CONCURRENCE AND PREFERENCE OF CREDITS In a meeting held on 9 January 1987, the Monetary Board of the BSP decided to

take the following action –

FIRST DIVISION
G.R. No. 158261             December 18, 2006 Rural Bank of Bokod (Benguet), Inc. – Report on its examination as of
IN RE: PETITION FOR ASSISTANCE IN THE LIQUIDATION OF THE RURAL BANK OF June 16, 1986, its placement under receivership
BOKOD (BENGUET), INC., PHILIPPINE DEPOSIT INSURANCE
CORPORATION, petitioner,
ACTION TAKEN
vs.
BUREAU OF INTERNAL REVENUE, respondent.
Finding to be true the statements of the Special Assistant to the Governor
and Head, Supervision and Examination Sector (SES) Department III, in
D E C I S I O N CHICO-NAZARIO, J.:
her memorandum dated 28 November 1986 submitting a report on the
general examination of the Rural Bank of Bokod (Benguet), Inc. as of 16
This is a Petition for Review on Certiorari1 under Rule 45 of the revised Rules of June 1986, that the financial condition of the rural bank is one of
Court, praying that this Court set aside the Orders, dated 17 January 2003 2 and 13 insolvency and its continuance in business would involve further losses to
May 2003,3 of the Regional Trial Court (RTC) of La Trinidad, Benguet, sitting as the its depositors and creditors, x x x
Liquidation Court of the closed Rural Bank of Bokod (Benguet), Inc. (RBBI), in Spec.
Proc. No. 91-SP-0060.
xxxx

There is no dispute as to the antecedent facts of the case, recounted as follows:

[T]he Board decided as follows:

In 1986, a special examination of RBBI was conducted by the Supervision and

Examination Sector (SES) Department III of what is now the Bangko Sentral ng
Pilipinas (BSP),4 wherein various loan irregularities were uncovered. In a letter,
dated 20 May 1986, the SES Department III required the RBBI management to
infuse fresh capital into the bank, within 30 days from date of the advice, and to
correct all the exceptions noted. However, up to the termination of the subsequent
general examination conducted by the SES Department III, no concrete action was
taken by the RBBI management. In view of the irregularities noted and the
insolvent condition of RBBI, the members of the RBBI Board of Directors were
called for a conference at the BSP on 4 August 1986. Only one RBBI Director, a
certain Mr. Wakit, attended the conference, and the examination findings and
related recommendations were discussed with him. In a letter, dated 4 August
1986, receipt of which was acknowledged by Mr. Wakit, the SES Department III
warned the RBBI Board of Directors that, unless substantial remedial measures are
taken to rehabilitate the bank, it will recommend that the bank be placed under
receivership. In a subsequent letter, dated 17 November 1986, a copy of which was
sent to every member of the RBBI Board of Directors via registered mail, the SES
Department III reiterated its warning that it would recommend the closure of the
bank, unless the needed fresh capital was immediately infused. Despite these
notices, the SES Department III received no word from RBBI or from any of its
Directors as of 28 November 1986.5
a. To forbid the bank to do business in the Philippines and place
its assets and affairs under receivership in accordance with
Section 29 of R.A. No. 265, as amended.
b. To designate the Special Assistant to the Governor and Head,
SES Department III, as Receiver of the bank;
c. To refer the cases of irregularities/frauds to the Office of
Special Investigation for further investigation and possible filing
of appropriate charges against the following present/former
officers and employees of the bank:
xxxx
d. To include the names of the above-mentioned present and
former officers and employees of the bank in the list of persons
barred from employment in any financial institution under the
supervision of the Central Bank without prior clearance from
the Central Bank.6
A memorandum and report, dated 28 August 1990, were submitted by the Director
of the SES Department III concluding that the RBBI remained in insolvent financial
condition and it can no longer safely resume business with the depositors,
creditors, and the general public. On 7 September 1990, the Monetary Board, after
determining and confirming the said memorandum and report, ordered the
liquidation of the bank and designated the Director of the SES Department III as
liquidator.7
On 10 April 1991, the designated BSP liquidator of RBBI caused the filing with the
RTC of a Petition for Assistance in the Liquidation of RBBI, docketed as Spec. Proc.
No. 91-SP-0060.8 Subsequently, on 2 June 1992, the Monetary Board transferred to
herein petitioner Philippine Deposit Insurance Corporation (PDIC) the
receivership/liquidation of RBBI.9
PDIC then filed, on 11 September 2002, a Motion for Approval of Project of
Distribution10 of the assets of RBBI, in accordance with Section 31, in relation to
Section 30, of Republic Act No. 7653, otherwise known as the New Central Bank
Act. During the hearing held on 17 January 2003, the respondent Bureau of Internal
Revenue (BIR), through Atty. Justo Reginaldo, manifested that PDIC should secure a
tax clearance certificate from the appropriate BIR Regional Office, pursuant to
Section 52(C) of Republic Act No. 8424, or the Tax Code of 1997, before it could
proceed with the dissolution of RBBI. On even date, the RTC issued one of the
assailed Orders,11 directing PDIC to comply with Section 52(C) of the Tax Code of
1997 within 30 days from receipt of a copy of the said order. Pending compliance
therewith, the RTC held in abeyance the Motion for Approval of Project of
Distribution. On 13 May 2003, the second assailed Order 12 was issued, in which the
RTC, in resolving the Motion for Reconsideration filed by PDIC, ruled as follows –
ORDER
Submitted for resolution is petitioner’s motion for reconsideration of the
order of this court dated January 17, 2003 holding in abeyance the
motion for approval of the project of distribution pending their
compliance with a tax clearance from the Bureau of Internal Revenue.
Petitioner in their motion state that Section 52-C of Republic Act 8424
does not cover closed banking institutions like the Rural Bank of Bokod as
the law that covers liquidation of closed banks is Section 30 of Republic
Act No. 7653 otherwise known as the new Central Bank Law.
Commenting on the motion for reconsideration the Bureau of Internal
Revenue states that the only logic why the Bureau is requesting for a tax
clearance is to determine how much taxes, if there be any, is due the
government.
The court believes and so holds that petitioner should still secure the
necessary tax clearance in order for it to be cleared of all its tax liabilities
as regardless of what law covers the liquidation of closed banks, still
these banks are subject to payment of taxes mandated by law. Also in its
motion for approval of the project of distribution, paragraph 2, item 2.2
states that there are unremitted withholding taxes in the amount
of P8,767.32.
This shows that indeed there are still taxes to be paid. In order therefore
that all taxes due the government should be paid, petitioner should
secure a tax clearance from the Bureau of Internal Revenue.
Wherefore, based on the foregoing premises, the motion for
reconsideration filed by petitioner is hereby DENIED for lack of merit. 13
Hence, PDIC filed the present Petition for Review on Certiorari, under Rule 45 of
the revised Rules of Court, raising pure questions of law. It made a lone assignment
of error, alleging that –
THE COURT A QUO ERRED IN APPLYING THE PROVISION OF SECTION 52-C
OF REPUBLIC ACT NO. 8424 DIRECTING THE SUBMISSION OF TAX
CLEARANCE FOR CORPORATIONS CONTEMPLATING DISSOLUTION ON A
BANK ORDERED CLOSED AND PLACED UNDER RECEIVERSHIP AND,
THEREAFTER, UNDER LIQUIDATION, BY THE MONETARY BOARD
PURSUANT TO SECTION 30 OF REPUBLIC ACT NO. 7653. 14
PDIC argues that the closure of banks under Section 30 of the New Central Bank Act
is summary in nature and procurement of tax clearance as required under Section
52(C) of the Tax Code of 1997 is not a condition precedent thereto; that under
Section 30, in relation to Section 31, of the New Central Bank Act, asset distribution
of a closed bank requires only the approval of the liquidation court; and that the
BIR is not without recourse since, subject to the applicable provisions of the Tax
Code of 1997, it may therefore assess the closed RBBI for tax liabilities, if any.
In its Comment, the BIR countered with the following arguments: that the present
Petition for Review on Certiorari under Rule 45 of the revised Rules of Court is not
the proper remedy to question the Order, dated 17 January 2003, of the RTC
because said order is interlocutory and cannot be the subject of an appeal; that
Section 52(C) of the Tax Code of 1997 applies to all corporations, including banks
ordered closed by the Monetary Board pursuant to Section 30 of the New Central
Bank Act; that the RTC may order the PDIC to obtain a tax clearance before
proceeding to rule on the Motion for Approval of Project of Distribution of the
assets of RBBI; and that the present controversy should not have been elevated to
this Court since the parties are both government agencies who should have
administratively settled the dispute.
This Court finds that there are only two primary issues for the resolution of the
Petition at bar, one being procedural, and the other substantive. The procedural
issue involves the question of whether the Petition for Review on Certiorari under
Rule 45 of the revised Rules of Court is the proper remedy from the assailed Orders
of the RTC. The substantive issue deals with the determination of whether a bank
ordered closed and placed under receivership by the Monetary Board of the BSP
still needs to secure a tax clearance certificate from the BIR before the liquidation
court approves the project of distribution of the assets of the bank.
I
This Court shall first proceed with the procedural issue on the appropriateness of
the remedy taken by PDIC from the assailed RTC Orders.
The differences between an appeal by certiorari under Rule 4515 of the revised
Rules of Court and an original action for certiorari under Rule 6516 of the same
Rules have been laid down by this Court in the case of Atty. Paa v. Court of
Appeals,17 to wit –
a. In appeal by certiorari, the petition is based on questions of law which
the appellant desires the appellate court to resolve. In certiorari as an
original action, the petition raises the issue as to whether the lower court
acted without or in excess of jurisdiction or with grave abuse of
discretion.
b. Certiorari, as a mode of appeal, involves the review of the judgment,
award or final order on the merits. The original action for certiorari  may
be directed against an interlocutory order of the court prior to appeal
from the judgment or where there is no appeal or any other plain, speedy
or adequate remedy.
c. Appeal by certiorari must be made within the reglementary period for
appeal. An original action for certiorari may be filed not later than sixty
(60) days from notice of the judgment, order or resolution sought to be
assailed.
d. Appeal by certiorari stays the judgment, award or order appealed
from. An original action for certiorari, unless a writ of preliminary
injunction or a temporary restraining order shall have been issued, does
not stay the challenged proceeding.
e. In appeal by certiorari, the petitioner and respondent are the original
parties to the action, and the lower court or quasi-judicial agency is not
to be impleaded. In certiorari as an original action, the parties are the
aggrieved party against the lower court or quasi-judicial agency and the
prevailing parties, who thereby respectively become the petitioner and
respondents.
f. In certiorari for purposes of appeal, the prior filing of a motion for
reconsideration is not required (Sec. 1, Rule 45); while in certiorari as an
original action, a motion for reconsideration is a condition precedent
(Villa-Rey Transit vs. Bello, L-18957, April 23, 1963), subject to certain
exceptions.
g. In appeal by certiorari, the appellate court is in the exercise of its
appellate jurisdiction and power of review, while in certiorari as an
original action, the higher court exercises original jurisdiction under its
power of control and supervision over the proccedings of lower courts.
Guided by the foregoing distinctions, this Court, in perusing the assailed RTC
Orders, dated 17 January 2003 and 13 May 2003, reaches the conclusion that these
are merely interlocutory in nature and are not the proper subjects of an appeal
by certiorari under Rule 45 of the revised Rules of Court.
This Court has repeatedly and uniformly held that a judgment or order may be
appealed only when it is final, meaning that it completely disposes of the case and
definitively adjudicates the respective rights of the parties, leaving thereafter no
substantial proceeding to be had in connection with the case except the proper
execution of the judgment or order. Conversely, an interlocutory order or
judgment is not appealable for it does not decide the action with finality and leaves
substantial proceedings still to be had.18
The RTC Orders presently questioned before this Court has not disposed of the case
nor has it adjudicated definitively the rights of the parties in Spec. Proc. No. 91-SP-
0060. They only held in abeyance the approval of the Project of Distribution of the
assets of RBBI until PDIC, as liquidator, acquires a tax clearance from the BIR.
Indubitably, there are still substantial proceedings to be had after PDIC presents
the required tax clearance to the trial court, since the Project of Distribution of
assets still has to be finalized and approved.
PDIC avers that the RTC Orders of 17 January 2003 and 13 May 2003 are final
because, as this Court pronounced in the case of Pacific Banking Corporation
Employees’ Organization (PaBCEO) v. Court of Appeals,19 an order of the liquidation
court allowing or disallowing a claim is a final order and may be the subject of an
appeal. It further asserts that the legal issue of whether RBBI should secure a tax
clearance is a "disputed claim," which was already allowed by the RTC in its assailed
Orders, thus, making the latter final.
This Court is unconvinced. The foregoing arguments of PDIC result from a strained
interpretation of law and jurisprudence, and are raised in an apparent attempt to
justify a very obvious faux pas on its part. While it is true that in liquidation
proceedings, the settlement of disputed or contentious claims may require a full-
dress hearing and the resolution of legal issues, 20 it does not follow that all legal
issues resolved in the course of the liquidation proceedings would automatically be
tantamount to an allowance or disallowance of a disputed or contentious claim. In
Spec. Proc. No. 91-SP-0060 pending before the RTC, there can be no doubt that the
claim of the BIR against RBBI consists of the unpaid tax liabilities of the latter. The
BIR contends that it could only determine the existence and correct amount of the
tax liabilities of RBBI if PDIC, as liquidator of the bank, secures a tax clearance from
the appropriate BIR Regional Office. The acquirement of a tax clearance is not the
claim of the BIR against RBBI, it is only the means by which to ascertain such claim.
Whatever tax liabilities the BIR may claim against RBBI can still be disputed before
the RTC by the PDIC, as liquidator of the bank, whether as to the existence or
computation of the said tax liabilities, and it is the ruling of the RTC on such matters
that may constitute a final order which definitively settles the claim of the BIR. The
mere grant by the RTC of the motion requiring PDIC, as liquidator of RBBI, to secure
a tax clearance, does not yet constitute an adjudication of the claim of the BIR.
Hence, the assailed RTC Orders, dated 17 January 2003 and 13 May 2003, are
clearly interlocutory in nature.
As a general rule, an interlocutory order is not appealable until after the rendition
of the judgment on the merits, given that a contrary rule would delay the
administration of justice and unduly burden the courts. This Court, however, has
also held that an original action for certiorari under Rule 65 of the revised Rules of
Court is an appropriate remedy to assail an interlocutory order when (1) the
tribunal issued such order without or in excess of jurisdiction or with grave abuse
of discretion, and (2) the assailed interlocutory order is patently erroneous and the
remedy of appeal would not afford adequate and expeditious relief. 21 Thus, despite
this Court’s finding that PDIC, as the liquidator of RBBI, availed itself of the wrong
remedy by filing an appeal by certiorari under Rule 45 of the revised Rules of Court,
We shall adopt a positive and pragmatic approach, and, instead of dismissing the
instant Petition outright, it shall treat the same as an original action
for certiorari under Rule 65 of the same Rules, in consideration of the crucial issues
and substantial arguments already presented by the concerned parties before this
Court.22
II
Having disposed of the procedural issue, this Court now addresses the substantive
issue of whether RBBI, as represented by its liquidator, PDIC, still needs to secure a
tax clearance from the BIR before the RTC could approve the Project of Distribution
of the assets of RBBI.
The BIR anchors its position that a tax clearance is necessary on Section 52(C) of
the Tax Code of 1997, which provides –
SEC. 52. Corporation Returns. –
xxxx
(C) Return of Corporation Contemplating Dissolution or Reorganization. –
Every corporation shall, within thirty days (30) after the adoption by the
corporation of a resolution or plan for its dissolution, or for the
liquidation of the whole or any part of its capital stock, including a
corporation which has been notified of possible involuntary dissolution
by the Securities and Exchange Commission, or for its reorganization,
render a correct return to the Commissioner, verified under oath, setting
forth the terms of such resolution or plan and such other information as
the Secretary of Finance, upon recommendation of the Commissioner,
shall, by rules and regulations, prescribe.
The dissolving or reorganizing corporation shall, prior to the issuance by the
Securities and Exchange Commission of the Certificate of Dissolution or
Reorganization, as may be defined by rules and regulations prescribed by the
Secretary of Finance, upon recommendation of the Commissioner, secure a
certificate of tax clearance from the Bureau of Internal Revenue which certificate
shall be submitted to the Securities and Exchange Commission.
To implement the foregoing provision, the BIR still relies on the regulations it
jointly issued with the Securities and Exchange Commission (SEC) in 1985, when the
Tax Code of 1977 was still in effect and a similar provision could be found in Section
46(C) thereof. The full text of the regulations is reproduced below –
BIR-SEC REGULATIONS NO. 1
SUBJECT: Regulations to Implement the Provisions of Executive Order No.
1026, Amending Section 46(c) of the National Internal Revenue Code of
1977, as amended, Requiring Dissolving Corporations to File Information
Returns and Secure Tax Clearance from the Commissioner of Internal
Revenue, and Providing Adequate Penalties for Violations Thereof.
TO: All Internal Revenue Officers and Others Concerned.
Pursuant to the provisions of Section 277, in relation to Section 4 of the
National Revenue Code of 1977, as amended, the following regulations
are hereby promulgated.
Section 1. Scope. – These regulations shall govern the procedure for the
issuance of tax clearance certificates to dissolving corporations. This shall
include corporations intending to dissolve or liquidate the whole or any
part of its capital stocks, as well as, corporations which have been
notified of possible involuntary dissolution by the Securities and
Exchange Commission.
Section 2. Requirements in case of dissolution. – a) Every Corporation
shall, within thirty (30) days after
- the adoption by the corporation of a resolution or plan for the
dissolution of the corporation, or for the liquidation of the whole or any
part of its capital stock, or
- the receipt of an order of suspension by the Securities and Exchange
Commission in case of involuntary dissolution,
file their income tax returns covering the income earned by them from
the beginning of the taxable year up to date of such dissolution.
In addition thereto, they shall submit within the same period and verified
under oath, the following documents:
1. a copy of the articles of incorporation and by-laws;
2. a copy of the resolution authorizing dissolution; and
3. balance sheet as of the date of dissolution and a profit and
loss statement covering the period from the beginning of the
taxable year to the date of dissolution.
b) The Securities and Exchange Commission whenever it issues an order
of involuntary dissolution or suspension of the primary franchise or
certificate of registration of a corporation, shall at the same time furnish
the Commissioner of Internal Revenue a copy of such order.
Section 3. Tax clearance certificate. – a) Within thirty (30) days from
receipt of the documents mentioned in the preceding Section, the
Commissioner of Internal Revenue, or his duly authorized representative,
shall issue the corresponding tax clearance certificate (BIR Form No.
17.61) for the corporation which will be dissolved.
b) The Securities and Exchange Commission shall issue the final order of
dissolution only after a certificate of tax clearance has been submitted by
the dissolving corporation: Provided, that in case of involuntary
dissolution, the Securities and Exchange Commission may nevertheless
proceed with the dissolution if thirty (30) days after receipt of the
suspension order no tax clearance has yet been issued.
Section 4. Penalty. – Failure to render the return and secure the
certificate of tax clearance as above-mentioned shall subject the officer(s)
of the corporation required by law to file the return under Section 46(a)
of the National Internal Revenue Code of 1977, as amended, to a fine of
not less than P5,000.00 or imprisonment of not less than two (2) years,
 and shall make them liable for all outstanding or unpaid tax liabilities of
the dissolving corporation.
Section 5. Effectivity. – These regulations shall apply to all corporate
dissolution taking place on or after May 14, 1985.
Section 6. Repealing Clause. – All revenue regulations, orders and
circulars which are inconsistent herewith are hereby modified
accordingly.
The afore-quoted Tax Code provision and regulations refer to a voluntary
dissolution and/or liquidation of a corporation through its adoption of a resolution
or plan to that effect, or an involuntary dissolution of a corporation by order of the
SEC. They make no reference at all to a situation similar to the one at bar in which a
banking corporation is ordered closed and placed under receivership by the BSP
and its assets judicially liquidated. Now, the determining question is, whether
Section 52(C) of the Tax Code of 1997 and BIR-SEC Regulations No. 1 could be made
to apply to the present case.
This Court rules in the negative.
First, Section 52(C) of the Tax Code of 1997 and the BIR-SEC Regulations No. 1
regulate the relations only as between the SEC and the BIR, making a certificate of
tax clearance a prior requirement before the SEC could approve the dissolution of a
corporation. In Spec. Proc. No. 91-SP-0060 pending before the RTC, RBBI was
placed under receivership and ordered liquidated by the BSP, not the SEC; and the
SEC is not even a party in the said case, although the BIR is. This Court cannot find
any basis to extend the SEC requirements for dissolution of a corporation to the
liquidation proceedings of RBBI before the RTC when the SEC is not even involved
therein.
It is conceded that the SEC has the authority to order the dissolution of a
corporation pursuant to Section 121 of Batas Pambansa Blg. 68, otherwise known
as the Corporation Code of the Philippines, which reads –
Sec. 121. Involuntary dissolution. – A corporation may be dissolved by the
Securities and Exchange Commission upon filing of a verified complaint
and after proper notice and hearing on the grounds provided by existing
laws, rules and regulations.
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.23
The liquidation of RBBI is undertaken according to Sections 30 of the New Central
Bank Act, viz –
Sec. 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 wilfully 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.
For a quasi-bank, any person of recognized competence in banking or
finance may be designated as receiver.
The receiver shall immediately gather and take charge of all the assets
and liabilities of the institution, administer the same for the benefit of its
creditors, and exercise the general powers of a receiver under the
Revised Rules of Court but shall not, with the exception of administrative
expenditures, pay or commit any act that will involve the transfer or
disposition of any asset of the institution: Provided, That the receiver
may deposit or place the funds of the institution in non-speculative
investments. The receiver shall determine as soon as possible, but not
later than ninety (90) days from take over, whether the institution may
be rehabilitated or otherwise placed in such a condition that it may be
permitted to resume business with safety to its depositors and creditors
and the general public: Provided, That any determination for the
resumption of business of the institution shall be subject to prior
approval of the Monetary Board.
If the receiver determines that the institution cannot be rehabilitated or
permitted to resume business in accordance with the next preceding
paragraph, the Monetary Board shall notify in writing the board of
directors of its findings and direct the receiver to proceed with the
liquidation of the institution. The receiver shall:
(1) file ex parte with the proper regional trial court, and without
requirement of prior notice or any other action, a petition for assistance
in the liquidation of the institution pursuant to a liquidation plan adopted
by the Philippine Deposit Insurance Corporation for general application to
all closed banks. In case of quasi-banks, the liquidation plan shall be
adopted by the Monetary Board. Upon acquiring jurisdiction, the court
shall, upon motion by the receiver after due notice, adjudicate disputed
claims against the institution, assist the enforcement of individual
liabilities of the stockholders, directors and officers, and decide on other
issues as may be material to implement the liquidation plan adopted. The
receiver shall pay the cost of the proceedings from the assets of the
institution.
(2) convert the assets of the institution to money, dispose of the same to
creditors and other parties, for the purpose of paying the debts of such
institution in accordance with the rules on concurrence and preference of
credit under the Civil Code of the Philippines and he may, in the name of
the institution, and with the assistance of counsel as he may retain,
institute such actions as may be necessary to collect and recover
accounts and assets of, or defend any action against, the institution. The
assets of an institution under receivership or liquidation shall be deemed
in custodia legis in the hands of the receiver and shall, from the moment
the institution was placed under such receivership or liquidation, be
exempt from any order of garnishment, levy, attachment, or execution.
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.
Section 30 of the New Central Bank Act lays down the proceedings for receivership
and liquidation of a bank. The said provision is silent as regards the securing of a
tax clearance from the BIR. The omission, nonetheless, cannot compel this Court to
apply by analogy the tax clearance requirement of the SEC, as stated in Section
52(C) of the Tax Code of 1997 and BIR-SEC Regulations No. 1, since, again, the
dissolution of a corporation by the SEC is a totally different proceeding from the
receivership and liquidation of a bank by the BSP. This Court cannot simply replace
any reference by Section 52(C) of the Tax Code of 1997 and the provisions of the
BIR-SEC Regulations No. 1 to the "SEC" with the "BSP." To do so would be to read
into the law and the regulations something that is simply not there, and would be
tantamount to judicial legislation.
It should be noted that there are substantial differences in the procedure for
involuntary dissolution and liquidation of a corporation under the Corporation
Code, and that of a banking corporation under the New Central Bank Act, so that
the requirements in one cannot simply be imposed in the other.
Under the Corporation Code, the SEC may dissolve a corporation, upon the filing of
a verified complaint and after proper notice and hearing, on grounds provided by
existing laws, rules, and regulations. 24 Upon receipt by the corporation of the order
of suspension from the SEC, it is required to notify and submit a copy of the said
order, together with its final tax return, to the BIR. The SEC is also required to
furnish the BIR a copy of its order of suspension. The BIR is supposed to issue a  tax
clearance to the corporation within 30 days from receipt of the foregoing
documentary requirements. The SEC shall issue the final order of dissolution only
after the corporation has submitted its tax clearance; or in case of involuntary
dissolution, the SEC may proceed with the dissolution after 30 days from receipt by xxxx
the BIR of the documentary requirements without a tax clearance having been
issued.25 The corporation is allowed to continue as a body corporate for three (C) Return of Corporation Contemplating Dissolution or Reorganization. –
years after its dissolution, for the purpose of prosecuting and defending suits by or Every corporation shall, within thirty days (30) after the adoption by the
against it, to settle and close its affairs, and to dispose of and convey its property corporation of a resolution or plan for its dissolution, or for the
and distribute its assets, but not for the purpose of continuing its business. The liquidation of the whole or any part of its capital stock, including a
corporation may undertake its own liquidation, or at any time during the said three corporation which has been notified of possible involuntary dissolution
years, it may convey all of its property to trustees for the benefit of its by the Securities and Exchange Commission, or for its reorganization,
stockholders, members, creditors, and other persons in interest. 26 render a correct return to the Commissioner, verified under oath, setting
forth the terms of such resolution or plan and such other information as
In contrast, the Monetary Board may summarily and without need for prior the Secretary of Finance, upon recommendation of the Commissioner,
hearing, forbid the banking corporation from doing business in the Philippines, for shall, by rules and regulations, prescribe.
causes enumerated in Section 30 of the New Central Bank Act; and appoint the
PDIC as receiver of the bank. PDIC shall immediately gather and take charge of all xxxx
the assets and liabilities of the closed bank and administer the same for the benefit
of its creditors. The summary nature of the procedure for the involuntary closure of
SEC. 54. Returns of receivers, Trustees in Bankruptcy or Assignees. – In
a bank is especially stressed in Section 30 of the New Central Bank Act, which
cases wherein receivers, trustees in bankruptcy or assignees are
explicitly states that the actions of the Monetary Board under the said Section or
operating the property or business of a corporation, subject to the tax
Section 29 shall be final and executory, and may not be restrained or set aside by
imposed by this Title, such receivers, trustees or assignees shall make
the court except on a Petition for Certiorari filed by the stockholders of record of
returns of net income as and for such corporation, in the same manner
the bank representing a majority of the capital stock. PDIC, as the appointed
and form as such an organization is hereinbefore required to make
receiver, shall file ex parte with the proper RTC, and without requirement of prior
returns, and any tax due on the income as returned by receivers, trustees
notice or any other action, a petition for assistance in the liquidation of the bank.
or assignees shall be assessed and collected in the same manner as if
The bank is not given the option to undertake its own liquidation.
assessed directly against the organizations of whose businesses or
properties they have custody or control.
Second, the alleged purpose of the BIR in requiring the liquidator PDIC to secure a
tax clearance is to enable it to determine the tax liabilities of the closed bank. It
Section 54 of the Tax Code of 1997 imposes a general duty on all receivers, trustees
raised the point that since the PDIC, as receiver and liquidator, failed to file the
in bankruptcy, and assignees, who operate and preserve the assets of a
final return of RBBI for the year its operations were stopped, the BIR had no way of
corporation, regardless of the circumstances or the law by which they came to hold
determining whether the bank still had outstanding tax liabilities.
their positions, to file the necessary returns on behalf of the corporation under
their care.
To our mind, what the BIR should have requested from the RTC, and what was
within the discretion of the RTC to grant, is not an order for PDIC, as liquidator of
The filing by PDIC of a final tax return, on behalf of RBBI, should already address the
RBBI, to secure a tax clearance; but, rather, for it to submit the final return of RBBI.
supposed concern of the BIR and would already enable the latter to determine if
The first paragraph of Section 30(C) of the Tax Code of 1997, read in conjunction
RBBI still had outstanding tax liabilities.
with Section 54 of the same Code, clearly imposes upon PDIC, as the receiver and
liquidator of RBBI, the duty to file such a return. The pertinent provisions are
reproduced below for reference – The unreasonableness and impossibility of requiring a tax clearance before the
approval by the RTC of the Project of Distribution of the assets of the RBBI becomes
apparent when the timeline of the proceedings is considered.
SEC. 52. Corporation Returns. –
The BIR can only issue a certificate of tax clearance when the taxpayer had
completely paid off his tax liabilities. The certificate of tax clearance attests that the
taxpayer no longer has any outstanding tax obligations to the Government.
Should the BIR find that RBBI still had outstanding tax liabilities, PDIC will not be
able to pay the same because the Project of Distribution of the assets of RBBI
remains unapproved by the RTC; and, if RBBI still had outstanding tax liabilities, the
BIR will not issue a tax clearance; but, without the tax clearance, the Project of
Distribution of assets, which allocates the payment for the tax liabilities, will not be
approved by the RTC. It will be a chicken-and-egg dilemma.
The Government, in this case, cannot generally claim preference of credit, and
receive payment ahead of the other creditors of RBBI. Duties, taxes, and fees due
the Government enjoy priority only when they are with reference to a specific
movable property, under Article 2241(1) of the Civil Code, or immovable property,
under Article 2242(1) of the same Code. However, with reference to the other real
and personal property of the debtor, sometimes referred to as "free property," the
taxes and assessments due the National Government, other than those in Articles
2241(1) and 2242(1) of the Civil Code, will come only in ninth place in the order of
preference.27
Thus, the recourse of the BIR, after assessing the final return and examining all
other pertinent documents of RBBI, and making a determination of the latter’s
outstanding tax liabilities, is to present its claim, on behalf of the National
Government, before the RTC during the liquidation proceedings. The BIR is
expected to prove and substantiate its claim, in the same manner as the other
creditors. It is only after the RTC allows the claim of the BIR, together with the
claims of the other creditors, can a Project for Distribution of the assets of RBBI be
finalized and approved. PDIC, then, as liquidator, may proceed with the disposition
of the assets of RBBI and pay the latter’s financial obligations, including its
outstanding tax liabilities. And, finally, only after such payment, can the BIR issue a
certificate of tax clearance in the name of RBBI.
Third, the evident void in current statutes and regulations as to the relations
among the BIR, as tax collector of the National Government; the BSP, as regulator
of the banks; and the PDIC, as the receiver and liquidator of banks ordered closed
by the BSP, is not for this Court to fill in. It is up to the legislature to address the
matter through appropriate legislation, and to the executive to provide the
regulations for its implementation.
It is for these reasons that the RTC committed grave abuse of discretion, and
committed patent error, in ordering the PDIC, as the liquidator of RBBI, to first
secure a tax clearance from the appropriate BIR Regional Office, and holding in
abeyance the approval of the Project of Distribution of the assets of the RBBI by
virtue thereof.
Although this Court rules in favor of PDIC, in the sense that a tax clearance is not a
prerequisite to the approval of the Project of Distribution of the assets of RBBI, it
cannot uphold its argument that the Spec. Proc. No. 91-SP-0060 is summary in
nature.
Section 30(d) of the New Central Bank Act gives the Monetary Board of the BSP the
power to, summarily and without need for prior hearing, forbid a bank or quasi-
bank from doing business in the Philippines and designating the PDIC as receiver of
the banking institution. It bears to emphasize that: (1) the power is granted to the
Monetary Board of the BSP; and (2) what is summary in nature is the power of the
Monetary Board of the BSP to forbid or stop a bank or quasi-bank from doing
further business.
Once liquidation proceedings are instituted before the appropriate trial court, and
the trial court assumes jurisdiction over the Petition, then the proceedings take a
different character. Spec. Proc. No. 91-SP-0600 is the liquidation proceedings
initiated by the PDIC before the RTC. Liquidation proceedings have been described
in detail in the case of Pacific Banking Corporation Employees’ Organization
(PaBCEO) v. Court of Appeals,28 to wit –
[A] liquidation proceeding resembles the proceeding for the settlement
of estate of deceased persons under Rules 73 to 91 of the Rules of Court.
The two have a common purpose: the determination of all the assets and
the payment of all the debts and liabilities of the insolvent corporation or
the estate. The Liquidator and the administrator or executor are both
charged with the assets for the benefit of the claimants. In both
instances, the liability of the corporation and the estate is not
disputed. The court's concern is with the declaration of creditors and
their rights and the determination of their order of payment
xxxx
A liquidation proceeding is a single proceeding which consists of a
number of cases properly classified as "claims." It is basically a two-
 phased proceeding. The first phase is concerned with the approval and WHEREFORE, in view of the foregoing, this Court rules as follows –
disapproval of claims. Upon the approval of the petition seeking the
assistance of the proper court in the liquidation of a closed entity, all (a) The instant Petition is GRANTED and the Orders, dated 17 January 2003 and 13
money claims against the bank are required to be filed with the May 2003, of the RTC, sitting as the Liquidation Court of the closed RBBI, in Spec.
liquidation court. This phase may end with the declaration by the Proc. No. 91-SP-0060, are NULLIFIED and SET ASIDE for having been rendered with
liquidation court that the claim is not proper or without basis. On the grave abuse of discretion;
other hand, it may also end with the liquidation court allowing the claim.
In the latter case, the claim shall be classified whether it is ordinary or
(b) The PDIC, as liquidator, is ORDERED to submit to the BIR the final tax return of
preferred, and thereafter included Liquidator. In either case, the order
RBBI, in accordance with the first paragraph of Section 52(C), in connection with
allowing or disallowing a particular claim is final order, and may be
Section 54, of the Tax Code of 1997; and
appealed by the party aggrieved thereby.

(c) The RTC is ORDERED to resume the liquidation proceedings in Spec. Proc. No.
The second phase involves the approval by the Court of the distribution
91-SP-0060 in order to determine all the claims of the creditors, including that of
plan prepared by the duly appointed liquidator. The distribution plan
the National Government, as determined and presented by the BIR; and, pursuant
specifies in detail the total amount available for distribution to creditors
to such determination, and guided accordingly by the provisions of the Civil Code
whose claim were earlier allowed. The Order finally disposes of the issue
on preference of credit, to review and approve the Project of Distribution of the
of how much property is available for disposal. Moreover, it ushers in the
assets of RBBI.
final phase of the liquidation proceeding - payment of all allowed claims
in accordance with the order of legal priority and the approved
distribution plan. SO ORDERED.

xxxx

A liquidation proceeding is commenced by the filing of a single petition by

the Solicitor General with a court of competent jurisdiction entitled,
"Petition for Assistance in the Liquidation of e.g., Pacific Banking
Corporation." All claims against the insolvent are required to be filed
with the liquidation court. Although the claims are litigated in the same
proceeding, the treatment is individual. Each claim is heard separately.
And the Order issued relative to a particular claim applies only to said
claim, leaving the other claims unaffected, as each claim is considered
separate and distinct from the others. x x x [Emphases supplied.]

Irrefragably, liquidation proceedings cannot be summary in nature. It requires the

holding of hearings and presentation of evidence of the parties
concerned, i.e., creditors who must prove and substantiate their claims, and the
liquidator disputing the same. It also allows for multiple appeals, so that each
creditor may appeal a final order rendered against its claim. Hence, liquidation
proceedings may very well be highly-contested and drawn-out, because, at the end
of it all, all claims against the corporation undergoing litigation must be settled
definitively and its assets properly disposed off.

FIRST DIVISION
G.R. No. 172892, June 13, 2013
PHILIPPINE DEPOSIT INSURANCE CORPORATION, Petitioner, v. BUREAU OF
INTERNAL REVENUE, Respondent.
DECISION
LEONARDO-DE CASTRO, J.:
This is a petition for review on Certiorari1  of the Decision2  and Resolution3  dated
December 29, 2005 and May 5, 2006, respectively, of the Court of Appeals in CA-
G.R. SP No. 80816.
In Resolution No. 1056 dated October 26, 1994, the Monetary Board of the Bangko
Sentral ng Pilipinas (BSP) prohibited the Rural Bank of Tuba (Benguet), Inc. (RBTI)
from doing business in the Philippines, placed it under receivership in accordance
with Section 30 of Republic Act No. 7653, otherwise known as the “New Central
Bank Act,” and designated the Philippine Deposit Insurance Corporation (PDIC) as
receiver.4
Subsequently, PDIC conducted an evaluation of RBTI’s financial condition and
determined that RBTI remained insolvent.  Thus, the Monetary Board issued
Resolution No. 675 dated June 6, 1997 directing PDIC to proceed with the
liquidation of RBTI.  Accordingly and pursuant to Section 30 of the New Central
Bank Act, PDIC filed in the Regional Trial Court (RTC) of La Trinidad, Benguet a
petition for assistance in the liquidation of RBTI.  The petition was docketed as
Special Proceeding Case No. 97-SP-0100 and raffled to Branch 8. 5
In an Order6 dated September 4, 1997, the trial court gave the petition due course
and approved it.
As an incident of the proceedings, the Bureau of Internal Revenue (BIR) intervened
as one of the creditors of RBTI.  The BIR prayed that the proceedings be suspended
until PDIC has secured a tax clearance required under Section 52(C) of Republic Act
No. 8424, otherwise known as the “Tax Reform Act of 1997” or the “Tax Code of
1997,” which provides:
SEC. 52. Corporation Returns
(C) Return of Corporation Contemplating Dissolution or Reorganization. – Every
corporation shall, within thirty (30) days after the adoption by the corporation of a
resolution or plan for its dissolution, or for the liquidation of the whole or any part
of its capital stock, including a corporation which has been notified of possible
involuntary dissolution by the Securities and Exchange Commission, or for its
reorganization, render a correct return to the Commissioner, verified under oath,
setting forth the terms of such resolution or plan and such other information as the
Secretary of Finance, upon recommendation of the commissioner, shall, by rules
and regulations, prescribe.
The dissolving or reorganizing corporation shall, prior to the issuance by the
Securities and Exchange Commission of the Certificate of Dissolution or
Reorganization, as may be defined by rules and regulations prescribed by the
Secretary of Finance, upon recommendation of the Commissioner, secure a
certificate of tax clearance from the Bureau of Internal Revenue which certificate
shall be submitted to the Securities and Exchange Commission.
In an Order7  dated February 14, 2003, the trial court found merit in the BIR’s
motion and granted it:
WHEREFORE, petitioner PDIC is directed to secure the necessary tax clearance
provided for under Section 45(C) of the 1993 National Internal Revenue Code and
now Section 52(C) of the 1997 National Internal Revenue Code and to secure the
same from the BIR District Office No. 9, La Trinidad, Benguet.
Further, petitioner PDIC is directed to submit a comprehensive liquidation report
addressed to creditor Bangko Sentral and to remit the accounts already collected
from the pledged assets to said Bangko Sentral.
Claimant Bangko Sentral may now initiate collection suits directly against the
individual borrowers.
In the event that the collection efforts of Bangko Sentral against individual
borrowers may fail, Bangko Sentral shall proceed against the general assets of the
Rural Bank of Tuba Benguet.
Finally, Annex “A” attached to the manifestation and motion dated November 29,
2002 [of PDIC] is considered as partial satisfaction of the obligation of the Rural
Bank of Tuba (Benguet) Inc., to Bangko Sentral.8
PDIC moved for partial reconsideration of the Order dated February 14, 2003 with
respect to the directive for it to secure a tax clearance.  It argued that Section 52(C)
of the Tax Code of 1997 does not cover closed banking institutions as the
liquidation of closed banks is governed by Section 30 of the New Central Bank Act.  This Court has already resolved the issue of whether Section 52(C) of the Tax Code
The motion was, however, denied in an Order9 dated September 16, 2003.
PDIC thereafter brought the matter to the Court of Appeals by way of a petition
for Certiorari under Rule 65 of the Rules of Court.  In its petition, docketed as CA-
G.R. SP No. 80816, PDIC asserted that the trial court acted with grave abuse of
discretion amounting to lack or excess of jurisdiction in applying Section 52(C) of
the Tax Code of 1997 to a bank ordered closed, placed under receivership and,
subsequently, under liquidation by the Monetary Board.
In its Decision dated December 29, 2005, the appellate court agreed with the trial
court that banks under liquidation by PDIC are covered by Section 52(C) of the Tax
Code of 1997.  Thus, the Court of Appeals affirmed the Orders dated February 14,
2003 and September 16, 2003 and dismissed PDIC’s petition. 11
PDIC sought reconsideration but it was denied.12
Hence, this petition. PDIC insists that Section 52(C) of the Tax Code of 1997 is not
applicable to banks ordered placed under liquidation by the Monetary Board of the
BSP.  It argues that closed banks placed under liquidation pursuant to Section 30 of
the New Central Bank Act are not “corporations contemplating liquidation” within
the purview of Section 52(C) of the Tax Code of 1997.  As opposed to the
liquidation of all other corporations, the Monetary Board, not the Securities and
Exchange Commission (SEC), has the power to order or approve the closure and
liquidation of banks.  Section 52(C) of the Tax Code of 1997 applies only to
corporations under the supervision of the SEC.13
For its part, the BIR counters that the requirement of a tax clearance under Section
52(C) of the Tax Code of 1997 is applicable to rural banks undergoing liquidation
proceedings under Section 30 of the New Central Bank Act.  For the BIR, the
authority given to the BSP to supervise banks does not mean that all matters
regarding banks are exclusively under the power of the BSP.  Thus, banking
corporations are still subject to reasonable regulations imposed by the SEC on
corporations.  The purpose of a tax clearance requirement under Section 52(C) of
the Tax Code of 1997 is to ensure the collection of income taxes due to the
government by imposing upon a corporation undergoing liquidation the obligation
of reporting the income it earned, if any, for the purpose of determining the
amount of imposable tax.14
The petition succeeds.
of 1997 applies to banks ordered placed under liquidation by the Monetary Board,
that is, whether a bank placed under liquidation has to secure a tax clearance from
the BIR before the project of distribution of the assets of the bank can be approved
by the liquidation court.
In Re: Petition for Assistance in the Liquidation of the Rural Bank of Bokod
(Benguet), Inc., Philippine Deposit Insurance Corporation v. Bureau of Internal
Revenue  15 ruled that Section 52(C) of the Tax Code of 1997 is not applicable to
banks ordered placed under liquidation by the Monetary Board, 16  and a tax
clearance is not a prerequisite to the approval of the project of distribution of the
assets of a bank under liquidation by the PDIC.17
Thus, this Court has held that the RTC, acting as liquidation court under Section 30
of the New Central Bank Act, commits grave abuse of discretion in ordering the
PDIC, as liquidator of a bank ordered closed by the Monetary Board, to first secure
a tax clearance from the appropriate BIR Regional Office, and holding in abeyance
the approval of the project of distribution of the assets of the closed bank by virtue
thereof.18   Three reasons have been given.
First, Section 52(C) of the Tax Code of 1997 pertains only to a regulation of the
relationship between the SEC and the BIR with respect to corporations
contemplating dissolution or reorganization.  On the other hand, banks under
liquidation by the PDIC as ordered by the Monetary Board constitute a special case
governed by the special rules and procedures provided under Section 30 of the
New Central Bank Act, which does not require that a tax clearance be secured from
the BIR.19   As explained in In Re: Petition for Assistance for Assistance in the
Liquidation of the Rural Bank of Bokod (Benguet), Inc.:
Section 52(C) of the Tax Code of 1997 and the BIR-SEC Regulations No. 1 20  regulate
the relations only as between the SEC and the BIR, making a certificate of tax
clearance a prior requirement before the SEC could approve the dissolution of a
corporation. x x
x.x x x x
Section 30 of the New Central Bank Act lays down the proceedings for receivership
and liquidation of a bank.  The said provision is silent as regards the securing of a
tax clearance from the BIR. The omission, nonetheless, cannot compel this Court to
apply by analogy the tax clearance requirement of the SEC, as stated in Section
52(C) of the Tax Code of 1997 and BIR-SEC Regulations No. 1, since, again, the
dissolution of a corporation by the SEC is a totally different proceeding from the
receivership and liquidation of a bank by the BSP.  This Court cannot simply replace
any reference by Section 52(C) of the Tax Code of 1997 and the provisions of the
BIR-SEC Regulations No. 1 to the “SEC” with the “BSP.”  To do so would be to read
into the law and the regulations something that is simply not there, and would be
tantamount to judicial legislation. 21
Second, only a final tax return is required to satisfy the interest of the BIR in the
liquidation of a closed bank, which is the determination of the tax liabilities of a
bank under liquidation by the PDIC.  In view of the timeline of the liquidation
proceedings under Section 30 of the New Central Bank Act, it is unreasonable for
the liquidation court to require that a tax clearance be first secured as a condition
for the approval of project of distribution of a bank under liquidation. 22   This point
has been elucidated thus:
[T]he alleged purpose of the BIR in requiring the liquidator PDIC to secure a tax
clearance is to enable it to determine the tax liabilities of the closed bank.  It raised
the point that since the PDIC, as receiver and liquidator, failed to file the final
return of RBBI for the year its operations were stopped, the BIR had no way of
determining whether the bank still had outstanding tax liabilities.
To our mind, what the BIR should have requested from the RTC, and what was
within the discretion of the RTC to grant, is not an order for PDIC, as liquidator of
RBBI, to secure a tax clearance; but, rather, for it to submit the final return of RBBI. 
The first paragraph of Section 30(C) of the Tax Code of 1997, read in conjunction
with Section 54 of the same Code, clearly imposes upon PDIC, as the receiver and
liquidator of RBBI, the duty to file such a return.
Section 54 of the Tax Code of 1997 imposes a general duty on all receivers, trustees
in bankruptcy, and assignees, who operate and preserve the assets of a
corporation, regardless of the circumstances or the law by which they came to hold
their positions, to file the necessary returns on behalf of the corporation under
their care.
The filing by PDIC of a final tax return, on behalf of RBBI, should already address the
supposed concern of the BIR and would already enable the latter to determine if
RBBI still had outstanding tax liabilities. The unreasonableness and impossibility of
requiring a tax clearance before the approval by the RTC of the Project of
Distribution of the assets of the RBBI becomes apparent when the timeline of the
proceedings is considered.
The BIR can only issue a certificate of tax clearance when the taxpayer had
completely paid off his tax liabilities.  The certificate of tax clearance attests that
the taxpayer no longer has any outstanding tax obligations to the Government.
Should the BIR find that RBBI still had outstanding tax liabilities, PDIC will not be
able to pay the same because the Project of Distribution of the assets of RBBI
remains unapproved by the RTC; and, if RBBI still had outstanding tax liabilities, the
BIR will not issue a tax clearance; but, without the tax clearance, the Project of
Distribution of assets, which allocates the payment for the tax liabilities, will not be
approved by the RTC.  It will be a chicken-and-egg dilemma.23
Third, it is not for this Court to fill in any gap, whether perceived or evident, in
current statutes and regulations as to the relations among the BIR, as tax collector
of the National Government; the BSP, as regulator of the banks; and the PDIC, as
the receiver and liquidator of banks ordered closed by the BSP.  It is up to the
legislature to address the matter through appropriate legislation, and to the
executive to provide the regulations for its implementation. 24
There is another reason.  The position of the BIR, insisting on prior compliance with
the tax clearance requirement as a condition for the approval of the project of
distribution of the assets of a bank under liquidation, is contrary to both the letter
and intent of the law on liquidation of banks by the PDIC.  In this connection, the
relevant portion of Section 30 of the New Central Bank Act provides:
Section 30. Proceedings in Receivership and Liquidation.
If the receiver determines that the institution cannot be rehabilitated or permitted
to resume business in accordance with the next preceding paragraph, the
Monetary Board shall notify in writing the board of directors of its findings and
direct the receiver to proceed with the liquidation of the institution. The receiver
shall:
(1)    file ex parte with the proper regional trial court, and without requirement of
prior notice or any other action, a petition for assistance in the liquidation of the
institution pursuant to a liquidation plan adopted by the Philippine Deposit
Insurance Corporation for general application to all closed banks. In case of quasi-
banks, the liquidation plan shall be adopted by the Monetary Board. Upon
acquiring jurisdiction, the court shall, upon motion by the receiver after due notice,
adjudicate disputed claims against the institution, assist the enforcement of
individual liabilities of the stockholders, directors and officers, and decide on other
issues as may be material to implement the liquidation plan adopted. The receiver
shall pay the cost of the proceedings from the assets of the institution.
(2)    convert the assets of the institution to money, dispose of the same to
creditors and other parties, for the purpose of paying the debts of such
institution in accordance with the rules on concurrence and preference of credit
under the Civil Code of the Philippines and he may, in the name of the institution, insofar as they direct the Philippine Deposit Insurance Corporation to secure a
and with the assistance of counsel as he may retain, institute such actions as may tax clearance, for having been rendered with grave abuse of discretion;
be necessary to collect and recover accounts and assets of, or defend any action (c) the PDIC, as liquidator, is ORDERED to submit to the BIR the final tax return of
against, the institution. The assets of an institution under receivership or RBTI, in accordance with the first paragraph of Section 52(C), in connection
liquidation shall be deemed in custodia legis in the hands of the receiver and shall, with Section 54, of the Tax Code of 1997; and
from the moment the institution was placed under such receivership or liquidation, (d) the Regional Trial Court of La Trinidad, Benguet is ORDERED to resume the
be exempt from any order of garnishment, levy, attachment, or execution 25.  liquidation proceedings in Special Proceeding Case No. 97-SP-0100 in order to
(Emphasis supplied.) determine all the claims of the creditors, including that of the National
The law expressly provides that debts and liabilities of the bank under liquidation Government, as determined and presented by the BIR; and, pursuant to such
are to be paid in accordance with the rules on concurrence and preference of credit determination, and guided accordingly by the provisions of the Civil Code on
under the Civil Code. Duties, taxes, and fees due the Government enjoy priority preference of credit, to review and approve the project of distribution of the
only when they are with reference to a specific movable property, under Article assets of RBTI.
2241(1) of the Civil Code, or immovable property, under Article 2242(1) of the SO ORDERED.
same Code.  However, with reference to the other real and personal property of
the debtor, sometimes referred to as “free property,” the taxes and assessments
due the National Government, other than those in Articles 2241(1) and 2242(1) of
the Civil Code, such as the corporate income tax, will come only in ninth place in
the order of preference. 26   On the other hand, if the BIR’s contention that a tax
clearance be secured first before the project of distribution of the assets of a bank
under liquidation may be approved, then the tax liabilities will be given absolute
preference in all instances, including those that do not fall under Articles 2241(1)
and 2242(1) of the Civil Code.  In order to secure a tax clearance which will serve as
proof that the taxpayer had completely paid off his tax liabilities, PDIC will be
compelled to settle and pay first all tax liabilities and deficiencies of the bank,
regardless of the order of preference under the pertinent provisions of the Civil
Code.  Following the BIR’s stance, therefore, only then may the project of
distribution of the bank’s assets be approved and the other debts and claims
thereafter settled, even though under Article 2244 of the Civil Code such debts and
claims enjoy preference over taxes and assessments due the National Government.
The BIR effectively wants this Court to ignore Section 30 of the New Central Bank
Act and disregard Article 2244 of the Civil Code.  However, as a court of law, this
Court has the solemn duty to apply the law. It cannot and will not give its
imprimatur to a violation of the laws.

WHEREFORE, the petition is hereby GRANTED.  The Court further rules as follows:

(a) the Decision dated December 29, 2005 and Resolution dated May 5, 2006 of
the Court of Appeals in CA-G.R. SP No. 80816 are REVERSED and SET ASIDE;
(b) the Orders dated February 14, 2003 and September 16, 2003 of the Regional
Trial Court of La Trinidad, Benguet sitting as liquidation court of the closed
RBTI, in Special Proceeding Case No. 97-SP-0100 are NULLIFIED and SET ASIDE,
 respondents withdrew the CSPI shares from the custodian banks. 8 On May 27,
1996, they sold the shares to Northeast Corporation and included the proceeds
thereof in the funds of Philfinance. Petitioner learned about the unauthorized sale
of his shares only on September 10, 1996. 9 He lodged a complaint with private
respondents but the latter ignored it 10 prompting him to file, on May 6, 1997,11 a
formal complaint against private respondents in the receivership proceedings with
the SEC, for the return of the shares.

Meanwhile, on April 18, 1997, the SEC approved a 15% rate of recovery for
Philfinance’s creditors and investors. 12 On May 13, 1997, the liquidators began the
process of settling the claims against Philfinance, from its assets. 13

Republic of the Philippines

On April 14, 1998, the SEC rendered judgment dismissing the petition. However, it
SUPREME COURT
reconsidered this decision in a resolution dated September 24, 1999 and granted
Manila
the claims of petitioner. It held that petitioner was the owner of the CSPI shares by
FIRST DIVISION
virtue of a confirmation of sale (which was considered as a deed of assignment)
G.R. No. 146555               July 3, 2007
issued to him by Philfinance. But since the shares had already been sold and the
JOSE C. CORDOVA, Petitioner,
proceeds commingled with the other assets of Philfinance, petitioner’s status was
vs.
converted into that of an ordinary creditor for the value of such shares. Thus, it
REYES DAWAY LIM BERNARDO LINDO ROSALES LAW OFFICES, ATTY. WENDELL
ordered private respondents to pay petitioner the amount of ₱5,062,500
CORONEL and the SECURITIES AND EXCHANGE COMMISSION,*** Respondents.
representing 15% of the monetary value of his CSPI shares plus interest at the legal
rate from the time of their unauthorized sale.
DECISION
CORONA, J.:
On October 27, 1999, the SEC issued an order clarifying its September 24, 1999
1 2 3 resolution. While it reiterated its earlier order to pay petitioner the amount of
This is a petition for review on certiorari  of a decision  and resolution  of the Court
₱5,062,500, it deleted the award of legal interest. It clarified that it never meant to
of Appeals (CA) dated July 31, 2000 and December 27, 2000, respectively, in CA-
award interest since this would be unfair to the other claimants.
G.R. SP No. 55311.

On appeal, the CA affirmed the SEC. It agreed that petitioner was indeed the owner
Sometime in 1977 and 1978, petitioner Jose C. Cordova bought from Philippine
of the CSPI shares but the recovery of such shares had become impossible. It also
Underwriters Finance Corporation (Philfinance) certificates of stock of Celebrity
declared that the clarificatory order merely harmonized the dispositive portion
Sports Plaza Incorporated (CSPI) and shares of stock of various other corporations.
with the body of the resolution. Petitioner’s motion for reconsideration was
He was issued a confirmation of sale. 4 The CSPI shares were physically delivered by
denied.
Philfinance to the former Filmanbank 5 and Philtrust Bank, as custodian banks, to
hold these shares in behalf of and for the benefit of petitioner. 6
Hence this petition raising the following issues:
On June 18, 1981, Philfinance was placed under receivership by public respondent
Securities and Exchange Commission (SEC). Thereafter, private respondents Reyes 1) whether petitioner should be considered as a preferred (and secured) creditor of
Daway Lim Bernardo Lindo Rosales Law Offices and Atty. Wendell Coronel (private Philfinance;
respondents) were appointed as liquidators. 7 Sometime in 1991, without the 2) whether petitioner can recover the full value of his CSPI shares or merely 15%
knowledge and consent of petitioner and without authority from the SEC, private thereof like all other ordinary creditors of Philfinance and
3) whether petitioner is entitled to legal interest. 14
To resolve these issues, we first have to determine if petitioner was indeed a
creditor of Philfinance.
There is no dispute that petitioner was the owner of the CSPI shares. However,
private respondents, as liquidators of Philfinance, illegally withdrew said
certificates of stock without the knowledge and consent of petitioner and authority
of the SEC.15 After selling the CSPI shares, private respondents added the proceeds
of the sale to the assets of Philfinance.16 Under these circumstances, did the
petitioner become a creditor of Philfinance? We rule in the affirmative.
The SEC, after holding that petitioner was the owner of the shares, stated:
Petitioner is seeking the return of his CSPI shares which, for the present, is no
longer possible, considering that the same had already been sold by the
respondents, the proceeds of which are ADMITTEDLY commingled with the assets
of Philfinance.
This being the case, [petitioner] is now but a claimant for the value of those shares.
As a claimant, he shall be treated as an ordinary creditor in so far as the value of
those certificates is concerned.17
The CA agreed with this and elaborated:
Much as we find both detestable and reprehensible the grossly abusive and illicit
contrivance employed by private respondents against petitioner, we, nevertheless,
concur with public respondent that the return of petitioner’s CSPI shares is well-
nigh impossible, if not already an utter impossibility, inasmuch as the certificates of
stocks have already been alienated or transferred in favor of Northeast
Corporation, as early as May 27, 1996, in consequence whereof the proceeds of the
sale have been transmuted into corporate assets of Philfinance, under custodia
legis, ready for distribution to its creditors and/or investors. Case law holds that the
assets of an institution under receivership or liquidation shall be deemed
in custodia legis in the hands of the receiver or liquidator, and shall from the
moment of such receivership or liquidation, be exempt from any order,
garnishment, levy, attachment, or execution.
Concomitantly, petitioner’s filing of his claim over the subject CSPI shares before
the SEC in the liquidation proceedings bound him to the terms and conditions
thereof. He cannot demand any special treatment [from] the liquidator, for this
flies in the face of, and will contravene, the Supreme Court dictum that when a
corporation threatened by bankruptcy is taken over by a receiver, all the creditors
shall stand on equal footing. Not one of them should be given preference by paying
one or some [of] them ahead of the others. This is precisely the philosophy
underlying the suspension of all pending claims against the corporation under
receivership. The rule of thumb is equality in equity. 18
We agree with both the SEC and the CA that petitioner had become an ordinary
creditor of Philfinance.
Certainly, petitioner had the right to demand the return of his CSPI shares. 19 He in
fact filed a complaint in the liquidation proceedings in the SEC to get them back but
was confronted by an impossible situation as they had already been sold.
Consequently, he sought instead to recover their monetary value.
Petitioner’s CSPI shares were specific or determinate movable properties. 20 But
after they were sold, the money raised from the sale became generic 21 and were
commingled with the cash and other assets of Philfinance. Unlike shares of stock,
money is a generic thing. It is designated merely by its class or genus without any
particular designation or physical segregation from all others of the same
class.22 This means that once a certain amount is added to the cash balance, one
can no longer pinpoint the specific amount included which then becomes part of a
whole mass of money.
It thus became impossible to identify the exact proceeds of the sale of the CSPI
shares since they could no longer be particularly designated nor distinctly
segregated from the assets of Philfinance. Petitioner’s only remedy was to file a
claim on the whole mass of these assets, to which unfortunately all of the other
creditors and investors of Philfinance also had a claim.
Petitioner’s right of action against Philfinance was a "claim" properly to be litigated
in the liquidation proceedings.23 In Finasia Investments and Finance Corporation v.
CA,24 we discussed the definition of "claims" in the context of liquidation
proceedings:
We agree with the public respondent that the word ‘claim’ as used in Sec. 6(c) of
P.D. 902-A,25 as amended, refers to debts or demands of a pecuniary nature. It
means "the assertion of a right to have money paid. It is used in special
proceedings like those before [the administrative court] on insolvency."
The word "claim" is also defined as:
Right to payment, whether or not such right is reduced to judgment, liquidated,
unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal,
equitable, secured, or unsecured; or right to an equitable remedy for breach of
performance if such breach gives rise to a right to payment, whether or not such
right to an equitable remedy is reduced to judgment, fixed, contingent, matured,
unmatured, disputed, undisputed, secured, unsecured. 26
Undoubtedly, petitioner had a right to the payment of the value of his shares. His
demand was of a pecuniary nature since he was claiming the monetary value of his
shares. It was in this sense (i.e. as a claimant) that he was a creditor of Philfinance.
The Civil Code provisions on concurrence and preference of credits are applicable
to the liquidation proceedings. 27 The next question is, was petitioner a preferred or
ordinary creditor under these provisions?
Petitioner argues that he was a preferred creditor because private respondents
illegally withdrew his CSPI shares from the custodian banks and sold them without
his knowledge and consent and without authority from the SEC. He quotes Article
2241 (2) of the Civil Code:
With reference to specific movable property of the debtor, the following claims or
liens shall be preferred:
(2) Claims arising from misappropriation, breach of trust, or malfeasance by public
officials committed in the performance of their duties, on the movables, money or
securities obtained by them; (Emphasis supplied)
He asserts that, as a preferred creditor, he was entitled to the entire monetary
value of his shares.
Petitioner’s argument is incorrect. Article 2241 refers only to specific movable
property. His claim was for the payment of money, which, as already discussed, is
generic property and not specific or determinate.
Considering that petitioner did not fall under any of the provisions applicable to
preferred creditors, he was deemed an ordinary creditor under Article 2245:
Credits of any other kind or class, or by any other right or title not comprised in the
four preceding articles, shall enjoy no preference.
This being so, Article 2251 (2) states that:
Common credits referred to in Article 2245 shall be paid pro rata regardless of
dates.
Like all the other ordinary creditors or claimants against Philfinance, he was
entitled to a rate of recovery of only 15% of his money claim.
One final issue: was petitioner entitled to interest?
The SEC argues that awarding interest to petitioner would have given petitioner an
unfair advantage or preference over the other creditors. 28 Petitioner counters that
he was entitled to 12% legal interest per annum under Article 2209 of the Civil
Code from the time he was deprived of the shares until fully paid.
The guidelines for awarding interest were laid down in Eastern Shipping Lines, Inc.
v. CA:29
I. When an obligation, regardless of its source, i.e., law, contracts, quasi-
contracts, delicts or quasi-delicts is breached, the contravenor can be
held liable for damages. The provisions under Title XVIII on "Damages" of
the Civil Code govern in determining the measure of recoverable
damages.
II. With regard particularly to an award of interest in the concept of
actual and compensatory damages, the rate of interest, as well as the
accrual thereof, is imposed, as follows:
1. When the obligation is breached, and it consists in the
payment of a sum of money, i.e., a loan or forbearance of
money, the interest due should be that which may have been
stipulated in writing. Furthermore, the interest due shall itself
earn legal interest from the time it is judicially demanded. In
the absence of stipulation, the rate of interest shall be 12% per
annum to be computed from default, i.e., from judicial or
extrajudicial demand under and subject to the provisions of
Article 1169 of the Civil Code.
 2. When an obligation, not constituting a loan or forbearance
of money, is breached, an interest on the amount of damages
awarded may be imposed at the discretion of the court at the
rate of 6% per annum. No interest, however, shall be adjudged
on unliquidated claims or damages except when or until the
demand can be established with reasonable certainty.
We note that there is an undisputed finding by the SEC and CA that private
respondents sold the subject shares without authority from the SEC. Petitioner
evidently has a cause of action against private respondents for their bad faith and
unauthorized acts, and the resulting damage caused to him.37
WHEREFORE, the petition is hereby DENIED.

Accordingly, where the demand is established with reasonable SO ORDERED.

certainty, the interest shall begin to run from the time the claim
is made judicially or extrajudicially (Art. 1169, Civil Code) but
when such certainty cannot be so reasonably established at the
time the demand is made, the interest shall begin to run only
from the date of the judgment of the court is made (at which
time the quantification of damages may be deemed to have
been reasonably ascertained). The actual base for the
computation of legal interest shall, in any case, be on the
amount of finally adjudged.

3. When the judgment of the court awarding a sum of money

becomes final and executory, the rate of legal interest, whether
the case falls under paragraph 1 or paragraph 2, above, shall be
12% per annum from such finality until its satisfaction, this
interim period being deemed to be by then an equivalent to a
forbearance of credit.30 (Emphasis supplied)

Under this ruling, petitioner was not entitled to legal interest of 12% per
annum  (from demand) because the amount owing to him was not a loan 31 or
forbearance of money.32

Neither was he entitled to legal interest of 6% per annum under Article 2209 of the
Civil Code33 since this provision applies only when there is a delay in the payment of
a sum of money.34 This was not the case here. In fact, petitioner himself manifested
before the CA that the SEC (as liquidator) had already paid him ₱5,062,500
representing 15% of ₱33,750,000.35

Accordingly, petitioner was not entitled to interest under the law and current
jurisprudence.

Considering that petitioner had already received the amount of ₱5,062,500, the
obligation of the SEC as liquidator of Philfinance was totally extinguished. 36
 employee relations with the mortgagor's workers. The mortgage constitutes a lien
on the determinate properties of the employer-debtor, because it is a specially
preferred credit to which the worker's monetary claims is deemed subordinate.
 
The Case
 
Before us is a Petition for Review [1] under Rule 45 of the Rules of Court, assailing
the January 30, 2003 Decision [2] and the August 27, 2003 Resolution [3] of the
Court of Appeals (CA), in CA-GR SP No. 58813. The disposition or fallo  of the
questioned Decision reads as follows:
 
IN VIEW OF ALL THE FOREGOING, the instant petition is GRANTED and the assailed
NLRC Decision dated February 18, 2000 is hereby RECALLED and SET ASIDE insofar
as herein petitioner APT is concerned. No cost. [4]
THIRD DIVISION  
 
ABUNDIO BARAYOGA and G.R. No. 160073
BISUDECO-PHILSUCOR
CORFARM WORKERS UNION Present:
The reversed Decision [5] of the National Labor Relations Commission (NLRC)
(PACIWU CHAP-TPC),
disposed as follows:
Petitioners, Panganiban, J., ' Chairman,
 
Sandoval-Gutierrez,
'WHEREFORE, premises considered, the decision appealed from is AFFIRMED with
Corona,
modifications as follows:
- versus - Carpio Morales, and
 
Garcia, JJ
1. Complainants are awarded their monetary claims for underpayment of salaries
ASSET PRIVATIZATION Promulgated:
and payment of allowances per their computation on pp. 97-99 and 142-144 of the
TRUST,*
records;
Respondent. October 24, 2005
 
2. Complainants are declared to have been illegally dismissed and should be paid
x -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- --- -- -- -- -- x
their backwages from 01 May 1991 to 30 October 1992. [6]
DECISION
 
PANGANIBAN , J.:
The challenged August 27, 2003 Resolution denied petitioners' Motion for
 
Reconsideration.
 
 
R esponsibility for the liabilities of a mortgagor towards its employees cannot
The Facts
be transferred via an auction sale to a purchaser who is also the mortgagee-
 
creditor of the foreclosed assets and chattels. Clearly, the mortgagee-creditor has
The CA summarized the antecedents in this portion of its Decision, which we quote:
no employer- __________________
 
* The Privatization and Management Office has succeeded APT. Comment, p. 1;
Bisudeco-Philsucor Corfarm Workers Union is composed of workers of Bicolandia
rollo, p. 480.
Sugar Development Corporation (BISUDECO), a sugar plantation mill located in
Himaao, Pili, Camarines Sur.
 
 
On December 8, 1986, [Respondent] Asset Privatization Trust (APT), a public trust
was created under Proclamation No. 50, as amended, mandated to take title to and
possession of, conserve, provisionally manage and dispose of non-performing
assets of the Philippine government identified for privatization or disposition.
 
Pursuant to Section 23 of Proclamation No. 50, former President Corazon Aquino
issued Administrative Order No. 14 identifying certain assets of government
institutions that were to be transferred to the National Government. Among the
assets transferred was the financial claim of the Philippine National Bank against
BISUDECO in the form of a secured loan. 'Consequently, by virtue of a Trust
Agreement executed between the National Government and APT on February 27,
1987, APT was constituted as trustee over BISUDECO's account with the PNB.
 
Sometime later, on August 28, 1988, BISUDECO contracted the services of
Philippine Sugar Corporation (Philsucor) to take over the management of the sugar
plantation and milling operations until August 31, 1992.
 
Meanwhile, because of the continued failure of BISUDECO to pay its outstanding
loan with PNB, its mortgaged properties were foreclosed and subsequently sold in
a public auction to APT, as the sole bidder. On April 2, 1991, APT was issued a
Sheriff's Certificate of Sale.
On July 23, 1991, the union filed a complaint for unfair labor practice, illegal
dismissal, illegal deduction and underpayment of wages and other labor standard
benefits plus damages.
 
In the meantime, on July 15, 1992, APT's Board of Trustees issued a resolution
accepting the offer of Bicol-Agro-Industrial Cooperative (BAPCI) to buy the sugar
plantation and mill. Again, on September 23, 1992, the board passed another
resolution authorizing the payment of separation benefits to BISUDECO's
employees in the event of the company's privatization. Then, on October 30, 1992,
BAPCI purchased the foreclosed assets of BISUDECO from APT and took over its
sugar milling operations under the trade name Peafrancia Sugar Mill (Pensumil).
 
On December 17, 1992, the union filed a similar complaint, later to be consolidated
with its earlier complaint and docketed as RAB V Case No. 07-00184-91.
 
On March 2, 1993, it filed an amended complaint, impleading as additional party
respondents APT and Pensumil.
 
In their Position Paper, the union alleged that when Philsucor initially took over the
operations of the company, it retained BISUDECO's existing personnel under the
same terms and conditions of employment. Nonetheless, at the start of the season
sometime in May 1991, Philsucor started recalling workers back to work, to the
exception of the union members. Management told them that they will be re-hired
only if they resign from the union. Just the same, thereafter, the company started
to employ the services of outsiders under the 'pakyaw system.
 
BISUDECO, Pensumil and APT all interposed the defense of lack of employer-
employee relationship.
 
xxxxxxxxx
 
After due proceedings, on April 30, 1998, Labor Arbiter Fructuoso T. Aurellano
disposed as follows:
 
'WHEREFORE, premises considered, respondent APT is hereby ordered to pay herein
complainants of the mandated employment benefits provided for under Section 27
of Proclamation No. 50 which benefits had been earlier extended to other
employees similarly situated.
 
'SO ORDERED.
Both the union and APT elevated the labor arbiter's decision before NLRC. [7]
 
The NLRC affirmed APT's liability for petitioners' money claims. While no employer-
employee relationship existed between members of the petitioner union and APT,
at the time of the employees' illegal dismissal, the assets of BISUDECO had been
transferred to the national government through APT. Moreover, the NLRC held that
APT should have treated petitioners' claim as a lien on the assets of BISUDECO. The
Commission opined that APT should have done so, considering its awareness of the
pending complaint of petitioners at the time BISUDECO sold its assets to BAPCI, and
APT started paying separation pay to the workers.
 
Finding their computation to be in order, the NLRC awarded to petitioners their
money claims for underpayment, labor-standard benefits, and ECOLA. It also
awarded them their back wages, computed at the prevailing minimum wage, for
the period May 1, 1991 (the date of their illegal dismissal) until October 30, 1992
(the sale of BISUDECO assets to the BAPCI). On the other hand, the NLRC ruled that
petitioners were not entitled to separation pay because of the huge business losses
incurred by BISUDECO, which had resulted in its bankruptcy.
Respondent sought relief from the CA via a Petition for Certiorari under Rule 65 of
the Rules of Court.
Ruling of the Court of Appeals
 
The CA ruled that APT should not be held liable for petitioners' claims for unfair
labor practice, illegal dismissal, illegal deduction and underpayment of wages, as
well as other labor-standard benefits plus damages. As found by the NLRC, APT was
not the employer of petitioners, but was impleaded only for possessing BISUDECO's
mortgaged properties as trustee and, later, as the highest bidder in the foreclosure
sale of those assets.
 
Citing Batong Buhay Gold Mines v. Dela Serna, [8] the CA concluded that
petitioners' claims could not be enforced against APT as mortgagee of the
foreclosed properties of BISUDECO.
Hence, this Petition. [9]
Issues
 
In their Memorandum, petitioners raise the following issues for our consideration:
 
I. Whether or not the Court of Appeals erred in ruling that Respondent Asset
Privatization Trust (APT) should not be held liable for the petitioner union's claim
for unfair labor practice, illegal dismissal, illegal deduction and underpayment of
wages and other labor standard benefits plus damages.
 
II. Whether or not the claims of herein petitioners cannot be enforced against
APT/PNB as mortgagee of the foreclosed properties of BISUDECO.
 
III. Whether or not the entitlement of petitioners upon their claims against
Respondent APT is recognized under the law. [10]
In brief, the main issue raised is whether Respondent APT is liable for petitioners'
monetary claims.
The Court's Ruling
The Petition has no merit.
Main Issue:
Whether APT Is Liable for the Claims of
Petitioners Against Their Former Employer
It should be stressed at the outset that, pursuant to Administrative Order No. 14,
Series of 1987, [11] PNB's assets, loans and receivables from its borrowers were
transferred to APT as trustee of the national government. Among the liabilities
transferred to APT was PNB's financial claim against BISUDECO, not the latter's
assets and chattel. Contrary to petitioners' assertions, BISUDECO remained the
owner of the mortgaged properties in August 1988, when the Philippine Sugar
Corporation (Philsucor) undertook the operation and management of the sugar
plantation until August 31, 1992, under a so-called Contract of Lease between the
two corporations. 'At the time, APT was merely a secured creditor of
BISUDECO. [12]
 
It was only in April 1991 that APT foreclosed the assets and chattels of BISUDECO
because of the latter's continued failure to pay outstanding loan obligations to
PNB/APT. The properties were sold at public auction to APT, the highest bidder, as
indicated in the Sheriff's Certificate of Sale issued on April 2, 1991. It was only in
September 1992 (after the expiration of the lease/management Contract with
Philsucor in August 1992), however, when APT took over BISUDECO assets,
preparatory to the latter's privatization.
 
In the present case, petitioner-union's members who were not recalled to work by
Philsucor in May 1991 seek to hold APT liable for their monetary claims and
allegedly illegal dismissal. Significantly, prior to the actual sale of BISUDECO assets
to BAPCI on October 30, 1992, the APT board of trustees had approved a
Resolution on September 23, 1992. The Resolution authorized the payment of
separation benefits to the employees of the corporation in the event of its
privatization. Not included in the Resolution, though, were petitioner-union's
members who had not been recalled to work in May 1991.
The question now before the Court is whether APT is liable to pay petitioners'
monetary claims, including back wages from May 1, 1991, to October 30, 1992 (the
date of the sale of BISUDECO assets to BAPCI).
We rule in the negative. The duties and liabilities of BISUDECO, including its
monetary liabilities to its employees, were not all automatically assumed by APT as
purchaser of the foreclosed properties at the auction sale. Any assumption of
liability must be specifically and categorically agreed upon. In Sundowner
Development Corp. v. Drilon, [13] the Court ruled that, unless expressly assumed,
labor contracts like collective bargaining agreements are not enforceable against
the transferee of an enterprise. Labor contracts are in personam and thus binding
only between the parties.
 
No succession of employment rights and obligations can be said to have taken
place between the two. Between the employees of BISUDECO and APT, there is no
privity of contract that would make the latter a substitute employer that should be
burdened with the obligations of the corporation. To rule otherwise would result in
unduly imposing upon APT an unwarranted assumption of accounts not
contemplated in Proclamation No. 50 or in the Deed of Transfer between the
national government and PNB.
 
Furthermore, under the principle of absorption, a bona fide buyer or transferee of
all, or substantially all, the properties of the seller or transferor is not obliged to
absorb the latter's employees. [14] The most that the purchasing company may do,
for reasons of public policy and social justice, is to give preference of
reemployment to the selling company's qualified separated employees, who in its
judgment are necessary to the continued operation of the business
establishment. [15]
 
In any event, the national government (in whose trust APT previously held the
mortgage credits of BISUDECO) is not the employer of petitioner-union's members,
who had been dismissed sometime in May 1991, even before APT took over the
assets of the corporation. Hence, under existing law and jurisprudence, there is no
reason to expect any kind of bailout by the national government.  [16] Even the
NLRC found that no employer-employee relationship existed between APT and
petitioners. Thus, the Commission gravely abused its discretion in nevertheless
holding that APT, as the transferee of the assets of BISUDECO, was liable to
petitioners.
 
Petitioners also contend that in Central Azucarera del Danao v. Court of
Appeals, [17] this Court supposedly ruled that the 'sale of a business of a going
concern does not ipso facto terminate the employer-employee relations insofar as
the successor-employer is concerned, and that change of ownership or
management of an establishment or company is not one of the just causes
provided by law for termination of employment[.] [18]
 
A careful reading of the Court's Decision in that case plainly shows that it does not
contain the words quoted by counsel for petitioners. At this juncture, we admonish
their counsel [19] of his bounden duty as an officer of the Court to refrain from
misquoting or misrepresenting the text of its decisions. [20] Ever present is the
danger that, if not faithfully and exactly quoted, they may lose their proper and
correct meaning, to the detriment of other courts, lawyers and the public who may
thereby be misled. [21]
 
In that case, contrary to the assertions of petitioners, the Court held as follows:
 
There can be no controversy for it is a principle well-recognized, that it is within the
employer's legitimate sphere of management control of the business to adopt
economic policies or make some changes or adjustments in their organization or
operations that would insure profit to itself or protect the investment of its
stockholders. As in the exercise of such management prerogative, the employer
may merge or consolidate its business with another, or sell or dispose all or
substantially all of its assets and properties which may bring about the dismissal or
termination of its employees in the process. Such dismissal or termination should
not however be interpreted in such a manner as to permit the employer to escape
payment of termination pay. x x x.
 
'In a number of cases on this point, the rule has been laid down that the sale or
disposition must be motivated by good faith as an element of exemption from
liability. Indeed, an innocent transferee of a business establishment has no liability
to the employees of the transferor to continue employing them. Nor is the
transferee liable for past unfair labor practices of the previous owner, except, when
the liability therefor is assumed by the new employer under the contract of sale, or
when liability arises because of the new owner's participation in thwarting or
defeating the rights of the employees. [22] (Citations omitted.)
 
 
In other words, the liabilities of the previous owner to its employees are not
enforceable against the buyer or transferee, unless (1) the latter unequivocally
assumes them; or (2) the sale or transfer was made in bad faith. Thus, APT cannot
be held responsible for the monetary claims of petitioners who had been dismissed
even before it actually took over BISUDECO's assets.
 
Moreover, it should be remembered that APT merely became a transferee of
BISUDECO's assets for purposes of conservation because of its lien on those assets
-- a lien it assumed as assignee of the loan secured by the corporation from PNB.
Subsequently, APT, as the highest bidder in the auction sale, acquired ownership of
the foreclosed properties.
 
Relevant to this transfer of assets is Article 110 of the Labor Code, as amended by
Republic Act No. 6715, which reads:
'Article 110. Worker's preference in case of bankruptcy. '  In the event of bankruptcy classification, concurrence and preference of credits in the Civil Code, the
or liquidation of the employer's business, his workers shall enjoy first preference as Insolvency Law, and the Labor Code.
regards their unpaid wages and other monetary claims  shall be paid in full before  
the claims of the Government and other creditors may be paid. [23] The Court hastens to add that the present Petition was brought against APT alone.
  In holding that the latter, which has never really been an employer of petitioners, is
  not liable for their claims, this Court is not reversing or ruling upon their
  entitlement to back wages and other unpaid benefits from their previous employer.
This Court has ruled in a long line of cases [24] that under Articles 2241 and 2242 of  
the Civil Code, a mortgage credit is a special preferred credit that enjoys preference On the basis of the foregoing clarification, the Court finds no reversible error in the
with respect to a specific/determinate property of the debtor. On the other hand, questioned CA Decision, which set aside the February 8, 2000 Decision of the NLRC.
the worker's preference under Article 110 of the Labor Code is an ordinary As a mere transferee of the mortgage credit and later as the purchaser in a public
preferred credit. While this provision raises the worker's money claim to first auction of BISUDECO's foreclosed properties, APT cannot be held liable for
priority in the order of preference established under Article 2244 of the Civil Code, petitioners' claims against BISUDECO: illegal dismissal, unpaid back wages and
the claim has no preference over special preferred credits. other monetary benefits.
   
Thus, the right of employees to be paid benefits due them from the properties of WHEREFORE, the Petition is hereby DENIED , and the assailed Decision and
their employer cannot have any preference over the latter's mortgage credit. In Resolution AFFIRMED. Costs against petitioners.
other words, being a mortgage credit, APT's lien on BISUDECO's mortgaged assets
is a special preferred lien that must be satisfied first before the claims of the
workers. SO ORDERED.
 
Development Bank of the Philippines v. NLRC [25] explained the rationale of this
ruling as follows:
 
'x x x. A preference applies only to claims which do not attach to specific properties.
A lien creates a charge on a particular property. The right of first preference as
regards unpaid wages recognized by Article 110 does not constitute a lien on the
property of the insolvent debtor in favor of workers. It is but a preference of credit
in their favor, a preference in application. It is a method adopted to determine and
specify the order in which credits should be paid in the final distribution of the
proceeds of the insolvent's assets. It is a right to a first preference in the discharge
of the funds of the judgment debtor. x x x
 
 
Furthermore, workers' claims for unpaid wages and monetary benefits cannot be
paid outside of a bankruptcy or judicial liquidation proceedings against the
employer. [26] It is settled that the application of Article 110 of the Labor Code is
contingent upon the institution of those proceedings, during which all creditors are
convened, their claims ascertained and inventoried, and their preferences
determined. [27] Assured thereby is an orderly determination of the preference
given to creditors' claims; and preserved in harmony is the legal scheme of