks assets and liabilities, as expeditiously as possible, collect and gather all theassets 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 oragainst 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 receivecollectibles and preserve the assets of the bank in substitution of its formermanagement, and prevent the dissipation of its assets to the detriment of the creditorsof 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 orreorganization of the financially distressed bank. A receiver, who concurrentlyrepresents the bank, then takes control and possession of its assets for the benefit ofthe 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. Histask is to dispose of all the assets of the bank and effect partial payments of the banksobligations in accordance with legal priority. In both receivership and liquidationproceedings, the bank retains its juridical personality notwithstanding the closure of itsbusiness and may even be sued as its corporate existence is assumed by the receiveror liquidator. The receiver or liquidator meanwhile acts not only for the benefit of thebank, 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 newbusiness,i.e., to grant new loans or to accept new deposits. However, the receiver ofthe bank is in fact obliged to collect debts owing to the bank, which debts formpart of the assets of the bank. The receiver must assemble the assets and paythe obligation of the bank under receivership, and take steps to preventdissipation of such assets. Accordingly, the receiver of the bank is obliged tocollect pre-existing debts due to the bank, and in connection therewith, toforeclose mortgages securing such debts.[29](Emphasis supplied.)

It is true that we also held in said case that the period during which the bank wasplaced under receivership was deemed fuerza mayorwhich validly interrupted the

prescriptive period.

[30]

This is being invoked by the respondent and was used as basis bythe trial court in its decision. Contrary to the position of the respondent and court aquohowever, such ruling does not find application in the case at bar.

A close scrutiny of the Provident case, shows that the Court arrived at saidconclusion, which is an exception to the general rule, due to the peculiar circumstancesof Provident Savings Bank at the time. In said case, we stated that:
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Having arrived at the conclusion that a foreclosure is part of a banks businessactivity which could not have been pursued by the receiver then because of thecircumstances discussed in the Central Bank case, we are thus convinced that theprescriptive period was legally interrupted by fuerza mayor in 1972 on account of theprohibition 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 ofProvident Savings Bank at the time were peculiar because after the Monetary Boardissued MB Resolution No. 1766 on September 15, 1972, prohibiting it from doingbusiness in the Philippines, the banks majority stockho lders immediately went to theCourt of First Instance of Manila, which prompted the trial court to issue its judgmentdated February 20, 1974, declaring null and void the resolution and ordering the CentralBank to desist from liquidating Provident. The decision was appealed to and affirmedby this Court in 1981. Thus, the Superintendent of Banks, which was instructed to takecharge 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 theCentral Bank Act.[32]

In this case, it is not disputed that Philippine Veterans Bank was placed underreceivership by the Monetary Board of the Central Bank by virtue of Resolution No. 364on April 25, 1985, pursuant to Section 29 of the Central Bank Act on insolvency ofbanks.[33]

Unlike Provident Savings Bank, there was no legal prohibition imposed upon hereinrespondent to deter its receiver and liquidator from performing their obligations underthe law. Thus, the ruling laid down in the Providentcase cannot apply in the case atbar.

There is also no truth to respondents claim that it could not continue doing businessfrom the period of April 1985 to August 1992, the time it was under receivership. Ascorrectly pointed out by petitioner, respondent was even able to send petitioners ademand letter, through Francisco Go, on August 23, 1985 for accounts receivable inthe total amount of P6,345.00 as of August 15, 1984 for the insurance premiumsadvanced by respondent bank over the mortgaged property of petitioners. How it couldsend a demand letter on unpaid insurance premiums and not foreclose the mortgageduring the time it was prohibited from doing business was not adequately explained byrespondent.

Settled is the principle that a bank is bound by the acts, or failure to act of its

receiver.

[34]

As we held inPhilippine Veterans Bank vs. NLRC,[35]

a labor case which alsoinvolved respondent bank,

all the acts of the receiver and liquidator pertain to petitioner, both having assumedpetitioners corporate existence. Petitioner cannot disclaim liability by arguing that thenon-payment of MOLINAs just wages was committed by the liquidators during theliquidation period.[36]
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However, the bank may go after the receiver who is liable to it for any culpable ornegligent 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 wasplaced under receivership and liquidation proceedings does not constitute a fortuitousevent 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, whichpertained to the insurance premiums advanced by the bank over the mortgagedproperty, constitutes a valid extra-judicial demand which interrupted the running of theprescriptive period. Again, we answer this question in the negative.

Prescription of actions is interrupted when they are filed before the court, whenthere is a written extra-judicial demand by the creditors, and when there is any writtenacknowledgment of the debt by the debtor.[38]

Respondents claim that while its first demand letter dated August 23, 1985pertained to the insurance premium it advanced over the mortgaged property of

petitioners, the same formed part of the latters total loan obligation with respondentunder the mortgage instrument, and therefore, constitutes a valid extra-judicial demandwhich 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/orcredit 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 PAYTHE PHILIPPINE VETERANS BANK, OR ORDER, AT ITS OFFICE AT CEBU CITYTHE SUM OF ONE HUNDRED THIRTY FIVE THOUSAND PESOS (P135,000.00),PHILIPPINE CURRENCY WITH INTEREST AT THE RATE OF FOURTEEN PERCENT (14%) PER ANNUM FROM THIS DATE UNTIL FULLY PAID.[40]

Considering that the mortgage contract and the promissory note refer only to theloan of petitioners in the amount of P135,000.00, we have no reason to hold that theinsurance 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 ofpetitioners.

InQuirino Gonzales Logging Concessionaire vs. Court of Appeals,[41]we held thatthe notices of foreclosure sent by the mortgagee to the mortgagor cannot be consideredtantamount to written extrajudicial demands, which may validly interrupt the running ofthe prescriptive period, where it does not appear from the records that the notes arecovered by the mortgage contract.[42]
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In this case, it is clear that the advanced payment of the insurance premiums is notpart of the mortgage contract and the promissory note signed by petitioners. Theypertain only to the amount of P135,000.00 which is the principal loan of petitioners plusinterest. 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 theexistence of the factual basis of the damage and its causal relation to defendantsacts.[43]Exemplary damages meanwhile, which are imposed as a deterrent against or asa negative incentive to curb socially deleterious actions, may be awarded only after theclaimant has proven that he is entitled to moral, temperate or compensatorydamages.[44]Finally, as to attorneys fees, it is demanded that there be factual, legal andequitable justification for its award.[45]Since the bases for these claims were notadequately 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-judicialforeclosure of the real estate mortgage on October 18, 1995, is hereby declared nulland void and respondent is ordered to return to petitioners their owners duplicatecertificate of title.

Costs against respondent.

SO ORDERED.

Puno, (Chairman), Callejo, Sr., andTinga, JJ., concur.Chico-Nazario, J., on leave.

PHILIPPINE DEPOSIT INSURANCE CORPORATION (PDIC), petitioner, vs. PHILIPPINE COUNTRYSIDE RURAL BANK, INC.,RURAL BANK OF CARMEN (CEBU), INC., BANK OF EAST ASIA (MINGLANILLA, CEBU), INC., and PILIPINO RURAL BANK(CEBU), INC., respondents.

Remedial Law; Actions; Forum Shopping; Definition of Forum Shopping; There is forum shopping where the elements of litispendentia are present.In the recent case of Sameer Oversees Placement Agency, Inc. v. Mildred R. Santos, 595 SCRA 67(2009), the Court discussed the matter of forum shopping: Forum shopping is defined as an act of a party, against whom an adverse

judgment or order has been rendered in one forum, of seeking and possibly getting a favorable opinion in another forum, other thanby appeal or special civil action for certiorari. It may also be the institution of two or more actions or proceedings grounded on thesame cause on the supposition that one or the other court would make a favorable disposition. There is forum shopping where theelements of litis pendentia are present, namely: (a) there is identity of parties, or at least such parties as represent the same interestin both actions; (b) there is identity of rights asserted and relief prayed for, the relief be ing founded on the same set of facts; and (c)the identity of the two preceding particulars is such that any judgment rendered in the pending case, regardless of which party issuccessful, would amount to res judicata in the other. It is expressly prohibited by this Court because it trifles with and abuses courtprocesses, degrades the

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* SECOND DIVISION.

323
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VOL. 640, JANUARY 24, 2011

323

Philippine Deposit Insurance Corporation (PDIC) vs. Philippine Countryside Rural Bank, Inc.

administration of justice, and congests court dockets. A willful and deliberate violation of the rule against forum shopping is a ground

for summary dismissal of the case, and may also constitute direct contempt.

Same; Same; Same; There is a marked difference between the reliefs sought under an action for declaratory relief and an action forinjunction.There is a marked difference between the reliefs sought under an action for declaratory relief and an action forinjunction. While an action for declaratory relief seeks a declaration of rights or duties, or the determination of any question orvalidity arising under a statute, executive order or regulation, ordinance, or any other governmental regulation, or under a deed, will,contract or other written instrument, under which his rights are affected, and before breach or violation, an action for injunctionultimately seeks to enjoin or to compel a party to perform certain acts.

Constitutional Law; Due Process; The essence of procedural due process is found in the reasonable opportunity to be heard andsubmit ones evidence in support of his defense.The essence of procedural due process is found in the reasonable opportunity tobe heard and submit ones evidence in support of his defense. The Court finds that procedural due process was observed by theCA-Cebu. The parties were afforded equal opportunity to present their arguments. In the absence of any indication to the contrary,the CA-Cebu must be accorded the presumption of regularity in the performance of their functions. However, as discussed herein,the matter of whether it erred in its conclusion and issuance of the TRO, preliminary injunction and final injunction is another matter

altogether.

Banks and Banking; Bangko Sentral ng Pilipinas (BSP); Monetary Board; Court is of the view that the Monetary Board approval isnot required for Philippine Deposit Insurance Corporation (PDIC) to conduct an investigation on the Banks. After an evaluation ofthe respective positions of the parties, the Court is of the view that the Monetary Board approval is not required for PDIC to conductan investigation on the Banks.

Same; Same; Same; Philippine Deposit Insurance Corporation (PDIC); The primary purpose is to act as deposit insurer, as a co-regulator of banks, and as receiver and liquidator of closed banks.The PDIC was created by R.A. No. 3591 on June 22, 1963 asan

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SUPREME COURT REPORTS ANNOTATED


insurer of deposits in all banks entitled to the benefits of insurance under the PDIC Charter to promote and safeguard the interestsof the depositing public by way of providing permanent and continuing insurance coverage of all insured deposits. It is a governmentinstrumentality that operates under the Department of Finance. Its primary purpose is to act as deposit insurer, as a co -regulator ofbanks, and as receiver and liquidator of closed banks.

Same; Same; Same; Same; Process of Examination and Investigation; The process of examination covers a wider scope than thatof investigation; Investigation does not involve a general evaluation of the status of a bank; An examination entails a review ofessentially all the functions and facets of a bank and its operation.From the above-cited provisions, it is clear that the process of

examination covers a wider scope than that of investigation. Examination involves an evaluation of the current status of a bank anddetermines its compliance with the set standards regarding solvency, liquidity, asset valuation, operations, systems, management,and compliance with banking laws, rules and regulation4es. Investigation, on the other hand, is conducted based on specificfindings of certain acts or omissions which are subject of a complaint or a Final Report of Examination. Clearly, investigation doesnot involve a general evaluation of the status of a bank. An investigation zeroes in on specific acts and omissions uncovered via anexamination, or which are cited in a complaint. An examination entails a review of essentially all the functions and facets of a bankand its operation. It necessitates poring through voluminous documents, and requires a detailed evaluation thereof. Such a processthen involves an intrusion into a banks records.

Same; Same; Same; Same; Same; An examination of banks requires the prior consent of the Monetary Board, whereas aninvestigation based on an examination report, does not.While in a literary sense, the two terms may be used interchangeably,


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under the PDIC Charter, examination and investigation refer to two different processes. To reiterate, an examination of banksrequires the prior consent of the Monetary Board, whereas an investigation based on an examination report, does not.

PETITION for review on certiorari of the decision and resolution of the Court of Appeals-Cebu.

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VOL. 640, JANUARY 24, 2011

325


The facts are stated in the opinion of the Court.

Office of the Government Corporate Counsel for petitioner.

Pizarras & Associates Law Offices for respondents.

MENDOZA, J.:

This is a petition for review on certiorari under Rule 45 of the Rules of Court filed by the Philippine Deposit Insurance Corporation(PDIC) assailing the September 18, 2006 Decision of the Court of Appeals-Cebu (CA-Cebu), which granted the petition forinjunction filed by respondents Philippine Countryside Rural Bank, Inc. (PCRBI), Rural Bank of Carmen (Cebu), Inc. (RBCI), Bank ofEastAsia (Minglanilla, Cebu), Inc. (BEAI), and Pilipino Rural Bank (Cebu), Inc. (PRBI), all collectively referred to as Banks. Thedispositive portion of the CA-Cebu decision reads:

WHEREFORE, in view of all the foregoing premises, the petition for injuncti on is hereby GRANTED. The respondent PDIC isrestrained from further conducting investigations or examination on petitioners-banks without the requisite approval from theMonetary Board.

SO ORDERED.1

In a resolution dated January 25, 2007, the CA-Cebu denied petitioners motion for reconsideration for lack of merit.2

The Facts

On March 9, 2005, the Board of Directors of the PDIC (PDIC Board) adopted Resolution No. 2005-03-0323 approving

_______________

1 Rollo, p. 107. Penned by Justice Pampio A. Abarintos with Justice Agustin S. Dizon and Justice Priscilla Baltazar-Padilla,concurring.

2 Id., at p. 111.

3 Id., at p. 113.

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the conduct of an investigation, in accordance with Section 9(b-1) of Republic Act (R.A.) No. 3591, as amended, on the basis of the

Reports of Examination of the Bangko Sentral ng Pilipinas (BSP) on ten (10) banks, four (4) of which are respondents in this petitionfor review. The said resolution also created a Special Investigation Team to conduct the said investigation, with the authority toadminister oaths, to examine, take and preserve testimony of any person relating to the subject of the investigation, and to examinepertinent bank records.

On May 25, 2005, the PDIC Board adopted another resolution, Resolution No. 2005-05-056,4 approving the conduct of aninvestigation on PCRBI based on a Complaint-Affidavit filed by a corporate depositor, the Philippine School of Entrepreneurship andManagement (PSEMI) through its president, Jacinto L. Jamero.

On June 3, 2005, in accordance with the two PDIC Board resolutions, then PDIC President and Chief Executive Officer Ricardo M.Tan issued the Notice of Investigation5 to the President or The Highest Ranking Officer of PCRBI.

On June 7, 2005, the PDIC Investigation Team personally served the Notice of Investigation on PCRBI at its Head Office in Pajo,Lapu-Lapu City.6According to PDIC, in the course of its investigation, PCRBI was found to have granted loans to certain individuals,which were settled by way of dacion of properties. These properties, however, had already been previously foreclosed and

consolidated under the names of PRBI, BEAI and RBCI.7

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4 Id., at p. 115.

5 Id., at p. 116.

6 Id.

7 Id., at p. 25.

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VOL. 640, JANUARY 24, 2011

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On June 15, 2005, PDIC issued similar notices of investigation to PRBI8 and BEAI.9

The notices stated that the investigation was to be conducted pursuant to Section 9 (b-1) of the PDIC Charter and upon authority ofPDIC Board Resolution No. 2005-03-032 authorizing the twelve (12) named representatives of PDIC to conduct the investigation.10

The investigation was sought because the Banks were found to be among the ten (10) banks collectively known as Legacy Banks.The Reports of General and Special Examinations of the BSP as of June 30, 2004, disclosed, among others, that the Legacy Bankswere commonly owned and/or controlled by Legacy Plans Inc. (now Legacy Consolidated Plans, Inc.), and Celso Gancayco delos

Angles, Jr. and his family.11

The notice of investigation was served on PRBI the next day, June 16, 2005.12


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On June 25, 2005, a separate notice of investigation13 was served on RBCI. The latter provided the PDIC Investigation Team withcertified copies of the loan documents they had requested, until its president received an order directing him not to allow theinvestigation.14

Subsequently, PRBI and BEAI refused entry to their bank premises and access to their records and documents by the PDICInvestigation Team, upon advice of their respective counsels.15

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8 Id., at p. 120.

9 Id., at p. 126.

10 Id., at pp. 120-121, 126-127, 132-133.

11 Id., at p. 20.

12 Id., at p. 27.

13 Id., at p. 132.

14 Id., at p. 29.

15 Id., at pp. 29-30.

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On June 16 and 17, 2005, Atty. Victoria G. Noel (Atty. Noel) of the Tiongson & Antenor Cruz Law Office sent letters to the PDIC16informing it of her legal advice to PCRBI and BEAI not to submit to PDIC investigation on the ground that its investigatory powerpursuant to Section 9(b-1) of R.A. No. 3591, as amended (An Act Establishing The Philippine Deposit Insurance Corporation,Defining Its Powers And Duties And For Other Purposes), cannot be differentiated from the examination powers accorded to PDICunder Section 8, paragraph 8 of the same law, under which, prior approval from the Monetary Board is required.

On June 17, 2005, PDIC General Counsel Romeo M. Mendoza sent a reply to Atty. Noel stating that PDICs investigation power, asdistinguished from the examination power of the PDIC under Section 8 of the same law, does not need prior approval of theMonetary Board.17 PDIC then urged PRBI and BEAI not to impede the conduct of PDICs investigation as the same constitutesaviolation of the PDIC Charter for which PRBI and BEAI

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