G.R. No.

135706             October 1, 2004

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

vs.
PHILIPPINE VETERANS BANK, respondent.

DECISION

AUSTRIA-MARTINEZ, J.:

Before us is a petition for review of the decision of the Regional Trial Court (RTC), Cebu City,
Branch 24, dated April 17, 1998,1 and the order denying petitioner’s motion for reconsideration
dated August 25, 1998, raising pure questions of law.2

The following facts are uncontroverted:

On March 3, 1980, petitioner spouses contracted a monetary loan with respondent

Philippine Veterans Bank in the amount of ₱135,000.00, evidenced by a promissory
note, due and demandable on February 27, 1981, and secured by a Real Estate
Mortgage executed on their lot together with the improvements thereon.

On March 23, 1985, the respondent bank went bankrupt and was placed under
receivership/liquidation by the Central Bank from April 25, 1985 until August 1992.3

On August 23, 1985, the bank, through Francisco Go, sent the spouses a demand letter for
"accounts receivable in the total amount of ₱6,345.00 as of August 15, 1984,"4 which pertains to
the insurance premiums advanced by respondent bank over the mortgaged property of
petitioners.5

On August 23, 1995, more than fourteen years from the time the loan became due and
demandable, respondent bank filed a petition for extrajudicial foreclosure of mortgage of
petitioners’ property.6 On October 18, 1995, the property was sold in a public auction by Sheriff
Arthur Cabigon with Philippine Veterans Bank as the lone bidder.

On April 26, 1996, petitioners filed a complaint with the RTC, Cebu City, to declare the extra-
judicial foreclosure and the subsequent sale thereof to respondent bank null and void.7

In the pre-trial conference, the parties agreed to limit the issue to whether or not the period
within which the bank was placed under receivership and liquidation was a fortuitous event
which suspended the running of the ten-year prescriptive period in bringing actions.8

On April 17, 1998, the RTC rendered its decision, the fallo of which reads:

WHEREFORE, premises considered judgment is hereby rendered dismissing the

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

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

"….a continuity of commercial dealings and arrangements and contemplates to

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

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

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

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

"Having arrived at the conclusion that a foreclosure is part of a bank’s activity which
could not have been pursued by the receiver then because of the circumstances
discussed in the Central Bank case, we are thus convinced that the prescriptive period
was legally interrupted by fuerza mayor in 1972 on account of the prohibition imposed by
the Monetary Board against petitioner from transacting business, until the directive of the
Board was nullified in 1981. Indeed, the period during which the obligee was prevented
by a caso fortuito from enforcing his right is not reckoned against him. (Art. 1154, NCC)
When prescription is interrupted, all the benefits acquired so far from the possession
cease and when prescription starts anew, it will be entirely a new one. This concept
should not be equated with suspension where the past period is included in the
computation being added to the period after the prescription is presumed (4 Tolentino,
Commentaries and Jurisprudence on the Civil Code of the Philippines 1991 ed. pp. 18-
19), consequently, when the closure of the petitioner was set aside in 1981, the period of
ten years within which to foreclose under Art. 1142 of the N.C.C. began to run and,
therefore, the action filed on August 21, 1986 to compel petitioner to release the
mortgage carried with it the mistaken notion that petitioner’s own suit for foreclosure has
prescribed."

Even assuming that the liquidation of defendant bank did not affect its right to foreclose
the plaintiffs’ mortgaged property, the questioned extrajudicial foreclosure was well
within the ten (10) year prescriptive period. It is noteworthy to mention at this point in
time, that defendant bank through authorized Deputy Francisco Go made the first
extrajudicial demand to the plaintiffs on August 1985. Then on March 24, 1995
defendant bank through its officer-in-charge Llanto made the second extrajudicial
demand. And we all know that a written extrajudicial demand wipes out the period that
has already elapsed and starts anew the prescriptive period. (Ledesma vs. C.A., 224
SCRA 175.)10
Petitioners filed a motion for reconsideration which the RTC denied on August 25, 1998.11 Thus,
the present petition for review where petitioners claim that the RTC erred:

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

II

…IN RULING THAT THE WRITTEN EXTRA-JUDICIAL DEMAND MADE BY

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

III

…IN DENYING PETITIONERS’ MOTION FOR RECONSIDERATION OF ITS HEREIN

ASSAILED DECISION.12

Petitioners argue that: since the extra-judicial foreclosure of the real estate mortgage was
effected by the bank on October 18, 1995, which was fourteen years from the date the
obligation became due on February 27, 1981, said foreclosure and the subsequent sale at
public auction should be set aside and declared null and void ab initio since they are already
barred by prescription; the court a quo erred in sustaining the respondent’s theory that its having
been placed under receivership by the Central Bank between April 1985 and August 1992 was
a fortuitous event that interrupted the running of the prescriptive period;13 the court a
quo’s reliance on the case of Provident Savings Bank vs. Court of Appeals14 is misplaced since
they have different sets of facts; in the present case, a liquidator was duly appointed for
respondent bank and there was no judgment or court order that would legally or physically
hinder or prohibit it from foreclosing petitioners’ property; despite the absence of such legal or
physical hindrance, respondent bank’s receiver or liquidator failed to foreclose petitioners’
property and therefore such inaction should bind respondent bank;15 foreclosure of mortgages is
part of the receiver’s/liquidator’s duty of administering the bank’s assets for the benefit of its
depositors and creditors, thus, the ten-year prescriptive period which started on February 27,
1981, was not interrupted by the time during which the respondent bank was placed under
receivership; and the Monetary Board’s prohibition from doing business should not be construed
as barring any and all business dealings and transactions by the bank, otherwise, the specific
mandate to foreclose mortgages under Sec. 29 of R.A. No. 265 as amended by Executive Order
No. 65 would be rendered nugatory.16 Said provision reads:

Section 29. Proceedings upon Insolvency – Whenever, upon examination by the head of
the appropriate supervising or examining department or his examiners or agents into the
condition of any bank or non-bank financial intermediary performing quasi-banking
functions, it shall be disclosed that the condition of the same is one of insolvency, or that
its continuance in business would involve probable loss to its depositors or creditors, it
shall be the duty of the department head concerned forthwith, in writing, to inform the
Monetary Board of the facts. The Board may, upon finding the statements of the
department head to be true, forbid the institution to do business in the Philippines and
designate the official of the Central Bank or a person of recognized competence in
 banking or finance, as receiver to immediately take charge its assets and liabilities, as
expeditiously as possible, collect and gather all the assets and administer the same for
the benefit of its creditors, and represent the bank personally or through counsel as he
may retain in all actions or proceedings for or against the institution, exercising all the
powers necessary for these purposes including, but not limited to, bringing and
foreclosing mortgages in the name of the bank.

Petitioners further contend that: the demand letter, dated March 24, 1995, was sent after the
ten-year prescriptive period, thus it cannot be deemed to have revived a period that has already
elapsed; it is also not one of the instances enumerated by Art. 1115 of the Civil Code when
prescription is interrupted;17 and the August 23, 1985 letter by Francisco Go demanding
₱6,345.00, refers to the insurance premium on the house of petitioners, advanced by
respondent bank, thus such demand letter referred to another obligation and could not have the
effect of interrupting the running of the prescriptive period in favor of herein petitioners insofar
as foreclosure of the mortgage is concerned.18

Petitioners then prayed that respondent bank be ordered to pay them ₱100,000.00 as moral
damages, ₱50,000.00 as exemplary damages and ₱100,000.00 as attorney’s fees.19

Respondent for its part asserts that: the period within which it was placed under receivership
and liquidation was a fortuitous event that interrupted the running of the prescriptive period for
the foreclosure of petitioners’ mortgaged property; within such period, it was specifically
restrained and immobilized from doing business which includes foreclosure proceedings; the
extra-judicial demand it made on March 24, 1995 wiped out the period that has already lapsed
and started anew the prescriptive period; respondent through its authorized deputy Francisco
Go made the first extra-judicial demand on the petitioners on August 23, 1985; while it is true
that the first demand letter of August 1985 pertained to the insurance premium advanced by it
over the mortgaged property of petitioners, the same however formed part of the latter’s total
loan obligation with respondent under the mortgage instrument and therefore constitutes a valid
extra-judicial demand made within the prescriptive period.20

In their Reply, petitioners reiterate their earlier arguments and add that it was respondent that
insured the mortgaged property thus it should not pass the obligation to petitioners through the
letter dated August 1985.21

To resolve this petition, two questions need to be answered: (1) Whether or not the period within
which the respondent bank was placed under receivership and liquidation proceedings may be
considered a fortuitous event which interrupted the running of the prescriptive period in bringing
actions; and (2) Whether or not the demand letter sent by respondent bank’s representative on
August 23, 1985 is sufficient to interrupt the running of the prescriptive period.

Anent the first issue, we answer in the negative.

One characteristic of a fortuitous event, in a legal sense and consequently in relations to

contract, is that its occurrence must be such as to render it impossible for a party to fulfill his
obligation in a normal manner.22

Respondent’s claims that because of a fortuitous event, it was not able to exercise its right to
foreclose the mortgage on petitioners’ property; and that since it was banned from pursuing its
business and was placed under receivership from April 25, 1985 until August 1992, it could not
foreclose the mortgage on petitioners’ property within such period since foreclosure is embraced
in the phrase "doing business," are without merit.

While it is true that foreclosure falls within the broad definition of "doing business," that is:

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

extent, the performance of acts or words or the exercise of some of the functions
normally incident to and in progressive prosecution of the purpose and object of its
organization.23

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

This we made clear in Banco Filipino Savings & Mortgage Bank vs. Monetary Board, Central
Bank of the Philippines24 where we explained that:

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

This is consistent with the purpose of receivership proceedings, i.e., to receive collectibles and
preserve the assets of the bank in substitution of its former management, and prevent the
dissipation of its assets to the detriment of the creditors of the bank.26

When a bank is declared insolvent and placed under receivership, the Central Bank, through the
Monetary Board, determines whether to proceed with the liquidation or reorganization of the
financially distressed bank. A receiver, who concurrently represents the bank, then takes control
and possession of its assets for the benefit of the bank’s creditors. A liquidator meanwhile
assumes the role of the receiver upon the determination by the Monetary Board that the bank
can no longer resume business. His task is to dispose of all the assets of the bank and effect
partial payments of the bank’s obligations in accordance with legal priority. In both receivership
and liquidation proceedings, the bank retains its juridical personality notwithstanding the closure
of its business and may even be sued as its corporate existence is assumed by the receiver or
liquidator. The receiver or liquidator meanwhile acts not only for the benefit of the bank, but for
its creditors as well.27

In Provident Savings Bank vs. Court of Appeals,28 we further stated that:

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

It is true that we also held in said case that the period during which the bank was placed under
receivership was deemed fuerza mayor which validly interrupted the prescriptive period.30 This
is being invoked by the respondent and was used as basis by the trial court in its decision.
Contrary to the position of the respondent and court a quo however, such ruling does not find
application in the case at bar.

A close scrutiny of the Provident case, shows that the Court arrived at said conclusion, which is
an exception to the general rule, due to the peculiar circumstances of Provident Savings Bank
at the time. In said case, we stated that:

Having arrived at the conclusion that a foreclosure is part of a bank’s business

activity which could not have been pursued by the receiver then because of the
circumstances discussed in the Central Bank case, we are thus convinced that the
prescriptive period was legally interrupted by fuerza mayor in 1972 on account of the
prohibition imposed by the Monetary Board against petitioner from transacting business,
until the directive of the Board was nullified in 1981.31 (Emphasis supplied.)

Further examination of the Central Bank case reveals that the circumstances of Provident

Savings Bank at the time were peculiar because after the Monetary Board issued MB
Resolution No. 1766 on September 15, 1972, prohibiting it from doing business in the
Philippines, the bank’s majority stockholders immediately went to the Court of First Instance of
Manila, which prompted the trial court to issue its judgment dated February 20, 1974, declaring
null and void the resolution and ordering the Central Bank to desist from liquidating Provident.
The decision was appealed to and affirmed by this Court in 1981. Thus, the Superintendent of
Banks, which was instructed to take charge of the assets of the bank in the name of the
Monetary Board, had no power to act as a receiver of the bank and carry out the obligations
specified in Sec. 29 of the Central Bank Act.32

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

Unlike Provident Savings Bank, there was no legal prohibition imposed upon herein respondent
to deter its receiver and liquidator from performing their obligations under the law. Thus, the
ruling laid down in the Provident case cannot apply in the case at bar.

There is also no truth to respondent’s claim that it could not continue doing business from the
period of April 1985 to August 1992, the time it was under receivership. As correctly pointed out
by petitioner, respondent was even able to send petitioners a demand letter, through Francisco
Go, on August 23, 1985 for "accounts receivable in the total amount of ₱6,345.00 as of August
15, 1984" for the insurance premiums advanced by respondent bank over the mortgaged
property of petitioners. How it could send a demand letter on unpaid insurance premiums and
not foreclose the mortgage during the time it was "prohibited from doing business" was not
adequately explained by respondent.

Settled is the principle that a bank is bound by the acts, or failure to act of its receiver.34 As we
held in Philippine Veterans Bank vs. NLRC,35 a labor case which also involved respondent bank,
 … all the acts of the receiver and liquidator pertain to petitioner, both having assumed
petitioner’s corporate existence. Petitioner cannot disclaim liability by arguing that the
non-payment of MOLINA’s just wages was committed by the liquidators during the
liquidation period.36

However, the bank may go after the receiver who is liable to it for any culpable or negligent
failure to collect the assets of such bank and to safeguard its assets.37

Having reached the conclusion that the period within which respondent bank was placed under
receivership and liquidation proceedings does not constitute a fortuitous event which interrupted
the prescriptive period in bringing actions, we now turn to the second issue on whether or not
the extra-judicial demand made by respondent bank, through Francisco Go, on August 23, 1985
for the amount of ₱6,345.00, which pertained to the insurance premiums advanced by the bank
over the mortgaged property, constitutes a valid extra-judicial demand which interrupted the
running of the prescriptive period. Again, we answer this question in the negative.

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

Respondent’s claim that while its first demand letter dated August 23, 1985 pertained to the
insurance premium it advanced over the mortgaged property of petitioners, the same formed
part of the latter’s total loan obligation with respondent under the mortgage instrument, and
therefore, constitutes a valid extra-judicial demand which interrupted the running of the
prescriptive period, is not plausible.

The real estate mortgage signed by the petitioners expressly states that:

This mortgage is constituted by the Mortgagor to secure the payment of the loan and/or
credit accommodation granted to the spouses Cesar A. Larrobis, Jr. and Virginia S.
Larrobis in the amount of ONE HUNDRED THIRTY FIVE THOUSAND (₱135,000.00)
PESOS ONLY Philippine Currency in favor of the herein Mortgagee.39

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

…FOR VALUE RECEIVED, I/WE, JOINTLY AND SEVERALLY, PROMISE TO PAY

THE PHILIPPINE VETERANS BANK, OR ORDER, AT ITS OFFICE AT CEBU CITY
THE SUM OF ONE HUNDRED THIRTY FIVE THOUSAND PESOS (P135,000.00),
PHILIPPINE CURRENCY WITH INTEREST AT THE RATE OF FOURTEEN PER CENT
(14%) PER ANNUM FROM THIS DATE UNTIL FULLY PAID.40

Considering that the mortgage contract and the promissory note refer only to the loan of
petitioners in the amount of ₱135,000.00, we have no reason to hold that the insurance
premiums, in the amount of ₱6,345.00, which was the subject of the August 1985 demand
letter, should be considered as pertaining to the entire obligation of petitioners.

In Quirino Gonzales Logging Concessionaire vs. Court of Appeals,41 we held that the notices of
foreclosure sent by the mortgagee to the mortgagor cannot be considered tantamount to written
extrajudicial demands, which may validly interrupt the running of the prescriptive period, where it
does not appear from the records that the notes are covered by the mortgage contract.42
In this case, it is clear that the advanced payment of the insurance premiums is not part of the
mortgage contract and the promissory note signed by petitioners. They pertain only to the
amount of ₱135,000.00 which is the principal loan of petitioners plus interest. The arguments of
respondent bank on this point must therefore fail.

As to petitioners’ claim for damages, however, we find no sufficient basis to award the same.
For moral damages to be awarded, the claimant must satisfactorily prove the existence of the
factual basis of the damage and its causal relation to defendant’s acts.43 Exemplary damages
meanwhile, which are imposed as a deterrent against or as a negative incentive to curb socially
deleterious actions, may be awarded only after the claimant has proven that he is entitled to
moral, temperate or compensatory damages.44 Finally, as to attorney’s fees, it is demanded that
there be factual, legal and equitable justification for its award.45 Since the bases for these claims
were not adequately proven by the petitioners, we find no reason to grant the same.

WHEREFORE, the decision of the Regional Trial Court, Cebu City, Branch 24, dated April 17,
1998, and the order denying petitioners’ motion for reconsideration dated August 25, 1998 are
hereby REVERSED and SET ASIDE. The extra-judicial foreclosure of the real estate mortgage
on October 18, 1995, is hereby declared null and void and respondent is ordered to return to
petitioners their owner’s duplicate certificate of title.

Costs against respondent.

SO ORDERED.

______________

G.R. No. 203585               July 29, 2013

MILA CABOVERDE TANTANO and ROSELLER CABOVERDE, Petitioners,

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

DECISION

VELASCO, JR., J.:

The Case

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

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

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

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

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

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

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

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

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

On May 12, 2008, Dominalda filed a Motion for Leave to Admit Amended Answer, attaching her
Amended Answer where she contradicted the contents of the aforesaid verified Answer by
declaring that there never was a sale of the three (3) contested parcels of land in favor of
Ferdinand, Mila, Laluna, Jeanny and Roseller and that she and her husband never received any
consideration from them. She made it clear that they intended to divide all their properties
equally among all their children without favor. In sum, Dominalda prayed that the reliefs asked
for in the Amended Complaint be granted with the modification that her conjugal share and
share as intestate heir of Maximo over the contested properties be recognized.3
The RTC would later issue a Resolution granting the Motion to Admit Amended Answer.4

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

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

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

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

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

xxxx

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

the utmost essence. She immediately needs her legal share and legal interest over the
income and produce of these lands so that she can provide and pay for her vitamins,
medicines, constant regular medical check-up and daily sustenance in life. To grant her
share and interest after she may have passed away would render everything that she
had worked for to naught and waste, akin to the saying "aanhin pa ang damo kung patay
na ang kabayo."

On August 27, 2009, the court heard the Application for Receivership and persuaded the parties
to discuss among themselves and agree on how to address the immediate needs of their
mother.6
On October 9, 2009, petitioners and their siblings filed a Manifestation formally expressing their
concurrence to the proposal for receivership on the condition, inter alia, that Mila be appointed
the receiver, and that, after getting the 2/10 share of Dominalda from the income of the three (3)
parcels of land, the remainder shall be divided only by and among Mila, Roseller, Ferdinand,
Laluna and Jeanny. The court, however, expressed its aversion to a party to the action acting as
receiver and accordingly asked the parties to nominate neutral persons.7

On February 8, 2010, the trial court issued a Resolution granting Dominalda’s application for
receivership over Lot Nos. 2, 3 and 4. The Resolution reads:

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

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

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

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

Undaunted, petitioners filed an Urgent Precautionary Motion to Stay Assumption of Receivers

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

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

A writ of preliminary injunction, as an ancillary or preventive remedy, may only be resorted to by

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

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

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

SO ORDERED.

xxxx

WHEREFORE, premises considered, this Court RESOLVES, as it is hereby RESOLVED, that:

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

DENIED for lack of merit. Accordingly, it being patently a second motion for
reconsideration, a prohibited pleading, the same is hereby ordered EXPUNGED from the
records;
 2. The "Motion to Fix the Bond, Acceptance and Approval of the Oath of Office, and
Bond of the Receiver" of defendant Dominalda Espina Caboverde, be GRANTED with
the receivers’ bond set and fixed at ONE HUNDRED THOUSAND PESOS
(Ph₱100,000.00) each.12

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

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

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

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

SEC. 2. Bond on appointment of receiver.-- Before issuing the order appointing a receiver the
court shall require the applicant to file a bond executed to the party against whom the
application is presented, in an amount to be fixed by the court, to the effect that the applicant
will pay such party all damages he may sustain by reason of the appointment of such receiver in
case the applicant shall have procured such appointment without sufficient cause; and the court
may, in its discretion, at any time after the appointment, require an additional bond as further
security for such damages.

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

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

As to the second ground, petitioners insist that there is no justification for placing the properties
under receivership since there was neither allegation nor proof that the said properties, not the
fruits thereof, were in danger of being lost or materially injured. They believe that the public
respondent went out of line when he granted the application for receivership for the purpose of
procuring money for the medications and basic needs of Dominalda despite the income she’s
supposed to receive under the Partial Settlement Agreement.

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

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

FOR REASONS STATED, the petition for certiorari is DENIED.

SO ORDERED.13

Petitioners’ Motion for Reconsideration was also denied by the CA on September 21, 2012.14

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

The Issues

Petitioners raise the following issues in their petition:

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

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

The Court’s Ruling

The petition is impressed with merit.

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

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

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

Section 1. Appointment of a receiver. – Upon a verified application, one or more receivers of the
property subject of the action or proceeding may be appointed by the court where the action is
pending, or by the Court of Appeals or by the Supreme Court, or a member thereof, in the
following cases:

xxxx

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

Indeed, Sec. 1(d) above is couched in general terms and broad in scope, encompassing
instances not covered by the other grounds enumerated under the said section.16 However, in
granting applications for receivership on the basis of this section, courts must remain mindful of
the basic principle that receivership may be granted only when the circumstances so demand,
either because the property sought to be placed in the hands of a receiver is in danger of being
lost or because they run the risk of being impaired,17 and that being a drastic and harsh remedy,
receivership must be granted only when there is a clear showing of necessity for it in order to
save the plaintiff from grave and immediate loss or damage.18

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

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

After carefully considering the foregoing principles and the facts and circumstances of this case,
We find that the grant of Dominalda’s Application for Receivership has no leg to stand on for
reasons discussed below.
First, Dominalda’s alleged need for income to defray her medical expenses and support is not a
valid justification for the appointment of a receiver. The approval of an application for
receivership merely on this ground is not only unwarranted but also an arbitrary exercise of
discretion because financial need and like reasons are not found in Sec. 1 of Rule 59 which
prescribes specific grounds or reasons for granting receivership. The RTC’s insistence that the
approval of the receivership is justified under Sec. 1(d) of Rule 59, which seems to be a catch-
all provision, is far from convincing. To be clear, even in cases falling under such provision, it is
essential that there is a clear showing that there is imminent danger that the properties sought
to be placed under receivership will be lost, wasted or injured.

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

Based on the allegations in her application, it appears that Dominalda sought receivership
mainly because she considers this the best remedy to ensure that she would receive her share
in the income of the disputed properties. Much emphasis has been placed on the fact that she
needed this income for her medical expenses and daily sustenance. But it can be gleaned from
her application that, aside from her bare assertion that petitioner Mila solely appropriated the
fruits and rentals earned from the disputed properties in connivance with some of her siblings,
Dominalda has not presented or alleged anything else to prove that the disputed properties
were in danger of being wasted or materially injured and that the appointment of a receiver was
the most convenient and feasible means to preserve their integrity.

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

Verily, the RTC’s purported determination that the appointment of a receiver is the most
convenient and feasible means of preserving, administering or disposing of the properties is
nothing but a hollow conclusion drawn from inexistent factual considerations.

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

Finally, it must be noted that the defendants in Civil Case No. S-760 are the registered owners
of the disputed properties that were in their possession. In cases such as this, it is settled
jurisprudence that the appointment should be made only in extreme cases and on a clear
showing of necessity in order to save the plaintiff from grave and irremediable loss or damage.22

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

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

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

By placing the disputed properties and their income under receivership, it is as if the applicant
has obtained indirectly what she could not obtain directly, which is to deprive the other parties of
the possession of the property until the controversy between them in the main case is finally
settled.26 This Court cannot countenance this arrangement.

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

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

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

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

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

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

SO ORDERED.

__________

[G.R. NO. 168332 : June 19, 2009]

ANA MARIA A. KORUGA, Petitioner, v. TEODORO O. ARCENAS, JR., ALBERT C.

AGUIRRE, CESAR S. PAGUIO, FRANCISCO A. RIVERA, and THE HONORABLE COURT
OF APPEALS, THIRD DIVISION, Respondents.

[G.R. NO. 169053 : June 19, 2009]

TEODORO O. ARCENAS, JR., ALBERT C. AGUIRRE, CESAR S. PAGUIO, and

FRANCISCO A. RIVERA, Petitioners, v. HON. SIXTO MARELLA, JR., Presiding Judge,
Branch 138, Regional Trial Court of Makati City, and ANA MARIA A.
KORUGA, Respondents.

DECISION

NACHURA, J.:

Before this Court are two petitions that originated from a Complaint filed by Ana Maria A.
Koruga (Koruga) before the Regional Trial Court (RTC) of Makati City against the Board of
Directors of Banco Filipino and the Members of the Monetary Board of the Bangko Sentral ng
Pilipinas (BSP) for violation of the Corporation Code, for inspection of records of a corporation
by a stockholder, for receivership, and for the creation of a management committee.
 G.R. No. 168332

The first is a Petition for Certiorari under Rule 65 of the Rules of Court, docketed as G.R. No.
168332, praying for the annulment of the Court of Appeals (CA) Resolution1 in CA-G.R. SP No.
88422 dated April 18, 2005 granting the prayer for a Writ of Preliminary Injunction of therein
petitioners Teodoro O. Arcenas, Jr., Albert C. Aguirre, Cesar S. Paguio, and Francisco A.
Rivera (Arcenas, et al.).

Koruga is a minority stockholder of Banco Filipino Savings and Mortgage Bank. On August 20,
2003, she filed a complaint before the Makati RTC which was raffled to Branch 138, presided
over by Judge Sixto Marella, Jr.2 Koruga's complaint alleged:

10. 1 Violation of Sections 31 to 34 of the Corporation Code ("Code") which prohibit self-dealing
and conflicts of interest of directors and officers, thus:

(a) For engaging in unsafe, unsound, and fraudulent banking practices that have jeopardized
the welfare of the Bank, its shareholders, who includes among others, the Petitioner, and
depositors. (sic)

(b) For granting and approving loans and/or "loaned" sums of money to six (6) "dummy"
borrower corporations ("Borrower Corporations") which, at the time of loan approval, had no
financial capacity to justify the loans. (sic)

(c) For approving and accepting a dacion en pago, or payment of loans with property instead of
cash, resulting to a diminished future cumulative interest income by the Bank and a decline in its
liquidity position. (sic)

(d) For knowingly giving "favorable treatment" to the Borrower Corporations in which some or
most of them have interests, i.e. interlocking directors/officers thereof, interlocking ownerships.
(sic)

(e) For employing their respective offices and functions as the Bank's officers and directors, or
omitting to perform their functions and duties, with negligence, unfaithfulness or abuse of
confidence of fiduciary duty, misappropriated or misapplied or ratified by inaction the
misappropriation or misappropriations, of (sic) almost P1.6 Billion Pesos (sic) constituting the
Bank's funds placed under their trust and administration, by unlawfully releasing loans to the
Borrower Corporations or refusing or failing to impugn these, knowing before the loans were
released or thereafter that the Bank's cash resources would be dissipated thereby, to the
prejudice of the Petitioner, other Banco Filipino depositors, and the public.

10.2 Right of a stockholder to inspect the records of a corporation (including financial

statements) under Sections 74 and 75 of the Code, as implemented by the Interim Rules;

(a) Unlawful refusal to allow the Petitioner from inspecting or otherwise accessing the corporate
records of the bank despite repeated demand in writing, where she is a stockholder. (sic)

10.3 Receivership and Creation of a Management Committee pursuant to:

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

(b) Section 5.2 of R.A. No. 8799;

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

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

(e) Rule 7 of the Interim Rules;

(f) Rule 9 of the Interim Rules; andcralawlibrary

(g) The General Banking Law of 2000 and the New Central Bank Act.3

On September 12, 2003, Arcenas, et al. filed their Answer raising, among others, the trial court's
lack of jurisdiction to take cognizance of the case. They also filed a Manifestation and Motion
seeking the dismissal of the case on the following grounds: (a) lack of jurisdiction over the
subject matter; (b) lack of jurisdiction over the persons of the defendants; (c) forum-shopping;
and (d) for being a nuisance/harassment suit. They then moved that the trial court rule on their
affirmative defenses, dismiss the intra-corporate case, and set the case for preliminary hearing.

In an Order dated October 18, 2004, the trial court denied the Manifestation and Motion, ruling
thus:

The result of the procedure sought by defendants Arcenas, et al. (sic) is for the Court to conduct
a preliminary hearing on the affirmative defenses raised by them in their Answer. This [is]
proscribed by the Interim Rules of Procedure on Intracorporate (sic) Controversies because
when a preliminary hearing is conducted it is "as if a Motion to Dismiss was filed" (Rule 16,
Section 6, 1997 Rules of Civil Procedure). A Motion to Dismiss is a prohibited pleading under
the Interim Rules, for which reason, no favorable consideration can be given to the
Manifestation and Motion of defendants, Arcenas, et al.

The Court finds no merit to (sic) the claim that the instant case is a nuisance or harassment suit.

WHEREFORE, the Court defers resolution of the affirmative defenses raised by the defendants
Arcenas, et al.4

Arcenas, et al. moved for reconsideration5 but, on January 18, 2005, the RTC denied the
motion.6 This prompted Arcenas, et al. to file before the CA a Petition for Certiorari and
Prohibition under Rule 65 of the Rules of Court with a prayer for the issuance of a writ of
preliminary injunction and a temporary retraining order (TRO).7

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

On February 22, 2005, the RTC issued a Notice of Pre-trial9 setting the case for pre-trial on
June 2 and 9, 2005. Arcenas, et al. filed a Manifestation and Motion10 before the CA, reiterating
their application for a writ of preliminary injunction. Thus, on April 18, 2005, the CA issued the
assailed Resolution, which reads in part:
(C)onsidering that the Temporary Restraining Order issued by this Court on February 9, 2005
expired on April 10, 2005, it is necessary that a writ of preliminary injunction be issued in order
not to render ineffectual whatever final resolution this Court may render in this case, after the
petitioners shall have posted a bond in the amount of FIVE HUNDRED THOUSAND
(P500,000.00) PESOS.

SO ORDERED.11

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

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

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

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

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

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

G.R. No. 169053

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

In their Petition, Arcenas, et al. asked the Court to set aside the Decision14 dated July 20, 2005
of the CA in CA-G.R. SP No. 88422, which denied their petition, having found no grave abuse of
discretion on the part of the Makati RTC. The CA said that the RTC Orders were interlocutory in
nature and, thus, may be assailed by certiorari or prohibition only when it is shown that the court
acted without or in excess of jurisdiction or with grave abuse of discretion. It added that the
Supreme Court frowns upon resort to remedial measures against interlocutory orders.
Arcenas, et al. anchored their prayer on the following grounds: that, in their Answer before the
RTC, they had raised the issue of failure of the court to acquire jurisdiction over them due to
improper service of summons; that the Koruga action is a nuisance or harassment suit; that
there is another case involving the same parties for the same cause pending before the
Monetary Board of the BSP, and this constituted forum-shopping; and that jurisdiction over the
subject matter of the case is vested by law in the BSP.15

Arcenas, et al. assign the following errors:

I. THE COURT OF APPEALS, IN "FINDING NO GRAVE ABUSE OF DISCRETION

COMMITTED BY PUBLIC RESPONDENT REGIONAL TRIAL COURT OF MAKATI, BRANCH
138, IN ISSUING THE ASSAILED ORDERS," FAILED TO CONSIDER AND MERELY
GLOSSED OVER THE MORE TRANSCENDENT ISSUES OF THE LACK OF JURISDICTION
ON THE PART OF SAID PUBLIC RESPONDENT OVER THE SUBJECT MATTER OF THE
CASE BEFORE IT, LITIS PENDENTIA AND FORUM SHOPPING, AND THE CASE BELOW
BEING A NUISANCE OR HARASSMENT SUIT, EITHER ONE AND ALL OF WHICH GOES/GO
TO RENDER THE ISSUANCE BY PUBLIC RESPONDENT OF THE ASSAILED ORDERS A
GRAVE ABUSE OF DISCRETION.

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

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

Our Ruling

Initially, we will discuss the procedural issue.

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

This contention deserves scant consideration.

On the last page of the Petition in G.R. No. 168332, Koruga's counsel executed an Undertaking,
which reads as follows:

In view of that fact that the Petitioner is currently in the United States, undersigned counsel is
attaching a facsimile copy of the Verification and Certification Against Forum-Shopping duly
signed by the Petitioner and notarized by Stephanie N. Goggin, a Notary Public for the Sate
(sic) of Washington. Upon arrival of the original copy of the Verification and Certification as
certified by the Office of the Philippine Consul, the undersigned counsel shall immediately
provide duplicate copies thereof to the Honorable Court.17
Thus, in a Compliance18 filed with the Court on September 5, 2005, petitioner submitted the
original copy of the duly notarized and authenticated Verification and Certification Against
Forum-Shopping she had executed.19 This Court noted and considered the Compliance
satisfactory in its Resolution dated November 16, 2005. There is, therefore, no need to further
belabor this issue.

We now discuss the substantive issues in this case.

First, we resolve the prayer to nullify the CA's April 18, 2005 Resolution.

We hold that the Petition in G.R. No. 168332 has become moot and academic. The writ of
preliminary injunction being questioned had effectively been dissolved by the CA's July 20, 2005
Decision. The dispositive portion of the Decision reads in part:

The case is REMANDED to the court a quo for further proceedings and to resolve with
deliberate dispatch the intra-corporate controversies and determine whether there was actually
a valid service of summons. If, after hearing, such service is found to have been improper, then
new summons should be served forthwith.20

Accordingly, there is no necessity to restrain the implementation of the writ of preliminary

injunction issued by the CA on April 18, 2005, since it no longer exists.

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

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

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

A reexamination of the Complaint is in order.

Koruga's Complaint charged defendants with violation of Sections 31 to 34 of the Corporation

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

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

The law vests in the BSP the supervision over operations and activities of banks. The New
Central Bank Act provides:

Section 25. Supervision and Examination. - The Bangko Sentral shall have supervision over,
and conduct periodic or special examinations of, banking institutions and quasi-banks, including
their subsidiaries and affiliates engaged in allied activities.24

Specifically, the BSP's supervisory and regulatory powers include:

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

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

4.3 Overseeing to ascertain that laws and Regulations are complied with;

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

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

4.6 Enforcing prompt corrective action.25

Koruga alleges that "the dispute in the trial court involves the manner with which the Directors'
(sic) have handled the Bank's affairs, specifically the fraudulent loans and dacion en pago
authorized by the Directors in favor of several dummy corporations known to have close ties
and are indirectly controlled by the Directors."26 Her allegations, then, call for the examination of
the allegedly questionable loans. Whether these loans are covered by the prohibition on self-
dealing is a matter for the BSP to determine. These are not ordinary intra-corporate matters;
rather, they involve banking activities which are, by law, regulated and supervised by the BSP.
As the Court has previously held:

It is well-settled in both law and jurisprudence that the Central Monetary Authority, through the
Monetary Board, is vested with exclusive authority to assess, evaluate and determine the
condition of any bank, and finding such condition to be one of insolvency, or that its continuance
in business would involve a probable loss to its depositors or creditors, forbid bank or non-bank
financial institution to do business in the Philippines; and shall designate an official of the BSP
or other competent person as receiver to immediately take charge of its assets and liabilities.27
Correlatively, the General Banking Law of 2000 specifically deals with loans contracted by bank
directors or officers, thus:

SECTION 36. Restriction on Bank Exposure to Directors, Officers, Stockholders and

Their Related Interests. ' No director or officer of any bank shall, directly or indirectly, for
himself or as the representative or agent of others, borrow from such bank nor shall he become
a guarantor, indorser or surety for loans from such bank to others, or in any manner be an
obligor or incur any contractual liability to the bank except with the written approval of the
majority of all the directors of the bank, excluding the director concerned: Provided, That such
written approval shall not be required for loans, other credit accommodations and advances
granted to officers under a fringe benefit plan approved by the Bangko Sentral. The required
approval shall be entered upon the records of the bank and a copy of such entry shall be
transmitted forthwith to the appropriate supervising and examining department of the Bangko
Sentral.

Dealings of a bank with any of its directors, officers or stockholders and their related interests
shall be upon terms not less favorable to the bank than those offered to others.

After due notice to the board of directors of the bank, the office of any bank director or officer
who violates the provisions of this Section may be declared vacant and the director or officer
shall be subject to the penal provisions of the New Central Bank Act.

The Monetary Board may regulate the amount of loans, credit accommodations and guarantees
that may be extended, directly or indirectly, by a bank to its directors, officers, stockholders and
their related interests, as well as investments of such bank in enterprises owned or controlled by
said directors, officers, stockholders and their related interests. However, the outstanding loans,
credit accommodations and guarantees which a bank may extend to each of its stockholders,
directors, or officers and their related interests, shall be limited to an amount equivalent to their
respective unencumbered deposits and book value of their paid-in capital contribution in the
bank: Provided, however, That loans, credit accommodations and guarantees secured by
assets considered as non-risk by the Monetary Board shall be excluded from such limit:
Provided, further, That loans, credit accommodations and advances to officers in the form of
fringe benefits granted in accordance with rules as may be prescribed by the Monetary Board
shall not be subject to the individual limit.

The Monetary Board shall define the term "related interests."

The limit on loans, credit accommodations and guarantees prescribed herein shall not apply to
loans, credit accommodations and guarantees extended by a cooperative bank to its
cooperative shareholders.28

Furthermore, the authority to determine whether a bank is conducting business in an unsafe or

unsound manner is also vested in the Monetary Board. The General Banking Law of 2000
provides:

SECTION 56. Conducting Business in an Unsafe or Unsound Manner. ' In determining

whether a particular act or omission, which is not otherwise prohibited by any law, rule or
regulation affecting banks, quasi-banks or trust entities, may be deemed as conducting
business in an unsafe or unsound manner for purposes of this Section, the Monetary Board
shall consider any of the following circumstances:
56.1. The act or omission has resulted or may result in material loss or damage, or abnormal
risk or danger to the safety, stability, liquidity or solvency of the institution;

56.2. The act or omission has resulted or may result in material loss or damage or abnormal risk
to the institution's depositors, creditors, investors, stockholders or to the Bangko Sentral or to
the public in general;

56.3. The act or omission has caused any undue injury, or has given any unwarranted benefits,
advantage or preference to the bank or any party in the discharge by the director or officer of his
duties and responsibilities through manifest partiality, evident bad faith or gross inexcusable
negligence; or

56.4. The act or omission involves entering into any contract or transaction manifestly and
grossly disadvantageous to the bank, quasi-bank or trust entity, whether or not the director or
officer profited or will profit thereby.

Whenever a bank, quasi-bank or trust entity persists in conducting its business in an unsafe or
unsound manner, the Monetary Board may, without prejudice to the administrative sanctions
provided in Section 37 of the New Central Bank Act, take action under Section 30 of the same
Act and/or immediately exclude the erring bank from clearing, the provisions of law to the
contrary notwithstanding.

Finally, the New Central Bank Act grants the Monetary Board the power to impose
administrative sanctions on the erring bank:

Section 37. Administrative Sanctions on Banks and Quasi-banks. - Without prejudice to the

criminal sanctions against the culpable persons provided in Sections 34, 35, and 36 of this Act,
the Monetary Board may, at its discretion, impose upon any bank or quasi-bank, their directors
and/or officers, for any willful violation of its charter or by-laws, willful delay in the submission of
reports or publications thereof as required by law, rules and regulations; any refusal to permit
examination into the affairs of the institution; any willful making of a false or misleading
statement to the Board or the appropriate supervising and examining department or its
examiners; any willful failure or refusal to comply with, or violation of, any banking law or any
order, instruction or regulation issued by the Monetary Board, or any order, instruction or ruling
by the Governor; or any commission of irregularities, and/or conducting business in an unsafe or
unsound manner as may be determined by the Monetary Board, the following administrative
sanctions, whenever applicable:

(a) fines in amounts as may be determined by the Monetary Board to be appropriate, but in no
case to exceed Thirty thousand pesos (P30,000) a day for each violation, taking into
consideration the attendant circumstances, such as the nature and gravity of the violation or
irregularity and the size of the bank or quasi-bank;

(b) suspension of rediscounting privileges or access to Bangko Sentral credit facilities;

(c) suspension of lending or foreign exchange operations or authority to accept new deposits or
make new investments;

(d) suspension of interbank clearing privileges; and/or

(e) revocation of quasi-banking license.

Resignation or termination from office shall not exempt such director or officer from
administrative or criminal sanctions.

The Monetary Board may, whenever warranted by circumstances, preventively suspend any
director or officer of a bank or quasi-bank pending an investigation: Provided, That should the
case be not finally decided by the Bangko Sentral within a period of one hundred twenty (120)
days after the date of suspension, said director or officer shall be reinstated in his position:
Provided, further, That when the delay in the disposition of the case is due to the fault,
negligence or petition of the director or officer, the period of delay shall not be counted in
computing the period of suspension herein provided.

The above administrative sanctions need not be applied in the order of their severity.

Whether or not there is an administrative proceeding, if the institution and/or the directors and/or
officers concerned continue with or otherwise persist in the commission of the indicated practice
or violation, the Monetary Board may issue an order requiring the institution and/or the directors
and/or officers concerned to cease and desist from the indicated practice or violation, and may
further order that immediate action be taken to correct the conditions resulting from such
practice or violation. The cease and desist order shall be immediately effective upon service on
the respondents.

The respondents shall be afforded an opportunity to defend their action in a hearing before the
Monetary Board or any committee chaired by any Monetary Board member created for the
purpose, upon request made by the respondents within five (5) days from their receipt of the
order. If no such hearing is requested within said period, the order shall be final. If a hearing is
conducted, all issues shall be determined on the basis of records, after which the Monetary
Board may either reconsider or make final its order.

The Governor is hereby authorized, at his discretion, to impose upon banking institutions, for
any failure to comply with the requirements of law, Monetary Board regulations and policies,
and/or instructions issued by the Monetary Board or by the Governor, fines not in excess of Ten
thousand pesos (P10,000) a day for each violation, the imposition of which shall be final and
executory until reversed, modified or lifted by the Monetary Board on appeal.29

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

Sections 31 to 34 of the Corporation Code provide:

Section 31. Liability of directors, trustees or officers. - Directors or trustees who wilfully and
knowingly vote for or assent to patently unlawful acts of the corporation or who are guilty of
gross negligence or bad faith in directing the affairs of the corporation or acquire any personal
or pecuniary interest in conflict with their duty as such directors or trustees shall be liable jointly
and severally for all damages resulting therefrom suffered by the corporation, its stockholders or
members and other persons.

When a director, trustee or officer attempts to acquire or acquires, in violation of his duty, any
interest adverse to the corporation in respect of any matter which has been reposed in him in
confidence, as to which equity imposes a disability upon him to deal in his own behalf, he shall
be liable as a trustee for the corporation and must account for the profits which otherwise would
have accrued to the corporation.

Section 32. Dealings of directors, trustees or officers with the corporation. - A contract of the
corporation with one or more of its directors or trustees or officers is voidable, at the option of
such corporation, unless all the following conditions are present:

1. That the presence of such director or trustee in the board meeting in which the contract was
approved was not necessary to constitute a quorum for such meeting;

2. That the vote of such director or trustee was not necessary for the approval of the contract;

3. That the contract is fair and reasonable under the circumstances; and

4. That in case of an officer, the contract has been previously authorized by the board of
directors.

Where any of the first two conditions set forth in the preceding paragraph is absent, in the case
of a contract with a director or trustee, such contract may be ratified by the vote of the
stockholders representing at least two-thirds (2/3) of the outstanding capital stock or of at least
two-thirds (2/3) of the members in a meeting called for the purpose: Provided, That full
disclosure of the adverse interest of the directors or trustees involved is made at such meeting:
Provided, however, That the contract is fair and reasonable under the circumstances.

Section 33. Contracts between corporations with interlocking directors. - Except in cases of

fraud, and provided the contract is fair and reasonable under the circumstances, a contract
between two or more corporations having interlocking directors shall not be invalidated on that
ground alone: Provided, That if the interest of the interlocking director in one corporation is
substantial and his interest in the other corporation or corporations is merely nominal, he shall
be subject to the provisions of the preceding section insofar as the latter corporation or
corporations are concerned.

Stockholdings exceeding twenty (20%) percent of the outstanding capital stock shall be
considered substantial for purposes of interlocking directors.

Section 34. Disloyalty of a director. - Where a director, by virtue of his office, acquires for
himself a business opportunity which should belong to the corporation, thereby obtaining profits
to the prejudice of such corporation, he must account to the latter for all such profits by
refunding the same, unless his act has been ratified by a vote of the stockholders owning or
representing at least two-thirds (2/3) of the outstanding capital stock. This provision shall be
applicable, notwithstanding the fact that the director risked his own funds in the venture.
Koruga's invocation of the provisions of the Corporation Code is misplaced. In an earlier case
with similar antecedents, we ruled that:

The Corporation Code, however, is a general law applying to all types of corporations, while the
New Central Bank Act regulates specifically banks and other financial institutions, including the
dissolution and liquidation thereof. As between a general and special law, the latter shall prevail
- generalia specialibus non derogant.31

Consequently, it is not the Interim Rules of Procedure on Intra-Corporate Controversies,32 or

Rule 59 of the Rules of Civil Procedure on Receivership, that would apply to this case. Instead,
Sections 29 and 30 of the New Central Bank Act should be followed, viz.:

Section 29. Appointment of Conservator. - Whenever, on the basis of a report submitted by the

appropriate supervising or examining department, the Monetary Board finds that a bank or a
quasi-bank is in a state of continuing inability or unwillingness to maintain a condition of liquidity
deemed adequate to protect the interest of depositors and creditors, the Monetary Board may
appoint a conservator with such powers as the Monetary Board shall deem necessary to take
charge of the assets, liabilities, and the management thereof, reorganize the management,
collect all monies and debts due said institution, and exercise all powers necessary to restore its
viability. The conservator shall report and be responsible to the Monetary Board and shall have
the power to overrule or revoke the actions of the previous management and board of directors
of the bank or quasi-bank.

xxx

The Monetary Board shall terminate the conservatorship when it is satisfied that the institution
can continue to operate on its own and the conservatorship is no longer necessary. The
conservatorship shall likewise be terminated should the Monetary Board, on the basis of the
report of the conservator or of its own findings, determine that the continuance in business of
the institution would involve probable loss to its depositors or creditors, in which case the
provisions of Section 30 shall apply.

Section 30. Proceedings in Receivership and Liquidation. - Whenever, upon report of the head
of the supervising or examining department, the Monetary Board finds that a bank or quasi-
bank:

(a) is unable to pay its liabilities as they become due in the ordinary course of business:
Provided, That this shall not include inability to pay caused by extraordinary demands induced
by financial panic in the banking community;

(b) has insufficient realizable assets, as determined by the Bangko Sentral, to meet its liabilities;
or

(c) cannot continue in business without involving probable losses to its depositors or creditors;
or

(d) has willfully violated a cease and desist order under Section 37 that has become final,
involving acts or transactions which amount to fraud or a dissipation of the assets of the
institution; in which cases, the Monetary Board may summarily and without need for prior
hearing forbid the institution from doing business in the Philippines and designate the Philippine
Deposit Insurance Corporation as receiver of the banking institution.

xxx

The actions of the Monetary Board taken under this section or under Section 29 of this Act shall
be final and executory, and may not be restrained or set aside by the court except on petition
for certiorari on the ground that the action taken was in excess of jurisdiction or with such grave
abuse of discretion as to amount to lack or excess of jurisdiction. The petition for certiorari may
only be filed by the stockholders of record representing the majority of the capital stock within
ten (10) days from receipt by the board of directors of the institution of the order directing
receivership, liquidation or conservatorship.

The designation of a conservator under Section 29 of this Act or the appointment of a receiver
under this section shall be vested exclusively with the Monetary Board. Furthermore, the
designation of a conservator is not a precondition to the designation of a receiver.33

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

Crystal clear in Section 30 is the provision that says the "appointment of a receiver under this
section shall be vested exclusively with the Monetary Board." The term "exclusively" connotes
that only the Monetary Board can resolve the issue of whether a bank is to be placed under
receivership and, upon an affirmative finding, it also has authority to appoint a receiver. This is
further affirmed by the fact that the law allows the Monetary Board to take action "summarily
and without need for prior hearing."

And, as a clincher, the law explicitly provides that "actions of the Monetary Board taken under
this section or under Section 29 of this Act shall be final and executory, and may not be
restrained or set aside by the court except on a petition for certiorari on the ground that the
action taken was in excess of jurisdiction or with such grave abuse of discretion as to amount to
lack or excess of jurisdiction."ςηαñrοblεš νιr†υαl lαω lιbrαrÿ

From the foregoing disquisition, there is no doubt that the RTC has no jurisdiction to hear and
decide a suit that seeks to place Banco Filipino under receivership.

Koruga herself recognizes the BSP's power over the allegedly unlawful acts of Banco Filipino's
directors. The records of this case bear out that Koruga, through her legal counsel, wrote the
Monetary Board34 on April 21, 2003 to bring to its attention the acts she had enumerated in her
complaint before the RTC. The letter reads in part:

Banco Filipino and the current members of its Board of Directors should be placed under
investigation for violations of banking laws, the commission of irregularities, and for conducting
business in an unsafe or unsound manner. They should likewise be placed under preventive
suspension by virtue of the powers granted to the Monetary Board under Section 37 of the
Central Bank Act. These blatant violations of banking laws should not go by without penalty.
They have put Banco Filipino, its depositors and stockholders, and the entire banking system
(sic) in jeopardy.

xxxx
We urge you to look into the matter in your capacity as regulators. Our clients, a minority
stockholders, (sic) and many depositors of Banco Filipino are prejudiced by a failure to regulate,
and taxpayers are prejudiced by accommodations granted by the BSP to Banco Filipino35

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

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

Thus, the court's jurisdiction could only have been invoked after the Monetary Board had taken
action on the matter and only on the ground that the action taken was in excess of jurisdiction or
with such grave abuse of discretion as to amount to lack or excess of jurisdiction.

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

The petition for certiorari may only be filed by the stockholders of record representing the
majority of the capital stock within ten (10) days from receipt by the board of directors of the
institution of the order directing receivership, liquidation or conservatorship.

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

WHEREFORE, the foregoing premises considered, the Petition in G.R. No. 168332 is
DISMISSED, while the Petition in G.R. No. 169053 is GRANTED. The Decision of the Court of
Appeals dated July 20, 2005 in CA-G.R. SP No. 88422 is hereby SET ASIDE. The Temporary
Restraining Order issued by this Court on March 13, 2006 is made PERMANENT.
Consequently, Civil Case No. 03-985, pending before the Regional Trial Court of Makati City, is
DISMISSED.

SO ORDERED.

_____________

G.R. No. 174356               January 20, 2010

EVELINA G. CHAVEZ and AIDA CHAVEZ-DELES, Petitioners,
vs.
COURT OF APPEALS and ATTY. FIDELA Y. VARGAS, Respondents.

DECISION

ABAD, J.:

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

The Facts and the Case

Respondent Fidela Y. Vargas owned a five-hectare mixed coconut land and rice fields in
Sorsogon. Petitioner Evelina G. Chavez had been staying in a remote portion of the land with
her family, planting coconut seedlings on the land and supervising the harvest of coconut and
palay. Fidela and Evelina agreed to divide the gross sales of all products from the land between
themselves. Since Fidela was busy with her law practice, Evelina undertook to hold in trust for
Fidela her half of the profits.

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

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

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

Parenthetically, Fidela also filed three estafa cases with the RTC of Olongapo City and a
complaint for dispossession with the Department of Agrarian Reform Adjudication Board
(DARAB) against Evelina and Aida. In all these cases, Fidela asked for the immediate
appointment of a receiver for the property.

The Issues Presented

Petitioners present the following issues:

1. Whether or not respondent Fidela is guilty of forum shopping considering that she had
earlier filed identical applications for receivership over the subject properties in the
criminal cases she filed with the RTC of Olongapo City against petitioners Evelina and
Aida and in the administrative case that she filed against them before the DARAB; and

2. Whether or not the CA erred in granting respondent Fidela’s application for

receivership.

The Court’s Ruling

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

Here, however, the various suits Fidela initiated against Evelina and Aida involved different
causes of action and sought different reliefs. The present civil action that she filed with the RTC
sought to recover possession of the property based on Evelina and Aida’s failure to account for
its fruits. The estafa cases she filed with the RTC accused the two of misappropriating and
converting her share in the harvests for their own benefit. Her complaint for dispossession under
Republic Act 8048 with the DARAB sought to dispossess the two for allegedly cutting coconut
trees without the prior authority of Fidela or of the Philippine Coconut Authority.

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

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

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

Besides, the RTC dismissed Fidela’s action for lack of jurisdiction over the case, holding that the
issues it raised properly belong to the DARAB. The case before the CA is but an offshoot of that
RTC case. Given that the RTC has found that it had no jurisdiction over the case, it would seem
more prudent for the CA to first provisionally determine that the RTC had jurisdiction before
granting receivership which is but an incident of the main action.1 a vv p h i 1

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

The receivership is LIFTED and the Court of Appeals is directed to resolve CA-G.R. CV 85552
with utmost dispatch.

SO ORDERED.

____________

SECOND DIVISION

G.R. No. 203527, June 27, 2016

SPS. AURELIO HITEROZA AND CYNTHIA HITEROZA, Petitioners, v. CHARITO S.

CRUZADA, PRESIDENT AND CHAIRMAN, CHRIST'S ACHIEVERS MONTESSORI, INC.,
AND CHRIST'S ACHIEVERS MONTESSORI, INC., Respondents.

DECISION

BRION, J.:

We resolve the petition for review on certiorari1 filed by the petitioner spouses Aurelio and
Cynthia Hiteroza (Sps. Hiteroza) assailing the July 9, 2012 decision2 and September 19, 2012
resolution3 of the Court of Appeals (CA) in CA-G.R. SP No. 124096.

THE FACTS

Christ's Achievers Montessori Inc. is a non-stock, non-profit corporation that operates a school
in San Jose del Monte, Bulacan (hereinafter referred to as the school).4 The petitioner Sps.
Hiteroza and the respondent Charito Cruzada (Charito) are the incorporators, members and
trustees of the School, together with Alberto Cruzada, the husband of Charito, and Jaina R.
Salangsang (Jaina), the mother of Cynthia and Charito.5chanrobleslaw

On February 25, 2010, the Sps. Hiteroza filed a Complaint6 for a derivative suit with prayer for
the creation of a management committee, the appointment of a receiver, and a claim for
damages against Charito, the President and Chairman of the school.7chanrobleslaw

The Sps. Hiteroza alleged that Charito employed schemes and acts resulting in dissipation,
loss, or wastage of the school's assets that, if left unchecked, would likely cause paralysis of the
school operations, amounting to fraud and misrepresentation detrimental and prejudicial to the
school's interests.8 The particular alleged schemes and acts of Charito that brought about the
Sps. Hiteroza's prayer for the creation of a management committee and the appointment of a
receiver are as follows:ChanRoblesVirtualawlibrary
First, Charito lied about the school's financial status and concealed the school's real
income.9 The Sps. Hiteroza discovered the discrepancies in the reported number of enrolled
students versus the actual number of enrolled students.10 The Sps. Hiteroza claimed that the
school has missing funds due to Charito's fraud.11chanrobleslaw

Second, Charito refused the Sps. Hiteroza's request to examine the corporate and financial
records of the school, as well as an accounting of the school's receipts and expenses.12 Charito
also refused to conduct regular and special annual board meetings and the election of
officers.13chanrobleslaw

Third, the school's debt with Unitrust Development Bank secured by the Sps. Hiteroza's three
(3) lots and which are now used as the school site, ballooned from P2,000,000.00 to
P7,512,492.24 due to the school's late payments or non-payment, contrary to Charito's
assurance that the loan was back to P2,000,000.00.14chanrobleslaw

Fourth, Charito faked the Securities and Exchange Commission (SEC) reportorial requirements
when she filed the General Information Sheets for the years 2006 and 2008 and falsely reported
that there were annual members' meetings held when there had been none. Charito also filed
an Amended Articles of Incorporation using the old signature page of the original Articles of
Incorporation, without the Sps. Hiteroza's consent, and forged Cynthia's signature in the
school's financial statements.15chanrobleslaw

Fifth, Charito caused the illegal transfer of Jaina's membership in the school to her son,
Jerameel S. Cruzada. The Sps. Hiteroza claimed that the school's bylaws provide that the
membership is nontransferable and Jaina could not have transferred her membership since she
was already suffering from alzheimer's disease.16chanrobleslaw

Sixth, Charito and her family's wealth and lifestyle do not correspond with Charito and her
husband' earnings of P10,000.00 and P8,000.00 per month respectively, as reflected in the
School records.17 Charito bought a house and lot at Marilao, Bulacan, with a cost of around
P3,000,000.00 and an Isuzu Crosswind Sportivo which cost around P1,200,000.00.

Seventh, Charito used the school premises as her family's personal quarters without paying rent
and used the school's funds to pay for their utility bills.18chanroblesvirtuallawlibrary
Charito filed her belated Answer19 dated April 12, 2010, and argued that the complaint is a
nuisance and harassment suit.20 Charito averred that the Sps. Hiteroza's real motive is to
access and secure for themselves the school's income; the Sps. Hiteroza professed their
"concern" for the school affairs only after almost ten (10) years.21 Charito also averred that her
family's house is situated at a low-cost subdivision and their car was obtained through hard
work and not through fraud.22chanrobleslaw

Charito argued that the "serious situation test" in the case of Pryce Corporation v. China
Banking Corporation23 on the appointment of a management committee or a receiver has not
been satisfied.24 The complaint failed to show that there is a serious and imminent danger of
dissipation, loss, wastage, or destruction of assets and paralysis of business operations that
may be prejudicial to the minority interest of stockholders, parties-litigants, or to the general
public, and that there is a necessity to preserve the parties-litigants,' investors, and the creditors'
rights and interests.25cralawredchanrobleslaw

Charito claimed that the school's improvement negates the accusation of mismanagement.26 On
the Sps. Hiteroza's right of inspection, Charito claims that a derivative suit is not the proper
remedy since the right of inspection is the stockholder's personal right and his cause of action is
individual.27 Further, the derivative suit requirements have not been complied with since there is
no allegation that the Sps. Hiteroza exhausted all available remedies under the school's Articles
of Incorporation and By-Laws.28 Finally, the complaint has no allegation of earnest efforts
towards a compromise, a jurisdictional requirement, considering that the parties are
siblings.29chanrobleslaw

THE RTC RULING

On May 14, 2010, the Regional Trial Court (RTC) rendered a decision30 (the May 14, 2010 RTC
decision) directing Charito to allow the Sps. Hiteroza or their duly authorized representative to
have access to, inspect, examine, and secure copies of books of accounts and other pertinent
records of the school. The RTC recognized that the Sps. Hiteroza, as stockholders, have the
right to inspect the school's books and records and/or be furnished with the school's financial
statements under Sections 74 and 75 of the Corporation Code of the Philippines.

The RTC, however, held that the allegations in the complaint do not amount to a derivative suit
since any injury that may result from the claimed fraudulent acts of Charito will only affect the
Sps. Hiteroza and not the school.31 The RTC also held that the prayer for the creation of a
management committee or the appointment of a receiver was premature since there was yet no
evidence in the complaint to support the Sps. Hiteroza's allegations of fraud or
misrepresentation.32chanrobleslaw

The Sps. Hiteroza's inspection of the School's corporate books was conducted on June 14 to
15, 2010.33chanrobleslaw

On September 21, 2010, the Sps. Hiteroza filed a Report on the Inspection of Corporate
Documents (1st Report); they alleged that despite demand, Charito did not produce all the
documents for inspection.34 With the available documents, the Sps. Hiteroza discovered misuse,
wrong declaration and/or wrong recording of funds, as well as missing funds from the coffers of
the school amounting to fraud and/or misrepresentation that are detrimental to the school's
interests.35 The Sps. Hiteroza reiterated their prayer for the creation of a management
committee and the appointment of a receiver for the school.36chanrobleslaw

Charito filed her Comment on the 1st Report and claimed that this report is in the form of a
motion for reconsideration which is a prohibited pleading under Rule 15 of the Rules of Court.
Charito claims that the appointment of a management committee or a receiver is a provisional
remedy and could not be obtained after no appeal was filed and the May 14, 2010 RTC decision
lapsed to finality.37chanrobleslaw

Charito, however, admitted during the hearing before the RTC that not all documents were
presented for the Sps. Hiteroza's inspection.38 Hence, the RTC issued an Order39 directing the
inspection of the school's books of account.40chanrobleslaw

On January 17, 2011, the Sps. Hiteroza filed a 2nd Report on the Inspection of Corporate
Documents and reiterated their prayer for the creation of a management committee and the
appointment of a receiver for the school. The Sps. Hiteroza alleged that Charito again refused to
produce the school's main bank accounts records. The Sps. Hiteroza also alleged that their
accountants found that, based on the declared amounts in the corporate books of accounts, the
total unaccounted income of the School for the years 2000 to 2009 amounted to
P27,446,989.35.

The RTC issued an Order dated March 3, 2011, referring the dispute for mediation at the
Philippine Mediation Center, Bulacan Office.41 The parties appeared for mediation as directed
but no settlement was reached.42 The Sps. Hiteroza filed a Manifestation with Motion dated
November 9, 2011, reiterating their prayer for the appointment of a rehabilitation receiver and/or
management committee.43chanrobleslaw

On March 16, 2012, the RTC issued an Order (assailed RTC order) appointing Atty. Rafael
Chris F. Teston as the school's receiver in view of the "inability of the parties to work out an
amicable settlement of their dispute, and in order to enable the court to ascertain the veracity of
the claim of the [spouses Hiteroza] that Charito has unjustifiably failed and refused to comply
with the final decision in this case dated May 14, 2010."44chanrobleslaw

Charito sought to nullify the assailed RTC order and filed a Petition for Certiorari dated April 3,
2012, with application for the issuance of a temporary restraining order and/or writ of preliminary
injunction before the CA.45 The Sps. Hiteroza argued that the RTC gravely abused its discretion
in issuing the assailed RTC order on the appointment of a receiver since it was issued despite
the absence of the following: (1) a verified application, (2) any ground enumerated under
Section 1 of Rule 9 of the Interim Rules of Procedure for Intra-Corporate Controversies (A.M.
No. 01-2-04-SC) (hereinafter referred to as the "Interim Rules"), or any "serious situation" as
required by the Court in the Pryce Corporation case.46 The Sps. Hiteroza also argued that the
assailed RTC Order contradicted the final May 14, 2010 RTC decision denying the prayer for
receivership or the creation of a management committee.47chanrobleslaw

THE CA RULING

In its decision48dated July 9, 2012, the CA granted Charito's petition and nullified the
assailed RTC order on the appointment of a receiver.

The CA explained that the May 14, 2010 RTC decision already denied the Sps. Hiteroza's
prayer for the creation of a management committee or the appointment of a receiver for lack of
evidence and for being premature.49 The May 14, 2010 RTC decision eventually became final
and executory since no appeal was filed.50chanrobleslaw

The CA held that the RTC gravely abused its powers in reconsidering its final decision on the
basis of the Sps. Hiteroza's reports on the inspection of the school records.51 The CA noted that
the Sps. Hiteroza's reports, which reiterated their prayer for the creation of a management
committee and the appointment of a receiver, are veiled attempts to move for the
reconsideration of the RTC decision; a motion for reconsideration is a prohibited pleading under
Section 8(3),52 Rule 1 of the Interim Rules.53chanrobleslaw

The CA also held that there was noncompliance with the requisites for the appointment of a
receiver under Section 1, Rule 9 of the Interim Rules.54 The CA declared that the allegations on
the school's dissipation of assets and funds have yet to be proven and that the RTC was still in
the process of ascertaining the veracity of the Sps. Hiteroza's claims.55 Further, there is no
showing that the school is in imminent danger of paralysation of its business
operations.56chanrobleslaw
The Sps. Hiteroza filed a motion for reconsideration of the CA decision, but the CA denied the
motion for lack of merit.57chanrobleslaw

THE PETITION

The Sps. Hiteroza filed the present petition for review on certiorari to challenge the CA ruling.

The Sps. Hiteroza argue that the CA ruling is erroneous since it considers the May 14, 2010
RTC decision as a final judgment when, in fact, the RTC decision is preliminary as it merely
grants a remedy by way of a mode of discovery,58i.e., the inspection of corporate documents,
books, and records. The May 14, 2010 RTC decision merely granted one of the reliefs asked for
by the Sps. Hiteroza, but by itself, does not address all of the Sps. Hiteroza's causes of action in
their complaint.59 More importantly, Charito has not fully complied with the May 14, 2010 RTC
decision since Charito refused to open the School's other corporate books and records for
inspection.60chanrobleslaw

The Sps. Hiteroza also argue that the reports have extensively shown that there was dissipation
of the school's assets and funds and that the school is heavily indebted to the bank, thus
warranting the appointment of a receiver.61chanrobleslaw

THE ISSUES

The issues of the petition are: (1) whether the May 14, 2010 RTC Decision is a final judgment;
and (2) whether the CA correctly nullified the assailed RTC Order which directed the
appointment of a receiver.

OUR RULING

We partially grant the petition.

The May 14, 2010 RTC decision is not a final judgment since the case is not ripe for
decision. No pre-trial has been conducted pursuant to the Interim Rules and the parties
have not submitted their pre-trial briefs.

Section 4, Rule 4 of the Interim Rules provides that a judgment before pre-trial, as in the present
case, may only be rendered after the parties' submission of their respective pre-trial briefs.
SEC. 4. Judgment before pre-trial. - If, after submission of the pre-trial briefs, the court
determines that, upon consideration of the pleadings, the affidavits and other evidence
submitted by the parties, a judgment may be rendered, the court may order the parties to file
simultaneously their respective memoranda within a non-extendible period of twenty (20) days
from receipt of the order. Thereafter, the court shall render judgment, either full or otherwise, not
later than ninety (90) days from the expiration of the period to file the memoranda. (emphases
supplied)
Complementing Section 4 is Section 1, Rule 4 of the Interim Rules which provides for the
mandatory conduct of a pre-trial conference, to quote:ChanRoblesVirtualawlibrary
SECTION 1. Pre-trial conference; mandatory nature. - Within five (5) days after the period for
availment of, and compliance with, the modes of discovery prescribed in Rule 3 hereof,
whichever comes later, the court shall issue and serve an order immediately setting the case for
pre-trial conference and directing the parties to submit their respective pre-trial briefs. The
parties shall file with the court and furnish each other copies of their respective pre-trial brief in
such manner as to ensure its receipt by the court and the other party at least five (5) days
before the date set for the pre-trial. x x x.
The conduct of a pre-trial is mandatory under the Interim Rules.62 Except in cases of
default,63 Sections 1 and 4 of Rule 4 of the Interim Rules require the conduct of a pre-trial
conference and the submission of the parties' pre-trial briefs before the court may render a
judgment on intra-corporate disputes.

Rule 7 of the Interim Rules (Inspection of Corporate Books and Records) dispenses with the
need for a pre-trial conference or the submission of a pre-trial brief before the court may render
a judgment. This Rule, however, applies only to disputes exclusively involving the rights of
stockholders or members to inspect the books and records and/or to be furnished with
the financial statements of a corporation.64chanrobleslaw

In the present case, Rule 7 of the Interim Rules does not apply since the Sps. Hiteroza's
complaint did not exclusively involve the denial of the Sps. Hiteroza's right to inspect the
school's records, but also several other allegations of Charito's fraud and misrepresentation in
the School's management. There has been no conduct of a pre-trial conference or the
submission of the parties' respective pre-trial briefs before the issuance of the May 14, 2010
RTC decision. The issuance of the May 14, 2010 RTC decision was, thus, premature.

Even a cursory examination of the issue on whether the CA correctly nullified the assailed RTC
Order directing the appointment of the school's receiver immediately leads us to conclude that
this is a question of fact that is not within the authority of this Court to decide. More importantly,
the factual issue has not been ventilated in the proper proceedings before the trial court
because the case did not even reach the pre-trial stage.65 Thus, the appointment of the school's
receiver is premature.

The requirements in Section 1, Rule 9 of the Interim Rules apply to both the creation of a
management committee and/or the appointment of a receiver.

Without going into the factual circumstances on the propriety of the appointment of a receiver,
we find that the CA correctly applied the requisites of Section 1, Rule 9 of the Interim Rules (on
the creation of a management committee) to determine the propriety of the appointment of a
receiver.

A corporation may be placed under receivership, or management committees may be created to

preserve properties involved in a suit and to protect the rights of the parties under the control
and supervision of the court.66chanrobleslaw

Section 1, Rule 9 of the Interim Rules provides:ChanRoblesVirtualawlibrary

SECTION 1. Creation of a management committee. — As an incident to any of the cases filed
under these Rules or the Interim Rules on Corporate Rehabilitation, a party may apply for the
appointment of a management committee for the corporation, partnership or association, when
there is imminent danger of:

chanRoblesvirtualLawlibrary
(1) Dissipation, loss, wastage, or destruction of assets or other properties; and
(2) Paralyzation of its business operations which may be prejudicial to the interest of the
minority stockholders, parties-litigants, or the general public.
Section 2, Rule 9 of the Interim Rules, on the other hand, provides for the appointment of a
receiver, to quote:ChanRoblesVirtualawlibrary
SEC. 2. Receiver. — In the event the court finds the application to be sufficient in form and
substance, the court shall issue an order: (a) appointing a receiver of known probity, integrity
and competence and without any conflict of interest as hereunder defined to immediately take
over the corporation, partnership or association, specifying such powers as it may deem
appropriate under the circumstances, including any of the powers specified in section 5 of this
Rule; (b) fixing the bond of the receiver; (c) directing the receiver to make a report as to the
affairs of the entity under receivership and on other relevant matters within sixty (60) days from
the time he assumes office; (d) prohibiting the incumbent management of the company,
partnership, or association from selling, encumbering, transferring, or disposing in any manner
any of its properties except in the ordinary course of business; and (e) directing the payment in
full of all administrative expenses incurred after the issuance of the order.
While the caption of Section 1, Rule 9 states "the creation of a management committee," the
requirements stated in Section 1 apply to both the creation of a management committee and the
appointment of a receiver, as can be gleaned from Section 2, Rule 9 which refers to "the
application sufficient in form and substance." The "application" referred to in Section 2
on Receiver is the same application referred to in Section 1 of Rule 9.

The recent case of Villamor, Jr. v. Umale67 that touches on these points, is

instructive:ChanRoblesVirtualawlibrary
x x x Management committees and receivers are appointed when the corporation is in imminent
danger of "(1) [d]issipation, loss, wastage or destruction of assets or other properties; and (2)
[p]aralysation of its business operations that may be prejudicial to the interest of the minority
stockholders, parties-litigants, or the general public."

Applicants for the appointment of a receiver or management committee need to establish

the confluence of these two requisites. This is because appointed receivers and
management committees will immediately take over the management of the corporation and will
have the management powers specified in law. This may have a negative effect on the
operations and affairs of the corporation with third parties,—as persons who are more familiar
with its operations are necessarily dislodged from their positions in favor of appointees who are
strangers to the corporation's operations and affairs. (Emphasis supplied)
In Villamor, Jr., the Court recognized that Section 1, Rule 9 of the Interim Rules applies to
both the appointment of a receiver and the creation of a management committee. Further, the
Court held that there must be imminent danger of both the dissipation, loss, wastage, or
destruction of assets or other properties; and paralysation of its business operations that may
be prejudicial to the interest of the minority stockholders, parties-litigants, or the general public,
before allowing the appointment of a receiver or the creation of a management committee.

In the case of Sy Chim v. Sy Siy Ho & Sons, Inc.,68 the Court similarly held that the two
requisites found in Section 1 of Rule 9 of the Interim Rules should be present before a
management committee may be created and a receiver appointed by the RTC.

The reason for the stringent requirements on the creation of a management committee and the
appointment of a receiver was explained in the Sy Chim case, as
follows:ChanRoblesVirtualawlibrary
The rationale for the need to establish the confluence of the two (2) requisites under Section 1,
Rule 9 by an applicant for the appointment of a management committee is primarily based upon
the fact that such committee and receiver appointed by the court will immediately take over the
management of the corporation, partnership or association, including such power as it may
deem appropriate, and any of the powers specified in Section 5 of the Rule. x x x.

Thus, the creation and appointment of a management committee and a receiver is an

extraordinary and drastic remedy to be exercised with care and caution; and only when the
requirements under the Interim Rules are shown. It is a drastic course for the benefit of the
minority stockholders, the parties-litigants, or the general public allowed only under pressing
circumstances and, when there is inadequacy, or ineffectual exhaustion of legal or other
remedies. The power to intervene before the legal remedy is exhausted and misused when it is
exercised in aid of such a purpose. The power of the court to continue a business of a
corporation, partnership, or association must be exercised with the greatest care and caution.
There should be a full consideration of all the attendant facts, including the interest of all the
parties concerned.69chanroblesvirtuallawlibrary
Considering the requirements for the appointment of a receiver, we find that the CA correctly
attributed grave abuse of discretion on the part of the RTC when the RTC prematurely
appointed a receiver without sufficient evidence to show that there is an imminent danger of: (1)
dissipation, loss, wastage, or destruction of assets or other properties; and (2) paralysation of
its business operations that may be prejudicial to the interest of the minority stockholders,
parties-litigants, or the general public. The RTC explicitly stated in its May 14, 2010 decision
that there was yet no evidence to support the Sps. Hiteroza's allegations on Charito's fraud and
misrepresentation to justify the appointment of a receiver.70chanrobleslaw

Further, the appointment of the school's receiver was not based on the presence of the
requirements of Section 1, Rule 9 of the Interim Rules, but based on the "inability of the parties
to work out an amicable settlement of their dispute, and in order to enable the court to ascertain
the veracity of the claim of the [spouses Hiteroza] that Charito has unjustifiably failed and
refused to comply with the final Decision in this case dated May 14, 2010."71chanrobleslaw

Considering these findings, we find that the CA correctly nullified the assailed RTC order
appointing a receiver for the school without satisfying the requirements of Section 1, Rule 9 of
the Interim Rules.

WHEREFORE, we hereby PARTIALLY GRANT the petition for review on certiorari. The

decision dated July 9, 2012 of the Court of Appeals in CA-G.R. SP No. 124096
is AFFIRMED insofar as the appointment of Atty. Rafael Chris F. Teston as receiver for the
School is nullified. Civil Case No. 130-M-2010 is REMANDED to the Regional Trial Court to
enable the conduct of the pre-trial conference and of further proceedings.

SO ORDERED.chanRoblesvirtualLawlibrary