CT 200820 FT

Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-16784 May 19, 1965
IN THE MATTER OF THE INTESTATE ESTATE OF THE DECEASED GO FOOK. LLANE C. GOMEZ, administratrix-
appellee,
vs.
AUGUSTO G. SYJUCO, ET AL., creditors-claimants-appellants,
MESSRS. NEMESIO MARZAN, ET AL., other creditors-claimants-appellees.
Jose E. Erfe for administratrix-appellee.

E. Voltaire Garcia for creditors-claimants-appellants.
The City Attorney for creditors-claimants-appellees Baguio City and the Republic of the Philippines.
Florendo P. Aquino for creditors-claimants-appellees Gatchalian Go and Wong Fur.
Apolonio Barrera for creditor-claimant-appellee Security Investment Corporation.
Eugenio R. Guiao for creditor-claimant-appellee Vicente and Sons.
Paredes, Gaw , Acevedo and Associates for creditor-claimant-appellee Berg Dept. Store.
DIZON, J.:
Appeal taken by Augusto G. Syjuco and others from an order issued on November 14, 1958 by the Court of First Instance
of Bagiuo City in the Intestate Estate of the Deceased Go Fook (Special Proceedings No. 263) declaring their claim for
unpaid rentals on a property leased to said deceased not entitled to preference with respect to the proceeds of the sale of
movable properties found in the leased premises. The appealed order reads as follows:
3. Claim of Augusto Syjuco, et al. — for unpaid rentals for one year. Under Art. 2241 CCP, the claim for unpaid
rentals must have been incurred by the deceased himself. It is admitted that up to the death of Go Fook — rentals
were paid — what remains unpaid are rentals that accrued when the Administratrix went ahead with the lease with
the approval of this Court. Following the strict construction of the law, this Court must hold that insofar as the
property of Go Fook is concerned, the lease entered into by Administrix cannot enjoy preference over property that
belonged to him, so that is claim must also be denied preference.
It is not disputed that on March 20, 1954, Go Fook leased from the Security Investment Corporation, for a period of two
years, renewable for another like period, at the option of the parties, and at a monthly rental of P2,000.00, a parcel of land,
with the building existing thereon, situated in the City of Baguio, where the lessee ran a hotel business under the name of
St. Francis Hotel. On July 12, 1954, the lessor sold the property to appellants who agree to recognize the lease aforesaid.
On September 14, 1954, Go Fook died intestate in the City of Baguio and his estate — consisting solely of furnishings used
in the operation of the St. Francis Hotel — was placed under administration, with the People's Bank and Trust Co. as
judicial administrator.
1äwphï1.ñët
On December 20, 1954, appellants filed a claim against the Estate for the sum of P4,180.00 representing unpaid rentals on
the leased premises for the months of August and September, 1954, plus interest. They also filed an action for ejectment
against the Administrator of the Estate in which case the Municipal Court of Baguio City rendered judgment ordering the
latter to vacate the premises and appellants the sum of P6,000.00 for unpaid rentals for the months of October, November
and December, 1954, with legal interest from December 25, 1954, and the further sum of P2,000.00 monthly beginning
January, 1955 until the property is vacated, plus attorney's fees and costs. By reason of this judgment, appellants filed an
amended and supplemental claim against the Estate for the total sum of P14,251.70, representing unpaid rentals from
August, 1954 to January, 1955, inclusive, at the rate of P2,000.00 a month, plus interest, costs and attorney's fees.
In its order of February 26, 1955, the probate court appointed Llane Gomez to replace the People's Bank and Trust Co. as
administrator, at the same time authorizing her to continue running the St. Francis Hotel for the purpose of paying the back
and future rentals to appellants, for the period and under the terms and conditions set forth in the "Memorandum of
Agreement of Lease", signed by the parties concerned and attached to said order.
Despite the aforementioned order, on June 29, 1955 the Court disallowed appellants' claim "on the ground that having
raised the issue of the existence of a partnership between the deceased Go Fook and the Pacific Exchange Corporation
these claims should properly be brought before the surviving partner as liquidator of the alleged partnership." Subsequently,
however, the Court reconsidered its ruling and allowed their claim in the sum of P14,180.00. Thereafter, upon authority of
the court, the movable properties found within the premises of the St. Francis Hotel were sold at public auction for the sum
of P14,143.40. The majority thereof were bought by appellants who, instead of paying cash therefor, filed a bond to secure
payment of the purchase price.
On March 3, 1956, appellants filed a motion asking that their claim for unpaid rents, which as of that date totalled
P19,750.00, be declared a preferred claim with respect to the proceeds of the sale of movables in the property leased, to
the exclusion of other creditors, under the provisions of Article 2241, paragraph 12, Civil Code of the Philippines. This
motion was denied, hence the present appeal.
In denying appellants' claim for preference in relation to unpaid rentals, the lower court held that the provisions of Article
2241 of the New Civil Code, providing as they do for an exception to the general rule, must be strictly construed, and that a
strict construction thereof requires that the preference established be applied only to unpaid rentals due from the deceased
Go Fook himself.
We cannot agree with this view.
In the first place, the contested ruling would seem to read into the law something that is not there, because Article 2241,
paragraph 12 of the New Civil Code, establishes a preference in favor of "credits for rent for one year, upon the personal
property of the lessee existing on the immovable leased and on the fruits of the same," without imposing the condition that
the rent should have been incurred personally by the lessee — in this case, the now deceased Go Fook — and not by the
Executor or Administrator of his Estate.
In the second place, even admitting as correct the lower court's view on the matter, its ruling cannot stand because it is not
denied that the contract of lease of April 1, 1954 between the Security Investment Corporation, as lessor, and Go Fook, as
lessee, was for a period of two years ending in the month of April 1956, and the one year unpaid rentals for which
preference as claimed by appellants cover the period from February 1955 to January 1956 — a period well within the term
of the lease. Said contract of lease not having been automatically extinguished by reason of the death of Go Fook on
September 14, 1954, it is clear that, in truth and in fact, the rentals for which preference is claimed fell due under the
contract of lease entered into by him personally during his lifetime.
In the third place, the contract of lease entered into by the Administratrix — with court authority — was on behalf of the
Estate of the deceased Go Fook. Consequently, the rentals that fell due thereunder are, for all legal purposes, the same as
those provided for under the original contract of lease.
It is our opinion, therefore, that the claim of appellants for unpaid rentals for one year in the total sum of P19,750.00
covering the period from February 1955 to January 1956, is entitled to the preference established by the provisions of
paragraph 12, Article 2241 of the New Civil Code.
WHEREFORE, the appealed order is accordingly reversed, with costs.
Bengzon, C.J., Bautista Angelo, Concepcion, Reyes, J.B.L., Paredes, Regala, Makalintal, Bengzon, J.P., and Zaldivar, JJ.,
concur.
Barrera, J., took no part.
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 172892 June 13, 2013
PHILIPPINE DEPOSIT INSURANCE CORPORATION, Petitioner,

vs.
BUREAU OF INTERNAL REVENUE, Respondent.
DECISION
LEONARDO-DE CASTRO, J.:
This is a petition for review on Certiorari 1 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. –
xxxx
(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. 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. 10
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.
This Court has already resolved the issue of whether Section 52(C) of the Tax Code 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.
xxxx
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. x x x.
xxxx
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 1âwphi1
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
1âwphi1
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. – x x x.
xxxx
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. 25 (Emphasis
supplied.)
The law expressly provides that debts and liabilities of the bank under liquidation are to be paid in accordance with the rules
on concurrence and preference of credit under the Civil Code. 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, 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, insofar as they direct the Philippine Deposit Insurance Corporation to secure a tax clearance, for having
been rendered with grave abuse of discretion;
(c) the PDIC, as liquidator, is ORDERED to submit to the BIR the final tax return of RBTI, in accordance with the first
paragraph of Section 52(C), in connection with Section 54, of the Tax Code of 1997; and
(d) the Regional Trial Court of La Trinidad, Benguet is ORDERED to resume the liquidation proceedings in Special
Proceeding Case No. 97-SP-0100 in order to determine all the claims of the creditors, including that of the National
Government, as determined and presented by the BIR; and, pursuant to such determination, and guided accordingly
by the provisions of the Civil Code on preference of credit, to review and approve the project of distribution of the
assets of RBTI.
SO ORDERED.
TERESITA J. LEONARDO-DE CASTRO

Associate Justice
WE CONCUR:
MARIA LOURDES P. A. SERENO

Chief Justice
Chairperson
LUCAS P. BERSAMIN MARTIN S. VILLARAMA, JR.

Associate Justice Associate Justice
BIENVENIDO L. REYES
Associate Justice
CERTIFICATION
Pursuant to Section 13, Article VIII of the Constitution, I certify that the conclusions in the above Decision had been reached
in consultation before the case was assigned to the writer of the opinion of the Court's Division.
MARIA LOURDES P. A. SERENO

Chief Justice
Footnotes
1
Under Rule 45 of the Rules of Court.
2
Rollo, pp. 44-50; penned by Associate Justice Sesinando E. Yillon with Associate Justices Edgardo P. Cruz and
Juan Q. Enriquez, Jr., concurring.
3
Id. at 51-52.
4
Id. at 45.
5
Id. at 44-45.
6
Id. at 56.
7
Id. at 57-58.
8
Id.
9
Id. at 59.
10
Id. at 47.
11
Id.
12
Id. at 51-52.
13
Id. at 3-61; Petition.
14
Id. at 78-96; Comment.
15
540 Phil. 142 (2006).
16
Id. at 161.
17
Id. at 169.
18
Id.
19
Id. at 161-165.
Id. at 159. This Regulations issued jointly by the BIR and the SEC in 1985, when the Tax Code of 1977 was still in
20
effect, and a provision similar to Section 52(C) of Republic Act No. 8424 could be found in Section 46(C) thereof.
21
Id. at 162-165.
22
Id. at 166-169.
23
Id. at 166-168.
24
Id. at 169.
25
Id. at 162-164.
26
Id. at 168.
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 108031 March 1, 1995
DEVELOPMENT BANK OF THE PHILIPPINES, petitioner,

vs.
NATIONAL LABOR RELATIONS COMMISSION and LEONOR A ANG, respondents.
BELLOSILLO, J.:
Is declaration of bankruptcy or judicial liquidation required before the worker's preference may be invoked under Art. 110 of
the Labor Code?
On 21 March 1977 private respondent Leonor A. Ang started employment as Executive Secretary with Tropical Philippines
Wood Industries, Inc. (TPWII), a corporation engaged in the manufacture and sale of veneer, plywood and sawdust panel
boards. In 1982 she was promoted to the position of Personnel Officer.
In September 1983 petitioner Development Bank of the Philippines, as mortgagee of TPWII, foreclosed its plant facilities
and equipment. Nevertheless TPWII continued its business operations interrupted only by brief shutdowns for the purpose
of servicing its plant facilities and equipment. In January 1986 petitioner took possession of the foreclosed properties. From
then on the company ceased its operations. As a consequence private respondent was on 15 April 1986 verbally terminated
from the service.
On 14 December 1987 aggrieved by the termination of her employment, private respondent filed with the Labor Arbiter a
complaint for separation pay, 13th month pay, vacation and sick leave pay, salaries and allowances against TPWII, its
General Manager, and petitioner.
After hearing the Labor Arbiter found TPWII primarily liable to private respondent but only for her separation pay and
vacation and sick leave pay because her claims for unpaid wages and 13th month pay were later paid after the complaint
was filed. The General Manager was absolved of any liability. But with respect to petitioner, it was held subsidiarily liable in
1
the event the company failed to satisfy the judgment. The Labor Arbiter rationalized that the right of an employee to be paid
benefits due him from the properties of his employer is superior to the right of the latter's mortgage, citing this Court's
resolution in PNB v. Delta Motor Workers Union. 2
On 16 November 1992 public respondent National Labor Relations Commission affirmed the ruling of the Labor Arbiter. 3
The issue now before us is whether public respondent committed grave abuse of discretion in holding that Art. 110 of the
Labor Code, as amended, which refers to worker preference in case of bankruptcy or liquidation of an employer's business
is applicable to the present case notwithstanding the absence of any formal declaration of bankruptcy or judicial liquidation
of TPWII.
Petitioner argues that the decision of public respondent runs counter to the consistent rulings of this Court in a long line of
cases emphasizing that the application of Art. 110 of the Labor Code is contingent upon the institution of bankruptcy or
judicial liquidation proceedings against the employer.
We hold that public respondent gravely abused its discretion in affirming the decision of the Labor Arbiter. Art. 110 should
not be treated apart from other laws but applied in conjunction with the pertinent provisions of the Civil Code and the
Insolvency Law to the extent that piece-meal distribution of the assets of the debtor is avoided. Art. 110, then prevailing,
provides:
Art. 110. Worker preference in case of bankruptcy. — In the event of bankruptcy or liquidation of an

employer's business, his workers shall enjoy first preference as regards wages due them for services
rendered during the period prior to the bankruptcy or liquidation, any provision to the contrary
notwithstanding. Unpaid wages shall be paid in full before other creditors may establish any claim to a share
in the assets of the employer.
Complementing Art. 110, Sec. 10, Rule VIII, Book III, of the Revised Rules and Regulations Implementing the Labor Code
provides:
Sec. 10. Payment of wages in case of bankruptcy. — Unpaid wages earned by the employees before the
declaration of bankruptcy or judicial liquidation of the employer's business shall be given first preference and
shall be paid in full before other creditors may establish any claim to a share in the assets of the employer.
We interpreted this provision in Development Bank of the Philippines v. Santos to mean that —
4
. . . a declaration of bankruptcy or a judicial liquidation must be present before the worker's preference may
be enforced. Thus, Article 110 of the Labor Code and its implementing rule cannot be invoked by the
respondents in this case absent a formal declaration of bankruptcy or a liquidation order . . . . (Emphasis
supplied).
The rationale is that to hold Art. 110 to be applicable also to extrajudicial proceedings would be putting the worker in
a better position than the State which could only assert its own prior preference in case of a judicial proceeding. Art.
5
110, which was amended by R.A. 6715 effective 21 March 1989, now reads:
Art. 110. Worker preference in case of bankruptcy. — In the event of bankruptcy or liquidation of an

employer's business, his workers shall enjoy first preference as regards their unpaid wages and other
monetary claims, any provision of law to the contrary notwithstanding. Such unpaid wages and monetary
claims shall be paid in full before the claims of the Government and other creditors may be paid.
Obviously, the amendment expanded the concept of "worker preference" to cover not only unpaid wages but also other
monetary claims to which even claims of the Government must be deemed subordinate. The Rules and Regulations
Implementing R.A. 6715, approved 24 May 1989, also amended the corresponding implementing rule, and now reads:
Sec. 10. Payment of wages and other monetary claims in case of bankruptcy. — In case of bankruptcy or
liquidation of the employer's business, the unpaid wages and other monetary claims of the employees shall
be given first preference and shall be paid in full before the claims of government and other creditors may be
paid.
Although the terms "declaration" (of bankruptcy) or "judicial" (liquidation) have been notably eliminated, still in Development
Bank of the Philippines v. NLRC, this Court did not alter its original position that the right to preference given to workers
6
under Art. 110 cannot exist in any effective way prior to the time of its presentation in distribution proceedings. In effect, we
reiterated our previous interpretation in Development Bank of the Philippines v. Santos where we said:
It (worker preference) will find application when, in proceedings such as insolvency, such unpaid wages
shall be paid in full before the "claims of the Government and other creditors" may be paid. But, for an
orderly settlement of a debtor's assets, all creditors must be convened, their claims ascertained and
inventoried, and thereafter the preferences determined. In the course of judicial proceedings which have for
their object the subjection of the property of the debtor to the payment of his debts or other lawful
obligations. Thereby, an orderly determination of preference of creditors' claims is assured (Philippine
Savings Bank vs. Lantin, No. L-33929, September 2, 1983, 124 SCRA 476); the adjudication made will be
binding on all parties-in-interest since those proceedings are proceedings in rem; and the legal scheme of
classification, concurrence and preference of credits in the Civil Code, the Insolvency Law, and the Labor
Code is preserved in harmony. 7
In ruling, as we did, in Development Bank of the Philippines v. Santos, we took into account the following pronouncements:
In the event of insolvency, a principal objective should be to effect an equitable distribution of the insolvents
property among his creditors. To accomplish this there must first be some proceeding where notice to all of
the insolvent's creditors may be given and where the claims of preferred creditors may be bindingly
adjudicated. (De Barreto v. Villanueva, No.
L-14938, December 29, 1962, 6 SCRA 928). The rationale therefore has been expressed in the recent case
of DBP v. Secretary of Labor (G.R. No. 79351, 28 November 1989), which we quote:
A preference of credit bestows upon the preferred creditor an advantage of having his credit
satisfied first ahead of other claims which may be established against the debtor. Logically, it
becomes material only when the properties and assets of the debtors are insufficient to pay
his debts in full; for if the debtor is amply able to pay his various creditors in full, how can the
necessity exist to determine which of his creditors shall be paid first or whether they shall be
paid out of the proceeds of the sale (of) the debtor's specific property. Indubitably, the
preferential right of credit attains significance only after the properties of the debtor have
been inventoried and liquidated, and the claims held by his various creditors have been
established (Kuenzle & Sheriff (Ltd.) v. Villanueva, 41 Phil. 611 [1916]; Barretto v.
Villanueva, G.R. No. 14938, 29 December 1962, 6 SCRA 928; Philippine Savings Bank v.
Lantin, G.R. No. 33929, 2 September 1983, 124 SCRA 476).
In the present case, there is as yet no declaration of bankruptcy nor judicial liquidation of TPWII. Hence, it would be
premature to enforce the worker's preference.
The additional ratiocination of public respondent that "under Article 110 of the Labor Code complainant enjoys a preference
of credit over the properties of TPWII being held in possession by DBP," is a dismal misconception of the nature of
preference of credit, a subject matter which we have already discussed in clear and simple terms and even distinguished
from a lien in Development Bank of the Philippines v. NLRC — 8
. . . 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 . . . In the words of Republic v. Peralta,
supra: Article 110 of the Labor Code does not purport to create a lien in favor of workers or employees for
unpaid wages either upon all of the properties or upon any particular property owned by their employer.
Claims for unpaid wages do not therefore fall at all within the category of specially preferred claims
established under Articles 2241 and 2242 of the Civil Code, except to the extent that such claims for unpaid
wages are already covered by Article 2241, number 6: "claims for laborers: wages, on the goods
manufactured or the work done;" or by Article 2242, number 3, "claims of laborers and other workers
engaged in the construction reconstruction or repair of buildings, canals and other works, upon said
buildings, canals and other works . . . . To the extent that claims for unpaid wages fall outside the scope of
Article 2241, number 6, and 22421 number 3, they would come within the ambit of the category of ordinary
preferred credits under Article 2244.
The DBP anchors its claim on a mortgage credit. A mortgage directly and immediately subjects the property
upon which it is imposed, whoever the possessor may be, to the fulfillment of the obligation for whose
security it was constituted (Article 2176, Civil Code). It creates a real right which is enforceable against the
whole world. It is a lien on an identified immovable property, which a preference is not. A recorded mortgage
credit is a special preferred credit under Article 2242 (5) of the Civil Code on classification of credits. The
preference given by Article 1l0, when not falling within Article 2241 (6) and Article 2242 (3), of the Civil Code
and not attached to any specific property, is all ordinary preferred credit although its impact is to move it
from second priority to first priority in the order of preference established by Article 2244 of the Civil Code.
The present controversy could have been easily settled by public respondent had it referred to ample jurisprudence which
already provides the solution. Stare decisions et non quiet movere. Once a case is decided by this Court as the final arbiter
of any justifiable controversy one way, then another case involving exactly the same point at issue should be decided in the
same manner. Public respondent had no choice on the matter. It could not have ruled any other way. This Court having
spoken in a string of cases against public respondent, its duty is simply to obey judicial precedents. Any further disregard, if
9
not defiance, of our rulings will be considered a ground to hold public respondent in contempt.
WHEREFORE, the petition is GRANTED. The decision of public respondent National Labor Relations Commission affirming
the decision of the Labor Arbiter insofar as it held petitioner Development Bank of the Philippines liable for the monetary
claims of private respondent Leonor A. Ang is SET ASIDE. The temporary restraining order we issued on 8 February
1993 enjoining the execution of the decision of public respondent against petitioner is made PERMANENT.
10
SO ORDERED.
Padilla, Davide, Jr. Bellosillo, Quiason and Kapunan, JJ., concur.
Separate Opinions
PADILLA, J., dissenting:
I am constrained to record my dissent from the ponencia prepared by

Mr. Justice Bellosillo. I have no difficulty in going along with the proposition that rulings pronounced by the majority in
litigations reaching the Supreme Court should be followed by lower courts and other agencies and instrumentalities of the
government. But my silence in the wake of the reiterations made by the majority opinion in this case could be misconstrued
as a relaxation or softening of my views on the matter of workers' absolute preference in the payment of their wages and
monetary claims for benefits. It is only for this reason that I reiterate perhaps with greater vigor, my views on this subject in
the hope that, in the not too distant future, my humble views could merit acceptance by the Court. After all, these views are
anchored on the worth and dignity of the human person such that pay or compensation for his toil should really be a
topmost priority in our scale of values.
In DBP v. NLRC, et al., G.R. Nos. 82763-64, 183 SCRA 328, I said in my dissenting opinion:
The majority, in my considered opinion, has failed to fully take into account the radical change introduced by
Republic Act 6715 into the system of priorities or preferences among credits or creditors ordained by the
Civil Code.
Under the provisions of the Civil Code, specifically, Articles 2241 and 2242, jointly with Articles 2246 to
2249, a two-tier order of preference of credits is established. The first tier includes only taxes, duties and
fees on specific movable or immovable property. All other special preferred credits stand on a second tier. 1
Under the system of preferences in the Civil Code, only taxes enjoy absolute preference, i.e. they exclude
the credits of the lower order until such taxes are fully satisfied out of the proceeds of the sale of the
property subject of the preference, and taxes can even exhaust such proceeds. All other special preferred
credits enjoy no priority among themselves but must be paid or satisfied pro rata. To make the prorating fully
effective, the preferred creditors enumerated in Nos. 2 to 13 of Article 2241 and Nos. 2 to 10 of Article 2242
must be convened and the import of their claims as certained in some proceeding where the claims of all
may be bindingly adjudicated.
With the amendment of Article 110 of the Labor Code by Republic Act 6715, a three-tier order of preference
is established wherein unpaid wages and other monetary claims of workers enjoy absolute preference over
all other claims, including those of the Government, in cases where a debtor-employer is unable to pay in full
all his obligations. The absolute preference given to monetary claims of workers, to which claims of the
Government, i.e. taxes, are now subordinated, manifests the clear and deliberate intent of our lawmaker to
put flesh and blood into the expressed Constitutional policy of protecting the rights of workers and promoting
their welfare.
2
I thus take exception to the proposition that a prior formal declaration of insolvency or bankruptcy or a
judicial liquidation of the employer's business is a condition sine qua non to the operation of the preference
accorded to workers under Article 110 of the Labor Code, for the following specific reasons:
First, the majority reads into the law and implementing rule a qualification that is not there. Nowhere is it
stated in the present law and its new implementing rule that a prior declaration of bankruptcy or judicial
liquidation is a condition sine qua non to the operation of Article 110. In fact, it will benoted that the
phase declaration of bankruptcy or judicial liquidation of the employer's business, which formerly appeared
in Section 10, Rule VIII, Book III of the Revised Rules and Regulations Implementing the Labor Code has
been deleted in the new implementing rule. What is to me even more obvious and, therefore, significant in
the present law and implementing new rule is the unconditional and unqualified grant of priority to workers'
monetary claims over and above all other claims as against all the assets of an employer incapable of fully
paying his obligations.
Second, a proceeding in rem, by its nature, seeks to bar any other person who claims any interest in the
property or right subject of the suit. To my mind, such a proceeding is not essential or necessary to enforce
the workers' preferential right over the assets of the insolvent debtor as against other creditors of the lower
tier, as Article 110 of the Labor Code itself bars the satisfaction of claims of other creditors, including the
Government, until unpaid wages and monetary claims of the workers are first satisfied in full. Further, it
appears that such a proceeding is essential only where the credits are concurring and enjoy no preference
over one another, but not when the law accords to one of the credits absolute priority and undisputed
supremacy. This submission finds support, by analogy, in the case of De Barreto vs. Villanueva, where the
Court stated:
Thus it becomes evident that one preferred creditor's third party claim to the proceeds of the
foreclosure (as in the case now before us) is not the proceeding contemplated by law for the
en forcement of preference under Article 2242, unless the claimants were en forcing credit
for taxes that enjoy absolute priority. If none of the claim is for taxes, a dispute between two
creditors will not enable the court to ascertain the prorata dividend corresponding to each,
because the rights of other creditors likewise enjoying; preference under Article 2242 cannot
be ascertained. (Emphasis ours)
3
In sum it is to me clear that, whether or not there be a judicial proceeding in rem, i.e., insolvency,
bankcruptcy or liquidation proceedings, the fact remains that Congress intends that the assets of the
involvent debtor be held, first and above all else, to satisfy in full the unpaid wages and monetary claims of
its workers. Translated into the case at bar, a formal declaration of insolvency or bankruptcy or judicial
liquidation of the employer's business should not be a price imposed upon the workers to enable them to get
their much needed and already adjudicated unpaid wages. This position, I believe, is only in keeping with a
fundamental state policy enshrined in the Constitutional mandate to accord protection to labor. The
legislative intent being clear and manifest, it is the duty of this Court, I submit, not to decimate but to give it
breath and life.
ACCORDINGLY, I vote to DISMISS the DBP petition and to AFFIRM the resolution of the NLRC in favor of
LAND.
In Conchita S. Hautea, etc. v. NLRC, et al., G.R. No. 96149, 230 SCRA 119, I said in my dissenting opinion:
1. The distinction made between a preference of credit and a lien does not, in my view, negate the clear
intent of the law (Rep. Act No. 6 7 1 5 ) in giving absolute preference to unpaid wages and other monetary
claims of workers over and all other claims including those of the Government.
It should be recalled that Article 110 of the Labor Code as amended by Republic Act No. 6715 states:
Worker preference in case of bankruptcy. In the event of bankruptcy or liquidation of an

employer's business, his workers shall enjoy first preference as regards their wages and
other monetary claims, any provisions of law to the contrary notwithstanding. Such unpaid
wages and monetary claims shall be paid in full before claims of the government and other
creditors may be paid. (emphasis supplied)
It is to be noted that the law gives absolute preference to workers' claims for unpaid wages and monetary
benefits, subordinating even claims of the government. The clear legislative intent is to give life to Article II,
Section 18 of the Constitution which protects the rights of workers and promotes their welfare.
2. Neither can the argument in the DBP case that a mortgage credit is a "special preferred credit" under
Article 2242(5) of the Civil Code be used to support the conclusion of the majority, for the
law expressly and unqualifiedly states that workers' claims are given first preference over all other
claims, any provision of law to the contrary notwithstanding This, to me, is the only logical interpretation that
can be made from the letter, intent and spirit of the law and the Constitution. To give any claim other than
those of workers first preference would plainly violate that letter, intent and spirit of the law and the
Constitution.
ACCORDINGLY, I vote to DISMISS the petition and to AFFIRM the decision of public respondent NLRC affirming the
decision of the Labor Arbiter insofar as it holds petitioner DBP liable for the monetary claims of private respondent Leonor
A. Ang.
Separate Opinions
I am constrained to record my dissent from the ponencia prepared by

Mr. Justice Bellosillo. I have no difficulty in going along with the proposition that rulings pronounced by the majority in
litigations reaching the Supreme Court should be followed by lower courts and other agencies and instrumentalities of the
government. But my silence in the wake of the reiterations made by the majority opinion in this case could be misconstrued
as a relaxation or softening of my views on the matter of workers' absolute preference in the payment of their wages and
monetary claims for benefits. It is only for this reason that I reiterate perhaps with greater vigor, my views on this subject in
the hope that, in the not too distant future, my humble views could merit acceptance by the Court. After all, these views are
anchored on the worth and dignity of the human person such that pay or compensation for his toil should really be a
topmost priority in our scale of values.
In DBP v. NLRC, et al., G.R. Nos. 82763-64, 183 SCRA 328, I said in my dissenting opinion:
The majority, in my considered opinion, has failed to fully take into account the radical change introduced by
Republic Act 6715 into the system of priorities or preferences among credits or creditors ordained by the
Civil Code.
Under the provisions of the Civil Code, specifically, Articles 2241 and 2242, jointly with Articles 2246 to
2249, a two-tier order of preference of credits is established. The first tier includes only taxes, duties and
fees on specific movable or immovable property. All other special preferred credits stand on a second tier. 1
Under the system of preferences in the Civil Code, only taxes enjoy absolute preference, i.e. they exclude
the credits of the lower order until such taxes are fully satisfied out of the proceeds of the sale of the
property subject of the preference, and taxes can even exhaust such proceeds. All other special preferred
credits enjoy no priority among themselves but must be paid or satisfied pro rata. To make the prorating fully
effective, the preferred creditors enumerated in Nos. 2 to 13 of Article 2241 and Nos. 2 to 10 of Article 2242
must be convened and the import of their claims as certained in some proceeding where the claims of all
may be bindingly adjudicated.
With the amendment of Article 110 of the Labor Code by Republic Act 6715, a three-tier order of preference
is established wherein unpaid wages and other monetary claims of workers enjoy absolute preference over
all other claims, including those of the Government, in cases where a debtor-employer is unable to pay in full
all his obligations. The absolute preference given to monetary claims of workers, to which claims of the
Government, i.e. taxes, are now subordinated, manifests the clear and deliberate intent of our lawmaker to
put flesh and blood into the expressed Constitutional policy of protecting the rights of workers and promoting
their welfare.
2
I thus take exception to the proposition that a prior formal declaration of insolvency or bankruptcy or a
judicial liquidation of the employer's business is a condition sine qua non to the operation of the preference
accorded to workers under Article 110 of the Labor Code, for the following specific reasons:
First, the majority reads into the law and implementing rule a qualification that is not there. Nowhere is it
stated in the present law and its new implementing rule that a prior declaration of bankruptcy or judicial
liquidation is a condition sine qua non to the operation of Article 110. In fact, it will benoted that the
phase declaration of bankruptcy or judicial liquidation of the employer's business, which formerly appeared
in Section 10, Rule VIII, Book III of the Revised Rules and Regulations Implementing the Labor Code has
been deleted in the new implementing rule. What is to me even more obvious and, therefore, significant in
the present law and implementing new rule is the unconditional and unqualified grant of priority to workers'
monetary claims over and above all other claims as against all the assets of an employer incapable of fully
paying his obligations.
Second, a proceeding in rem, by its nature, seeks to bar any other person who claims any interest in the
property or right subject of the suit. To my mind, such a proceeding is not essential or necessary to enforce
the workers' preferential right over the assets of the insolvent debtor as against other creditors of the lower
tier, as Article 110 of the Labor Code itself bars the satisfaction of claims of other creditors, including the
Government, until unpaid wages and monetary claims of the workers are first satisfied in full. Further, it
appears that such a proceeding is essential only where the credits are concurring and enjoy no preference
over one another, but not when the law accords to one of the credits absolute priority and undisputed
supremacy. This submission finds support, by analogy, in the case of De Barreto vs. Villanueva, where the
Court stated:
Thus it becomes evident that one preferred creditor's third party claim to the proceeds of the
foreclosure (as in the case now before us) is not the proceeding contemplated by law for the
en forcement of preference under Article 2242, unless the claimants were en forcing credit
for taxes that enjoy absolute priority. If none of the claim is for taxes, a dispute between two
creditors will not enable the court to ascertain the prorata dividend corresponding to each,
because the rights of other creditors likewise enjoying; preference under Article 2242 cannot
be ascertained. (Emphasis ours)
3
In sum it is to me clear that, whether or not there be a judicial proceeding in rem, i.e., insolvency,
bankcruptcy or liquidation proceedings, the fact remains that Congress intends that the assets of the
involvent debtor be held, first and above all else, to satisfy in full the unpaid wages and monetary claims of
its workers. Translated into the case at bar, a formal declaration of insolvency or bankruptcy or judicial
liquidation of the employer's business should not be a price imposed upon the workers to enable them to get
their much needed and already adjudicated unpaid wages. This position, I believe, is only in keeping with a
fundamental state policy enshrined in the Constitutional mandate to accord protection to labor. The
legislative intent being clear and manifest, it is the duty of this Court, I submit, not to decimate but to give it
breath and life.
ACCORDINGLY, I vote to DISMISS the DBP petition and to AFFIRM the resolution of the NLRC in favor of
LAND.
In Conchita S. Hautea, etc. v. NLRC, et al., G.R. No. 96149, 230 SCRA 119, I said in my dissenting opinion:
1. The distinction made between a preference of credit and a lien does not, in my view, negate the clear
intent of the law (Rep. Act No. 6 7 1 5 ) in giving absolute preference to unpaid wages and other monetary
claims of workers over and all other claims including those of the Government.
It should be recalled that Article 110 of the Labor Code as amended by Republic Act No. 6715 states:
Worker preference in case of bankruptcy. In the event of bankruptcy or liquidation of an

employer's business, his workers shall enjoy first preference as regards their wages and
other monetary claims, any provisions of law to the contrary notwithstanding. Such unpaid
wages and monetary claims shall be paid in full before claims of the government and other
creditors may be paid. (emphasis supplied)
It is to be noted that the law gives absolute preference to workers' claims for unpaid wages and monetary
benefits, subordinating even claims of the government. The clear legislative intent is to give life to Article II,
Section 18 of the Constitution which protects the rights of workers and promotes their welfare.
2. Neither can the argument in the DBP case that a mortgage credit is a "special preferred credit" under
Article 2242(5) of the Civil Code be used to support the conclusion of the majority, for the
law expressly and unqualifiedly states that workers' claims are given first preference over all other
claims, any provision of law to the contrary notwithstanding This, to me, is the only logical interpretation that
can be made from the letter, intent and spirit of the law and the Constitution. To give any claim other than
those of workers first preference would plainly violate that letter, intent and spirit of the law and the
Constitution.
ACCORDINGLY, I vote to DISMISS the petition and to AFFIRM the decision of public respondent NLRC affirming the
decision of the Labor Arbiter insofar as it holds petitioner DBP liable for the monetary claims of private respondent Leonor
A. Ang.
Footnotes
1 Rollo, pp. 45-46.
2 G.R. Nos. 75161-62, 3 April 1987.
3 Rollo, p. 38.
4 G.R. Nos. 78261-62, 8 March 1989, 171 SCRA 138.
5 Republic v Peralta, G.R. No. 56568, 20 May 1987, 150 SCRA 37.
6 G.R. Nos. 82763-64, 19 March 1990, 183 SCRA 328.
7 Invoked as a leading authority in Development Bank of the Philippines v. NLRC, G.R. No. 86932, 27 June
1990, 186 SCRA 841; Development Bank of the Philippines v. NLRC, G.R. Nos. 100264-81, 29 January
1993, 218 SCRA 183; Development Bank of the Philippines v. NLRC, G.R. No. 86227, 19 January 1994,
229 SCRA 350, and other cases.
8 See Note 6, pp. 337-338.
9 Pines City Educational Center v. NLRC, G.R. No. 96779, 10 November 1993, 227 SCRA 655.
10 Rollo, pp. 67-68.
1 Republic v. Peralta, 150 SCRA 37
2 Art. 11, Section 18 of the 1987 Constitution provides:
The State affirms labor as a primary social econommis force. It shall protect the rights of workers and
promote their welfare.
3 De Barreto v. Villanueva, 6 SCRA 928.

SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 128833 April 20, 1998
RIZAL COMMERCIAL BANKING CORPORATION, UY CHUN BING AND ELI D. LAO, petitioners,

vs.
COURT OF APPEALS and GOYU & SONS, INC., respondents.
G.R. No. 128834 April 20, 1998
RIZAL COMMERCIAL BANKING CORPORATION, petitioners,

vs.
COURT OF APPEALS, ALFREDO C. SEBASTIAN, GOYU & SONS, INC., GO SONG HIAP, SPOUSES GO TENG KOK
and BETTY CHIU SUK YING alias BETTY GO, respondents.
G.R. No. 128866 April 20, 1998
MALAYAN INSURANCE INC., petitioners,

vs.
GOYU & SONS, INC. respondent.
MELO, J.:
The issue relevant to the herein three consolidated petitions revolve around the fire loss claims of respondent Goyu & Sons,
Inc. (GOYU) with petitioner Malayan Insurance Company, Inc. (MICO) in connection with the mortgage contracts entered
into by and between Rizal Commercial Banking Corporation (RCBC) and GOYU.
The Court of Appeals ordered MICO to pay GOYU its claims in the total amount of P74,040,518.58, plus 37% interest per
annum commending July 27, 1992. RCBC was ordered to pay actual and compensatory damages in the amount of
P5,000,000.00. MICO and RCBC were held solidarily liable to pay GOYU P1,500,000.00 as exemplary damages and
P1,500,000.00 for attorney's fees. GOYU's obligation to RCBC was fixed at P68,785,069.04 as of April 1992, without any
interest, surcharges, and penalties. RCBC and MICO appealed separately but, in view of the common facts and issues
involved, their individual petitions were consolidated.
The undisputed facts may be summarized as follows:
GOYU applied for credit facilities and accommodations with RCBC at its Binondo Branch. After due evaluation, RCBC
Binondo Branch, through its key officers, petitioners Uy Chun Bing and Eli D. Lao, recommended GOYU's application for
approval by RCBC's executive committee. A credit facility in the amount of P30 million was initially granted. Upon GOYU's
application and Uy's and Lao's recommendation, RCBC's executive committee increased GOYU's credit facility to P50
million, then to P90 million, and finally to P117 million.
As security for its credit facilities with RCBC, GOYU executed two real estate mortgages and two chattel mortgages in favor
of RCBC, which were registered with the Registry of Deeds at Valenzuela, Metro Manila. Under each of these four
mortgage contracts, GOYU committed itself to insure the mortgaged property with an insurance company approved by
RCBC, and subsequently, to endorse and deliver the insurance polices to RCBC.
GOYU obtained in its name a total of ten insurance policies from MICO. In February 1992, Alchester Insurance Agency,
Inc., the insurance agent where GOYU obtained the Malayan insurance policies, issued nine endorsements in favor of
RCBC seemingly upon instructions of GOYU (Exhibits "1-Malayan" to "9-Malayan").
On April 27, 1992, one of GOYU's factory buildings in Valenzuela was gutted by fire. Consequently, GOYU submitted its
claim for indemnity on account of the loss insured against. MICO denied the claim on the ground that the insurance policies
were either attached pursuant to writs of attachments/garnishments issued by various courts or that the insurance proceeds
were also claimed by other creditors of GOYU alleging better rights to the proceeds than the insured. GOYU filed a
complaint for specific performance and damages which was docketed at the Regional Trial Court of the National Capital
Judicial Region (Manila, Branch 3) as Civil Case No. 93-65442, now subject of the present G.R. No. 128833 and 128866.
RCBC, one of GOYU's creditors, also filed with MICO its formal claim over the proceeds of the insurance policies, but said
claims were also denied for the same reasons that MICO denied GOYU's claims.
In an interlocutory order dated October 12, 1993 (Record, pp. 311-312), the Regional Trial Court of Manila (Branch 3),
confirmed that GOYU's other creditors, namely, Urban Bank, Alfredo Sebastian, and Philippine Trust Company obtained
their respective writs of attachments from various courts, covering an aggregate amount of P14,938,080.23, and ordered
that the proceeds of the ten insurance policies be deposited with the said court minus the aforementioned P14,938,080.23.
Accordingly, on January 7, 1994, MICO deposited the amount of P50,505,594.60 with Branch 3 of the Manila RTC.
In the meantime, another notice of garnishment was handed down by another Manila RTC sala (Branch 28) for the amount
of P8,696,838.75 (Exhibit "22-Malayan").
After trial, Branch 3 of the Manila RTC rendered judgment in favor of GOYU, disposing:
WHEREFORE, judgment is hereby rendered in favor of the plaintiff and against the defendant, Malayan
Insurance Company, Inc. and Rizal Commercial Banking Corporation, ordering the latter as follows:
1. For defendant Malayan Insurance Co., Inc.:
a. To pay the plaintiff its fire loss claims in the total amount of
P74,040,518.58 less the amount of P50,000,000.00 which is deposited with
this Court;
b. To pay the plaintiff damages by was of interest for the duration of the delay
since July 27, 1992 (ninety days after defendant insurer's receipt of the
required proof of loss and notice of loss) at the rate of twice the ceiling
prescribed by the Monetary Board, on the following amounts:
1) P50,000,000.00 — from July 27, 1992 up to the time said

amount was deposited with this Court on January 7, 1994;
2) P24,040,518.58 — from July 27, 1992 up to the time when

the writs of attachments were received by defendant
Malayan;
2. For defendant Rizal Commercial Banking Corporation:
a. To pay the plaintiff actual and compensatory damages in the amount of

P2,000,000.00;
3. For both defendants Malayan and RCBC:
a. To pay the plaintiff, jointly and severally, the following amounts:
1) P1,000,000.00 as exemplary damages;
2) P1,000,000.00 as, and for, attorney's fees;
3) Costs of suit.
and on the Counterclaim of defendant RCBC, ordering the plaintiff to pay its loan obligations
with defendant RCBC in the amount of P68,785,069.04, as of April 27, 1992, with interest
thereon at the rate stipulated in the respective promissory notes (without surcharges and
penalties) per computation, pp. 14-A, 14-B & 14-C.
FURTHER, the Clerk of Court of the Regional Trial Court of Manila is hereby ordered to release immediately
to the plaintiff the amount of P50,000,000.00 deposited with the Court by defendant Malayan, together with
all the interest earned thereon.
(Record, pp. 478-479.)
From this judgment, all parties interposed their respective appeals. GOYU was unsatisfied with the amount awarded in its
favor. MICO and RCBC disputed the trial court's findings of liability on their part. The Court of Appeals party granted
GOYU's appeal, but sustained the findings of the trial court with respect to MICO and RCBC's liabilities, thusly:
WHEREFORE, the decision of the lower court dated June 29, 1994 is hereby modified as follows:
1. FOR DEFENDANT MALAYAN INSURANCE CO., INC:
a) To pay the plaintiff its fire loss claim in the total amount of P74,040,518.58
less the amount of P50,505,594.60 (per O.R. No. 3649285) plus deposited in
court and damages by way of interest commencing July 27, 1992 until the
time Goyu receives the said amount at the rate of thirty-seven (37%)
percent per annum which is twice the ceiling prescribed by the Monetary
Board.
2. FOR DEFENDANT RIZAL COMMERCIAL BANKING CORPORATION;
a) To pay the plaintiff actual and compensatory damages in the amount of

P5,000,000.00.
3. FOR DEFENDANTS MALAYAN INSURANCE CO., INC., RIZAL COMMERCIAL

BANKING CORPORATION, UY CHUN BING AND ELI D. LAO:
a) To pay the plaintiff jointly and severally the following amounts:
1. P1,500,000.00 as exemplary damages;
2. P1,500,000.00 as and for attorney's fees.
4. And on RCBC's Counterclaim, ordering the plaintiff Goyu & Sons, Inc. to pay its loan
obligation with RCBC in the amount of P68,785,069.04 as of April 27, 1992 without any
interest, surcharges and penalties.
The Clerk of the Court of the Regional Trial Court of Manila is hereby ordered to immediately release to
Goyu & Sons, Inc. the amount of P50,505,594.60 (per O.R. No. 3649285) deposited with it by Malayan
Insurance Co., Inc., together with all the interests thereon.
(Rollo, p. 200.)
RCBC and MICO are now before us in G.R. No. 128833 and 128866, respectively, seeking review and consequent reversal
of the above dispositions of the Court of Appeals.
In G.R. No. 128834, RCBC likewise appeals from the decision in C.A. G.R. No. CV-48376, which case, by virtue of the
Court of Appeals' resolution dated August 7, 1996, was consolidated with C.A. G.R. No. CV-46162 (subject of herein G.R.
No. 128833). At issue in said petition is RCBC's right to intervene in the action between Alfredo C. Sebastian (the creditor)
and GOYU (the debtor), where the subject insurance policies were attached in favor of Sebastian.
After a careful reviews of the material facts as found by the two courts below in relation to the pertinent and applicable laws,
we find merit in the submission of RCBC and MICO.
The several causes of action pursued below by GOYU gave rise to several related issues which are now submitted in the
petitions before us. This Court, however, discerns one primary and central issue, and this is, whether or not RCBC, as
mortgagee, has any right over the insurance policies taken by GOYU, the mortgagor, in case of the occurrence of loss.
As earlier mentioned, accordant with the credit facilities extended by RCBC to GOYU, the latter executed several mortgage
contracts in favor of RCBC. It was expressly stipulated in these mortgage contracts that GOYU shall insure the mortgaged
property with any of the insurance companies acceptable to RCBC. GOYU indeed insured the mortgaged property with
MICO, an insurance company acceptable to RCBC. Bases on their stipulations in the mortgage contracts, GOYU was
supposed to endorse these insurance policies in favor of, and deliver them, to RCBC. Alchester Insurance Agency, Inc.,
MICO's underwriter from whom GOYU obtained the subject insurance policies, prepared the nine endorsements (see Exh.
"1-Malayan" to "9-Malayan"; also Exh. "51-RCBC" to "59-RCBC"), copies of which were delivered to GOYU, RCBC, and
MICO. However, because these endorsements do not bear the signature of any officer of GOYU, the trial court, as well as
the Court of Appeals, concluded that the endorsements are defective.
We do not quite agree.
It is settled that a mortgagor and a mortgagee have separated and distinct insurable interests in the same mortgaged
property, such that each one of them may insure the same property for his own sole benefit. There is no question that
GOYU could insure the mortgaged property for its own exclusive benefit. In the present case, although it appears that
GOYU obtained the subject insurance policies naming itself as the sole payee, the intentions of the parties as shown by
their contemporaneous acts, must be given due consideration in order to better serve the interest of justice and equity.
It is to be noted that nine endorsement documents were prepared by Alchester in favor of RCBC. The Court is in a
quandary how Alchester could arrive at the idea of endorsing any specific insurance policy in favor of any particular
beneficiary or payee other than the insured had not such named payee or beneficiary been specifically disclosed by the
insured itself. It is also significant that GOYU voluntarily and purposely took the insurance policies from MICO, a sister
company of RCBC, and not just from any other insurance company. Alchester would not have found out that the subject
pieces of property were mortgaged to RCBC had not such information been voluntarily disclosed by GOYU itself. Had it not
been for GOYU, Alchester would not have known of GOYU's intention of obtaining insurance coverage in compliance with
its undertaking in the mortgage contracts with RCBC, and verily, Alchester would not have endorsed the policies to RCBC
had it not been so directed by GOYU.
On equitable principles, particularly on the ground of estoppel, the Court is constrained to rule in favor of mortgagor RCBC.
The basis and purpose of the doctrine was explained in Philippine National Bank vs. Court of Appeals (94 SCRA 357
[1979]), to wit:
The doctrine of estoppel is based upon the grounds of public, policy, fair dealing, good faith and justice, and
its purpose is to forbid one to speak against his own act, representations, or commitments to the injury of
one to whom they were directed and who reasonably relied thereon. The doctrine of estoppel springs from
equitable principles and the equities in the case. It is designed to aid the law in the administration of justice
where without its aid injustice might result. It has been applied by this Court wherever and whenever special
circumstances of a case so demand.
(p. 368.)
Evelyn Lozada of Alchester testified that upon instructions of Mr. Go, through a certain Mr. Yam, she prepared in
quadruplicate on February 11, 1992 the nine endorsement documents for GOYU's nine insurance policies in favor of RCBC.
The original copies of each of these nine endorsement documents were sent to GOYU, and the others were sent to RCBC
and MICO, while the fourth copies were detained for Alchester's file (tsn, February 23, pp. 7-8). GOYU has not denied
having received from Alchester the originals of these documents.
RCBC, in good faith, relied upon the endorsement documents sent to it as this was only pursuant to the stipulation in the
mortgage contracts. We find such reliance to be justified under the circumstances of the case. GOYU failed to seasonably
repudiate the authority of the person or persons who prepared such endorsements. Over and above this, GOYU continued,
in the meantime, to enjoy the benefits of the credit facilities extended to it by RCBC. After the occurrence of the loss insure
against, it was too late for GOYU to disown the endorsements for any imagined or contrived lack of authority of Alchester to
prepare and issue said endorsements. If there had not been actually an implied ratification of said endorsements by virtue
of GOYU's inaction in this case, GOYU is at the very least estopped from assailing their operative effects. To permit GOYU
to capitalize on its non-confirmation of these endorsements while it continued to enjoy the benefits of the credit facilities of
RCBC which believed in good faith that there was due endorsement pursuant to their mortgage contracts, is to countenance
grave contravention of public policy, fair dealing, good faith, and justice. Such an unjust situation, the Court cannot sanction.
Under the peculiar circumstances obtaining in this case, the Court is bound to recognize RCBC's right to the proceeds of
the insurance polices if not for the actual endorsement of the policies, at least on the basis of the equitable principle of
estoppel.
GOYU cannot seek relief under Section 53 of the Insurance Code which provides that the proceeds of insurance shall
exclusively apply to the interest of the person in whose name or for whose benefit it is made. The peculiarity of the
circumstances obtaining in the instant case presents a justification to take exception to the strict application of said
provision, it having been sufficiently established that it was the intention of the parties to designate RCBC as the party for
whose benefit the insurance policies were taken out. Consider thus the following:
1. It is undisputed that the insured pieces of property were the subject of mortgage contracts entered into between RCBC
and GOYU in consideration of and for securing GOYU's credit facilities from RCBC. The mortgage contracts contained
common provisions whereby GOYU, as mortgagor, undertook to have the mortgaged property properly covered against any
loss by an insurance company acceptable to RCBC.
2. GOYU voluntarily procured insurance policies to cover the mortgaged property from MICO, no less than a sister company
of RCBC and definitely an acceptable insurance company to RCBC.
3. Endorsement documents were prepared by MICO's underwriter, Alchester Insurance Agency, Inc., and copies thereof
were sent to GOYU, MICO, and RCBC. GOYU did not assail, until of late, the validity of said endorsements.
4. GOYU continued until the occurrence of the fire, to enjoy the benefits of the credit facilities extended by RCBC which was
conditioned upon the endorsement of the insurance policies to be taken by GOYU to cover the mortgaged properties.
This Court can not over stress the fact that upon receiving its copies of the endorsement documents prepared by Alchester,
GOYU, despite the absence of its written conformity thereto, obviously considered said endorsement to be sufficient
compliance with its obligation under the mortgage contracts since RCBC accordingly continued to extend the benefits of its
credits facilities and GOYU continued to benefit therefrom. Just as plain too is the intention of the parties to constitute
RCBC as the beneficiary of the various insurance policies obtained by GOYU. The intention of the parties will have to be
given full force and effect particular case. The insurance proceeds may, therefore, be exclusively applied to RCBC, which
under the factual circumstances of the case, is truly the person or entity for whose benefit the polices were clearly intended.
Moreover, the law's evident intention to protect the interests of the mortgage upon the mortgaged property is expressed in
Article 2127 of the Civil Code which states:
Art. 2127. The mortgage extends to the natural accessions, to the improvements, growing fruits, and the
rents or income not yet received when the obligation becomes due, and to the amount of the indemnity
granted or owing to the proprietor from the insurers of the property mortgaged, or in virtue of expropriation
for public use, with the declarations, amplifications and limitations established by law, whether the estate
remains in the possession of the mortgagor, or it passes into the hands of a third person.
Significantly, the Court notes that out of the 10 insurance policies subject of this case, only 8 of them appear to have been
subject of the endorsements prepared and delivered by Alchester for and upon instructions of GOYU as shown below:
INSURANCE POLICY PARTICULARS ENDORSEMENT

a. Policy Number F-114-07795 None
Issue Date March 18, 1992
Expiry Date April 5, 1993
Amount P9,646,224.92
b. Policy Number ACIA/F-174-07660 Exhibit "1-Malayan"

Issue Date January 18, 1992
Expiry Date February 9, 1993
Amount P4,307,217.54
c. Policy Number ACIA/F-114-07661 Exhibit "2-Malayan"

Amount P6,603,586.43
d. Policy Number ACIA/F-114-07662 Exhibit "3-Malayan"

Expiry Date (not legible)
Amount P6,603,586.43
e. Policy Number ACIA/F-114-07663 Exhibit "4-Malayan"

Amount P9,457,972.76
f. Policy Number ACIA/F-114-07623 Exhibit "7-Malayan"

Expiry Date January 13, 1993
Amount P24,750,000.00
g. Policy Number ACIA/F-174-07223 Exhibit "6-Malayan"

Issue Date May 29, 1991
Expiry Date June 27, 1992
Amount P6,000,000.00
h. Policy Number CI/F-128-03341 None

Issue Date May 3, 1991
Expiry Date May 3, 1992
Amount P10,000,000.00
i. Policy Number F-114-07402 Exhibit "8-Malayan"

Issue Date September 16, 1991
Expiry Date October 19, 1992
Amount P32,252,125.20
j. Policy Number F-114-07525 Exhibit "9-Malayan"

Issue Date November 20, 1991
Expiry Date December 5, 1992
Amount P6,603,586.43
(pp. 456-457, Record; Folder of Exhibits for MICO.)
Policy Number F-114-07795 [(a) above] has not been endorsed. This fact was admitted by MICO's witness, Atty. Farolan
(tsn, February 16, 1994, p. 25). Likewise, the record shows no endorsement for Policy Number CI/F-128-03341 [(h) above].
Also, one of the endorsement documents, Exhibit "5-Malayan", refers to a certain insurance policy number ACIA-F-07066,
which is not among the insurance policies involved in the complaint.
The proceeds of the 8 insurance policies endorsed to RCBC aggregate to P89,974,488.36. Being excessively payable to
RCBC by reason of the endorsement by Alchester to RCBC, which we already ruled to have the force and effect of an
endorsement by GOYU itself, these 8 policies can not be attached by GOYU's other creditors up to the extent of the
GOYU's outstanding obligation in RCBC's favor. Section 53 of the Insurance Code ordains that the insurance proceeds of
the endorsed policies shall be applied exclusively to the proper interest of the person for whose benefit it was made. In this
case, to the extent of GOYU's obligation with RCBC, the interest of GOYU in the subject policies had been transferred to
RCBC effective as of the time of the endorsement. These policies may no longer be attached by the other creditors of
GOYU, like Alfredo Sebastian in the present G.R. No. 128834, which may nonetheless forthwith be dismissed for being
moot and academic in view of the results reached herein. Only the two other policies amounting to P19,646,224.92 may be
validly attached, garnished, and levied upon by GOYU's other creditors. To the extent of GOYU's outstanding obligation
with RCBC, all the rest of the other insurance policies above-listed which were endorsed to RCBC, are, therefore, to be
released from attachment, garnishment, and levy by the other creditors of GOYU.
This brings us to the next issue to be resolved, which is, the extent of GOYU's outstanding obligation with RCBC which the
proceeds of the 8 insurance policies will discharge and liquidate, or put differently, the actual amount of GOYU's liability to
RCBC.
The Court of Appeals simply echoed the declaration of the trial court finding that GOYU's total obligation to RCBC was only
P68,785,060.04 as of April 27, 1992, thus sanctioning the trial court's exclusion of Promissory Note No. 421-92 (renewal of
Promissory Note No. 908-91) and Promissory Note No. 420-92 (renewal of Promissory Note No. 952-91) on the ground that
their execution is highly questionable for not only are these dated after the fire, but also because the signatures of either
GOYU or any its representative are conspicuously absent. Accordingly, the Court of Appeals speculated thusly:
. . . Hence, this Court is inclined to conclude that said promissory notes were pre-signed by plaintiff in bank
terms, as averred by plaintiff, in contemplation of the speedy grant of future loans, for the same practice of
procedure has always been adopted in its previous dealings with the bank.
(Rollo, pp. 181-182.)
The fact that the promissory notes bear dates posterior to the fire does not necessarily mean that the documents are
spurious, for it is presumed that the ordinary course of business had been followed (Metropolitan Bank and Trust Company
vs. Quilts and All, Inc., 22 SCRA 486 [1993]). The obligor and not the holder of the negotiable instrument has the burden of
proof of showing that he no longer owes the obligee any amount (Travel-On, Inc. vs. Court of Appeals, 210 SCRA 351
[1992]).
Even casting aside the presumption of regularity of private transactions, receipt of the loan amounting to P121,966,058.67
(Exhibits 1-29, RCBC) was admitted by GOYU as indicated in the testimony of Go Song Hiap when he answered the
queries of the trial court.
ATTY. NATIVIDAD
Q: But insofar as the amount stated in Exhibits 1 to 29-RCBC, you received all the amounts
stated therein?
A: Yes, sir, I received the amount.
COURT
He is asking if he received all the amounts stated in Exhibits 1 to 29-RCBC?
WITNESS:
Yes, Your Honor, I received all the amounts.
COURT
Indicated in the Promissory Notes?
WITNESS
A. The promissory Notes they did not give to me but the amount I asked which is correct,
Your Honor.
COURT
Q Your mean to say the amounts indicated in Exhibits 1 to 29-RCBC is correct?
A Yes, Your Honor.
(tsn, Jan. 14, 1994, p. 26.)
Furthermore, aside from its judicial admission of having received all the proceeds of the 29 promissory notes as
hereinabove quotes, GOYU also offered and admitted to RCBC that is obligation be fixed at P116,301,992.60 as shown in
its letter date March 9, 1993, which pertinently reads:
We wish to inform you, therefore that we are ready and willing to pay the current past due account of this
company in the amount of P116,301,992.60 as of 21 January 1993, specified in pars. 15, p. 10, and 18, p.
13 of your affidavits of Third Party Claims in the Urban case at Makati, Metro Manila and in the Zamboanga
case at Zamboanga city, respectively, less the total of P8,851,519.71 paid from the Seaboard and Equitable
insurance companies and other legitimate deductions. We accept and confirm this amount of
P116,301,992.60 as stated as true and correct.
(Exhibit BB.)
The Court of Appeals erred in placing much significance on the fact that the excluded promissory notes are dated after the
fire. It failed to consider that said notes had for their origin transactions consummated prior to the fire. Thus, careful
attention must be paid to the fact that Promissory Notes No. 420-92 and 421-92 are mere renewals of Promissory Notes
No. 908-91 and 952-91, loans already availed of by GOYU.
The two courts below erred in failing to see that the promissory notes which they ruled should be excluded for bearing dates
which are after that of the fire, are mere renewals of previous ones. The proceeds of the loan represented by these
promissory notes were admittedly received by GOYU. There is ample factual and legal basis for giving GOYU's judicial
admission of liability in the amount of P116,301,992.60 full force and effect.
It should, however, be quickly added that whatever amount RCBC may have recovered from the other insurers of the
mortgage property will, nonetheless, have to be applied as payment against GOYU's obligation. But, contrary to the lower
courts' findings, payments effected by GOYU prior to January 21, 1993 should no longer be deducted. Such payments had
obviously been duly considered by GOYU, in its aforequoted letter date March 9, 1993, wherein it admitted that its past due
account totaled P116,301,992.60 as of January 21, 1993.
The net obligation of GOYU, after deductions, is thus reduced to P107,246,887.90 as of January 21, 1993, to wit:
Total Obligation as admitted by GOYU

as of January 21, 1993: P116,301,992.60
Broken down as follows:
Principal 1 Interest
Regular 80,535,946.32
FDU 27,548,025.17
____________
Total 108,083,971.49 8,218,021.11 2
LESS:
1) Proceeds from
Seaboard Eastern
Insurance Company 6,095,145.81
2) Proceeds from
Equitable Insurance
Company 2,756,373.00
3) Payment from
foreign department
negotiation: 203,584.89
___________
9,055,104.70 3
================
NET AMOUNT as of January 21, 1993 P107,246,887.90
The need for the payment of interest due the principal amount of the obligation, which is the cost of money to RCBC, the
primary end and the ultimate reason for RCBC's existence and being, was duly recognized by the trial court when it ruled
favorably on RCBC's counterclaim, ordering GOYU "to pay its loan obligation with RCBC in the amount of P68,785,069.04,
as of April 27, 1992, with interest thereon at the rate stipulated in the respective promissory notes (without surcharges and
penalties) per computation, pp. 14-A, 14-B 14-C" (Record, p. 479). Inexplicably, the Court of Appeals, without even laying
down the factual or legal justification for its ruling, modified the trial court's ruling and ordered GOYU "to pay the principal
amount of P68,785,069.04 without any interest, surcharges and penalties" (Rollo, p. 200).
It is to be noted in this regard that even the trial court hedgingly and with much uncertainty deleted the payment
of additional interest, penalties, and charges, in this manner:
Regarding defendant RCBC's commitment not to charge additional interest, penalties and surcharges, the
same does not require that it be embodied in a document or some form of writing to be binding and
enforceable. The principle is well known that generally a verbal agreement or contract is no less binding and
effective than a written one. And the existence of such a verbal agreement has been amply established by
the evidence in this case. In any event, regardless of the existence of such verbal agreement, it would still
be unjust and inequitable for defendant RCBC to charge the plaintiff with surcharges and penalties
considering the latter's pitiful situation. (Emphasis supplied).
(Record, p. 476)
The essence or rationale for the payment of interest or cost of money is separate and distinct from that of surcharges and
penalties. What may justify a court in not allowing the creditor to charge surcharges and penalties despite express
stipulation therefor in a valid agreement, may not equally justify non-payment of interest. The charging of interest for loans
forms a very essential and fundamental element of the banking business, which may truly be considered to be at the very
core of its existence or being. It is inconceivable for a bank to grant loans for which it will not charge any interest at all. We
fail to find justification for the Court of Appeal's outright deletion of the payment of interest as agreed upon in the respective
promissory notes. This constitutes gross error.
For the computation of the interest due to be paid to RCBC, the following rules of thumb laid down by this Court in Eastern
Shipping Lines, Inc. vs. Court of Appeals (234 SCRA 78 [1994]), shall apply, to wit:
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 actual 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. Accordingly, where the demand is established with reasonable
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 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.
(pp. 95-97).
There being written stipulations as to the rate of interest owing on each specific promissory note as summarized and
tabulated by the trial court in its decision (pp. 470 and 471, Record) such agreed interest rates must be followed. This is
very clear from paragraph II, sub-paragraph 1 quoted above.
On the issue of payment of surcharges and penalties, we partly agree that GOYU's pitiful situation must be taken into
account. We do not agree, however, that payment of any amount as surcharges and penalties should altogether be deleted.
Even assuming that RCBC, through its responsible officers, herein petitioners Eli Lao and Uy Chun Bing, may have relayed
its assurance for assistance to GOYU immediately after the occurrence of the fire, we cannot accept the lower courts'
finding that RCBC had thereby ipso facto effectively waived collection of any additional interests, surcharges, and penalties
from GOYU. Assurances of assistance are one thing, but waiver of additional interests, surcharges, and penalties is
another.
Surcharges and penalties agreed to be paid by the debtor in case of default partake of the nature of liquidated damages,
covered by Section 4, Chapter 3, Title XVIII of the Civil Code. Article 2227 thereof provides:
Art. 2227. Liquidated damages, whether intended as a indemnity or penalty, shall be equitably reduced if
they are iniquitous and unconscionable.
In exercising this vested power to determine what is iniquitous and unconscionable, the Court must consider the
circumstances of each case. It should be stressed that the Court will not make any sweeping ruling that surcharges and
penalties imposed by banks for non-payment of the loans extended by them are generally iniquitous and unconscionable.
What may be iniquitous and unconscionable in one case, may be totally just and equitable in another. This provision of law
will have to be applied to the established facts of any given case. Given the circumstance under which GOYU found itself
after the occurrence of the fire, the Court rules the surcharges rates ranging anywhere from 9% to 27%, plus the penalty
charges of 36%, to be definitely iniquitous and unconscionable. The Court tempers these rates to 2% and 3%, respectively.
Furthermore, in the light of GOYU's offer to pay the amount of P116,301,992.60 to RCBC as March 1993 (See: Exhibit
"BB"), which RCBC refused, we find it more in keeping with justice and equity for RCBC not to charge additional interest,
surcharges, and penalties from that time onward.
Given the factual milieu hereover, we rule that it was error to hold MICO liable in damages for denying or withholding the
proceeds of the insurance claim to GOYU.
Firstly, by virtue of the mortgage contracts as well as the endorsements of the insurance policies, RCBC has the right to
claim the insurance proceeds, in substitution of the property lost in the fire. Having assigned its rights, GOYU lost its
standing as the beneficiary of the said insurance policies.
Secondly, for an insurance company to be held liable for unreasonably delaying and withholding payment of insurance
proceeds, the delay must be wanton, oppressive, or malevolent (Zenith Insurance Corporation vs. CA. 185 SCRA 403
[1990]). It is generally agreed, however, that an insurer may in good faith and honesty entertain a difference of opinion as to
its liability. Accordingly, the statutory penalty for vexatious refusal of an insurer to pay a claim should not be inflicted unless
the evidence and circumstances show that such refusal was willful and without reasonable cause as the facts appear to a
reasonable and prudent man (Bufallo Ins. Co. vs. Bommarito [CCA 8th] 42 F [2d] 53, 70 ALR 1211; Phoenix Ins. Co. vs.
Clay, 101 Ga. 331, 28 SE 853, 65 Am St. Rep 307; Kusnetsky vs. Security Ins. Co., 313 Mo. 143, 281 SW 47, 45 ALR 189).
The case at bar does not show that MICO wantonly and in bad faith delayed the release of the proceeds. The problem in
the determination of who is the actual beneficiary of the insurance policies, aggravated by the claim of various creditors who
wanted to partake of the insurance proceeds, not to mention the importance of the endorsement to RCBC, to our mind, and
as now borne out by the outcome herein, justified MICO in withholding payment to GOYU.
In adjudging RCBC liable in damages to GOYU, the Court of Appeals said that RCBC cannot avail itself of two
simultaneous remedies in enforcing the claim of an unpaid creditor, one for specific performance and the other for
foreclosure. In doing so, said the appellate court, the second action is deemed barred, RCBC having split a single cause of
action (Rollo, pp. 195-199). The Court of Appeals was too accommodating in giving due consideration to this argument of
GOYU, for the foreclosure suit is still pending appeal before the same Court of Appeals in CA G.R. CV No. 46247, the case
having been elevated by RCBC.
In finding that the foreclosure suit cannot prosper, the Fifteenth Division of the Court of Appeals pre-empted the resolution
of said foreclosure case which is not before it. This is plain reversible error if not grave abuse of discretion.
As held in Peña vs. Court of Appeals (245 SCRA 691 [1995]):
It should have been enough, nonetheless, for the appellate court to merely set aside the questioned ordered
of the trial court for having been issued by the latter with grave abuse of discretion. In likewise enjoining
permanently herein petitioner "from entering in and interfering with the use or occupation and enjoyment of
petitioner's (now private respondent) residential house and compound," the appellate court in effect,
precipitately resolved with finality the case for injunction that was yet to be heard on the merits by the lower
court. Elevated to the appellate court, it might be stressed, were mere incidents of the principal case still
pending with the trial court. In Municipality of Biñan, Laguna vs. Court of Appeals, 219 SCRA 69, we ruled
that the Court of Appeals would have "no jurisdiction in a certiorari proceeding involving an incident in a
case to rule on the merits of the main case itself which was not on appeal before it.
(pp. 701-702.)
Anent the right of RCBC to intervene in Civil Case No. 1073, before the Zamboanga Regional Trial Court, since it has been
determined that RCBC has the right to the insurance proceeds, the subject matter of intervention is rendered moot and
academic. Respondent Sebastian must, however, yield to the preferential right of RCBC over the MICO insurance policies.
It is basic and fundamental that the first mortgagee has superior rights over junior mortgagees or attaching creditors (Alpha
Insurance & Surety Co. vs. Reyes, 106 SCRA 274 [1981]; Sun Life Assurance Co. of Canada vs. Gonzales Diaz, 52 Phil.
271 [1928]).
WHEREFORE, the petitions are hereby GRANTED and the decision and resolution of December 16, 1996 and April 3, 1997
in CA-G.R. CV No. 46162 are hereby REVERSED and SET ASIDE, and a new one entered:
1. Dismissing the Complaint of private respondent GOYU in Civil Case No. 93-65442 before Branch 3 of the
Manila Trial Court for lack of merit;
2. Ordering Malayan Insurance Company, Inc. to deliver to Rizal Commercial Banking Corporation the
proceeds of the insurance policies in the amount of P51,862,390.94 (per report of adjuster Toplis & Harding
(Far East), Inc., Exhibits "2" and "2-1"), less the amount of P50,505,594.60 (per O.R. No. 3649285);
3. Ordering the Clerk of Court to release the amount of P50,505,594.60 including the interests earned to
Rizal Commercial Banking Corporation;
4. Ordering Goyu & Sons, Inc. to pay its loan obligation with Rizal Commercial Banking Corporation in the
principal amount of P107,246,887.90, with interest at the respective rates stipulated in each promissory note
from January 21, 1993 until finality of this judgment, and surcharges at 2% and penalties at 3% from
January 21, 1993 to March 9, 1993, minus payments made by Malayan Insurance Company, Inc. and the
proceeds of the amount deposited with the trial court and its earned interest. The total amount due RCBC at
the time of the finality of this judgment shall earn interest at the legal rate of 12% in lieu of all other stipulated
interests and charges until fully paid.
The petition of Rizal Commercial Banking Corporation against the respondent Court in CA-GR CV 48376 is DISMISSED for
being moot and academic in view of the results herein arrived at. Respondent Sebastian's right as attaching creditor must
yield to the preferential rights of Rizal Commercial Banking Corporation over the Malayan insurance policies as first
mortgagee.
SO ORDERED.
Regalado, Puno, Mendoza and Martinez, JJ., concur.
Footnotes
1 See: Exhibit "70-RCBC"
2 Computed by deducting P108,083,971.49 from the admitted amount of P116,301,992.60.
3 To be deducted from interest payments due in accordance with Article 1253 of the Civil Code which provides:
Art. 1253. If debt produces interest, payment of the principal shall not be deemed to have been made until the
interests have been covered.

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Republic of the Philippines

G.R. No. L-16784 May 19, 1965

Jose E. Erfe for administratrix-appellee.

We cannot agree with this view.

WHEREFORE, the appealed order is accordingly reversed, with costs.

G.R. No. 172892 June 13, 2013

PHILIPPINE DEPOSIT INSURANCE CORPORATION, Petitioner,

SEC. 52. Corporation Returns. –

PDIC sought reconsideration but it was denied.12

Hence, this petition.

The petition succeeds.

Section 30. Proceedings in Receivership and Liquidation. – x x x.

TERESITA J. LEONARDO-DE CASTRO

MARIA LOURDES P. A. SERENO

LUCAS P. BERSAMIN MARTIN S. VILLARAMA, JR.

MARIA LOURDES P. A. SERENO

G.R. No. 108031 March 1, 1995

DEVELOPMENT BANK OF THE PHILIPPINES, petitioner,

Art. 110. Worker preference in case of bankruptcy. — In the event of bankruptcy or liquidation of an

Art. 110. Worker preference in case of bankruptcy. — In the event of bankruptcy or liquidation of an

Padilla, Davide, Jr. Bellosillo, Quiason and Kapunan, JJ., concur.

I am constrained to record my dissent from the ponencia prepared by

Worker preference in case of bankruptcy. In the event of bankruptcy or liquidation of an

I am constrained to record my dissent from the ponencia prepared by

Worker preference in case of bankruptcy. In the event of bankruptcy or liquidation of an

1 Rollo, pp. 45-46.

2 G.R. Nos. 75161-62, 3 April 1987.

6 G.R. Nos. 82763-64, 19 March 1990, 183 SCRA 328.

8 See Note 6, pp. 337-338.

10 Rollo, pp. 67-68.

PADILLA, J., dissenting:

1 Republic v. Peralta, 150 SCRA 37

2 Art. 11, Section 18 of the 1987 Constitution provides:

3 De Barreto v. Villanueva, 6 SCRA 928.

G.R. No. 128833 April 20, 1998

RIZAL COMMERCIAL BANKING CORPORATION, UY CHUN BING AND ELI D. LAO, petitioners,

G.R. No. 128834 April 20, 1998

RIZAL COMMERCIAL BANKING CORPORATION, petitioners,

G.R. No. 128866 April 20, 1998

MALAYAN INSURANCE INC., petitioners,

The undisputed facts may be summarized as follows:

1. For defendant Malayan Insurance Co., Inc.:

1) P50,000,000.00 — from July 27, 1992 up to the time said

2) P24,040,518.58 — from July 27, 1992 up to the time when

2. For defendant Rizal Commercial Banking Corporation:

a. To pay the plaintiff actual and compensatory damages in the amount of

3. For both defendants Malayan and RCBC:

a. To pay the plaintiff, jointly and severally, the following amounts:

1) P1,000,000.00 as exemplary damages;

2) P1,000,000.00 as, and for, attorney's fees;

(Record, pp. 478-479.)

1. FOR DEFENDANT MALAYAN INSURANCE CO., INC:

a) To pay the plaintiff actual and compensatory damages in the amount of

3. FOR DEFENDANTS MALAYAN INSURANCE CO., INC., RIZAL COMMERCIAL

a) To pay the plaintiff jointly and severally the following amounts:

1. P1,500,000.00 as exemplary damages;

2. P1,500,000.00 as and for attorney's fees.

We do not quite agree.

INSURANCE POLICY PARTICULARS ENDORSEMENT

b. Policy Number ACIA/F-174-07660 Exhibit "1-Malayan"

c. Policy Number ACIA/F-114-07661 Exhibit "2-Malayan"

d. Policy Number ACIA/F-114-07662 Exhibit "3-Malayan"