G.R. No.

80593 December 18, 1989

PHILIPPINE NATIONAL BANK, petitioner,

vs.
TERESITA CRUZ, JOSE AGRIPINO, BERNARDO BAUZON, LUCRECIA BILBAO, MA. LUISA CABRERA, FRANCIS BAACLO
GUADALUPE CAMACHO, LUZ DE LEON, MIKE VILLAVERDE, NEPOMUCENO MEDINA, EDGARDO MENDOZA,
JENNIFER VELEZ, AMELIA MEDINA, EDUARDO ESPEJO and RICARDO BATTO respondents.

The Chief Legal Officer for petitioner.

Romualdo C. Delos Santos for respondents.

GANCAYCO, J.:

The focus of the instant petition for certiorari is the application of Article 110 of the Labor Code. The said article
provides that workers shall enjoy first preference with regard to wages due them in cases of bankruptcy or
liquidation of an employer's business.

The antecedent facts of the case are as follows:

Sometime in 1980 Aggregate Mining Exponents (AMEX) laid-off about seventy percent (70%) of its employees
because it was experiencing business reverses. The retained employees constituting thirty percent (30%) of the work
force however, were not paid their wages. This non-payment of salaries went on until July 1982 when AMEX
completely ceased operations and instead entered into an operating agreement with T.M. San Andres Development
Corporation whereby the latter would be leasing the equipment and machineries of AMEX.

The unpaid employees sought redress from the Labor Arbiter 1 who, on August 27,1986 rendered a decision finding
their claim valid and meritorious. The dispositive part of the said decision, reads:

WHEREFORE, finding the claims of complainants for payment of unpaid wages and separation pay to
be valid and meritorious, respondents Aggregate Mining Exponent and its president Luis Tirso Revilla
should, as they are hereby ordered to pay the same to said complainants in the following amounts:

Employees Yrs. of Service Rate Separation Pay Backwages

1. Jose Agripino 8 P1,300.00 P5,200.00 P6,174.96

2.Bernardo Bauzon 9 1,900.00 8,550.00 11,712.85

3. Lucresia Bilbao 7 2,300.00 8,050.00 19,247.00

4. Teresita S. Cruz 12 2,700.00 16,200.00 23,485.70

5. Ma. Luisa Cabrera 3 1,800.00 2,700.00 5,004.35

6. Francis Baaclo 7 3,500.00 12,550.00 32,986.90

7. Guadalupe Camacho 6 1,300.00 3,900.00 3,227.15

8. Luz de Leon 5 1,300.00 3,250.00 3,110.85

9. Mike Villaverde 6 1,500.00 4,500.00 4,793.80

 10. Nepomuceno Medina 5 1,200.00 3,000.00 4,287.10

11. Edgardo Mendoza 4 920.00 1,840.00 832.10

12. Jennifer Velez 2 740.00 740.00 4,287.66

13. Amelia Medina 2 740.00 740.00 6,822.81

14. Eduardo Espejo 4 970.00 1,940.00 234.10

15. Ricardo Batto 7 3,000.00 10,500.00 9,874.70

TOTAL 83,360.00 136,092.03

in the total amount of P219,452.03. To properly effectuate the payment of the same, the necessary
arrangement should be made between respondents Amex and T.M. San Andres Development Corp.
and Philippine National Bank (PNB) on their respective role and participation herein. For should the
principal respondent be unable to satisfy these Awards, the same can be satisfied from the proceeds
or fruits of its machineries and equipment being operated by respondent T.M. San Andres Dev. Corp.
either by operating agreement with respondent Amex or thru lease of the same from PNB.

To obviate any further differences between complainants and their counsel to the latter's attorney's
fees which seems to be the cause of their earlier misunderstanding, as can be gleaned from the
Charging Lien filed by said counsel, respondents are, moreover, ordered to segregate and pay the
same directly to said counsel, the amount of which is to be computed pursuant to their agreement
on July 14, 1983 (Annex A of Position to Enter Attorney's Charging Lien in the Record of the Case). 2

AMEX and its President, Tirso Revilla did not appeal from this decision. But PNB, in its capacity as mortgagee-creditor
of AMEX interposed an appeal with the respondent Commission, not being satisfied with the outcome of the case.
The appeal was primarily based on the allegation that the workers' lien covers unpaid wages only and not the
termination or severance pay which the workers likewise claimed they were entitled to. In a resolution 3 dated
October 27, 1987, the National Labor Relations Commission affirmed the decision appealed from. Hence the instant
petition filed by the petitioner bank based on the following grounds:

I. ARTICLE 110 OF THE LABOR CODE MUST BE READ IN RELATION TO ARTICLES 2241, 2242, 2243, 2244
AND 2245 OF THE CIVIL CODE CONCERNING THE CLASSIFICATION, CONCURRENCE AND
PREFERENCE OF CREDITS.

II. 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. 4

The petition is devoid of merit.

At the outset, petitioner PNB did not question the validity of the workers' claim for unpaid wages with respect to
the mortgaged properties of AMEX, provided that the same be limited to the unpaid wages, and to the exclusion of
termination pay. In the instant petition however, PNB starts off with the question of whether or not the workers'
lien take precedence over any other claim considering that this Court has ruled otherwise in Republic vs. Peralta.  5

This Court cannot allow the petitioner to alter its stance at this stage inasmuch as it is deemed to have acquiesced in
the decision of the labor arbiter concerning payment of unpaid wages. The records reveal that the petitioner failed
to question the same on appeal. Hence, it is now barred from claiming that the workers' lien applies only to the
products of their labor and not to other properties of the employer which are encumbered by mortgage contracts or
otherwise.

Notwithstanding the foregoing, an attempt on the part of the petitioner to seek relief from that portion of the
decision would still be in vain.

Article 110 of the Labor Code provides that:

Art. 110. Worker preference in case of bankruptcy. In the event of bankcruptcy 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 claims of the government and other creditors may be
paid. 6

This Court must uphold the preference accorded to the private respondents in view of the provisions of Article 110 of
the Labor Code which are clear and which admit of no other interpretation. The phrase "any provision of law to the
contrary notwithstanding" indicates that such preference shall prevail despite the order set forth in Articles 2241 to
2245 of the Civil Code. 6-a No exceptions were provided under the said article, henceforth, none shall be considered.
Furthermore, the Labor Code was signed into Law decades after the Civil Code took effect.

In Herman vs. Radio Corporation of the Philippines, 7 this Court declared that whenever two statutes of different dates
and of contrary tenor are of equal theoretical application to a particular case, the statute of later date must prevail
being a later expression of legislative will. Applying the aforecited case in the instant petition, the Civil Code
provisions cited by the petitioner must yield to Article 110 of the Labor Code.

Moreover, Our pronouncement in A. C. Ransom Labor Union-CCLU vs. NLRC, 8 reinforces the above-mentioned
interpretation where this Court, speaking through Associate Justice Melencio-Herrera, explicitly stated that "(t)he
worker preference applies even if the employer's properties are encumbered by means of a mortgage contract ... So
that, when (the) machinery and equipment of RANSOM were sold to Revelations Manufacturing Corporation for
P2M in 1975, the right of the 22 laborers to be paid from the proceeds should have been recognized ... " 9

Reliance by the petitioners on Republic vs. Peralta is without basis. The said case involved a question of workers'
preference as against the tax claims of the State. In the said case the Court held that the State must prevail in that
instance since "it has been frequently said that taxes are the very lifeblood of government. The effective collection
of taxes is a task of highest importance for the sovereign. It is critical indeed for its own survival ." 10

Nevertheless, under Article 110 of the Labor Code as amended, the unpaid wages and other monetary claims of
workers should be paid in full before the claims of the Government and other creditors. Thus not even tax claims
could have preference over the workers' claim.

Consistent with the ruling of this Court in Volkschel Labor Union vs. Bureau of Labor Relations, 11 this court adopts the
doctrine that "(i)n the implementation and interpretation of the provisions of the Labor Code and its implementing
regulations, the workingman's welfare should be the primordial and paramount consideration." 12 Bearing this in
mind, this Court must reiterate the dictum laid down in A.C. Ransom that the conflict between Article 110 of the
Labor Code and Article 2241 to 2245 of the Civil Code must be resolved in favor of the former. A contrary ruling
would defeat the purpose for which Article 110 was intended; that is, for the protection of the working class,
pursuant to the never-ending quest for social justice.

Petitioner next advances the theory that "even if the worker's lien applies in the instant case, the same should cover
only unpaid wages excluding termination or severance pay. 13 To support this contention, petitioner cites Section 7,
Rule 1, Book VI of the Rules and Regulations implementing the Labor Code which provides that:
 The just causes for terminating the services of an employee shall be those provided under article 283
of the Code. The separation from work of an employee for a just cause does not entitle him to
termination pay provided in the Code, emphasis supplied)

Based on that premise, petitioner contends that the claim for termination pay should not be enforced against AMEX
properties mortgaged to petitioner PNB because Article 110 of the Labor Code refers only to "wages due them for
services rendered during the period prior to bankcruptcy or liquidation." 14 Citing serious financial losses as the basis
for the termination of the private respondents, petitioner alleges that the employees are not entitled to the
termination pay which they claim.

This contention is, again, bereft of merit.

The respondent Commission noted that "AMEX failed to adduce convincing evidence to prove that the financial
reverses were indeed serious." 15 After a careful study of the records of the case, this Court finds no reason to alter
the findings of the respondent Commission.

In Garcia vs. National Labor Relations Commission , 16 it was held that "it is essentially required that the alleged losses
in business operations must be proved. " 17 This policy was adopted to obviate the possibility of an employer
fabricating business reverses in order to ease out employees for no apparent reason. Hence, no departure shall be
made by this Court from the ruling in Philippine Commercial and Industrial Bank vs. National Mines and Allied Workers
Union (NAMAWU-MIF)  18 where it was categorically stated that the term "wages" includes not only remunerations or
earnings payable by an employer for services rendered or to be rendered, but also covers all benefits of the
employees under a Collective Bargaining Agreement like severance pay, educational allowance, accrued vacation
leave earned but not enjoyed, as well as workmen's compensation awards and unpaid salaries for services rendered.
All of these benefits fall under the term "wages" which enjoy first preference over all other claims against the
employer. 19

Furthermore, in Peralta, this Court held that for purposes of the application of Article 110, "termination pay is
reasonably regarded as forming part of the remuneration or other money benefits accruing to employees or
workers by reason of their having previously rendered services..." 20 Hence, separation pay must be considered as
part of remuneration for services rendered or to be rendered.

Indeed Article 110 of the Labor Code, as amended, aforecited, now provides that the workers' preference covers not
only unpaid wages but also other monetary claims.

The respondent Commission was, therefore, not in error when it awarded the termination pay claimed by the private
respondents. As far as the latter are concerned, the termination pay which they so rightfully claim is an additional
remuneration for having rendered services to their employer for a certain period of time. Noteworthy also is the
relationship between termination pay and services rendered by an employee, that in computing the amount to be
given to an employee as termination pay, the length of service of such employee is taken into consideration such
that the former must be considered as part and parcel of wages. Under these circumstances then, this Court holds
that the termination or severance pay awarded by the respondent Commission to the private respondents is proper
and should be sustained.

Lastly, it must be noted that the amount claimed by petitioner PNB for the satisfaction of the obligations of AMEX is
relatively insubstantial and is not significant enough as to drain its coffers. By contrast, that same amount could
mean subsistence or starvation for the workingman. Quoting further from Philippine Commercial and Industrial
Bank, this Court supports the equitable principle that "it is but humane and partakes of the divine that labor, as
human beings, must be treated over and above chattels, machineries and other kinds of properties and the interests
of the employer who can afford and survive the hardships of life better than their workers. Universal sense of human
justice, not to speak of our specific social justice and protection to labor constitutional injunctions dictate the
preferential lien that the above provision accord to labor. 21 In line with this policy, measures must be undertaken to
ensure that such constitutional mandate on protection to labor is not rendered meaningless by an erroneous
interpretation of the applicable laws.

WHEREFORE, premises considered, the petition is hereby DISMISSED for lack of merit. No costs.

SO ORDERED.

G.R. Nos. 100264-81 January 29, 1993

DEVELOPMENT BANK OF THE PHILIPPINES, petitioner,

vs.
THE NATIONAL LABOR RELATIONS COMMISSION, ONG PENG, ET. AL., respondents.

The Chief Legal Counsel for Development Bank of the Philippines.

Muñoz Law Office for private respondents.

GUTIERREZ, JR., J.:

In this petition for certiorari, petitioner Development Bank of the Philippines (DBP) asserts its preferential right as a
foreclosing creditor over private respondents' claims for separation pay against Republic Hardwood, Inc. (RHI).

On November 14, 1986, the private respondents filed with the Provincial Extension Office of the Department of
Labor and Employment (DOLE) in Daet, Camarines Norte seventeen individual complaints against RHI for unpaid
wages and separation pay. These complaints were thereafter endorsed to the Regional Arbitration Branch (Branch V
of Legaspi City) of the National Labor Relations Commission (NLRC) since the petitioners had already been
terminated from employment.

In its position paper dated March 1987, RHI alleged that it had ceased to operate in 1983 due to the government ban
against tree-cutting. It further alleged that in May 24, 1981, its sawmill was totally burned resulting in enormous
losses and that due to its financial setbacks, RHI failed to pay its loan with the DBP. RHI contended that since DBP
foreclosed its mortgaged assets on September 24, l985, then any adjudication of monetary claims in favor of its
former employees must be satisfied against DBP.

On April 29, 1987, the private respondents filed a motion to implead DBP. On July 13, 1987, DBP filed its opposition to
said motion.

On October 28, 1988, Executive Labor Arbiter Gelacio Rivera rendered a joint decision on the complaints, the
relevant and dispositive portions of which read:

To say that workers of bankrupt or insolvent employers must first file an insolvency or bankruptcy
proceeding against the latter before their unpaid workers may be satisfied will cause additional
burden, unnecessary expenses, unwanted hardship which are conditions not so intended under the
Social Justice policy of the State. . . . .

. . . To require petitioners to file insolvency proceedings against RHI and later file against DBP their
claims is to prolong the agony of petitioners. To give a technical and legal meaning to the words of
Art. 110 is to subvert the rights of the petitioners. We hold therefore that as against the contention of
 respondent DBP, Art. 4 of the Labor Code is the answer. The social justice clause of the Constitution
is our guide.

xxx xxx xxx

WHEREFORE, premises considered, judgment is hereby rendered in favor of petitioners and

adversely against respondent Republic Hardwood, Inc. and Development Bank of the Philippines,
ordering the latter to jointly and severally pay petitioners the amount of P59,610.00 as separation
pay within ten (10) days upon receipt of this Decision through this Regional Arbitration Branch.
Further, respondents are ordered to pay the amount of P308.00 as deposit fee pursuant to PD 1177
under Budget Circular No. 304 and Secs. 4 and 8 of Batas Pambansa Blg. 230. (Rollo, pp. 38, 40-41)

DBP appealed to the NLRC which rendered a decision on April 15, 1991 affirming the labor arbiter's judgment. DBP
filed a motion for reconsideration which was likewise dismissed by the NLRC on May 17, 1991.

Hence, this petition for certiorari.

The petitioner alleges that the NLRC committed grave abuse of discretion in issuing the assailed decision dated April
15, 1991 and its resolution of May 17, 1991 and raises the following issues:

1. Whether or not the Joint Decision of Executive Labor Arbiter Gelacio L. Rivera is violative of
procedural due process on the part of DBP;

2. Whether or not the complainant-private respondents are entitled to separation pay;

3. Whether or not there was retroactive application of Executive Order No. 81 in this case;

4. Whether or not Executive Labor Arbiter Gelacio L. Rivera and the NLRC correctly applied Article 110
of the Labor Code in this case; and

5. Whether or not there is a basis for the NLRC (Labor Arbiter Rivera) to order the payment of
deposit fee. (Rollo, pp. 17-18)

DBP asserts that it was deprived of due process since there was no formal order impleading it in the complaints
against RHI. Moreover, DBP points out, the cases were never set for hearing thus depriving it of the opportunity to
peruse the documentary evidence of the complainants and to confront the complainants' witnesses. Additionally,
DBP was not given an opportunity to present its own evidence.

There is no merit to this contention of DBP. Denial of due process means the total lack of opportunity to be heard.
There is no denial of due process where a party is given an opportunity to be heard and to present his case. The
petitioner in this case filed an opposition to the motion to implead it as a party defendant. It likewise filed a motion
for reconsideration of the labor arbiter's decision. Thereafter, DBP filed an appeal with the NLRC and, later on, a
motion for reconsideration of the NLRC decision. The petitioner, thus, was given ample opportunity to present its
case. It was not denied due process.

There is no merit to DBP's contention that the workers are not entitled to separation pay. Despite the enormous
losses incurred by RHI due to the fire that gutted the sawmill in 1981 and despite the logging ban in 1983, the
uncontroverted claims for separation pay show that most of the private respondents still worked up to the end of
1985 (See Rollo, p. 39). RHI would still have continued its business had not the petitioner foreclosed all of its assets
and properties on September 24, 1985. Thus, the closure of RHI's business was not primarily brought about by
serious business losses. Such closure was a consequence of DBP's foreclosure of RHI's assets. We therefore apply
Article 283 which provides:
. . . in cases of closures or cessation of operations of establishment or undertaking not due to serious business losses
or financial reverses, the separation pay shall be equivalent to one (1) month pay or at least one-half (1/2) month pay
for every year of service, whichever is higher. . . .

However, because of the petitioner's assertion that the labor arbiter and respondent NLRC incorrectly applied the
provisions of Article 110 of the Labor Code, we are constrained to grant the petition for certiorari.

Article 110, prior to its amendment by Republic Act No. 6715, 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 wages due them for services
rendered during the period prior to the bankruptcy or liquidation, any provision of law 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.

Section 10, Rule VIII, Book III of the Implementing Rules and Regulations of the Labor Code states:

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.

In Republic v. Peralta, 150 SCRA 37 (1987), the Court held that the term "wages" includes separation pay. But the
Court declared:

Article 110 of the Labor Code, in determining the reach of its terms, cannot be viewed in isolation.
Rather, Article 110 must be read in relation to the provisions of the Civil Code concerning the
classification, concurrence and preference of credits, which provisions find particular application in
insolvency proceedings where the claims of all creditors, preferred or non-preferred, may be
adjudicated in a binding manner.

We have repeatedly stressed that before the workers' preference provided by Article 110 may be invoked, there
must first be a declaration of bankruptcy or a judicial liquidation of the employer's business. (See DBP v. Minister of
Labor, 195 SCRA 463 [1991]; DBP v. NLRC, 186 SCRA 841 [1990]; DBP v. NLRC, 183 SCRA 328 [1990]; DBP v. Secretary
of Labor, 179 SCRA 630 [1989]; DBP v. Santos, 171 SCRA 138 [1989]; Republic v. Peralta, supra).

In DBP v. Santos, supra, the Court discussed the import of Article 110 and Section 10 of Rule VIII, Book III and stated:

It is quite clear from the provisions that 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.

xxx xxx xxx

Moreover, the reason behind the necessity for a judicial proceeding or a proceeding in rem before
the concurrence and preference of credits may be applied was explained by this Court in the case
of Philippines Savings Bank v. Lantin (124 SCRA 476 [1983]). We said:

The proceedings in the court below do not partake of the nature of the insolvency
proceedings or settlement of a decedent's estate. The action filed by Ramos was only
to collect the unpaid cost of the construction of the duplex apartment. It is far from
being a general liquidation of the estate of the Tabligan spouses.
 Insolvency proceedings and settlement of a decedent's estate are both
proceedings in rem which are binding against the whole world. All persons having
interest in the subject matter involved, whether they were notified or not, are equally
bound. Consequently, a liquidation of similar import or other equivalent general
liquidation must also necessarily be a proceeding in rem so that all interested persons
whether known to the parties or not may be bound by such proceeding.

In the case at bar, although the lower court found that "there were no known
creditors other than the plaintiff and the defendant herein", this can not be
conclusive. It will not bar other creditors in the event they show up and present their
claims against the petitioner bank, claiming that they also have preferred liens
against the property involved. Consequently, Transfer Certificate of Title No. 101864
issued in favor of the bank which is supposed to be indefeasible would remain
constantly unstable and questionable. Such could not have been the intention of
Article 2243 of the Civil Code although it considers claims and credits under Article
2242 as statutory liens. Neither does the De Barreto case . . . .

The claims of all creditors whether preferred or non-preferred, the identification of the preferred
ones and the totality of the employer's asset should be brought into the picture. There can then be
an authoritative, fair, and binding adjudication instead of the piece meal settlement which would
result from the questioned decision in this case. (At pp. 144-145).

The NLRC, therefore, committed grave abuse of discretion when it affirmed the labor arbiter's ruling that the
workers' preference espoused in Article 110 may be applied even in the absence of a declaration of bankruptcy or a
liquidation order.

We must also emphasize that DBP's lien on RHI's mortgaged assets, being a mortgage credit, is a special preferred
credit under Article 2242 of the Civil Code while the workers' preference is an ordinary preferred credit under Article
2244.

Thus, in DBP v. NLRC, (supra) it was held:

4. A distinction should be made between a preference of credit and a lien. 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 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
 2242, number 3, they would come within the ambit of the category of ordinary
preferred credits under Article 2244.

5. 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 110, when not falling within
Article 2241 (6) and Article 2242 (3) of the Civil Code and not attached to any specific property, is an
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 (Republic v. Peralta, supra).

Clearly, even if DBP and the private respondents assert their preferred credits in a judicial proceeding, the former's
claim must first be satisfied.

Article 110 of the Labor Code has been amended by R.A. No. 6715 and 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. (Emphasis ours.)

We ruled in DBP v. NLRC, supra, that the amendment "expands worker preference to cover not only unpaid wages
but also other monetary claims to which even claims of the Government must be deemed subordinate." Hence,
under the new law, even mortgage credits are subordinate to workers' claims.

In this connection, respondent NLRC ruled:

Lastly, while we are cognizant of the pronouncement of the Supreme Court with respect to Art. 110
and while we hold in respect said pronouncements, we are of the earnest view that considering that
Art. 110 has been amended by RA 6715, complainants' preference over government claims and other
creditors be adhered to. (Rollo, p. 65)

R.A. No. 6715, however, took effect only on March 21, 1989. The amendment cannot therefore be retroactively
applied to, nor can it affect, the mortgage credit which was secured by the petitioner several years prior to its
effectivity.

This was our pronouncement in DBP v. NLRC, supra:

6. Even if Article 110 and its Implementing Rule, as amended, should be interpreted to mean
"absolute preference," the same should be given only prospective effect in line with the cardinal rule
that laws shall have no retroactive effect, unless the contrary is provided (Article 4, Civil Code).
Thereby, any infringement on the constitutional guarantee on
non-impairment of the obligation of contracts (Section 10, Article III, 1987 Constitution) is also
avoided. In point of fact, DBP's mortgage credit antedated by several years the amendatory law, RA
No. 6715. To give Article 110 retroactive effect would be to wipe out the mortgage in DBP's favor and
expose it to a risk which it sought to protect itself against by requiring a collateral in the form of real
property.

The public respondent, therefore, committed grave abuse of discretion when it retroactively applied the
amendment introduced by R.A. No. 6715 to the case at bar.
With the foregoing discussion, we no longer find it necessary to discuss the two other issues raised by the petitioner.

WHEREFORE, the petition is hereby GRANTED. The assailed decision of public respondent National Labor Relations
Commission dated April 15, 1991 and its resolution dated May 17, 1991 are SET ASIDE. The temporary restraining order
issued by the Court on July 29, 1991 is made PERMANENT.

G.R. No. L-56568 May 20, 1987

REPUBLIC OF THE PHILIPPINES, represented by the Bureau of Customs and the Bureau of Internal
Revenue, petitioner,
vs.
HONORABLE E.L. PERALTA, PRESIDING JUDGE OF THE COURT OF FIRST INSTANCE OF MANILA, BRANCH XVII,
QUALITY TABACCO CORPORATION, FRANCISCO, FEDERACION OBRERO DE LA INDUSTRIA TABAQUERA Y OTROS
TRABAJADORES DE FILIPINAS (FOITAF) USTC EMPLOYEES ASSOCIATION WORKERS UNION-PTGWO, respondents.

Oscar A. Pascua for assignee F. Candelaria.

Teofilo C. Villarico for respondent Federation.

Pedro A. Lopez for respondent USTC.

FELICIANO, J.:

The Republic of the Philippines seeks the review on certiorari of the Order dated 17 November 1980 of the Court of
First Instance of Manila in its Civil Case No. 108395 entitled "In the Matter of Voluntary Insolvency of Quality Tobacco
Corporation, Quality Tobacco Corporation, Petitioner," and of the Order dated 19 January 1981 of the same court
denying the motion for reconsideration of the earlier Order filed by the Bureau of Internal Revenue and the Bureau
of Customs for the Republic.

In the voluntary insolvency proceedings commenced in May 1977 by private respondent Quality Tobacco
Corporation (the "Insolvent"), the following claims of creditors were filed:

(i) P2,806,729.92, by the USTC Association of Employees and workers Union-PTGWO USTC as separation pay for their
members. This amount plus an additional sum of P280,672.99 as attorney's fees had been awarded by the National
Labor Relations Commission in NLRC Case No. RB-IV-9775-77. 1

(ii) P53,805.05 by the Federacion de la Industria Tabaquera y Otros Trabajadores de Filipinas ("FOITAF), as
separation pay for their members, an amount similarly awarded by the NLRC in the same NLRC Case.

(iii) P1,085,188.22 by the Bureau of Internal Revenue for tobacco inspection fees covering the period 1 October 1967
to 28 February 1973;

(iv) P276,161.00 by the Bureau of Customs for customs duties and taxes payable on various importations by the
Insolvent. These obligations appear to be secured by surety bonds. 2 Some of these imported items are apparently
still in customs custody so far as the record before this Court goes.

In its questioned Order of 17 November 1980, the trial court held that the above-enumerated claims of USTC and
FOITAF (hereafter collectively referred to as the "Unions") for separation pay of their respective members embodied
in final awards of the National Labor Relations Commission were to be preferred over the claims of the Bureau of
Customs and the Bureau of Internal Revenue. The trial court, in so ruling, relied primarily upon Article 110 of the
Labor Code which reads thus:

Article 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 of law to the
contrary notwithstanding. Union paid wages shall be paid in full before other creditors may establish
any claim to a share in the assets of the employer.

The Solicitor General, in seeking the reversal of the questioned Orders, argues that Article 110 of the Labor Code is
not applicable as it speaks of "wages," a term which he asserts does not include the separation pay  claimed by the
Unions. "Separation pay," the Solicitor General contends,

is given to a laborer for a separation from employment computed on the basis of the number of years the laborer
was employed by the employer;  it is a form of penalty or damage against the employer in favor of the employee for
the latter's dismissal or separation from service. 3

Article 97 (f) of the Labor Code defines "wages" in the following terms:

Wage' paid to any employee shall mean the remuneration or earnings, however designated, capable
of being expressed in terms of money, whether fixed or ascertained on a time, task, piece, or
commission basis, or other method of calculating the same, which is payable by an employer to an
employee under a written or unwritten contract of employment for work done or to be done, or for
services rendered or to be rendered, and includes the fair and reasonable value, as determined by the
Secretary of Labor, of board, lodging, or other facilities customarily furnished by the employer to the
employee. 'Fair and reasonable value' shall not include any profit to the employer or to any person
affiliated with the employer.(emphasis supplied)

We are unable to subscribe to the view urged by the Solicitor General. We note, in this connection, that in Philippine
Commercial and Industrial Bank (PCIB) us. National Mines and Allied Workers Union,  4 the Solicitor General took a
different view and there urged that the term "wages" under Article 110 of the Labor Code may be regarded as
embracing within its scope severance pay or termination or separation pay. In PCIB, this Court agreed with the
position advanced by the Solicitor General.5 We see no reason for overturning this particular position. We continue
to believe that, for the specific purposes of Article 110 and in the context of insolvency termination or separation pay
is reasonably regarded as forming part of the remuneration or other money benefits accruing to employees or
workers by reason of their having previously rendered services to their employer; as such, they fall within the scope
of "remuneration or earnings — for services rendered or to be rendered — ." Liability for separation pay might
indeed have the effect of a penalty, so far as the employer is concerned. So far as concerns the employees, however,
separation pay is additional remuneration to which they become entitled because, having previously rendered
services, they are separated from the employer's service. The relationship between separation pay and services
rendered is underscored by the fact that separation pay is measured by the amount (i.e., length) of the services
rendered. This construction is sustained both by the specific terms of Article 110 and by the major purposes and basic
policy embodied in the Labor Code. 6 It is also the construction that is suggested by Article 4 of the Labor Code
which directs that doubts — assuming that any substantial rather than merely frivolous doubts remain-in the
interpretation of the provisions of the labor Code and its implementing rules and regulations shall be "resolved in
favor of labor."

The resolution of the issue of priority among the several claims filed in the insolvency proceedings instituted by the
Insolvent cannot, however, rest on a reading of Article 110 of the labor Code alone.

Article 110 of the Labor Code, in determining the reach of its terms, cannot be viewed in isolation. Rather, Article 110
must be read in relation to the provisions of the Civil Code concerning the classification, concurrence and preference
of credits, which provisions find particular application in insolvency proceedings where the claims of all creditors,
preferred or non-preferred, may be adjudicated in a binding manner. 7 It is thus important to begin by outlining the
scheme constituted by the provisions of the Civil Code on this subject.

Those provisions may be seen to classify credits against a particular insolvent into three general categories, namely:

(a) special preferred credits listed in Articles 2241 and 2242,

(b) ordinary preferred credits listed in Article 2244; and

(c) common credits under Article 2245.

Turning first to special preferred credits under Articles 2241 and 2242, it should be noted at once that these credits
constitute liens or encumbrances on the specific movable or immovable property to which they relate. Article 2243
makes clear that these credits "shall be considered as  mortgages or pledges of real or personal property, or liens
within the purview of legal provisions governing insolvency." It should be emphasized in this connection that "duties,
taxes and fees due [on specific movable property of the insolvent] to the State or any subdivision thereof" (Article
2241 [1]) and "taxes due upon the [insolvent's] land or building (2242 [1])"stand first in preference in respect of the
particular movable or immovable property to which the tax liens have attached. Article 2243 is quite
explicit: "[T]axes mentioned in number 1, Article 2241 and number 1, Article 2242 shall first be satisfied. " The claims
listed in numbers 2 to 13 in Article 2241 and in numbers 2 to 10 in Articles 2242, all come after taxes in order of
precedence; such claims enjoy their privileged character as liens and may be paid only to the extent that taxes have
been paid from the proceeds of the specific property involved (or from any other sources) and only in respect of the
remaining balance of such proceeds. What is more, these other (non-tax) credits, although constituting liens
attaching to particular property, are not  preferred one over another inter se. Provided tax liens shall have been
satisfied, non-tax liens or special preferred credits which subsist in respect of specific movable or immovable
property are to be treated on an equal basis and to be satisfied concurrently and proportionately. 8 Put succintly,
Articles 2241 and 2242 jointly with Articles 2246 to 2249 establish a two-tier order of preference. The first tier includes
only taxes, duties and fees due on specific movable or immovable property. All other special preferred credits stand
on the same second tier to be satisfied, pari passu  and pro rata, out of any residual value of the specific property to
which such other credits relate.

Credits which are specially preferred because they constitute liens (tax or non-tax) in turn, take precedence over
ordinary preferred credits so far as concerns the property to which the liens have attached. The specially preferred
credits must be discharged first out of the proceeds of the property to which they relate, before ordinary preferred
creditors may lay claim to any part of such proceeds. 9

If the value of the specific property involved is greater than the sum total of the tax liens and other specially
preferred credits, the residual value will form part of the "free property" of the insolvent — i.e., property not
impressed with liens by operation of Articles 2241 and 2242. If, on the other hand, the value of the specific movable
or immovable is less than the aggregate of the tax liens and other specially preferred credits, the unsatisfied balance
of the tax liens and other such credits are to the treated as ordinary credits under Article 2244 and to be paid in the
order of preference there set up. 10

In contrast with Articles 2241 and 2242, Article 2244 creates no liens on determinate property which follow such
property. What Article 2244 creates are simply rights in favor of certain creditors to have the cash and other assets
of the insolvent applied in a certain sequence or order of priority. 11

Only in respect of the insolvent's "free property" is an order of priority established by Article 2244. In this sequence,
certain taxes and assessments also figure but these do not have the same kind of overriding preference that Articles
2241 No. 1 and 2242 No. I create for taxes which constituted liens on the taxpayer's property. Under Article 2244,
 (a) taxes and assessments due to the national government, excluding  those which result in tax liens
under Articles 2241 No. 1 and 2242 No. 1 but including the balance thereof not satisfied out of the
movable or immovable property to which such liens attached, are ninth in priority;

(b) taxes and assessments due any province, excluding  those impressed as tax liens under Articles
2241 No. 1 and 2242 No. 1, but including the balance thereof not satisfied out of the movable or
immovable property to which such liens attached, are tenth in priority; and

(c) taxes and assessments due any city or municipality, excluding those impressed as tax liens under
Articles 2241 No. I and 2242 No. 2 but including the balance thereof not satisfied out of the movable
or immovable property to which such liens attached, are eleventh in priority.

It is within the framework of the foregoing rules of the Civil Code that the question of the relative priority of the
claims of the Bureau of Customs and the Bureau of Internal Revenue, on the one hand, and of the claims of the
Unions for separation pay of their members, on the other hand, is to be resolved. A related vital issue is what impact
Article 110 of the labor Code has had on those provisions of the Civil Code.

A. Claim of the Bureau of Customs for Unpaid Customs Duties and Taxes-

Under Section 1204 of the Tariff and Customs Code, 12 the liability of an importer

for duties, taxes and fees and other charges attaching on importation constitute a personal debt due from the
importer to the government which can be discharged only by payment in full of all duties, taxes, fees and other
charges legally accruing It also constitutes a lien upon the articles imported which may be enforced while such articles
are in the custody or subject to the control of the government. (emphasis supplied)

Clearly, the claim of the Bureau of Customs for unpaid customs duties and taxes enjoys the status of a specially
preferred credit under Article 2241, No. 1, of the Civil Code. only in respect of the articles importation of which by the
Insolvent resulted in the assessment of the unpaid taxes and duties, and which are still in the custody or subject to
the control of the Bureau of Customs. The goods imported on one occasion are not subject to a lien for customs
duties and taxes assessed upon  other importations  though also effected by the Insolvent. Customs duties and taxes
which remain unsatisfied after levy upon the imported articles on which such duties and taxes are due, would have
to be paid out of the Insolvent's "free property" in accordance with the order of preference embodied in Article
2244 of the Civil Code. Such unsatisfied customs duties and taxes would fall within Article 2244, No. 9, of the Civil
Code and hence would be ninth in priority.

B. Claims of the Bureau of Internal Revenue for Tabacco Inspection Fees —

Under Section 315 of the National Internal Revenue Code ("old Tax Code"), 13 later reenacted in Identical terms as
Section 301 of the Tax Code of 1977, 14 an unpaid "internal revenue tax," together with related interest, penalties
and costs, constitutes a lien in favor of the Government from the time an assessment therefor is made and until
paid, "upon all property and rights to property belonging to the taxpayer."

Tobacco inspection fees are specifically mentioned as one of the miscellaneous taxes imposed under the National
Internal Revenue Code, specifically Title VIII, Chapter IX of the old Tax Code and little VIII, Chapter VII of the Tax
Code of 1977. 15 Tobacco inspection fees are collected both for purposes of regulation and control and for purposes
of revenue generation: half of the said fees accrues to the Tobacco Inspection Fund created by Section 12 of Act No.
2613, as amended by Act No. 3179, while the other half accrues to the Cultural Center of the Philippines. Tobacco
inspection fees, in other words, are imposed both as a regulatory measure and as a revenue-raising measure.
In Commissioner of Internal Revenue us. Guerrero, et al 16 this Court held, through Mr. Chief Justice Concepcion, that
the term "tax" is used in Section 315 of the old Tax Code:
 not in the limited sense [of burdens imposed upon persons and/or properties, by way of
contributions to the support of the Government, in consideration of general  benefits derived from its
operation], but, in a broad sense, encompassing all government revenues collectible by the
Commissioner of Internal Revenue under said Code, whether involving taxes, in the strict technical
sense thereof, or not. x x x As used in Title IX of said Code, the term 'tax' includes 'any national
internal revenue tax, fee or charge imposed by the Code. 17

It follows that the claim of the Bureau of Internal Revenue for unpaid tobacco inspection fees constitutes a claim for
unpaid internal revenue taxes 18 which gives rise to a tax lien upon all the properties and assets, movable and
immovable, of the Insolvent as taxpayer. Clearly, under Articles 2241 No. 1, 2242 No. 1, and 2246-2249 of the Civil Code,
this tax claim must be given preference over any other claim of any other creditor, in respect of any and all
properties of the Insolvent. 19

C. Claims of the Unions for Separation Pay of Their Members —

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 or other works." To the extent that claims for unpaid wages fall outside the scope
of Article 2241, number 6 and 2242, number 3, they would come within the ambit of the category of ordinary
preferred credits under Article 2244.

Applying Article 2241, number 6 to the instant case, the claims of the Unions for separation pay of their members
constitute liens attaching to the processed leaf tobacco, cigars and cigarettes and other products produced or
manufactured by the Insolvent, but not to other assets owned by the Insolvent. And even in respect of such tobacco
and tobacco products produced by the Insolvent, the claims of the Unions may be given effect only after the Bureau
of Internal Revenue's claim for unpaid tobacco inspection fees shall have been satisfied out of the products so
manufactured by the Insolvent.

Article 2242, number 3, also creates a lien or encumbrance upon a building or other real property of the Insolvent in
favor of workmen who constructed or repaired such building or other real property. Article 2242, number 3, does not
however appear relevant in the instant case, since the members of the Unions to whom separation pay is due
rendered services to the Insolvent not (so far as the record of this case would show) in the construction or repair of
buildings or other real property, but rather, in the regular course of the manufacturing operations of the Insolvent.
The Unions' claims do not therefore constitute a lien or encumbrance upon any immovable property owned by the
Insolvent, but rather, as already indicated, upon the Insolvent's existing inventory (if any of processed tobacco and
tobacco products.

We come to the question of what impact Article 110 of the Labor Code has had upon the complete scheme of
classification, concurrence and preference of credits in insolvency set out in the Civil Code. We believe and so hold
that Article 110 of the Labor Code did not sweep away the overriding preference accorded under the scheme of the
Civil Code to tax claims of the government or any subdivision thereof which constitute a lien upon properties of the
Insolvent. It is frequently said that taxes are the very lifeblood of government. The effective collection of taxes is a
task of highest importance for the sovereign. It is critical indeed for its own survival. It follows that language of a
much higher degree of specificity than that exhibited in Article 110 of the Labor Code is necessary to set aside the
intent and purpose of the legislator that shines through the precisely crafted provisions of the Civil Code. It cannot
be assumed simpliciter  that the legislative authority, by using in Article 110 the words "first preference" and "any
provision of law to the contrary notwithstanding" intended to disrupt the elaborate and symmetrical structure set
up in the Civil Code. Neither can it be assumed casually that Article 110 intended to subsume the sovereign itself
within the term "other creditors" in stating that "unpaid wages shall be paid in full before other creditors  may
establish any claim to a share in the assets of employer." Insistent considerations of public policy prevent us from
giving to "other creditors" a linguistically unlimited scope that would embrace the universe of creditors save only
unpaid employees.

We, however, do not believe that Article 110 has had no impact at all upon the provisions of the Civil Code. Bearing in
mind the overriding precedence given to taxes, duties and fees by the Civil Code and the fact that the Labor Code
does not impress any lien on the property of an employer, the use of the phrase "first preference" in Article 110
indicates that what Article 110 intended to modify is the order of preference found in Article 2244, which order relates,
as we have seen, to property of the Insolvent that is not burdened with the liens or encumbrances created or
recognized by Articles 2241 and 2242. We have noted that Article 2244, number 2, establishes second priority for
claims for wages for services rendered by employees or laborers of the Insolvent "for one year preceding the
commencement of the proceedings in insolvency." Article 110 of the Labor Code establishes "first preference" for
services rendered "during the period prior to the bankruptcy or liquidation, " a period not limited  to the year
immediately prior to the bankruptcy or liquidation. Thus, very substantial effect may be given to the provisions of
Article 110 without grievously distorting the framework established in the Civil Code by holding, as we so hold, that
Article 110 of the Labor Code has modified Article 2244 of the Civil Code in two respects: (a) firstly, by removing the
one year limitation  found in Article 2244, number 2; and (b) secondly, by moving up claims for unpaid wages of
laborers or workers of the Insolvent from second priority to first priority  in the order of preference established I by
Article 2244.

Accordingly, and by way of recapitulating the application of Civil Code and Labor Code provisions to the facts herein,
the trial court should inventory the properties of the Insolvent so as to determine specifically: (a) whether the assets
of the Insolvent before the trial court includes stocks of processed or manufactured tobacco products; and (b)
whether the Bureau of Customs still has in its custody or control articles imported by the Insolvent and subject to
the lien of the government for unpaid customs duties and taxes.

In respect of (a), if the Insolvent has inventories of processed or manufactured tobacco products, such inventories
must be subjected firstly to the claim of the Bureau of Internal Revenue for unpaid tobacco inspection fees. The
remaining value of such inventories after satisfaction of such fees (or should such inspection fees be satisfied out of
other properties of the Insolvent) will be subject to a lien in favor of the Unions by virtue of Article 2241, number 6.
In case, upon the other hand, the Insolvent no longer has any inventory of processed or manufactured product, then
the claim of the Unions for separation pay would have to be satisfied out of the "free property" of the Insolvent
under Article 2244 of the Civil Code. as modified by Article 110 of the Labor Code.

Turning to (b), should the Bureau of Customs no longer have any importations by the Insolvent still within customs
custody or control, or should the importations still held by the Bureau of Customs be or have become insufficient in
value for the purpose, customs duties and taxes remaining unpaid would have only ninth priority by virtue of Article
2244, number 9. In respect therefore of the Insolvent's "free property, " the claims of the Unions will enjoy first
priority under Article 2244 as modified and will be paid ahead of the claims of the Bureau of Customs for any
customs duties and taxes still remaining unsatisfied.

It is understood that the claims of the Unions referred to above do not include the 10% claim for attorney's fees.
Attorney's fees incurred by the Unions do not stand on the same footing as the Unions' claims for separation pay of
their members.

WHEREFORE, the petition for review is granted and the Orders dated 17 November 1980 and 19 January 1981 of the
trial court are modified accordingly. This case is hereby remanded to the trial court for further proceedings in
insolvency compatible with the rulings set forth above. No pronouncement as to costs.

SO ORDERED.
G.R. No. 160073 October 24, 2005

ABUNDIO BARAYOGA and BISUDECO-PHILSUCOR CORFARM WORKERS UNION (PACIWU CHAP-TPC), Petitioners,

vs.
ASSET PRIVATIZATION TRUST,* Respondent.

DECISION

PANGANIBAN, J.:

esponsibility for the liabilities of a mortgagor towards its employees cannot be transferred via an auction sale to a
purchaser who is also the mortgagee-creditor of the foreclosed assets and chattels. Clearly, the mortgagee-creditor
has no employer- __________________

* The Privatization and Management Office has succeeded APT. Comment, p. 1; rollo, p. 480.

employee relations with the mortgagor’s workers. The mortgage constitutes a lien on the determinate properties of
the employer-debtor, because it is a specially preferred credit to which the worker’s monetary claims is deemed
subordinate.

The Case

Before us is a Petition for Review1 under Rule 45 of the Rules of Court, assailing the January 30, 2003 Decision 2 and
the August 27, 2003 Resolution 3 of the Court of Appeals (CA), in CA-GR SP No. 58813. The disposition or fallo  of the
questioned Decision reads as follows:

"IN VIEW OF ALL THE FOREGOING, the instant petition is GRANTED and the assailed NLRC Decision dated February
18, 2000 is hereby RECALLED and SET ASIDE insofar as herein petitioner APT is concerned. No cost." 4

The reversed Decision5 of the National Labor Relations Commission (NLRC) disposed as follows:

"WHEREFORE, premises considered, the decision appealed from is AFFIRMED with modifications as follows:

‘1. Complainants are awarded their monetary claims for underpayment of salaries and payment of allowances per
their computation on pp. 97-99 and 142-144 of the records;

‘2. Complainants are declared to have been illegally dismissed and should be paid their backwages from 01 May 1991
to 30 October 1992.’"6

The challenged August 27, 2003 Resolution denied petitioners’ Motion for Reconsideration.

The Facts

The CA summarized the antecedents in this portion of its Decision, which we quote:

"Bisudeco-Philsucor Corfarm Workers Union is composed of workers of Bicolandia Sugar Development Corporation
(BISUDECO), a sugar plantation mill located in Himaao, Pili, Camarines Sur.

"On December 8, 1986, [Respondent] Asset Privatization Trust (APT), a public trust was created under Proclamation
No. 50, as amended, mandated to take title to and possession of, conserve, provisionally manage and dispose of
non-performing assets of the Philippine government identified for privatization or disposition.
"Pursuant to Section 23 of Proclamation No. 50, former President Corazon Aquino issued Administrative Order No.
14 identifying certain assets of government institutions that were to be transferred to the National Government.
Among the assets transferred was the financial claim of the Philippine National Bank against BISUDECO in the form
of a secured loan. Consequently, by virtue of a Trust Agreement executed between the National Government and
APT on February 27, 1987, APT was constituted as trustee over BISUDECO’s account with the PNB.

"Sometime later, on August 28, 1988, BISUDECO contracted the services of Philippine Sugar Corporation (Philsucor)
to take over the management of the sugar plantation and milling operations until August 31, 1992.

"Meanwhile, because of the continued failure of BISUDECO to pay its outstanding loan with PNB, its mortgaged
properties were foreclosed and subsequently sold in a public auction to APT, as the sole bidder. On April 2, 1991, APT
was issued a Sheriff’s Certificate of Sale.

"On July 23, 1991, the union filed a complaint for unfair labor practice, illegal dismissal, illegal deduction and
underpayment of wages and other labor standard benefits plus damages.

"In the meantime, on July 15, 1992, APT’s Board of Trustees issued a resolution accepting the offer of Bicol-Agro-
Industrial Cooperative (BAPCI) to buy the sugar plantation and mill. Again, on September 23, 1992, the board passed
another resolution authorizing the payment of separation benefits to BISUDECO’s employees in the event of the
company’s privatization. Then, on October 30, 1992, BAPCI purchased the foreclosed assets of BISUDECO from APT
and took over its sugar milling operations under the trade name Peñafrancia Sugar Mill (Pensumil).

"On December 17, 1992, the union filed a similar complaint, later to be consolidated with its earlier complaint and
docketed as RAB V Case No. 07-00184-91.

"On March 2, 1993, it filed an amended complaint, impleading as additional party respondents APT and Pensumil.

"In their Position Paper, the union alleged that when Philsucor initially took over the operations of the company, it
retained BISUDECO’s existing personnel under the same terms and conditions of employment. Nonetheless, at the
start of the season sometime in May 1991, Philsucor started recalling workers back to work, to the exception of the
union members. Management told them that they will be re-hired only if they resign from the union. Just the same,
thereafter, the company started to employ the services of outsiders under the ‘pakyaw’ system.

"BISUDECO, Pensumil and APT all interposed the defense of lack of employer-employee relationship.

xxxxxxxxx

"After due proceedings, on April 30, 1998, Labor Arbiter Fructuoso T. Aurellano disposed as follows:

‘WHEREFORE, premises considered, respondent APT is hereby ordered to pay herein complainants of the mandated
employment benefits provided for under Section 27 of Proclamation No. 50 which benefits had been earlier extended to
other employees similarly situated.

‘SO ORDERED.’

"Both the union and APT elevated the labor arbiter’s decision before NLRC." 7

The NLRC affirmed APT’s liability for petitioners’ money claims. While no employer-employee relationship existed
between members of the petitioner union and APT, at the time of the employees’ illegal dismissal, the assets of
BISUDECO had been transferred to the national government through APT. Moreover, the NLRC held that APT should
have treated petitioners’ claim as a lien on the assets of BISUDECO. The Commission opined that APT should have
done so, considering its awareness of the pending complaint of petitioners at the time BISUDECO sold its assets to
BAPCI, and APT started paying separation pay to the workers.

Finding their computation to be in order, the NLRC awarded to petitioners their money claims for underpayment,
labor-standard benefits, and ECOLA. It also awarded them their back wages, computed at the prevailing minimum
wage, for the period May 1, 1991 (the date of their illegal dismissal) until October 30, 1992 (the sale of BISUDECO
assets to the BAPCI). On the other hand, the NLRC ruled that petitioners were not entitled to separation pay
because of the huge business losses incurred by BISUDECO, which had resulted in its bankruptcy.

Respondent sought relief from the CA via a Petition for Certiorari under Rule 65 of the Rules of Court.

Ruling of the Court of Appeals

The CA ruled that APT should not be held liable for petitioners’ claims for unfair labor practice, illegal dismissal,
illegal deduction and underpayment of wages, as well as other labor-standard benefits plus damages. As found by
the NLRC, APT was not the employer of petitioners, but was impleaded only for possessing BISUDECO’s mortgaged
properties as trustee and, later, as the highest bidder in the foreclosure sale of those assets.

Citing Batong Buhay Gold Mines v. Dela Serna,8 the CA concluded that petitioners’ claims could not be enforced
against APT as mortgagee of the foreclosed properties of BISUDECO.

Hence, this Petition.9

Issues

In their Memorandum, petitioners raise the following issues for our consideration:

"I. Whether or not the Court of Appeals erred in ruling that Respondent Asset Privatization Trust (APT) should not
be held liable for the petitioner union’s claim for unfair labor practice, illegal dismissal, illegal deduction and
underpayment of wages and other labor standard benefits plus damages.

"II. Whether or not the claims of herein petitioners cannot be enforced against APT/PNB as mortgagee of the
foreclosed properties of BISUDECO.

"III. Whether or not the entitlement of petitioners upon their claims against Respondent APT is recognized under
the law."10

In brief, the main issue raised is whether Respondent APT is liable for petitioners’ monetary claims.

The Court’s Ruling

The Petition has no merit.

Main Issue:

Whether APT Is Liable for the Claims of

Petitioners Against Their Former Employer

It should be stressed at the outset that, pursuant to Administrative Order No. 14, Series of 1987, 11 PNB’s assets, loans
and receivables from its borrowers were transferred to APT as trustee of the national government. Among the
liabilities transferred to APT was PNB’s financial claim against BISUDECO, not the latter’s assets and chattel. Contrary
to petitioners’ assertions, BISUDECO remained the owner of the mortgaged properties in August 1988, when the
Philippine Sugar Corporation (Philsucor) undertook the operation and management of the sugar plantation until
August 31, 1992, under a so-called Contract of Lease between the two corporations. At the time, APT was merely a
secured creditor of BISUDECO.12

It was only in April 1991 that APT foreclosed the assets and chattels of BISUDECO because of the latter’s continued
failure to pay outstanding loan obligations to PNB/APT. The properties were sold at public auction to APT, the
highest bidder, as indicated in the Sheriff’s Certificate of Sale issued on April 2, 1991. It was only in September 1992
(after the expiration of the lease/management Contract with Philsucor in August 1992), however, when APT took
over BISUDECO assets, preparatory to the latter’s privatization.

In the present case, petitioner-union’s members who were not recalled to work by Philsucor in May 1991 seek to hold
APT liable for their monetary claims and allegedly illegal dismissal. Significantly, prior to the actual sale of BISUDECO
assets to BAPCI on October 30, 1992, the APT board of trustees had approved a Resolution on September 23, 1992.
The Resolution authorized the payment of separation benefits to the employees of the corporation in the event of
its privatization. Not included in the Resolution, though, were petitioner-union’s members who had not been
recalled to work in May 1991.

The question now before the Court is whether APT is liable to pay petitioners’ monetary claims, including back
wages from May 1, 1991, to October 30, 1992 (the date of the sale of BISUDECO assets to BAPCI).

We rule in the negative. The duties and liabilities of BISUDECO, including its monetary liabilities to its employees,
were not all automatically assumed by APT as purchaser of the foreclosed properties at the auction sale. Any
assumption of liability must be specifically and categorically agreed upon. In Sundowner Development Corp. v.
Drilon,13 the Court ruled that, unless expressly assumed, labor contracts like collective bargaining agreements are not
enforceable against the transferee of an enterprise. Labor contracts are in personam and thus binding only between
the parties.

No succession of employment rights and obligations can be said to have taken place between the two. Between the
employees of BISUDECO and APT, there is no privity of contract that would make the latter a substitute employer
that should be burdened with the obligations of the corporation. To rule otherwise would result in unduly imposing
upon APT an unwarranted assumption of accounts not contemplated in Proclamation No. 50 or in the Deed of
Transfer between the national government and PNB.

Furthermore, under the principle of absorption, a bona fide buyer or transferee of all, or substantially all, the
properties of the seller or transferor is not obliged to absorb the latter’s employees. 14 The most that the purchasing
company may do, for reasons of public policy and social justice, is to give preference of reemployment to the selling
company’s qualified separated employees, who in its judgment are necessary to the continued operation of the
business establishment.15

In any event, the national government (in whose trust APT previously held the mortgage credits of BISUDECO) is not
the employer of petitioner-union’s members, who had been dismissed sometime in May 1991, even before APT took
over the assets of the corporation. Hence, under existing law and jurisprudence, there is no reason to expect any
kind of bailout by the national government. 16 Even the NLRC found that no employer-employee relationship existed
between APT and petitioners. Thus, the Commission gravely abused its discretion in nevertheless holding that APT,
as the transferee of the assets of BISUDECO, was liable to petitioners.

Petitioners also contend that in Central Azucarera del Danao v. Court of Appeals,17  this Court supposedly ruled that the
"sale of a business of a going concern does not ipso facto terminate the employer-employee relations insofar as the
successor-employer is concerned, and that change of ownership or management of an establishment or company is
not one of the just causes provided by law for termination of employment[.]" 18
A careful reading of the Court’s Decision in that case plainly shows that it does not contain the words quoted by
counsel for petitioners. At this juncture, we admonish their counsel 19 of his bounden duty as an officer of the Court
to refrain from misquoting or misrepresenting the text of its decisions. 20 Ever present is the danger that, if not
faithfully and exactly quoted, they may lose their proper and correct meaning, to the detriment of other courts,
lawyers and the public who may thereby be misled.21

In that case, contrary to the assertions of petitioners, the Court held as follows:

"There can be no controversy for it is a principle well-recognized, that it is within the employer’s legitimate sphere of
management control of the business to adopt economic policies or make some changes or adjustments in their
organization or operations that would insure profit to itself or protect the investment of its stockholders. As in the
exercise of such management prerogative, the employer may merge or consolidate its business with another, or sell
or dispose all or substantially all of its assets and properties which may bring about the dismissal or termination of its
employees in the process. Such dismissal or termination should not however be interpreted in such a manner as to
permit the employer to escape payment of termination pay. x x x.

"In a number of cases on this point, the rule has been laid down that the sale or disposition must be motivated by
good faith as an element of exemption from liability. Indeed, an innocent transferee of a business establishment has
no liability to the employees of the transferor to continue employing them. Nor is the transferee liable for past unfair
labor practices of the previous owner, except, when the liability therefor is assumed by the new employer under the
contract of sale, or when liability arises because of the new owner’s participation in thwarting or defeating the rights
of the employees."22 (Citations omitted.)

In other words, the liabilities of the previous owner to its employees are not enforceable against the buyer or
transferee, unless (1) the latter unequivocally assumes them; or (2) the sale or transfer was made in bad faith. Thus,
APT cannot be held responsible for the monetary claims of petitioners who had been dismissed even before it
actually took over BISUDECO’s assets.

Moreover, it should be remembered that APT merely became a transferee of BISUDECO’s assets for purposes of
conservation because of its lien on those assets -- a lien it assumed as assignee of the loan secured by the
corporation from PNB. Subsequently, APT, as the highest bidder in the auction sale, acquired ownership of the
foreclosed properties.

Relevant to this transfer of assets is Article 110 of the Labor Code, as amended by Republic Act No. 6715, which
reads:

"Article 110. Worker’s preference in case of bankruptcy. – In the event of bankruptcy or liquidation of the employer’s
business, his workers shall enjoy first preference as regards their unpaid wages and other monetary claims shall be
paid in full before the claims of the Government and other creditors may be paid." 23

This Court has ruled in a long line of cases 24 that under Articles 2241 and 2242 of the Civil Code, a mortgage credit is a
special preferred credit that enjoys preference with respect to a specific/determinate property of the debtor. On the
other hand, the worker’s preference under Article 110 of the Labor Code is an ordinary preferred credit. While this
provision raises the worker’s money claim to first priority in the order of preference established under Article 2244 of
the Civil Code, the claim has no preference over special preferred credits.

Thus, the right of employees to be paid benefits due them from the properties of their employer cannot have any
preference over the latter’s mortgage credit. In other words, being a mortgage credit, APT’s lien on BISUDECO’s
mortgaged assets is a special preferred lien that must be satisfied first before the claims of the workers.

Development Bank of the Philippines v. NLRC25 explained the rationale of this ruling as follows:
"x x x. A preference applies only to claims which do not attach to specific properties. A lien creates a charge on a
particular property. The right of first preference as regards unpaid wages recognized by Article 110 does not
constitute a lien on the property of the insolvent debtor in favor of workers. It is but a preference of credit in their
favor, a preference in application. It is a method adopted to determine and specify the order in which credits should
be paid in the final distribution of the proceeds of the insolvent’s assets. It is a right to a first preference in the
discharge of the funds of the judgment debtor. x x x"

Furthermore, workers’ claims for unpaid wages and monetary benefits cannot be paid outside of a bankruptcy or
judicial liquidation proceedings against the employer. 26 It is settled that the application of Article 110 of the Labor
Code is contingent upon the institution of those proceedings, during which all creditors are convened, their claims
ascertained and inventoried, and their preferences determined. 27 Assured thereby is an orderly determination of the
preference given to creditors’ claims; and preserved in harmony is the legal scheme of classification, concurrence
and preference of credits in the Civil Code, the Insolvency Law, and the Labor Code.

The Court hastens to add that the present Petition was brought against APT alone. In holding that the latter, which
has never really been an employer of petitioners, is not liable for their claims, this Court is not reversing or ruling
upon their entitlement to back wages and other unpaid benefits from their previous employer.

On the basis of the foregoing clarification, the Court finds no reversible error in the questioned CA Decision, which
set aside the February 8, 2000 Decision of the NLRC. As a mere transferee of the mortgage credit and later as the
purchaser in a public auction of BISUDECO’s foreclosed properties, APT cannot be held liable for petitioners’ claims
against BISUDECO: illegal dismissal, unpaid back wages and other monetary benefits.

WHEREFORE, the Petition is hereby DENIED, and the assailed Decision and Resolution AFFIRMED.  Costs against
petitioners.

SO ORDERED.

G.R. No. 156882               October 31, 2008

ASSOCIATED LABOR UNIONS (ALU) and DIVINE WORD UNIVERSITY EMPLOYEES UNION-ALU (DWUEU-
ALU), Petitioners,
vs.
COURT OF APPEALS, THE ROMAN CATHOLIC ARCHBISHOP OF PALO, LEYTE, and DIVINE WORD UNIVERSITY OF
TACLOBAN, Respondents.

DECISION

VELASCO, JR., J.:

Petitioners Associated Labor Unions and Divine Word University Employees Union-ALU (Union) represented the
Union members which prevailed in the labor case entitled Divine Word University of Tacloban v. Secretary of Labor
and Employment1 under G.R. No. 91915 and promulgated on September 11, 1992. A direct consequence of the case
was that the Divine Word University of Tacloban (DWUT) ended up owing petitioners over a hundred million pesos
for unpaid benefits.

The Roman Catholic Archbishop of Palo, Leyte (RCAP) is a corporation sole which sold to Societas Verbum Dei (SVD)
or the Society of the Divine Word the subject 13 parcels of land, to wit: Lot Nos. 529, 4901, 528, 2067, 498, 507, 497,
506, 508, 2068E, 2068D, 2065, and 2410, the last four of which were untitled when the sale was concluded. The Deed
of Sale2 executed on October 1, 1958 contained the following conditions and restrictions, among others:
IV. That the SOCIETY OF THE DIVINE WORD shall use these lands and properties for educational purposes, especially
and as far as possible, for the maintenance and further development of the institution known as the ST. PAUL’S
COLLEGE;

xxxx

VI. That the above described properties and all improvements and any land, buildings or equipment which shall have
been later acquired by the ST. PAUL’S COLLEGE and which are in direct and actual use by the College, as such, shall
be turned over to the ownership and possession of the Roman Catholic Bishop of Palo in case there is or are
circumstances which will be beyond the control of the contracting parties forcing the abandonment of educational
and religious work of the Society of the Divine Word with no hope for its resumption in the foreseeable future, that
in this case the terms of the conversion of the property rights shall be determined by the Apostolic [Nunciature] in
Manila and/or the Apostolic See in Rome. (Emphasis added.)

While the conveying document was not notarized, the SVD was able to secure the corresponding transfer
certificates of title (TCTs) over the subject lots, but the deed conditions, restrictions, and reversionary right of the
RCAP were not annotated on the new titles.

It must be noted that before the sale, the Tacloban Catholic Institute, a school then run by the RCAP, was already
standing over some of the properties sold. At the time of the sale, the school had been renamed St. Paul’s College.
In line with the purpose of the sale, that is, to further educational and religious work, the SVD would later rename St.
Paul’s College the Divine Word College and then DWUT when the school attained university status.

Due to labor unrest, DWUT, run by the SVD, and petitioners engaged in a protracted legal battle from 1988 until the
finality of the decision in the Divine Word University of Tacloban case on February 11, 1994, or shortly after the Court
denied DWUT’s motion for reconsideration on January 19, 1994. By then, DWUT’s liability to petitioners amounted to
PhP 200 million, more or less.

On April 27, 1995, the RCAP filed a petition 3 before the Regional Trial Court (RTC), Branch 8 in Tacloban City,
docketed as Cadastral Case No. 95-04-08 and entitled "In the Matter of the Annotation of Encumbrances on Certain
Titles [in the Name of Divine Word University of Tacloban] to Show Restrictions on Use and a Reversionary Interest
Therein." In it, the RCAP prayed for an order directing the Registry of Deeds of Tacloban City to register the October
1, 1958 Deed of Sale and annotate on the corresponding SVD titles the conditions, restrictions, and a reversionary
interest of the RCAP stipulated in the deed.

On May 9, 1995, DWUT issued notices to petitioners’ members, advising them of the decision of the DWUT Board of
Trustees to close the university starting academic year 1995-1996, or on June 16, 1995, and, thus, to consider
themselves dismissed effective at the close of business hours of June 15, 1995.

Meanwhile, on July 7, 1995, the National Conciliation and Mediation Board ordered DWUT to pay PhP 163,089,337.57
to the members of petitioner Union as partial satisfaction of the January 19, 1994 final resolution of this Court in G.R.
No. 91915.

Prompted by the closure of DWUT and the resulting termination of its members’ services, the Union filed a
complaint, as later amended,4 against DWUT, its Board of Trustees, and the RCAP for Unfair Labor Practice, Illegal
Dismissal, and Damages before the Regional Arbitration Branch (RAB) No. VIII in Tacloban City, docketed as NLRC
Case No. RCB-VIII-7-0299-95. The Union alleged in its complaint that the sale of the subject properties over which the
DWUT is located was incomplete due to the adverted conditions, restrictions, and a reversionary right of the RCAP
over the subject properties. What is more, the RCAP did not, despite the sale, sever its employment relations with
DWUT which, thus, rendered the RCAP solidarily liable with DWUT for the payment of the benefits of the Union
members.
On August 3, 1995, petitioners filed their Motion to Intervene in Cadastral Case No. 95-04-08, asserting their legal
interest over the subject properties, such interest, according to them, emanating from a judgment lien over the
subject properties based on the Entry of Final Judgment dated February 11, 1994 under G.R. No. 91915. And relying on
Article 110 of the Labor Code in relation to Arts. 2242, 2243, and 2244 of the Civil Code on concurrence and
preference of credits, they asserted preferential rights over the subject properties now owned by and registered
under the name of the SVD.

On March 8, 1996, the RTC issued an Order5 dismissing the petition in Cadastral Case No. 95-04-08.

The RTC held that it has no jurisdiction over the case for annotation owing to what it considered as petitioners’ right
to a judgment lien referred to earlier. The trial court also held that the RCAP violated SC Circular No. 04-94 on forum
shopping on account of the pendency of NLRC Case No. RCB-VIII-7-0299-95 where he was impleaded. Finally, the trial
court deemed as moot the resolution of RCAP’s formal offer of evidence and petitioners’ motion to intervene.

Unsatisfied, the RCAP filed a motion for reconsideration faulting the RTC for misappreciating the facts of the case,
the evidence adduced, and the applicable laws. He argued that the RTC has jurisdiction over all cadastral cases, like
the instant case, in accordance with Section 2 of Presidential Decree No. 1529 entitled Amending and Codifying the
Laws Relative to Registration of Property and for Other Purposes, as applied in Ignacio v. Court of Appeals6 and
related cases.7 Continuing, the RCAP contended that he precisely filed the cadastral case because the October 1, 1958
Deed of Sale was not notarized, adding that the registration and annotation process would be ministerial on the part
of the register of deeds had the sale been in a public document.1avvphi1

Moreover, the RCAP asserted that the reference to the complaint in NLRC Case No. RCB-VIII-7-0299-95 was only
made to underscore the fact that the Union duly acknowledged in the complaint the existence and due execution of
the October 1, 1958 Deed of Sale. Besides, he pointed out, DWUT, by its manifestation filed before the trial court, did
not question the due execution of the deed. Anent the issue of a judgment lien, the RCAP contended that he was
never a party in the labor case under G.R. No. 91915 and, hence, could not be bound by the decision in it, much less
by its execution. Finally, he denied violating the circular on forum shopping, alleging that the Union filed its
complaint in NLRC Case No. RCB-VIII-7-0299-95 two months after he filed the cadastral case for annotation.

The RTC by an Order8 dated June 7, 1996 denied RCAP’s motion for reconsideration.

While it concurred with the RCAP’s arguments set forth in his motion for reconsideration, the trial court still denied
the motion on the ground of laches, noting that it took the RCAP 37 years after the execution of the deed of sale
before taking judicial action to assert his rights.

Aggrieved, the RCAP timely filed his Notice of Appeal assailing the above orders of the trial court before the Court of
Appeals (CA). The appeal was docketed as CA-G.R. CV No. 56482.

In the meantime, on February 24, 1997, the RCAP, the DWUT, and the Union entered into a Memorandum of
Agreement9 (MOA) whereby they agreed on the following: (1) the Union would withdraw NLRC Case No. RCB-VIII-7-
0299-95 against DWUT and the RCAP; (2) DWUT would pay the Union PhP 100 million as final settlement of G.R. No.
91915 (NCMB-RB-80NS-04-024-88) and NLRC Case No. RCB-VIII-7-0299-95; (3) DWUT would continue to recognize the
Union as the sole bargaining agent for collective bargaining agreement (CBA); and (4) DWUT and the Union would
negotiate and enter into a new CBA in lieu of the CBA imposed in G.R. No. 91915.

For the payment of the final settlement of PhP 100 million, it was agreed that PhP 15 million should be paid upfront,
while payment of the remaining PhP 85 million should be by dacion en pago. Covered by the dacion en
pago arrangement were the Imelda Village and a 1,000-sq. meter property known as San Jose land. The MOA signing
paved the way for the re-opening of the DWUT.
On April 29, 2002, the CA rendered the assailed decision, 10 reversing the March 8, 1996 and June 7, 1996 Orders of
the RTC and directed the annotation of encumbrances on the TCTs of the subject properties to show the restrictions
on use and reversionary interest of the RCAP. The decretal portion of the CA’s decision reads:

WHEREFORE, premises considered, the Orders of the court a quo dated 08 March 1996 and 07 June 1996
respectively are hereby REVERSED. The petition for the annotation of encumbrances on certain titles to show
restrictions on use and a reversionary interest therein is GRANTED.

SO ORDERED.

At the outset, the CA noted that the RTC failed to categorically resolve the Union’s motion for intervention under
Sec. 2 of Rule 12, as amended by Sec. 1, Rule 19 of the Rules of Court, since the RTC merely stated in its March 8, 1996
Order that the resolution of the motion for intervention was mooted. Noted, moreover, was the fact that said order
became final as against the Union on account of its failure to question the order within the reglementary period
available to it. Consequently, the CA held that the Union cannot, on appeal, be considered a proper party in the
instant case, as it did not acquire personality to be a party to the proceedings in the case. Thus, the CA treated as
mere scrap of paper the Union’s appellee’s brief.

In reversing the assailed RTC orders, the CA disagreed with the trial court’s finding and application of the equitable
remedy of laches. Relying on Eduarte v. Court of Appeals11  and related cases,12 where the Court applied laches to bar
judicial remedies in the plaintiff’s exercise of legal rights, as allowing plaintiff to do so would be inequitable and
unjust to the defendant, the CA held that the RCAP was not barred by laches from asserting his legal right to cause
the annotation of the pertinent paragraphs of the deed of sale on the TCTs covering the subject properties. It
ratiocinated that despite the lapse of 37 years, the annotation would not be inequitable or prejudicial to any party
since the SVD, under whose name the TCTs of the subject properties were issued, did not interpose any objection to
the annotation. It noted that the June 7, 1996 RTC Order did not specify the party who would be prejudiced by the
annotation.

The Union’s motion for reconsideration was rejected by the CA through the assailed January 20, 2003 Resolution. 13

Hence, we have this Petition for Review on Certiorari under Rule 45, raising the following issues for our
consideration:

WHETHER THE COURT OF APPEALS ERRED IN ALLOWING THE ANNOTATION OF ENCUMBRANCE ON CERTAIN
[TITLES] TO SHOW RESTRICTIONS ON USE AND REVERSIONARY INTERESTS THEREIN

WHETHER THE COURT OF APPEALS COMMITTED GRAVE ABUSE OF DISCRETION IN CONSIDERING THE APPELLEES’
BRIEF OF PETITIONERS AS A MERE SCRAP OF PAPER AND ASSAIL[ING] THE PERSONALITY OF THE PETITIONER[S] IN
THE INSTANT CASE14

On the first issue, petitioners argue that the appellate court erred in not affirming and applying the equitable remedy
of laches. They assert that due to the adjudged substantial liabilities of DWUT pursuant to G.R. No. 91915 and for
which it is hard put of meeting, the subject properties over which DWUT stands must be used. Considering that no
annotations were made on the TCTs covering the subject properties and considering too the resultant judgment lien
attaching on them, the desired annotation is clearly prejudicial and inequitable both for the DWUT and petitioners,
for how, petitioners wonder, could the school pay its adjudged obligations without the substantial assets composed
of the subject properties?

Petitioners contend further that the instant case for annotation was pursued only after they have filed notices of lis
pendens over the subject properties for the ultimate satisfaction of their adjudicated monetary claims against
DWUT. Clearly, they posit, the RCAP is trying to move the subject properties out of the reach of petitioners through
the requested annotation. Thus, they conclude that the principle of laches has attached and the annotation of the
encumbrance or reversionary right of the RCAP is properly barred.
Corollary to the first issue, petitioners aver under the second issue that the appellate court gravely abused its
discretion in holding that petitioners are not prejudiced and will not be affected by the resolution of the instant case
for annotation. As petitioners would argue, their rights would greatly be prejudiced since the resolution ordering
annotation will not only delay the execution proceedings but will render for naught the final decision of this Court in
G.R. No. 91915.

Petitioners also take umbrage of the CA’s ruling on the issue of personality of the Union in the instant case as the
RCAP never questioned its standing in his opposition to the motion to intervene. Besides, they emphasize, the
personality issue was not raised in the proceedings before the trial court and, thus, cannot be raised for the first
time on appeal.

On the other hand, the RCAP argues that petitioners have not sufficiently shown that they will be prejudiced by the
annotation of his interest over the subject properties. The RCAP contends: First, the SVD and DWUT, the parties who
could be so prejudiced, have not opposed the annotation. Second, petitioners have not shown that the SVD and
DWUT have no other properties to answer for the adjudicated liabilities in G.R. No. 91915. In fact, the February 24,
1997 MOA executed by the Union, DWUT, represented by the SVD, and the RCAP envisioned a final settlement of
petitioners’ claim without involving the subject properties. Third, the judgment lien issue is immaterial since there is
as yet no levy on execution over the subject properties. Besides, the preference of credit asserted in connection
with the perceived lien is only applicable where there is an insolvency proceeding and payment of debts have to be
equitably distributed among the creditors. And fourth, the CA can, on appeal, rule on the issue of the Union’s
personality since an appeal opens the case de novo and the appellate court has discretion to rule on issues which it
deems are necessary for the proper adjudication of the case, like the matter of personality which the appellate court
resolved motu proprio and not upon the instance of the RCAP.

Considering the arguments and counter-arguments earnestly pressed by the parties, the main issues to be
determined are first, whether the Union has acquired legal personality to intervene in the instant case; and second,
whether laches has set in to bar the RCAP’s cause of action.

We answer both issues in the negative.

As the appellate court aptly noted, the RTC did not resolve the motion for intervention of the Union. It bears
stressing that the March 8, 1996 RTC Order held that the dismissal of Cadastral Case No. 95-04-08 mooted the
resolution of the Union’s motion for intervention. Likewise, the RTC did not allow intervention in its June 7, 1996
Order as it denied the RCAP’s motion for reconsideration on the ground of laches. Since it did not question these
RTC orders which lapsed into finality later, the Union cannot be said to have acquired any legal personality to
intervene or participate in the instant case. Therefore, the appellate court did not gravely abuse its discretion in
holding that the Union has no legal personality to participate in the proceedings of the instant case, and
consequently, the instant petition of the Union is dismissible on this ground alone.

The instant petition will nevertheless fail even if we concede that the Union has legal personality to institute it. The
judgment lien over the subject properties is really non-existent as it has not been shown that a levy on execution has
been imposed over the subject properties. While the Decision in G.R. No. 91915 is indeed final and executory, such
reality does not ipso facto burden all the lands and properties owned by the SVD over which the DWUT is erected,
absent proof that the SVD cannot pay its adjudicated obligations and that a levy on execution was indeed made over
the subject properties.

We agree with the RCAP that a judgment lien over the subject properties has not legally attached and that Art.
11015 of the Labor Code, in relation to Arts. 2242, 2243, and 2244 of the Civil Code on concurrence and preference of
credits, does not cover the subject properties. Art. 110 of the Labor Code applies only to cases of bankruptcy and
liquidation. Likewise, the abovementioned articles of the Civil Code on concurrence and preference of credits
properly come into play only in cases of insolvency. Since there is no bankruptcy or insolvency proceeding to speak
of, much less a liquidation of the assets of DWUT, the Union cannot look to said statutory provisions for support.
Moreover, we note the utter lack of showing that DWUT has no other assets to answer its obligations. DWUT may
have liquidity problems hampering its ability to meet its judicially-imposed obligations. The school, however, appears
to have other properties it can and in fact did use to settle its obligations as shown in the February 24, 1997 MOA
between DWUT, the Union, and RCAP. A scrutiny of the MOA readily shows that the subject properties were not
included in the assets or properties earmarked to settle DWUT’s obligations.

The Court takes judicial notice of the fact that the Union has judicially admitted the existence, due execution, and
validity of the October 1, 1958 Deed of Sale with the conditions, restrictions, and a reversionary right of the RCAP
embodied in it. In its complaint before the RAB for Unfair Labor Practice, Illegal Dismissal, and Damages, the Union
impleaded the RCAP as solidarily liable with the DWUT on the Union’s monetary claims precisely on the basis of said
conditions, restrictions, and a reversionary right of the RCAP. Such averment is a clear admission against the
interests of the Union.

The Union likewise cannot be permitted to take two opposite positions on the issue of the stipulated reversionary
right of RCAP over the subject properties. It cannot invoke such reversionary right of RCAP to render the RCAP
solidarily liable with the DWUT in the RAB case while, at the same time, resisting the annotation of that reversionary
right in the instant case.

On the issue of laches, we agree and so hold that it is inapplicable to the instant case. Estate of the Late
Encarnacion Vda. de Panlilio v. Dizon explains the concept of laches in this wise:

According to settled jurisprudence, "laches" means "the failure or neglect, for an unreasonable and unexplained
length of time, to do that which—by the exercise of due diligence—could or should have been done earlier." Verily,
laches serves to deprive a party guilty of it of any judicial remedies. Its elements are: (1) conduct on the part of the
defendant, or of one under whom the defendant claims, giving rise to the situation which the complaint seeks a
remedy; (2) delay in asserting the complainant’s rights, the complainant having had knowledge or notice of the
defendant’s conduct as having been afforded an opportunity to institute a suit; (3) lack of knowledge or notice on
the part of the defendant that the complainant would assert the right in which the defendant bases the suit; and (4)
injury or prejudice to the defendant in the event relief is accorded to the complainant, or the suit is not held barred.

In Santiago v. Court of Appeals, we explained that there is "no absolute rule as to what constitutes laches or
staleness of demand; each case is to be determined according to its particular circumstances." 16

Of the foregoing elements, the fourth and most important element, that is, injury or prejudice to the defendant in
the event relief is accorded to the complainant or the suit is not held barred, is not present under the premises. As
the CA aptly observed, no prejudice can result from the annotation pleaded by the RCAP since the SVD, the property
purchaser in the October 1, 1958 transaction, did not oppose the annotation of the conditions, restrictions, and a
reversionary right of the RCAP over the subject properties, as evidenced by a manifestation the DWUT filed before
the trial court. More so, no prejudice can befall the Union for no judgment lien has attached or been imposed over
the subject properties and, as earlier explained, there is no showing that the subject properties are the only
properties the DWUT has or that its other assets and properties are insufficient to meet its obligations. Thus, failing
to show any actual interest over the subject properties that need judicial protection, the Union will not suffer any
damage with the annotation on SVD’s titles of the conditions, restrictions, and a reversionary interest of the RCAP.

Indeed, there is no dispute as to the existence and due execution of the October 1, 1958 Deed of Sale in question. Its
validity is immediately apparent from the fact that the RCAP’s titles over the properties covered by the deed had
been canceled and new TCTs issued in the name of the SVD. The fact that the deed is not notarized is of little
moment because, for purposes of validity between the parties, a deed of sale need not be in a public
document.17 With the judicial acquiescence of the SVD to the annotation, the subject matter of the instant case, we
so hold such to be in order.

WHEREFORE, we DENY this petition and AFFIRM IN TOTO the April 29, 2002 Decision and January 20, 2003
Resolution of the CA in CA-G.R. CV No. 56482, with costs against petitioners.
SO ORDERED.

[ G.R. No. 200678, June 04, 2018 ]

BANCO FILIPINO SAVINGS AND MORTGAGE BANK, PETITIONER, V. BANGKO SENTRAL NG PILIPINAS AND THE
MONETARY BOARD, RESPONDENTS.

DECISION
LEONEN, J.:
A bank which has been ordered closed by the Bangko Sentral ng Pilipinas (Bangko Sentral) is placed under the
receivership of the Philippine Deposit Insurance Corporation. As a consequence of the receivership, the closed bank
may sue and be sued only through its receiver, the Philippine Deposit Insurance Corporation. Any action filed by the
closed bank without its receiver may be dismissed.
This is a Petition for Review on Certiorari [1] assailing the Court of Appeals July 28, 2011 Decision [2] and February 16,
2012 Resolution[3] in CA-G.R. SP No. 116905, which dismissed Civil Case No. 10-1042 and held that the trial court had no
jurisdiction over Bangko Sentral and the Monetary Board.

On December 11, 1991, this Court promulgated Banco Filipino Savings & Mortgage Bank v. Monetary Board and Central
Bank of the Philippines,[4] which declared void the Monetary Board's order for closure and receivership of Banco
Filipino Savings & Mortgage Bank (Banco Filipino). This Court also directed the Central Bank of the Philippines and
the Monetary Board to reorganize Banco Filipino and to allow it to resume business under the comptrollership of
both the Central Bank and the Monetary Board.[5]

Banco Filipino subsequently filed several Complaints before the Regional Trial Court, among them a claim for
damages in the total amount of P18,800,000,000.00. [6]
On June 14, 1993, Congress passed Republic Act No. 7653, [7] providing for the establishment and organization of
Bangko Sentral as the new monetary authority.

On November 6, 1993, pursuant to this Court's 1991 Banco Filipino Decision, the Monetary Board issued Resolution
No. 427, which allowed Banco Filipino to resume its business. [8]

In 2002, Banco Filipino suffered from heavy withdrawals, prompting it to seek the help of Bangko Sentral. In a letter
dated October 9, 2003, Banco Filipino asked for financial assistance of more than P3,000,000,000.00 through
emergency loans and credit easement terms. [9] In a letter[10] dated November 21, 2003, Bangko Sentral informed
Banco Filipino that it should first comply with certain conditions imposed by Republic Act No. 7653 before financial
assistance could be extended. Banco Filipino was also required to submit a rehabilitation plan approved by Bangko
Sentral before emergency loans could be granted.

In a letter[11] dated April 14, 2004, Banco Filipino submitted its Long-Term Business Plan to Bangko Sentral. It also
claimed that Bangko Sentral already extended similar arrangements to other banks and that it was still awaiting the
payment of P18,800,000,000.00 in damage claims, "the entitlement to which the Supreme Court has already
decided with finality."[12]

In response, Bangko Sentral informed Banco Filipino that its business plan could not be acted upon since it was
neither "confirmed nor approved by [Banco Filipino's Board of Directors]." [13]

On July 8, 2004, Banco Filipino filed a Petition for Revival of Judgment with the Regional Trial Court of Makati to
compel Bangko Sentral to approve its business plan. The case was docketed as Civil Case No. 04-823 and was raffled
to Branch 62.[14]
During the pendency of its Petition, Banco Filipino entered into discussions and negotiations with Bangko Sentral,
which resulted to seven (7) revisions in the business plan. Thus, Banco Filipino filed a Proposal for Settlement dated
September 21, 2007 before Branch 62, Regional Trial Court, Makati City to settle the issues between the parties. [15]
On April 8, 2009, Banco Filipino submitted its 8 th Revised Business Plan to Bangko Sentral for evaluation. [16] In this
business plan, Banco Filipino requested, among others, a P25,000,000,000.00 income enhancement loan. Unable to
come to an agreement, the parties constituted an Ad Hoc Committee composed of representatives from both
parties to study and act on the proposals. The Ad Hoc Committee produced an Alternative Business Plan, which was
accepted by Banco Filipino, but was subject to the Monetary Board's approval. [17]

In a letter[18] dated December 4, 2009, Bangko Sentral informed Banco Filipino that the Monetary Board issued
Resolution No. 1668 granting its request for the P25,000,000,000.00 Financial Assistance and Regulatory Reliefs to
form part of its Revised Business Plan and Alternative Business Plan. The approval was also subject to certain terms
and conditions, among which was the withdrawal or dismissal with prejudice to all pending cases filed by Banco
Filipino against Bangko Sentral and its officials. [19] The terms also included the execution of necessary quitclaims and
commitments to be given by Banco Filipino's principal stockholders, Board of Directors, and duly authorized officers
"not to revive or refile such similar cases in the future." [20]

In a letter[21] dated January 20, 2010, Banco Filipino requested reconsideration of the terms and conditions of the
P25,000,000,000.00 Financial Assistance and Regulatory Reliefs package, noting that the salient features of the
Alternative Business Plan were materially modified. [22] However, in a letter[23] dated April 8, 2010, Banco Filipino
informed Bangko Sentral that it was constrained to accept the "unilaterally whittled down version of the
[P25,000,000,000.00] Financial Assistance Package and Regulatory Reliefs." [24] It, however, asserted that it did not
agree with the condition to dismiss and withdraw its cases since this would require a separate discussion. [25]

In a letter[26] dated April 19, 2010, Bangko Sentral informed Banco Filipino that it was surprised by the latter's
hesitation in accepting the terms and conditions, in particular, the withdrawal of the cases against it, since this
condition had already been discussed from the start of the negotiations between the parties. [27]
In a letter[28] dated June 21, 2010, Banco Filipino informed Bangko Sentral that it never accepted the condition of the
withdrawal of the cases in prior negotiations but was willing to discuss this condition as a separate and distinct
matter.

In a letter[29] dated August 10, 2010, Bangko Sentral and the Monetary Board, through counsel CVC Law, informed
Banco Filipino that its rejection of certain portions of Resolution No. 1668, particularly its refusal to withdraw all
cases filed against Bangko Sentral, was deemed as a failure to reach a mutually acceptable settlement.
In a letter[30] dated August 13, 2010, Banco Filipino questioned the legality of referring the matter to private counsel
and stated that it had not been notified of the action taken on the acceptance of its Business Plan.

In a letter[31] dated September 13, 2010, CVC Law told Banco Filipino that the matter was referred to it as an incident
of Civil Case No. 04-823, which it was handling on behalf of Bangko Sentral. It also informed Banco Filipino that the
latter's rejection of the terms and conditions of Resolution No. 1668 made this Resolution legally unenforceable.

Banco Filipino sent letters[32] dated September 22, 2010 and September 28, 2010, questioning the legality of Bangko
Sentral's referral to private counsel and reiterating that the terms and conditions embodied in Resolution No. 1668
were not meant to be a settlement of its P18,800,000,000.00 damage claim against Bangko Sentral.

In a letter[33] dated October 4, 2010, Bangko Sentral reiterated that its referral of the matter to CVC Law was due to
the matter being incidental to the civil case pending before the Regional Trial Court.

On October 20, 2010, Banco Filipino filed a Petition For Certiorari and Mandamus with prayer for issuance of a
temporary restraining order and writ of preliminary injunction [34] before Branch 66, Regional Trial Court, Makati City,
docketed as Civil Case No. 10-1042. It assailed the alleged "arbitrary, capricious and illegal acts" [35] of Bangko Sentral
and of the Monetary Board in coercing Banco Filipino to withdraw all its present suits in exchange of the approval of
its Business Plan. In particular, Banco Filipino alleged that Bangko Sentral and the Monetary Board committed grave
abuse of discretion in imposing an additional condition in Resolution No. 1668 requiring it to withdraw its cases and
waive all future cases since it was unconstitutional and contrary to public policy. It prayed that a writ of mandamus
be issued to compel Bangko Sentral and the Monetary Board to approve and implement its business plan and
release its Financial Assistance and Regulatory Reliefs package. [36]

The trial court issued a Notice of Hearing on the prayer for a temporary restraining order on the same day, setting
the hearing on October 27, 2010.[37]

On October 27, 2010, Bangko Sentral and the Monetary Board filed their Motion to Dismiss Ad Cautelam, [38] assailing
the Regional Trial Court's jurisdiction over the subject matter and over the persons of Bangko Sentral and the
Monetary Board. Banco Filipino, on the other hand, filed its Opposition [39] to this Petition.

In its October 28, 2010 Order,[40] the Regional Trial Court granted the request for the issuance of a temporary
restraining order against Bangko Sentral and the Monetary Board. The dispositive portion of this Order read:

WHEREFORE, premises considered and pursuant to Rule 58 of the Revised Rules of Court, Petitioner's prayer for a
Temporary Restraining Order is hereby GRANTED. Respondent[s] Ban[gk]o Sentral ng Pilipinas and [t]he Monetary
Board, as well as [their] representatives, agents, assigns and/or third person or entity acting for and [their] behalf
are hereby enjoined from (a) employing acts inimical to the enforcement and implementation of the approv[ed]
Business Plan, (b) continuing and committing acts prejudicial to Petitioner's operations, (c) withdrawing or
threatening to withdraw the approval of the Business Plan containing financial assistance, and package of regulatory
reliefs, and (d) otherwise enforcing other regulatory measures and abuses calculated to coerce Banco Filipino
Savings and Mortgage Bank into agreeing to drop and/or withdraw its suits and damage claims against BSP and MB,
and to waive future claims against Respondents or their official[s] and employees.

Further, the Court directs Sheriff Leodel N. Roxas to personally serve a copy of this Order to the herein Respondent
Ban[gk]o Sentral ng Pilipinas and [t]he Monetary Board. Finally, let this case be set on November 11, 2010 and
November 12, 2010 both at 2:00 in the afternoon for hearing on the prayer for issuance of a Writ of Preliminary
Mandatory Injunction.

SO ORDERED.[41]

On the same day or on October 28, 2010, summons was served on Bangko Sentral through a staff member of the
Office of the Governor, as certified by the Process Server's Return dated November 4, 2010. [42]

On November 5, 2010, Bangko Sentral and the Monetary Board filed a Petition For Certiorari with prayer for
temporary restraining order and/or writ of preliminary injunction [43] with the Court of Appeals, assailing the Regional
Trial Court's October 28, 2010 Order for having been issued without jurisdiction. The Petition was docketed as CA-
G.R. SP No. 116627.[44]

On November 17, 2010, the trial court issued an Order[45] denying the Bangko Sentral and the Monetary Board's
Motion to Dismiss Ad Cautelam, stating that the acts complained of pertained to Bangko Sentral 's regulatory
functions, not its adjudicatory functions.[46] It likewise stated that as requested in the handwritten letter [47] dated
October 21, 2010 by Bangko Sentral's general counsel requesting for an advanced copy of Banco Filipino's Petition, it
furnished Bangko Sentral a copy of the Petition. It also held that Bangko Sentral's subsequent participation in the
preliminary hearing and its receipt of the summons on October 28, 2010 satisfied the requirements of procedural due
process.[48]

The trial court likewise found that litis pendencia and forum shopping were not present in the case, that Bangko
Sentral's verification and certification of non-forum shopping were validly signed by the Executive Committee, and
that Banco Filipino's Petition did not fail to state a cause of action. [49]
On November 25, 2010, Bangko Sentral and the Monetary Board filed another Petition for Certiorari [50] with prayer
for temporary restraining order and writ of preliminary injunction with the Court of Appeals, this time assailing the
November 17, 2010 Order. The case was docketed as CA-G.R. SP No. 116905. However, the trial court issued a writ of
preliminary injunction on November 18, 2010[51] so they filed their Urgent Motion to Admit Attached Amended
Petition[52] with the Court of Appeals to include the Issuance.

In the meantime, or on November 23, 2010, Bangko Sentral and the Monetary Board filed a Motion to Admit
Attached Supplemental Petition for Certiorari with Application for Interim Relief [53] in CA-G.R. SP No. 116627 seeking
to include the trial court's October 28, 2010 Order.

In its December 28, 2010 Resolution, [54] the Court of Appeals granted[55] Bangko Sentral and the Monetary Board's
Urgent Motion to Admit Attached Amended Petition in CA-G.R. SP No. 116905.

Meanwhile, Banco Filipino filed its Opposition dated January 18, 2011 in CA-G.R. SP No. 116905. [56]

After oral arguments were held on February 7, 2011, [57] the Court of Appeals issued its February 14, 2011
Resolution[58] in CA-G.R. SP No. 116905. It granted the application for a writ of preliminary injunction and enjoined the
trial court from conducting further proceedings in Civil Case No. 10-1042 pending a decision on the merits.

On February 16, 2011, Banco Filipino filed an Urgent Motion for Consolidation [59] in CA-G.R. SP No. 116905, requesting
for the consolidation of the two (2) Petitions for Certiorari filed by Bangko Sentral and the Monetary Board before
the Court of Appeals. On March 1, 2011, it also filed a Motion for Reconsideration [60] of the Court of Appeals February
14, 2011 Resolution.

In its June 2, 2011 Resolution, [61] the Court of Appeals in CA-G.R. SP No. 116905 denied Banco Filipino's Motion for
Reconsideration, holding that special civil actions against quasi-judicial agencies should be filed before the Court of
Appeals, not before a trial court.[62] The Court of Appeals also denied the Urgent Motion for Consolidation for the
following reasons:

1) [I]t would cause not only further congestion of the already congested docket of the ponente of CA-G.R. SP No.
116627, but also in the delay in the disposition of both cases; 2) the subject matters and issues raised in the instant
petition are different from those set forth in CA-G.R. SP No. 116627, hence, they can be the subject of separate:
petitions; and 3) Since a writ of preliminary injunction was earlier issued, Section 2 (d), Rule VI of the 2009 IRCA
requires that the instant petition remain with the undersigned ponente for decision on the merits with dispatch.[63]

On July 28, 2011, the Court of Appeals rendered its Decision [64] in CA-G.R. SP No. 116905 granting Bangko Sentral and
the Monetary Board's Amended Petition. According to the Court of Appeals, the trial court had no jurisdiction over
the Petition for Certiorari and Mandamus filed by Banco Filipino since special civil actions against quasi-judicial
agencies are only cognizable by the Court of Appeals. [65] It also found that the trial court gravely abused its discretion
in acquiring jurisdiction over Bangko Sentral and the Monetary Board by reason of their voluntary appearance in the
preliminary hearing since their counsel had made it clear that the appearance was specifically to question the
absence of a service of summons.[66]

The Court of Appeals likewise found that the delegation of authority from Banco Filipino's Board of Directors to the
Executive Committee to sign pleadings on its behalf validated the verification and certification of non-forum
shopping signed only by the Executive Vice Presidents. [67] It also ruled that there was no litis pendencia or forum
shopping in the case docketed as Civil Case No. 10-1042 despite the pendency of Civil Case No. 04-823 since the
causes of action and the reliefs prayed for were not the same. [68] The dispositive portion of the Court of Appeals July
28, 2011 Decision read:

WHEREFORE, the petition is GRANTED. The Order dated November 17, 2010 issued by respondent Judge Joselito C.
Villarosa of the Regional Trial Court (RTC), Branch 66, Makati City, in Civil Case No. 10-1042, is ANNULLED and SET
ASIDE. In lieu thereof, judgment is hereby rendered. DISMISSING Civil Case No. 10-1042 on the ground of the RTC's
lack of jurisdiction over the same.

Accordingly, the writ of preliminary injunction issued by this Court on February 14, 2011, enjoining respondent Judge,
private respondent and their representatives from conducting further proceedings in Civil Case No. 10-1042, is
hereby made PERMANENT.

SO ORDERED.[69]

Banco Filipino filed a Motion for Reconsideration, [70] which was denied by the Court of Appeals in its February 16,
2012 Resolution.[71] Hence, it filed this Petition[72] on April 10, 2012 against Bangko Sentral and the Monetary Board
before this Court.

Petitioner claims that it had the authority to file this Petition since the Court of Appeals promulgated its January 27,
2012 Decision in CA-G.R. SP No. 118599, finding petitioner's closure and receivership to have been illegal. [73] It argues
that to dismiss its Petition now pending before this Court for lack of authority from its receiver Philippine Deposit
Insurance Corporation would be "an absurd and unjust situation." [74] Petitioner admits, however, that this decision
was eventually overturned on reconsideration [75] in the Court of Appeals November 21, 2012 Amended Decision. [76]

Petitioner points out that there was nothing in the Philippine Deposit Insurance Corporation Charter or in Republic
Act No. 7653 that precludes its Board of Directors from suing on its behalf. It adds that there was an obvious conflict
of interest in requiring it to seek Philippine Deposit Insurance Corporation's authority to file the case considering
that Philippine Deposit Insurance Corporation was under the control of herein respondent Monetary Board. [77]

Petitioner asserts that the trial court had jurisdiction over special civil actions against respondents, accordingly
with Merchants Rural Bank of Talavera v. Monetary Board, et al.,[78] a decision promulgated by the Court of Appeals in
2006.[79]

Petitioner likewise argues that the trial court acquired jurisdiction over respondents considering that they were able
to participate in the summary hearing. It points out that respondents questioned before the trial court the service of
the petition on October 21, 2010 but never actually questioned the service of summons on October 28, 2010 until it
filed its petition with the Court of Appeals. [80] It argues that respondents' private counsel was present during the
raffle of the case on October 21, 2010 and even assisted respondents' general counsel in receiving copies of the
petition that the latter requested, showing that respondents' due process was never violated. [81] It asserts that the
Court of Appeals should have dismissed outright respondents' Petition for Certiorari for "maliciously omitt[ing]" the
handwritten letter dated October 21, 2010 of their general counsel. [82] It likewise points out that respondents failed
to file a motion for reconsideration before the trial court before filing their petition for certiorari with the Court of
Appeals.[83]

Respondents, on the other hand, counter that the Petition should be dismissed outright for being filed without
Philippine Deposit Insurance Corporation's authority. It asserts that petitioner was placed under receivership on
March 17, 2011, and thus, petitioner's Executive Committee would have had no authority to sign for or on behalf of
petitioner absent the authority of its receiver, Philippine Deposit Insurance Corporation. [84] They also point out that
both the Philippine Deposit Insurance Corporation Charter and Republic Act No. 7653 categorically state that the
authority to file suits or retain counsels for closed banks is vested in the receiver. [85] Thus, the verification and
certification of non-forum shopping signed by petitioner's Executive Committee has no legal effect. [86]

Respondents likewise claim that the Court of Appeals did not err in finding that the trial court had no jurisdiction
over respondents. It cited this Court's ruling in United Coconut Planters Bank v. E. Ganzon, Inc.[87] and National Water
Resources Board v. A. L. Ang Network,[88] where this Court categorically stated that special civil cases filed against
quasi-judicial agencies must be filed before the Court of Appeals. [89] They argue that there was no showing
that Merchants Rural Bank of Talavera was ever upheld by this Court.[90] They contend that petitioner should be
estopped from raising the issue of jurisdiction considering that during the pendency of this case, or on March 21, 2011
and November 20, 2011, it filed two (2) separate petitions for certiorari against respondent Monetary Board directly
before the Court of Appeals.[91]

Respondents maintain that the trial court did not acquire jurisdiction over them since there was no valid service of
summons. They argue that when they filed their Motion to Dismiss on October 27, 2010, they could not have validly
argued the propriety of the summons on them on October 28, 2010. [92] They likewise contend that their voluntary
appearance in the summary hearing before the trial court was not a submission to the trial court's jurisdiction since
they consistently manifested that their appearance would be special and limited to raise the issues of jurisdiction.
[93]
 They also assert that the service of summons to a staff member of the Office of the Governor General is not
equivalent to the service of summons to the Governor General, making the service of summons ineffective. [94]

Respondents likewise claim that their filing of their Petition before the Court of Appeals without a prior motion for
reconsideration was justified by certain exceptional circumstances. They mention, among others, the trial court's
lack of jurisdiction, the fact that the issues have already been raised and passed upon by the trial court, the prejudice
to government interest in delaying the case, and their denied due process because of the improper service of
summons.[95] They further argue that the only significance of the October 21, 2010 handwritten letter was to show
that respondents were informed that a Petition was filed, and not that the trial court had. already acquired
jurisdiction over their persons.[96]

From the arguments of the parties, this Court is asked to resolve the following issues:

First, whether or not trial courts have jurisdiction to take cognizance of a petition for certiorari against acts and
omissions of the Monetary Board;

Second, whether or not respondents Bangko Sentral ng Pilipinas and the Monetary Board should have filed a motion
for reconsideration of the trial court's denial of their motion to dismiss before filing their petition for certiorari
before the Court of Appeals; and

Finally, whether or not the trial court validly acquired jurisdiction over respondents Bangko Sentral ng Pilipinas and
the Monetary Board.

However, before any of these issues can be addressed, this Court must first resolve the issue of whether or not
petitioner Banco Filipino, as a closed bank under receivership, could file this Petition for Review without joining its
statutory receiver, the Philippine Deposit Insurance Corporation, as a party to the case.

I
A closed bank under receivership can only sue or be sued through its receiver, the Philippine Deposit Insurance
Corporation.

Under Republic Act No. 7653,[97] when the Monetary Board finds a bank insolvent, it may "summarily and without
need for prior hearing forbid the institution from doing business in the Philippines and designate the Philippine
Deposit Insurance Corporation as receiver of the banking institution." [98]

Before the enactment of Republic Act No. 7653, an insolvent bank under liquidation could not sue or be sued except
through its liquidator. In Hernandez v. Rural Bank of Lucena:[99]
[A]n insolvent bank, which was under the control of the finance commissioner for liquidation, was without power or
capacity to sue or be sued, prosecute or defend, or otherwise function except through the finance commissioner or
liquidator.[100]

This Court in Manalo v. Court of Appeals[101] reiterated this principle:

A bank which had been ordered closed by the monetary board retains its juridical personality which can sue and be
sued through its liquidator. The only limitation being that the prosecution or defense of the action must be done
through the liquidator. Otherwise, no suit for or against an insolvent entity would prosper. [102]

Under the old Central Bank Act, or Republic Act No. 265, [103] as amended,[104] the same principle applies to the
receiver appointed by the Central Bank. The law explicitly stated that a receiver shall "represent the [insolvent] bank
personally or through counsel as he [or she] may retain in all actions or proceedings for or against the institution."
Section 29 of the old law states:

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

In Republic Act No. 7653, this provision is substantially altered. Section 30 now states, in part:

The receiver shall immediately gather and take charge of all the assets and liabilities of the institution, administer the
same for the benefit of its creditors, and exercise the general powers of a receiver under the Revised Rules of Court but
shall not, with the exception of administrative expenditures, pay or commit any act that will involve the transfer or
disposition of any asset of the institution: Provided, That the receiver may deposit or place the funds of the
institution in non-speculative investments. The receiver shall determine as soon as possible, but not later than ninety
(90) days from take-over, whether the institution may be rehabilitated or otherwise placed in such a condition so
that it may be permitted to resume business with safety to its depositors and creditors and the general public:
Provided, That any determination for the resumption of business of the institution shall be subject to prior approval
of the Monetary Board.

If the receiver determines that the institution cannot be rehabilitated or permitted to resume business in accordance
with the next preceding paragraph, the Monetary Board shall notify in writing the board of directors of its findings and
direct the receiver to proceed with the liquidation of the institution. The receiver shall:

(1) file ex parte with the proper regional trial court, and without requirement of prior notice or any other action, a
petition for assistance in the liquidation of the institution pursuant to a liquidation plan adopted by the Philippine
Deposit Insurance Corporation for general application to all closed banks. In case of quasi-banks, the liquidation plan
shall be adopted by the Monetary Board. Upon acquiring jurisdiction, the court shall, upon motion by the receiver
after due notice, adjudicate disputed claims against the institution, assist the enforcement of individual liabilities of
the stockholders, directors and officers, and decide, on other issues as may be material to implement the liquidation
plan adopted. The receiver shall pay the cost of the proceedings from the assets of the institution.

(2) convert the assets of the institution to money, dispose of the same to creditors and other parties, for the
purpose of paying the debts of such institution in accordance with the rules on concurrence and preference of credit
under the Civil Code of the Philippines and he may, in the name of the institution, and with the assistance of counsel as
he may retain, institute such actions as may be necessary to collect and recover accounts and assets of, or defend any
action against, the institution. The assets of an institution under receivership or liquidation shall be deemed in
custodia legis in the hands of the receiver and shall, from the moment the institution was placed under such
receivership or liquidation, be exempt from any order of garnishment, levy, attachment, or execution. (Emphasis
supplied)

The relationship between the Philippine Deposit Insurance Corporation and a closed bank is fiduciary in nature.
Section 30 of Republic Act No. 7653 directs the receiver of a closed bank to "immediately gather and take charge of
all the assets and liabilities of the institution" and "administer the same for the benefit of its creditors." [105]

The law likewise grants the receiver "the general powers of a receiver under the Revised Rules of Court." [106] Under
Rule 59, Section 6 of the Rules of Court, "a receiver shall have the power to bring and defend, in such capacity,
actions in his [or her] own name."[107] Thus, Republic Act No. 7653 provides that the receiver shall also "in the name
of the institution, and with the assistance of counsel as [it] may retain, institute such actions as may be necessary to
collect and recover accounts and assets of, or defend any action against, the institution." [108] Considering that the
receiver has the power to take charge of all the assets of the closed bank and to institute for or defend any action
against it, only the receiver, in its fiduciary capacity, may sue and be sued on behalf of the closed bank.

In Balayan Bay Rural Bank v. National Livelihood Development Corporation,[109] this Court explained that a receiver of a
closed bank is tasked with the duty to hold the assets and liabilities in trust for the benefit of the bank's creditors.

As fiduciary of the insolvent bank, Philippine Deposit Insurance Corporation conserves and manages the assets of
the bank to prevent the assets' dissipation. This includes the power to bring and defend any action that threatens to
dissipate the closed bank's assets. Balayan Bay Rural Bank explained that Philippine Deposit Insurance Corporation
does so, not as the real party-in-interest, but as a representative party, thus:

As the fiduciary of the properties of a closed bank, the PDIC may prosecute or defend the case by or against the said
bank as a representative party while the bank will remain as the real party in interest pursuant to Section 3, Rule 3 of
the Revised Rules of Court which provides:

SEC. 3. Representatives as parties. — Where the action is allowed to be prosecuted or defended by a representative
or someone acting in a fiduciary capacity, the beneficiary shall be included in the title of the case and shall be
deemed to be the real party in interest. A representative may be a trustee of an express trust, a guardian, an
executor or administrator, or a party authorized by law or these Rules. An agent acting in his own name and for the
benefit of an undisclosed principal may sue or be sued without joining the principal except when the contract
involves things belonging to the principal.

The inclusion of the PDIC as a representative party in the case is therefore grounded on its statutory role as the
fiduciary of the closed bank which, under Section 30 of R.A. 7653 (New Central Bank Act), is authorized to conserve
the latter's property for the benefit of its creditors. [110] (Citation omitted)
For this reason, Republic Act No. 3591,[111] or the Philippine Deposit Insurance Corporation Charter, as amended,
[112]
 grants Philippine Deposit Insurance Corporation the following powers as a receiver:
(c) In addition to the powers of a receiver pursuant to existing laws, the Corporation is empowered to:

(1) bring suits to enforce liabilities to or recoveries of the closed bank;

....

(6) hire or retain private counsels as may be necessary;

....
(9) exercise such other powers as are inherent and necessary for the effective discharge of the duties of the
Corporation as a receiver.[113]
Balayan Bay Rural Bank summarized, thus:

[T]he legal personality of the petitioner bank is not ipso facto dissolved by insolvency; it is not divested of its
capacity to sue and be sued after it was ordered by the Monetary Board to cease operation. The law mandated,
however, that the action should be brought through its statutory liquidator/receiver which in this case is the PDIC.
The authority of the PDIC to represent the insolvent bank in legal actions emanates from the fiduciary relation
created by statute which reposed upon the receiver the task of preserving and conserving the properties of the
insolvent for the benefit of its creditors. [114]

Petitioner contends that it was not a closed bank at the time of the filing of this Petition on April 10, 2012 since the
Court of Appeals January 27, 2012 Decision, docketed as CA-G.R. SP No. 118599, found the closure to have been
illegal.[115]

This Court of Appeals Decision, however, was not yet final since the Monetary Board filed a timely motion for
reconsideration.[116] There is also nothing in its dispositive portion which states that it was immediately executory.
[117]
 Through its November 21, 2012 Amended Decision, the Court of Appeals reversed its January 27, 2012 Decision,
[118]
 confirming petitioner's status as a closed bank under receivership. It was, therefore, erroneous for petitioner to
presume that it was not a closed bank on April 10, 2012 when it filed its Petition with this Court considering that there
was no final declaration yet on the matter.

Petitioner should have attempted to comply after the promulgation of the November 21, 2012 Amended Decision. Its
substantial compliance would have cured the initial defect of its Petition.

Petitioner likewise claims that there was "an obvious conflict of interest" [119] if it was required to sue respondents
only through Philippine Deposit Insurance Corporation, considering that respondent Monetary Board appointed
Philippine Deposit Insurance Corporation as petitioner's receiver. This is a fact, however, that petitioner failed to
address when it filed its Petition, signifying that petitioner had no intention of complying with the law when it filed
its Petition or anytime after.

It was speculative on petitioner's part to presume that it could file this Petition without joining its receiver on the
ground that Philippine Deposit Insurance Corporation might not allow the suit. At the very least, petitioner should
have shown that it attempted to seek Philippine Deposit Insurance Corporation's authorization to file suit. It was
possible that Philippine Deposit Insurance Corporation could have granted its permission to be joined in the suit. If it
had refused to allow petitioner to file its suit, petitioner still had a remedy available to it. Under Rule 3, Section 10 of
the Rules of Court,[120] petitioner could have made Philippine Deposit Insurance Corporation an unwilling co-
petitioner and be joined as a respondent to this case.

Petitioner's suit concerned its Business Plan, a matter that could have affected the status of its insolvency. Philippine
Deposit Insurance Corporation's participation would have been necessary, as it had the duty to conserve petitioner's
assets and to examine any possible liability that petitioner might undertake under the Business Plan.

Philippine Deposit Insurance Corporation also safeguards the interests of the depositors in all legal proceedings.
Most bank depositors are ordinary people who have entrusted their money to banks in the hopes of growing their
savings. When banks become insolvent, depositors are secure in the knowledge that they can still recoup some part
of their savings through Philippine Deposit Insurance Corporation. [121] Thus, Philippine Deposit Insurance
Corporation's participation in all suits involving the insolvent bank is necessary and imbued with the public interest.
In any case, petitioner's verification and certification of non-forum shopping was signed by its Executive Vice
Presidents Maxy S. Abad and Atty. Francisco A. Rivera, as authorized by its Board of Directors. [122] Under Section
10(b) of the Philippine Deposit Insurance Corporation Charter, as amended:

b. The Corporation as receiver shall control, manage and administer the affairs of the closed bank. Effective
immediately upon takeover as receiver of such bank,  the powers, functions and duties, as well as all allowances,
remunerations and prerequisites of the directors, officers, and stockholders of such bank are suspended, and the
relevant provisions of the Articles of Incorporation and By-laws of the closed bank are likewise deemed suspended.
[123]
 (Emphasis supplied)

When petitioner was placed under receivership, the powers of its Board of Directors and its officers were
suspended. Thus, its Board of Directors could not have validly authorized its Executive Vice Presidents to file the suit
on its behalf. The Petition, not having been properly verified, is considered an unsigned pleading. [124] A defect in the
certification of non-forum shopping is likewise fatal to petitioner's cause. [125]

Considering that the Petition was filed by signatories who were not validly authorized to do so, the Petition does not
produce any legal effect.[126] Being an unauthorized pleading, this Court never validly acquired jurisdiction over the
case. The Petition, therefore, must be dismissed.
II
Even assuming that the Petition did not suffer from procedural infirmities, it must still be denied for lack of merit.

Unless otherwise provided for by law and the Rules of Court, petitions for certiorari against a quasi-judicial agency
are cognizable only by the Court of Appeals. The Regional Trial Court had no jurisdiction over the Petition for
Certiorari filed by petitioner against respondents.

Pursuant to Article XII, Section 20 of the Constitution, [127] Congress constituted Bangko Sentral[128] as an independent
central monetary authority. As an administrative agency, it is vested with quasi-judicial powers, which it exercises
through the Monetary Board. In United Coconut Planters Bank v. E. Ganzon, Inc.:[129]

A quasi-judicial agency or body is an organ of government other than a court and other than a legislature, which
affects the rights of private parties through either adjudication or rule-making. The very definition of an
administrative agency includes its being vested with quasi-judicial powers. The ever increasing variety of powers and
functions given to administrative agencies recognizes the need for the active intervention of administrative agencies
in matters calling for technical knowledge and speed in countless controversies which cannot possibly be handled by
regular courts. A "quasi-judicial function" is a term which applies to the action, discretion, etc., of public
administrative officers or bodies, who are required to investigate facts, or ascertain the existence of facts, hold
hearings, and draw conclusions from them, as a basis for their official action and to exercise discretion of a judicial
nature.

Undoubtedly, the BSP Monetary Board is a quasi-judicial agency exercising quasi-judicial powers or functions. As
aptly observed by the Court of Appeals, the BSP Monetary Board is an independent central monetary authority and a
body corporate with fiscal and administrative autonomy, mandated to provide policy directions in the areas of
money, banking and credit. It has power to issue subpoena, to sue for contempt those refusing to obey the
subpoena without justifiable reason, to administer oaths and compel presentation of books, records and others,
needed in its examination, to impose fines and other sanctions and to issue cease and desist order. Section 37 of
Republic Act No. 7653, in particular, explicitly provides that the BSP Monetary Board shall exercise its discretion in
determining whether administrative sanctions should be imposed on banks and quasi-banks, which necessarily
implies that the BSP Monetary Board must conduct some form of investigation or hearing regarding the same. [130]
Bangko Sentral's Monetary Board is a quasi-judicial agency. Its decisions, resolutions, and orders are the decisions,
resolutions, and orders of a quasi-judicial agency. Any action filed against the Monetary Board is an action against a
quasi-judicial agency.

This does not mean, however, that Bangko Sentral only exercises quasi-judicial functions. As an administrative
agency, it likewise exercises "powers and/or functions which may be characterized as administrative, investigatory,
regulatory, quasi-legislative, or quasi-judicial, or a mix of these five, as may be conferred by the Constitution or by
statute."[131]

In this case, the issue between the parties was whether the trial court had jurisdiction over petitions for certiorari
against Bangko Sentral and the Monetary Board. Rule 65, Section 4 of the Rules of Court provides:

Section 4. Where and when petition to be filed. — The petition shall be filed not later than sixty (60) days from
notice of the judgment, order or resolution. In case a motion for reconsideration or new trial is timely filed, whether
such motion is required or not, the sixty (60) day period shall be counted from notice of the denial of said motion.

The petition shall be filed in the Supreme Court or, if it relates to the acts or omissions of a lower court or of a
corporation, board, officer or person, in the Regional Trial Court exercising jurisdiction over the territorial area as
defined by the Supreme Court. It may also be filed in the Court of Appeals whether or not the same is in aid of its
appellate jurisdiction, or in the Sandiganbayan if it is in aid of its appellate jurisdiction. If it involves the acts or
omissions of a quasi-judicial agency, unless otherwise provided by law or these Rules, the petition shall be filed in and
cognizable only by the Court of Appeals. (Emphasis supplied)

The Rules of Court categorically provide that petitions for certiorari involving acts or omissions of a quasi-judicial
agency "shall be filed in and cognizable only by the Court of Appeals."

As previously discussed, respondent Bangko Sentral exercises a myriad of functions, including those that may not be
necessarily exercised by a quasi-judicial agency. It is settled, however, that it exercises its quasi judicial functions
through respondent Monetary Board. Any petition for certiorari against an act or omission of Bangko Sentral, when
it acts through the Monetary Board, must be filed with the Court of Appeals. Thus, this Court in Vivas v. Monetary
Board and Philippine Deposit Insurance Corporation[132] held that the proper remedy to question a resolution of the
Monetary Board is through a petition for certiorari filed with the Court of Appeals.

The Court of Appeals, therefore, did not err in dismissing the case before the Regional Trial Court since the trial court
did not have jurisdiction over the Petition for Certiorari filed by petitioner against respondents.

This Court cannot subscribe to petitioner's contention that a Court of Appeals decision already provided for an
exception to Rule 65. A Court of Appeals decision, no matter how persuasive or well written, does not function
as stare decisis.[133] Neither can a Court of Appeals decision amend the Rules of Court. [134] As it stands, Rule 65 and
jurisprudence hold that petitions for certiorari against the Monetary Board must be filed with the Court of Appeals.

III
While this Petition is considered dismissed, this Court takes the opportunity to address other lingering procedural
issues raised by the parties in their pleadings.

Petitioner assails respondents' failure to file a motion for reconsideration of the trial court's denial of its motion to
dismiss before filing a petition for certiorari with the Court of Appeals. [135]
Rule 65, Section 1 of the Rules of Court requires that there be "no appeal, or any plain, speedy, and adequate remedy
in the ordinary course of law" available before a petition for certiorari can be filed. An order denying a motion to
dismiss is merely an interlocutory order of the court as it does not finally dispose of a case. [136] In BA Finance
Corporation v. Pineda,[137] a case citing the 1964 Rules of Court:

It must be remembered that, normally, when an interlocutory order is sought to be reviewed or annulled by means
of any of the extra legal remedies of prohibition or certiorari, it is required that a motion for reconsideration of the
question[ed] order must first be filed, such being considered a speedy and adequate remedy at law which must first
be resorted to as a condition precedent for filing of any of such proceedings (Secs. 1 and 2, Rule 65, Rules of Court).
[138]

In contrast, Rule 41, Section 1(c) of the Revised Rules of Court now provides:

Section 1. Subject of appeal. — An appeal may be taken from a judgment or final order that completely disposes of
the case, or of a particular matter therein when declared by these Rules to be appealable.

No appeal may be taken from:

....

(c) An interlocutory order;

....

In all the above instances where the judgment or final order is not appealable, the aggrieved party may file an
appropriate special civil action under Rule 65.

It would appear that the Revised Rules of Court allow a direct filing of a petition for certiorari of an interlocutory
order without need of a motion for reconsideration. However, in Estate of Salvador Serra Serra v. Primitivo Hernaez,
[139]
 a case decided after the Rules of Court were revised in 1997:

The settled rule is that a motion for reconsideration is a sine qua non condition for the filing of a petition for
certiorari. The purpose is to grant an opportunity to public respondent to correct any actual or perceived error
attributed to it by the re-examination of the legal and factual circumstances of the case. [140]

This rule evolved from several labor cases of this Court. Estate of Salvador Serra Serra cited  Interorient Maritime
Enterprises v. National Labor Relations Commission [141] as basis for this rule, which in turn, cited Palomado v. National
Labor Relations Commission[142] and Pure Foods Corporation v. National Labor Relations Commission.[143] This Court, in
formulating the rule in Palomado, declared:

The unquestioned rule in this jurisdiction is that certiorari will lie only if there is no appeal or any other plain, speedy
and adequate remedy in the ordinary course of law against the acts of public respondent. In the instant case, the
plain and adequate remedy expressly provided by [Sec. 9, Rule X, New Rules of the National Labor Relations
Commission] was a motion for reconsideration of the assailed decision, based on palpable or patent errors, to be
made under oath and filed within ten (10) calendar days from receipt of the questioned decision. [144]

Pure Foods Corporation, on the other hand, stated:

In the present case, the plain and adequate remedy expressly provided by law was a motion for reconsideration of
the assailed decision and the resolution thereof, which was not only expected to be but would actually have
provided adequate and more speedy remedy than the present petition for certiorari. This remedy was actually
sought to be availed of by petitioner when it filed a motion for reconsideration albeit beyond the 10-day
reglementary period. For all intents and purposes, petitioner cannot now be heard to say that there was no plain,
speedy and adequate remedy available to it and that it must, therefore, be allowed to seek relief by certiorari. This
contention is not only untenable but would even place a premium on a party's negligence or indifference in availing
of procedural remedies afforded by law.[145]

In labor cases, it was necessary to first file a motion for reconsideration before resorting to a petition for certiorari
since the National Labor Relations Commission's rules of procedure provided for this remedy. The same rule has
since applied to civil cases through Estate of Salvador Serra Serra, regardless of the absence of a provision in the
Rules of Court requiring a motion for reconsideration even for interlocutory orders.

Thus, the general rule, in all cases; "is that a motion for reconsideration is a sine qua non condition for the filing of a
petition for certiorari."[146] There are, however, recognized exceptions to this rule, namely:

(a) where the order is a patent nullity, as where the Court a quo had no jurisdiction; (b) where the questions
raised in the certiorari proceeding have been duly raised and passed upon by the lower court, or are the
same as those raised and passed upon in the lower court; (c) where there is an urgent necessity for the
resolution of the question and any further delay would prejudice the interests of the Government or of the
petitioner or the subject matter of the action is perishable; (d) where, under the circumstances, a motion for
reconsideration would be useless; (e) where petitioner was deprived of due process and there is extreme
urgency for relief; (f) where, in a criminal case, relief from an order of arrest is urgent and the granting of
such relief by the trial court is improbable; (g) where the proceedings in the lower court are a nullity for lack
of due process; (h) where the proceedings [were] ex parte or in which the petitioner had no opportunity to
object; and (i) where the issue raised is one purely of law or where public interest is involved. [147] (Citations
omitted)

In this instance, the trial court had no jurisdiction over the petition filed by petitioner against respondents, an issue
which respondents properly asserted before the Court of Appeals when they filed their Petition for Certiorari.
[148]
 They were, thus, excused from filing the requisite motion for reconsideration.

Considering that there is sufficient basis to dismiss this Petition outright, this Court finds it unnecessary to address
the other issues raised.

In sum, this Court holds that petitioner did not have the legal capacity to file this Petition absent any authorization
from its statutory receiver, Philippine Deposit Insurance Corporation. Even assuming that the Petition could be given
due course, it would still be denied. The Court of Appeals did not err in dismissing the action pending between the
parties before the trial court since special civil actions against quasi-judicial agencies must be filed with the Court of
Appeals.

WHEREFORE, the Petition is DISMISSED on the ground of petitioner's lack of capacity to sue.

SO ORDERED.

Velasco, Jr., (Chairperson), Bersamin, Martires, and Gesmundo, JJ., concur.

G.R. No. 191939, March 14, 2018

ALLIED BANKING CORPORATION, Petitioner,1v. IN THE MATTER OF THE PETITION TO HAVE STEEL CORPORATION
OF THE PHILIPPINES PLACED UNDER CORPORATE REHABILITATION WITH PRAYER FOR THE APPROVAL OF THE
PROPOSED REHABILITATION PLAN, EQUITABLE PCI BANK, INC., Respondent.
 DECISION

MARTIRES, J.:

This is a petition for review on certiorari under Rule 45 of the Rules of Court assailing the 22 July 2008 Decision 2 and
12 April 2010 Resolution3 of the Court of Appeals (CA) in CA-G.R. SP No. 97206. The CA affirmed the 22 November
2006 Resolution of the Regional Trial Court (RTC or the rehabilitation court), Branch 2, Batangas City, in Spec. Proc.
No. 06-7993, which ordered the bank creditors of Steel Corporation of the Philippines (SCP) to unfreeze and restore
the latter's bank accounts to the possession, control, and custody of the rehabilitation receiver.

THE FACTS

On 11 September 2006, Equitable PCI Bank, Inc. (EPCIB), as creditor, filed a petition for the corporate rehabilitation of
its debtor SCP with the RTC.

EPCIB alleged, among others, that due to the onslaught of the 1997 Asian Financial Crisis, SCP began experiencing a
downward trend in its financial condition which prompted various banks and financial institutions to grant it with
term loan facilities and working capital lines; that SCP failed to make timely payments on its term loan facilities; that
SCP also defaulted on its loan obligations under the December 2002 Omnibus Agreement, 4 where lending banks and
other financial institutions agreed to reschedule and restructure SCP's payments on the principal loan and interest,
reinstate its working capital lines and establish a new trade financing line; and that the petition for corporate
rehabilitation is grounded on Section 1, Rule 4 of the Interim Rules of Corporate Rehabilitation, which provides that
"any debtor who foresees the impossibility of meeting its debts when they respectively fall due, or any creditor or
creditors holding at least twenty-five percent (25%) of the debtor's total liabilities, may petition the proper Regional
Trial Court to have the debtor placed under rehabilitation."

Apart from the foregoing agreements, Allied Banking Corporation (ABC) granted SCP with a revolving credit facility
denominated as a letter of credit/trust receipt line in the amount of P100 million, which SCP availed of to finance the
importation of its raw materials. Pursuant to this arrangement, SCP executed a trust receipt (TR),5 which authorizes
ABC to charge SCP's account in its possession under instances specified in paragraph 9 thereof, viz:

In the event of any bankruptcy, insolvency, suspension of payment, or failure, or assignment for the benefit of
creditors, on my/our part, or of the non-fulfillment of any obligation, or of the non-payment at maturity of any
acceptance specified hereon or under any credit issued by the ALLIED BANKING CORPORATION for my/our account,
or of the non-payment of any indebtedness on my/our part to the said bank, all obligations, acceptances,
indebtedness, and liabilities whatsoever shall thereupon (with or without notice) mature and become due and
payable. The ALLIED BANKING CORPORATION is hereby constituted my/our attorney-in-fact, with authority to
examine my/our books and records, to charge my/our account or to sell any other property of mine/ours in its
possession, and to liquidate any or all of my/our obligations under this Trust Receipt.

The RTC Ruling

On 12 September 2006, the RTC issued an Order 6 (the subject order) granting EPCIB's petition, the dispositive portion
of which reads:

WHEREFORE, finding the petition to be sufficient in form and substance, this Order is hereby issued—

(a) Appointing Santiago T. Gabionza Jr., with address at Villanueva Gabionza and De Santos Law Offices, 20/F 139
Corporate Center, Valero Street, Salcedo Village, Makati City, as Rehabilitation Receiver of Steel Corporation of the
Philippines, directing him to assume his position as such upon the taking of an oath before the Branch Clerk of this
Court and after posting a bond in the amount of P300,000.00 to guarantee the faithful discharge of his duties and
obedience to the Orders of this Court;
(b) Upon acceptance by Santiago T. Gabionza, Jr. of his appointment as Rehabilitation Receiver, directing him:

[i] to take possession, control and custody of the assets of the debtor Steel Corporation of the Philippines;

[ii] to closely oversee and monitor the operations of the said debtor corporation during the pendency of the
proceedings and to immediately report to this Court any material adverse change in its business;

[iii] to ensure that the value of the properties of Steel Corporation of the Philippines are reasonably maintained
pending the termination of whether or not it should be rehabilitated;

[iv] to investigate the acts, conduct, properties, liabilities, and financial condition of the debtor-corporation, the
operation of its business and the desirability of the continuance thereof, and any matter relevant to the proceedings
or to the formulation of a rehabilitation plan;

[v] to report to this Court any fact ascertained by him pertaining to the causes of the debtor's problems, fraud,
preferences, dispositions, encumbrances, misconduct, mismanagement, and irregularities committed by the
stockholders, directors, management, or any other person against the debtor;

[vi] to evaluate the existing assets and liabilities, earnings and operations of the said debtor-corporation;

[vii] to determine and recommend to this Court the best way to salvage and protect the interests of the creditors,
stockholders and the general public;

[viii] to exercise such powers and prerogatives stated above as may be necessary and proper under the law and the
Interim Rules of Procedure on Corporate Rehabilitation over all other corporations, persons or entities as may be
affected by these proceedings;

[ix] to apply to this Court for any order or directive that he may deem necessary or desirable to aid him in the
exercise of his powers and performance of his duties and functions.

(c) Staying all claims against SCP, by all other corporations, persons or entities insofar as they may be affected by
the present proceedings, until further notice from this Court, pursuant to Sec. 6, of Rule 4 of the Interim Rules of
Procedure on Corporate Rehabilitation. Steel Corporation of the Philippines is hereby prohibited from selling,
encumbering, transferring or disposing in any manner of its assets and properties except in the ordinary course of its
business and as may be approved by the Rehabilitation Receiver.

The suppliers of goods or services of Steel Corporation of the Philippines are prohibited from withholding supply of
goods and services in the ordinary course of business for as long as it is able to make payment for the services and
goods supplied after the issuance of this Order.

Steel Corporation of the Philippines is directed to pay in full the administrative expenses incurred after the issuance
of this Order.

The petitioner is directed to publish this Order in a newspaper of general circulation in the Philippines once a week
for two (2) consecutive weeks.

All other creditors and all interested parties, including the Securities and Exchange Commission, are directed to file
and serve on the petitioner, thru their counsels on record, Divina and Uy Law Offices, 8th Floor, Pacific Star Building,
Makati Avenue corner Sen. Gil Puyat Ave., Makati City, a verified comment on the petition, with supporting affidavits
and documents, not later than ten (10) days before the date of the initial hearing. Failure to do so will constitute a
bar on such creditors and all interested parties from participating in the proceedings.
xxx

SO ORDERED. (emphasis supplied)

On 15 September 2006, petitioner applied the remaining proceeds of SCP's Current Account No. 1801-004-87-6
(subject account) in the amount of P6,750,000.00, maintained with its Aguirre Branch, to its obligations under the
TR.

On 29 October 2006, SCP filed an urgent omnibus motion alleging that petitioner violated the rehabilitation court's
stay order when it applied the proceeds of its current account to the payment of obligations covered by the stay
order. Consequently, it prayed for ABC to immediately restore its current account, credit back to said account the
amount of P6,750,000.00, and honor any and all transactions of SCP in said account.

On 2 November 2006, ABC filed an opposition, mainly contending that SCP's obligations with it had become due and
demandable, rendering legal compensation valid and proper; that petitioner did not violate the stay order, as it had
no notice of its issuance at the time of the legal compensation; and that petitioner cannot be legally compelled to
extend credit to SCP against its will.

On 22 November 2006, the RTC issued a resolution (the subject resolution), finding merit in SCP's position, to wit:

WHEREFORE, in view of all the foregoing, the Court hereby orders as follows:

xxx

3. ABC to restore SCP's Current Account No. 1801-004-87-6 at Aguirre Branch, Makati City, and to credit back to the
said account the entire deposit balance therein of P6,750,000.00 and to honor any and all transactions of SCP in said
account as may be approved by the Rehabilitation Receiver.

xxx

Aggrieved, ABC filed a petition for review under Rule 43 with the CA.

The CA Ruling

The CA affirmed the resolution of the RTC, viz:

WHEREFORE, the November 22, 2006 Resolution of the Regional Trial Court, Branch 2, Batangas City, in Sp. Proc. No.
06-7993, is AFFIRMED.

The CA ruled that the RTC's stay order was effective from the date of its issuance on 12 September 2006, on the basis
of Section 11, Rule 4, and Section 5, Rule 3, of the Interim Rules of Corporate Rehabilitation; thus, ABC was bound to
comply with it on said date. The CA also ruled that the subject account was already under custodia legis by virtue of
the stay order, rendering ABC's unilateral application of the proceeds in the subject account improper. On the issue
of impairment of contractual rights, the CA held that no impairment exists because no changes were made in the
amount or rate of SCP's debt to ABC. Only the enforcement of the latter's claims is being stayed or suspended.

Unconvinced, ABC filed a motion for reconsideration of the CA decision, which was denied by the CA in its resolution;
hence, the instant petition.

The present petition

ABC contends that it was deprived of its right to due process when the RTC ordered ABC to restore SCP's current
account and to credit back the amount previously set off. ABC asserts that it was not yet bound by the 12 September
2006 stay order when it made the setoff on 15 September 2006 because jurisdiction over it had not yet been
acquired by the rehabilitation court; the stay order was only published on 16 September 2006.

ABC further contends that when it offset the proceeds in the subject account, it merely applied the provisions of law
on legal compensation, since SCP had already incurred a default in its obligations rendering operative the terms of
the TR it had issued.

ISSUES

ABC raises the following issues:

I. THE HONORABLE COURT OF APPEALS ERRED IN AFFIRMING THE LOWER COURT'S DECISION THAT PETITIONER
ABC IS BOUND BY THE SEPTEMBER 12, 2006 STAY ORDER THEREBY UNLAWFULLY DEPRIVING THE PETITIONER OF
ITS RIGHT TO DUE PROCESS OF LAW.

II. THE HONORABLE COURT OF APPEALS ERRED IN AFFIRMING THE LOWER COURT'S DECISION THAT PETITIONER
ABC IS PROHIBITED FROM APPLYING THE PROCEEDS OF THE DEPOSIT ACCOUNT OF STEEL CORPORATION TO ITS
OUTSTANDING OBLIGATIONS FROM THE DATE OF THE ISSUANCE OF THE STAY ORDER ON 12 SEPTEMBER 2006, AS
THE SAID PROCEEDS ARE ALREADY UNDER CUSTODIA LEGIS, BY VIRTUE OF THE STAY ORDER.

THE COURT'S RULING

The central argument to the present petition is that the RTC could not invalidate an act already consummated prior
to the date that the subject order was published, since it was only on said date that the court acquired jurisdiction
over ABC. ABC primarily bases its assertion on Section 1, Rule 3 of the Interim Rules, 7 which considers rehabilitation
proceedings as in rem and jurisdiction over all those affected acquired only upon publication of the notice
commencing proceedings.

This Court is thus tasked to determine when the subject order took effect for purposes of compliance, and whether
the rehabilitation court can reverse or invalidate acts that are inconsistent with its stay order and are made after its
issuance but prior to its publication.

Applying the provisions of the present Rehabilitation Rules, the rehabilitation court properly invalidated ABC's action.

The rehabilitation petition was filed by EPCIB under A.M. No. 00-8-10-SC dated 21 November 2000, or the 2000
Interim Rules of Procedure on Corporate Rehabilitation (Interim Rules).

On 27 August 2013, however, the Court enacted A.M. No. 12-12-11-SC, or the Financial Rehabilitation Rules of
Procedure (Rehabilitation Rules), which amended and revised the Interim Rules and the subsequent 2008 Rules of
Procedure on Corporate Rehabilitation (2008 Rules), in order to incorporate the significant changes brought about
by Republic Act No. 10142 (R.A. No. 10142), otherwise known as the Financial Rehabilitation and Insolvency Act of
2010 (FRIA).8

The Rehabilitation Rules provides that the court shall issue a commencement order once it finds the petition for
rehabilitation sufficient in form and substance.9 This commencement order primarily contains: a declaration that the
debtor is under rehabilitation, the appointment of a rehabilitation receiver, a directive for all creditors to file their
verified notices of claim, and an order staying claims against the debtor. 10 The rehabilitation proceedings shall be
deemed to have commenced from the date of filing of the petition, 11 which is also termed the commencement date.
Under the same Rules, the effects of such commencement order shall retroact to the date that the petition was
filed, and renders void any attempt to collect on or enforce a claim against the debtor or to set off any debt by the
debtor's creditors, after the commencement date, to wit:

SEC. 9. EFFECTS OF THE COMMENCEMENT ORDER. - The effects of the court's issuance of a Commencement Order
shall retroact to the date of the filing of the petition and, in addition to the effects of a Stay or Suspension Order
described in the foregoing section, shall

xxx

(B) prohibit or otherwise serve as the legal basis for rendering null and void the results of any extrajudicial activity
or process to seize property, sell encumbered property, or otherwise attempt to collect on or enforce a claim
against the debtor after the commencement date unless otherwise allowed under these Rules, subject to the
provisions of Section 49 of this Rule;

(C) serve as legal basis for rendering null and void any set-off after the commencement date of any debt owed to
the debtor by any of the debtor's creditors; (emphasis supplied)

xxx

The order issued by the RTC on 12 September 2006, which effectively initiated rehabilitation proceedings and
included a suspension of all claims against SCP, is akin to the commencement order under the Rehabilitation Rules.

Clearly, therefore, if the Rehabilitation Rules were to be applied, the directive of the rehabilitation court restoring
SCP's current account and crediting back the offset amount is valid and proper, since the offsetting was made on 15
September 2006, after the commencement date on 11 September 2006, when the petition for rehabilitation was
filed.

The question thus arises: May the Rehabilitation Rules be applied to resolve the present petition, when the subject
petition for rehabilitation was filed under the Interim Rules.

The Court rules in the affirmative.

Section 2, Rule 1 of the Rehabilitation Rules governs rehabilitation cases already pending, except when its
application would not prove feasible or would work injustice, to wit:

SEC. 2. SCOPE. - These Rules shall apply to petitions for rehabilitation of corporations, partnerships, and sole
proprietorships, filed pursuant to Republic Act No. 10142, otherwise known as the Financial Rehabilitation and
Insolvency Act (FRIA) of 2010.

These Rules shall similarly govern all further proceedings in suspension of payments and rehabilitation cases
already pending, except to the extent that, in the opinion of the court, its application would not be feasible or
would work injustice, in which event the procedures originally applicable shall continue to govern. (emphasis
supplied)

The above provision is consistent with the mandate under R.A. No. 10142, viz:

SEC. 146. Application to Pending Insolvency, Suspension of Payments and Rehabilitation Cases. - This Act shall govern all
petitions filed after it has taken effect. All further proceedings in insolvency, suspension of payments and
rehabilitation cases then pending, except to the extent that in the opinion of the court their application would not
be feasible or would work injustice, in which event the procedures set forth in prior laws and regulations shall
apply. (emphasis supplied)
The soundness of upholding the retroactive effect of a commencement order is easily discernible.

In Philippine Bank of Communications v. Basic Polyprinters and Packaging Corporation,12 the Court said that
rehabilitation proceedings seek to give insolvent debtors the opportunity to reorganize their affairs and to efficiently
and equitably distribute its remaining assets, viz:

Rehabilitation proceedings in our jurisdiction have equitable and rehabilitative purposes. On the one hand, they
attempt to provide for the efficient and equitable distribution of an insolvent debtor's remaining assets to its
creditors; and on the other, to provide debtors with a "fresh start" by relieving them of the weight of their
outstanding debts and permitting them to reorganize their affairs. The purpose of rehabilitation proceedings is to
enable the company to gain a new lease on life and thereby allow creditors to be paid their claims from its
earnings. (emphasis supplied)

The filing of a petition for the rehabilitation of a debtor, when the court finds that it is sufficient in form and
substance, is both (1) an acknowledgment that the debtor is presently financially distressed; and (2) an attempt to
conserve and administer its assets in the hope that it will eventually return to its former state of successful financial
operation and liquidity.13 The inherent purpose of rehabilitation is to find ways and means to minimize the expenses
of the distressed corporation during the rehabilitation period by providing the best possible framework for the
corporation to gradually regain or achieve a sustainable operating form. 14

Certainly, when a petition for rehabilitation is filed and subsequently granted by the court, its purpose will be
defeated if the debtors are still allowed to arbitrarily dispose of their property and pay their liabilities, outside of the
ordinary course of business and what is allowed by the court, after the filing of the said petition. Such a scenario
does not promote an environment where the debtor could regain its operational footing, contrary to the dictates of
rehabilitation.

The petition itself, when granted by the court, is already a recognition of the debtor's distressed financial status not
only at the time the order is issued, but also at the time the petition is filed. It is, therefore, more consistent with the
objectives of rehabilitation to recognize that the effects of an order commencing rehabilitation proceedings and
staying claims against the debtor should retroact to the date the petition is filed.

Accordingly, the Court finds that application of the Rehabilitation Rules to the case at bar is proper, insofar as it
clarifies the effect of an order staying claims against a debtor sought to be rehabilitated.

Such application promotes a just and sound resolution to the present controversy, bearing in mind the inherent
purpose of rehabilitation proceedings. It is also feasible, considering the subject resolution was within the
Rehabilitation Court's powers, wielded for the same purpose identified in both the Interim Rules and the
Rehabilitation Rules which is to promote a timely, fair, transparent, effective, and efficient rehabilitation of debtors. 15

Even the Interim Rules provides for the immediate effectivity of a stay order.

Even if the retroactive effect under the Rehabilitation Rules is inapplicable to the case at bar, the Interim Rules
expressly provides that the stay order is effective upon its issuance, viz:

Sec. 11. Period of the Stay Order. - The stay order shall be effective from the date of its issuance until the dismissal of
the petition or the termination of the rehabilitation proceedings. (emphasis supplied)

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The foregoing provision finds support in Section 5, Rule 3, of the Interim Rules, to wit:
Sec. 5. Executory Nature of Orders. - Any order issued by the court under these Rules is immediately executory. A
petition for review or an appeal therefrom shall not stay the execution of the order unless restrained or enjoined by
the appellate court. The review of any order or decision of the court or an appeal therefrom shall be in accordance
with the Rules of Court: Provided, however, that the reliefs ordered by the trial or appellate courts shall take into
account the need for resolution of proceedings in a just, equitable, and speedy manner. (emphasis supplied)

This Court quotes with approval the CA's disquisition on this matter:

From the above provisions, a stay order issued by the court in a corporate rehabilitation proceeding is effective from
the date of its issuance until the dismissal of the petition or the termination of the rehabilitation proceedings. In fact,
it is immediately executory.

In the case at bar, there is no doubt that the rehabilitation court correctly held that the appellant is bound by the
September 12, 2006 Stay Order as of the date of its issuance, the same being  immediately executory and
effective without any further act, event, or condition being necessary to compel compliance therewith as expressly
provided in Sec. 11, Rule IV and Sec. 5, Rule III of the Interim Rules of Procedure on Corporate Rehabilitation.

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It should be stressed that the Interim Rules was enacted to provide for a summary and non-adversarial rehabilitation
proceedings. This is in consonance with the commercial nature of a rehabilitation case, which is aimed to be resolved
expeditiously for the benefit of all the parties concerned and the economy in general.

It is true that under the Interim Rules, similar to the Rehabilitation Rules, publication of the notice of the
commencement of the proceedings is necessary to acquire jurisdiction over all persons affected, viz:

Section 1. Nature of Proceedings. - Any proceeding initiated under these Rules shall be considered in rem. Jurisdiction
over all those affected by the proceedings shall be considered as acquired upon publication of the notice of the
commencement of the proceedings in any newspaper of general circulation in the Philippines in the manner
prescribed by these Rules.

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The question posed herein is whether the immediate effectivity of the stay order is inconsistent with the publication
requirement under the Rules, such that the rehabilitation court cannot invalidate acts made after its issuance but
prior to its publication. The Court rules in the negative.

Taking into consideration the laudable objectives of rehabilitation proceedings, the immediate effectivity of the stay
order means that the RTC, through an order commencing rehabilitation and staying claims against the debtor,
acknowledges that the debtor requires rehabilitation immediately and therefore it can not only prohibit but also
nullify acts made after its effectivity, when such acts are violative of the stay order, to prevent any irreparable
detriment to the debtor's successful restoration.

The foregoing is validated by the Interim Rules, where the court can declare void any transaction made in violation
of the stay order, viz:

Sec. 8. Voidability of Illegal Transfers and Preferences. - Upon motion or motu proprio, the court may declare void any
transfer of property or any other conveyance, sale, payment, or agreement made in violation of its stay order or in
violation of these Rules. (emphasis supplied)

The publication requirement only means that all affected persons must, to satisfy the requirements of due process,
be notified that as of a particular date, the debtor in question requires rehabilitation and should temporarily be
exempt from paying its obligations, unless allowed by the court. Once due notice is made, the rehabilitation court
may nullify actions inconsistent with the stay order but which may have been taken prior to publication, precisely
because prior to publication, creditors may not yet be aware that they are to desist from pursuing claims against the
insolvent debtor.

Again, the immediate effectivity of the stay order can be traced to the purpose of rehabilitation: once the necessity
of rehabilitating the debtor is recognized, through a petition duly granted, it is imperative that the necessary steps
to preserve its assets are taken at the earliest possible time.

It is thus apparent that the RTC properly invalidated petitioner's action made on 15 September 2006, after the
subject order was issued.

There was no impairment of contract or deprivation of due process.

According to ABC, the subject resolution constituted an impairment of its contract with SCP because under the TR it
executed in ABC's favor, ABC had the right to charge SCP's account in case of nonpayment of any indebtedness. ABC
also claims lack of due process because the rehabilitation court directed ABC to restore SCP's account even when
the offsetting was made prior to publication of the subject order, when ABC was not yet deemed notified of the
order.

Anent the alleged impairment of contract, basic is the principle that the law is deemed written into every contract,
such that while a contract is the law between the parties, the provisions of positive law which regulate contracts
shall limit and govern their relations. 16 At the time the Trust Receipt Agreement was entered into by ABC and SCP,
the law expressly allowed corporations to be declared in a state of suspension of payments under specific
instances.17

Consequently, said law and its implementing rules are deemed incorporated in the Trust Receipt Agreement,
thereby limiting ABC's right to enforce its claim against SCP once a stay or suspension order is issued. Clearly, the
principle on inviolability of contracts was not violated.

It must also be noted that the subject order did not eliminate or reduce SCP's obligations to ABC, but merely
suspended its enforcement while rehabilitation is being undertaken. In fact, one of the purposes of rehabilitation is
to ensure the efficient and equitable distribution of the insolvent debtor's remaining assets to its creditors. 18

In Golden Merchandising Corporation v. Equitable PCI Bank,19 which involved the question of whether the shorter
redemption period, provided under R.A. No. 8791 and applied to a real mortgage contract executed prior to the
enactment of said law, constitutes a violation against the constitutional proscription on impairment of contracts, the
Court ruled that there was no impairment because the provision in question did not divest juridical persons of their
right to redeem but merely modified the time for the exercise of such right.

Similarly, ABC was not deprived of its right to enforce its claim against SCP. The creditor's right to enforce his claim
despite the issuance of a stay order is even validated by Section 8 of the Rehabilitation Rules, to wit:

SEC. 8. COMMENCEMENT OF PROCEEDINGS AND ISSUANCE OF COMMENCEMENT ORDER. - The rehabilitation

proceedings shall be deemed to have commenced from the date of filing of the petition.

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The issuance of a stay order does not affect the right to commence actions or proceedings in order to preserve   ad
cautelam a claim against the debtor and to toll the running of the prescriptive period to file the claim . For this
purpose, the plaintiff may file the appropriate court action or proceedings by paying the amount of One Hundred
Thousand Pesos (P100,000.00) or one-tenth (1/10) of the prescribed filing fee, whichever is lower. The payment of
the balance of the filing fee shall be a jurisdictional requirement for the reinstatement or revival of the case.
(emphasis supplied)

It is also clear from the previous discussion that ABC was not deprived of due process when the RTC issued the
subject resolution.

The essence of procedural due process is one which hears before it condemns, which proceeds upon inquiry and
renders judgment only upon trial. It contemplates notice and opportunity to be heard before judgment is rendered
affecting one's person or property.20

Rehabilitation proceedings are considered in rem.21In rem actions are against the thing itself and they are binding
upon the whole world,22 unlike in personam actions, which are against a person on the basis of his personal
liability.23 "Against the thing" means that the resolution of the case affects the direct or indirect interests of others
and assumes that those interests attach to the thing which is the subject matter of the litigation. 24

The Court has consistently held that in actions in personam, jurisdiction over the parties is required since they seek to
impose personal liability. On the other hand, courts need not acquire jurisdiction over the person of the defendant in
actions in rem because they are not directed against a specific person. The court need only acquire jurisdiction over
the res.25 Nonetheless, some form of notice to all affected parties is required to satisfy the requirements of due
process. Under both the Rehabilitation Rules and the Interim Rules, publication of the notice of the commencement
of rehabilitation proceedings is the operative act which vests the court with jurisdiction over all affected parties. As
discussed earlier, once jurisdiction is acquired, the court can subject all those affected to orders consistent with the
rehabilitation of the insolvent debtor, including the reversal of any transfer, payment, or sale made after the filing of
the petition.

It is not disputed that the 12 September 2006 Order of the rehabilitation court was duly published on 16 September
2006; that said order contained a directive for all creditors to file their verified comment on the petition within a
stated period; and that ABC filed its verified comment on 17 October 2006.

It is therefore evident that petitioner was notified of the rehabilitation proceedings and given an opportunity to be
heard, as in fact it filed a comment thereon, thereby satisfying due process requirements. Moreover, as previously
discussed, there was no undue deprivation of property because SCP's obligation to ABC remains.

WHEREFORE, the petition is DENIED. The 22 July 2008 Decision and 12 April 2010 Resolution of the Court of Appeals
in CA-G.R. SP No. 97206 are AFFIRMED.

SO ORDERED.