LEONARDO S.

UMALE,   G.R. No. 181126  

[deceased] represented by   On June 23, 2003, ASB Realty served on Umale a Notice of Termination
CLARISSA VICTORIA, JOHN Present: of Lease and Demand to Vacate and Pay.[10] ASB Realty stated that it was
LEO, GEORGE LEONARD,   terminating the lease effective midnight of June 30, 2003; that Umale
KRISTINE, MARGUERITA VELASCO, JR., should vacate the premises, and pay to ASB Realty the rental arrears
ISABEL, AND MICHELLE Acting Chairperson, amounting to P1.3 million by July 15, 2003. Umale failed to comply with
ANGELIQUE, ALL SURNAMED LEONARDO-DE ASB Realtys demands and continued in possession of the subject
UMALE, CASTRO, premises, even constructing commercial establishments thereon.
Petitioners, BERSAMIN,⃰  
    DEL CASTILLO, and Umale admitted occupying the property since 1999 by virtue of a verbal
- versus -   PEREZ, JJ. lease contract but vehemently denied that ASB Realty was his lessor. He
  was adamant that his lessor was the original owner, Amethyst
ASB REALTY CORPORATION,   Promulgated:
Pearl. Since there was no contract between himself and ASB Realty, the
Respondent. June 15, 2011
latter had no cause of action to file the unlawful detainer complaint against
x--------------------------------------------------------
him.
x
 
 
In asserting his right to remain on the property based on the oral lease
DECISION
contract with Amethyst Pearl, Umale interposed that the lease period
 
agreed upon was for a long period of time.[11] He then allegedly paid P1.2
DEL CASTILLO, J.:
million in 1999 as one year advance rentals to Amethyst Pearl.[12]
 
Umale further claimed that when his oral lease contract with Amethyst
Being placed under corporate rehabilitation and having a receiver
Pearl ended in May 2000, they both agreed on an oral contract to sell.
appointed to carry out the rehabilitation plan do not ipso facto deprive a
They agreed that Umale did not have to pay rentals until the sale over the
corporation and its corporate officers of the power to recover its unlawfully
subject property had been perfected between them.[13] Despite such
detained property.
agreement with Amethyst Pearl regarding the waiver of rent payments,
 
Umale maintained that he continued paying the annual rent of P1.2
Petitioners filed this Petition for Review on Certiorari[1] assailing the
million. He was thus surprised when he received the Notice of Termination
October 15, 2007 Decision[2] of the Court of Appeals (CA) in CA-G.R. SP
of Lease from ASB Realty.[14]
No. 91096, as well as its January 2, 2008 Resolution.[3] The dispositive
 
portion of the assailed Decision reads:
Umale also challenged ASB Realtys personality to recover the subject
 
premises considering that ASB Realty had been placed under
WHEREFORE, the Decision dated March 28, 2005
receivership by the Securities and Exchange Commission (SEC) and a
of the trial court is affirmed in toto.
rehabilitation receiver had been duly appointed. Under Section 14(s), Rule
SO ORDERED.[4]
4 of the Administrative Memorandum No. 00-8-10SC, otherwise known as
 
the Interim Rules of Procedure on Corporate Rehabilitation (Interim Rules),
 
it is the rehabilitation receiver that has the power to take possession,
Factual Antecedents
control and custody of the debtors assets. Since ASB Realty claims that it
 
owns the subject premises, it is its duly-appointed receiver that should sue
This case involves a parcel of land identified as Lot 7, Block 5, Amethyst
to recover possession of the same.[15]
Street, Ortigas Center, Pasig City which was originally owned by Amethyst
 
Pearl Corporation (Amethyst Pearl), a company that is, in turn, wholly-
ASB Realty replied that it was impossible for Umale to have entered into a
owned by respondent ASB Realty Corporation (ASB Realty).
Contract of Lease with Amethyst Pearl in 1999 because Amethyst Pearl
 
had been liquidated in 1996. ASB Realty insisted that, as evidenced by
In 1996, Amethyst Pearl executed a Deed of Assignment in Liquidation of
the written lease contract, Umale contracted with ASB Realty, not with
the subject premises in favor of ASB Realty in consideration of the full
Amethyst Pearl. As further proof thereof, ASB Realty cited the official
redemption of Amethyst Pearls outstanding capital stock from ASB Realty.
[5] receipt evidencing the rent payments made by Umale to ASB Realty.
 Thus, ASB Realty became the owner of the subject premises and
 
obtained in its name Transfer Certificate of Title No. PT-105797, [6] which
Ruling of the Metropolitan Trial Court
was registered in 1997 with the Registry of Deeds of Pasig City.
 
 
In its August 20, 2004 Decision,[16] the MTC dismissed ASB Realtys
Sometime in 2003, ASB Realty commenced an action in the Metropolitan
complaint against Umale without prejudice. It held that ASB Realty had no
Trial Court (MTC) of Pasig City for unlawful detainer [7] of the subject
cause to seek Umales ouster from the subject property because it was not
premises against petitioner Leonardo S. Umale (Umale). ASB Realty
Umales lessor. The trial court noted an inconsistency in the written lease
alleged that it entered into a lease contract[8] with Umale for the period
contract that was presented by ASB Realty as basis for its complaint. Its
June 1, 1999-May 31, 2000. Their agreement was for Umale to conduct a
whereas clauses cited ASB Realty, with Eden C. Lin as its representative,
pay-parking business on the property and pay a monthly rent
as Umales lessor; but its signatory page contained Eden C. Lins name
of P60,720.00 to ASB Realty.
under the heading Amethyst Pearl. The MTC then concluded from such
 
inconsistency that Amethyst Pearl was the real lessor, who can seek
 
Umales ejectment from the subject property.[17]
Upon the contracts expiration on May 31, 2000, Umale continued
 
occupying the premises and paying rentals albeit at an increased monthly
Likewise, the MTC agreed with Umale that only the rehabilitation receiver
rent of P100,000.00. The last rental payment made by Umale to ASB
could file suit to recover ASB Realtys property.[18] Having been placed
Realty was for the June 2001 to May 2002 period, as evidenced by the
under receivership, ASB Realty had no more personality to file the
Official Receipt No. 56511[9] dated November 19, 2001.
complaint for unlawful detainer.
 
Ruling of the Regional Trial Court
 
ASB Realty appealed the adverse MTC Decision to the Regional Trial
Court (RTC),[19] which then reversed[20] the MTC ruling.
 
 
The RTC held that the MTC erred in dismissing ASB Realtys complaint for
lack of cause of action. It found sufficient evidence to support the
conclusion that it was indeed ASB Realty that entered into a lease contract
with Umale, hence, the proper party who can assert the corresponding
right to seek Umales ouster from the leased premises for violations of the
lease terms. In addition to the written lease contract, the official receipt
evidencing Umales rental payments for the period June 2001 to May 2002
to ASB Realty adequately established that Umale was aware that his
lessor, the one entitled to receive his rent payments, was ASB Realty, not
Amethyst Pearl.
 
ASB Realtys positive assertions, supported as they are by credible
evidence, are more compelling than Umales bare negative
assertions. The RTC found Umales version of the facts incredible. It was
implausible that a businessman such as Umale would enter into several
transactions with his alleged lessor a lease contract, payment of lease
rentals, acceptance of an offer to sell from his alleged lessor, and an
agreement to waive rentals sans a sliver of evidence.
 
With the lease contract between Umale and ASB Realty duly established
and Umales failure to pay the monthly rentals since June 2002 despite
due demands from ASB Realty, the latter had the right to terminate the
lease contract and seek his eviction from the leased premises. Thus,
when the contract expired on June 30, 2003 (as stated in the Notice of
Termination of Lease), Umale lost his right to remain on the premises and
his continued refusal to vacate the same constituted sufficient cause of
action for his ejectment.[21]
 
With respect to ASB Realtys personality to file the unlawful detainer suit,
the RTC ruled that ASB Realty retained all its corporate powers, including
the power to sue, despite the appointment of a rehabilitation
receiver. Citing the Interim Rules, the RTC noted that the rehabilitation
receiver was not granted therein the power to file complaints on behalf of
the corporation.[22]
 
Moreover, the retention of its corporate powers by the corporation under
rehabilitation will advance the objective of corporate rehabilitation, which is
to conserve and administer the assets of the corporation in the hope that it
may eventually be able to go from financial distress to solvency. The suit
filed by ASB Realty to recover its property and back rentals from Umale
could only benefit ASB Realty.[23]
 
The dispositive portion of the RTC Decision reads as follows:
 
WHEREFORE, premises considered, the appealed
decision is hereby reversed and set
aside. Accordingly, judgment is hereby rendered in
favor of the plaintiff-appellant ordering defendant-
appellee and all persons claiming rights under him:
 
1) To immediately vacate the subject leased
premises located at Lot 7, Block 5, Amethyst St.,
Pearl Drive, Ortigas Center, Pasig City and deliver
possession thereof to the plaintiff-appellant;
 
2) To pay plaintiff-appellant the sum
of P1,300,000.00 representing rentals in arrears
from June 2002 to June 2003;
 
3) To pay plaintiff-appellant the amount
of P100,000.00 a month starting from July 2003 and
every month thereafter until they finally vacate the
subject premises as reasonable compensation for
the continued use and occupancy of the same;
 
4) To pay plaintiff-appellant the sum of P200,000.00
as and by way of attorneys fees; and the costs of
suit.
 
SO ORDERED.[24]
 
 
Umale filed a Motion for Reconsideration[25] while ASB Realty moved for
the issuance of a writ of execution pursuant to Section 21 of the 1991
Revised Rules on Summary Procedure.[26]
 
In its July 26, 2005 Order, the RTC denied reconsideration of its Decision
and granted ASB Realtys Motion for Issuance of a Writ of Execution.[27]
 
Umale then filed his appeal[28] with the CA insisting that the parties did not
enter into a lease contract.[29] Assuming that there was a lease, it was at
most an implied lease. Hence its period depended on the rent
payments. Since Umale paid rent annually, ASB Realty had to respect his
lease for the entire year. It cannot terminate the lease at the end of the
month, as it did in its Notice of Termination of Lease. [30] Lastly, Umale
insisted that it was the rehabilitation receiver, not ASB Realty, that was the
real party-in-interest.[31]
 
Pending the resolution thereof, Umale died and was substituted by his
widow and legal heirs, per CA Resolution dated August 14, 2006.[32]
 
Ruling of the Court of Appeals
 
The CA affirmed the RTC Decision in toto.[33]
 
According to the appellate court, ASB Realty fully discharged its burden to
prove the existence of a lease contract between ASB Realty and Umale,
[34]
 as well as the grounds for eviction.[35]The veracity of the terms of the
lease contract presented by ASB Realty was further bolstered, instead of
demolished, by Umales admission that he paid monthly rents in
accordance therewith.[36]
 
The CA found no merit in Umales claim that in light of Article 1687 of the
Civil Code the lease should be extended until the end of the year. The said
provision stated that in cases where the lease period was not fixed by the
parties, the lease period depended on the payment periods. In the case at
bar, the rent payments were made on a monthly basis, not annually; thus,
Umales failure to pay the monthly rent gave ASB Realty the corresponding
right to terminate the lease at the end of the month.[37]
 
The CA then upheld ASB Realtys, as well as its corporate officers,
personality to recover an unlawfully withheld corporate property. As
expressly stated in Section 14 of Rule 4 of the Interim Rules, the
rehabilitation receiver does not take over the functions of the corporate
officers.[38]
 
Petitioners filed a Motion for Reconsideration,[39] which was denied in the
assailed January 2, 2008 Resolution.[40]
 
Issues
 
The petitioners raise the following issues for resolution:[41]
 
1. Can a corporate officer of ASB Realty (duly authorized by the Board of
Directors) file suit to recover an unlawfully detained corporate property
despite the fact that the corporation had already been placed under
rehabilitation?
 
2. Whether a contract of lease exists between ASB Realty and Umale;
and
 
3. Whether Umale is entitled to avail of the lease periods provided in
Article 1687 of the Civil Code.
 
 
Our Ruling
 
 
Petitioners ask for the dismissal of the complaint for unlawful detainer on
the ground that it was not brought by the real party-in-interest.
[42]
 Petitioners maintain that the appointment of a rehabilitation receiver for
ASB Realty deprived its corporate officers of the power to recover
corporate property and transferred such power to the rehabilitation
receiver. Section 6, Rule 59 of the Rules of Court states that a receiver
has the power to bring actions in his own name and to collect debts due to
the corporation. Under Presidential Decree (PD) No. 902-A and the
Interim Rules, the rehabilitation receiver has the power to take custody and
control of the assets of the corporation. Since the receiver for ASB Realty
did not file the complaint for unlawful detainer, the trial court did not acquire
jurisdiction over the subject property.[43]
 
Petitioners cite Villanueva v. Court of Appeals,[44] Yam v. Court of
Appeals,[45] and Abacus Real Estate Development Center, Inc. v. The
Manila Banking Corporation,[46] as authorities for the rule that the
appointment of a receiver suspends the authority of the corporation and its
officers over its property and effects.[47]
 
ASB Realty counters that there is no provision in PD 902-A, the Interim
Rules, or in Rule 59 of the Rules of Court that divests corporate officers of
their power to sue upon the appointment of a rehabilitation receiver.[48] In
fact, Section 14 , Rule 4 of the Interim Rules expressly limits the receivers
power by providing that the rehabilitation receiver does not take over the
management and control of the corporation but shall closely oversee and
monitor the operations of the debtor.[49] Further, the SEC Rules of
Procedure on Corporate Recovery (SEC Rules), the rules applicable to
the instant case, do not include among the receivers powers the exclusive
right to file suits for the corporation.[50]
The Court resolves the issue in favor of ASB Realty and its officers.
 
There is no denying that ASB Realty, as the owner of the leased premises,
is the real party-in-interest in the unlawful detainer suit.[51] Real party-in-
interest is defined as the party who stands to be benefited or injured by the
judgment in the suit, or the party entitled to the avails of the suit.[52]
 
What petitioners argue is that the corporate officer of ASB Realty is
incapacitated to file this suit to recover a corporate property because ASB
Realty has a duly-appointed rehabilitation receiver. Allegedly, this
rehabilitation receiver is the only one that can file the instant suit.
 
Corporations, such as ASB Realty, are juridical entities that exist by
operation of law.[53] As a creature of law, the powers and attributes of a
corporation are those set out, expressly or impliedly, in the law. Among the
general powers granted by law to a corporation is the power to sue in its
own name.[54] This power is granted to a duly-organized corporation,
unless specifically revoked by another law. The question becomes: Do
the laws on corporate rehabilitation particularly PD 902-A, as amended,
[55]
 and its corresponding rules of procedure forfeit the power to sue from
the corporate officers and Board of Directors?
 
Corporate rehabilitation is defined as the restoration of the debtor to a
position of successful operation and solvency, if it is shown that its
continuance of operation is economically feasible and its creditors can
recover by way of the present value of payments projected in the plan
more if the corporation continues as a going concern than if it is
immediately liquidated.[56] It was first introduced in the Philippine legal
system through PD 902-A, as amended.[57] The intention of the law is to
effect a feasible and viable rehabilitation by preserving a floundering
business as a going concern, because the assets of a business are often
more valuable when so maintained than they would be when liquidated.
[58]
 This concept of preserving the corporations business as a going
concern while it is undergoing rehabilitation is called debtor-in-possession
or debtor-in-place. This means that the debtor corporation (the corporation
undergoing rehabilitation), through its Board of Directors and corporate
officers, remains in control of its business and properties, subject only
to the monitoring of the appointed rehabilitation receiver.[59] The concept of
debtor-in-possession, is carried out more particularly in the SEC Rules, the
rule that is relevant to the instant case.[60] It states therein that the interim
rehabilitation receiver of the debtor corporation does not take over the
control and management of the debtor corporation.[61] Likewise, the
rehabilitation receiver that will replace the interim receiver is tasked only to
monitor the successful implementation of the rehabilitation plan.[62] There is
nothing in the concept of corporate rehabilitation that would ipso
facto deprive[63] the Board of Directors and corporate officers of a debtor
corporation, such as ASB Realty, of control such that it can no longer
enforce its right to recover its property from an errant lessee.
 
To be sure, corporate rehabilitation imposes several restrictions on the
debtor corporation. The rules enumerate the prohibited corporate actions
and transactions[64] (most of which involve some kind of disposition or
encumbrance of the corporations assets) during the pendency of the
rehabilitation proceedings but none of which touch on the debtor
corporations right to sue. The implication therefore is that our concept of
rehabilitation does not restrict this particular power, save for the caveat that
all its actions are monitored closely by the receiver, who can seek an
annulment of any prohibited or anomalous transaction or agreement
entered into by the officers of the debtor corporation.
 
Petitioners insist that the rehabilitation receiver has the power to bring and
defend actions in his own name as this power is provided in Section 6 of
Rule 59 of the Rules of Court.
Indeed, PD 902-A, as amended, provides that the receiver shall have the
powers enumerated under Rule 59 of the Rules of Court. But Rule 59 is a
rule of general application. It applies to different kinds of receivers
rehabilitation receivers, receivers of entities under management, ordinary
receivers, receivers in liquidation and for different kinds of situations. While
the SEC has the discretion[65] to authorize the rehabilitation receiver, as the
case may warrant, to exercise the powers in Rule 59, the SECs exercise
of such discretion cannot simply be assumed. There is no allegation
whatsoever in this case that the SEC gave ASB Realtys rehabilitation
receiver the exclusive right to sue.
Petitioners cite Villanueva,[66] Yam,[67] and Abacus Real Estate[68] as
authorities for their theory that the corporate officers of a corporation under
rehabilitation is incapacitated to act. In Villanueva,[69] the Court nullified the
sale contract entered into by the Philippine Veterans Bank on the ground
that the banks insolvency restricted its capacity to act. Yam,[70] on the other transactions with and pay substantial rentals to a corporation nary a single
hand, nullified the compromise agreement that Manphil Investment documentation.
Corporation entered into while it was under receivership by the Central Petitioners then try to turn the table on ASB Realty with their third
Bank. In Abacus Real Estate,[71] it was held that Manila Banks president argument. They say that under Article 1687 of the New Civil Code, the
had no authority to execute an option to purchase contract while the bank period for rent payments determines the lease period. Judging by the
was under liquidation. official receipt presented by ASB Realty, which covers the 12-month
  period from June 2001 to May 2002, the lease period should be annual
These jurisprudence are inapplicable to the case at bar because they because of the annual rent payments.[79] Petitioners then conclude that
involve ASB Realty violated Article 1687 of the New Civil Code when it terminated
banking and financial institutions that are governed by different laws.[72] In the lease on June 30, 2003, at the beginning of the new period. They then
the cited cases, the applicable banking law was Section 29 [73] of the implore the Court to extend the lease to the end of the annual period,
Central Bank Act.[74] In stark contrast to rehabilitation where the corporation meaning until May 2004, in accordance with the annual rent payments.[80]
retains control and management of its affairs, Section 29 of the Central  
Bank Act, as amended, expressly forbids the bank or the quasi-bank from In arguing for an extension of lease under Article 1687, petitioners lost
doing business in the Philippines. sight of the restriction provided in Article 1675 of the Civil Code. It states
Moreover, the nullified transactions in the cited cases that a lessee that commits any of the grounds for ejectment cited in Article
involve dispositions of assets and claims, which are prohibited 1673, including non-payment of lease rentals and devoting the leased
transactions even for corporate rehabilitation[75] because these may be premises to uses other than those stipulated, cannot avail of the periods
prejudicial to creditors and contrary to the rehabilitation plan. The instant established in Article 1687.[81]
case, however, involves the recovery of assets and collection of  
receivables, for which there is no prohibition in PD 902-A. Moreover, the extension in Article 1687 is granted only as a matter of
  equity. The law simply recognizes that there are instances when it would
While the Court rules that ASB Realty and its corporate officers retain their be unfair to abruptly end the lease contract causing the eviction of the
power to sue to recover its property and the back rentals from Umale, the lessee. It is only for these clearly unjust situations that Article 1687
necessity of keeping the receiver apprised of the proceedings and its grants the court the discretion to
results is not lost upon this Court. Tasked to closely monitor the assets of extend the lease.[82]
ASB Realty, the rehabilitation receiver has to be notified of the  
developments in the case, so that these assets would be managed in The particular circumstances of the instant case however, do not inspire
accordance with the approved rehabilitation plan. granting equitable relief. Petitioners have not paid, much less offered to
  pay, the rent for 14 months and even had the temerity to disregard the
Coming to the second issue, petitioners maintain that ASB Realty has no pay-and-vacate notice served on them. An extension will only benefit the
cause of action against them because it is not their lessor. They insist that wrongdoer and punish the long-suffering property owner.[83]
Umale entered into a verbal lease agreement with Amethyst Pearl  
only. As proof of this verbal agreement, petitioners cite their possession of WHEREFORE, the petition is DENIED. The October 15, 2007 Decision
the premises, and construction of buildings thereon, sans protest from and January 2, 2008 Resolution of the Court of Appeals in CA-G.R. SP
Amethyst Pearl or ASB Realty.[76] No. 91096 are hereby AFFIRMED. ASB Realty Corporation is ordered
  to FURNISH a copy of the Decision on its incumbent Rehabilitation
Petitioners concede that they may have raised questions of fact but insist Receiver and to INFORM the Court of its compliance therewith within 10
nevertheless on their review as the appellate courts ruling is allegedly days.
grounded entirely on speculations, surmises, and conjectures and its  
conclusions regarding the termination of the lease contract are manifestly SO ORDERED.
absurd, mistaken, and impossible.[77]
 
Petitioners arguments have no merit. Ineluctably, the errors they raised
involve factual findings,[78] the review of which is not within the purview of
the Courts functions under Rule 45, particularly when there is adequate
evidentiary support on record.
 
While petitioners assail the authenticity of the written lease contract by
pointing out the inconsistency in the name of the lessor in two separate
pages, they fail to account for Umales actions which are consistent with
the terms of the contract the payment of lease rentals to ASB Realty
(instead of his alleged lessor Amethyst Pearl) for a 12-month
period. These matters cannot simply be brushed off as sheer
happenstance especially when weighed against Umales incredible version
of the facts that he entered into a verbal lease contract with Amethyst
Pearl; that the term of the lease is for a very long period of time; that
Amethyst Pearl offered to sell the leased premises and Umale had
accepted the offer, with both parties not demanding any written
documentation of the transaction and without any mention of the purchase
price; and that finally, Amethyst Pearl agreed that Umale need not pay
rentals until the perfection of the sale. The Court is of the same mind as
the appellate court that it is simply inconceivable that a businessman, such
as petitioners predecessor-in-interest, would enter into commercial
 ANA MARIA A. KORUGA,  
Petitioner, 10. 1 Violation of Sections 31 to 34 of
  the Corporation Code (Code) which prohibit
- versus - self-dealing and conflicts of interest of directors
  and officers, thus:
TEODORO O. ARCENAS, JR., ALBERT C. AGUIRRE, CESAR S.  
PAGUIO, FRANCISCO A. RIVERA, and THE HONORABLE (a)                For engaging in
COURT OF APPEALS, THIRD DIVISION, unsafe, unsound, and fraudulent
Respondents. banking practices that have
x-----------------------------x jeopardized the welfare of the Bank,
TEODORO O. ARCENAS, JR., ALBERT C. AGUIRRE, CESAR S. its shareholders, who includes among
PAGUIO, and FRANCISCO A. RIVERA, others, the Petitioner, and depositors.
Petitioners, (sic)
   
  (b)               For granting and
- versus - approving loans and/or loaned sums
  of money to six (6) dummy borrower
  corporations (Borrower
HON. SIXTO MARELLA, JR., Presiding Judge, Branch Corporations) which, at the time of
138, Regional Trial Courtof Makati City, and ANA MARIA A. loan approval, had no financial
KORUGA, capacity to justify the loans. (sic)
Respondents.  
  (c)                For approving
and accepting a dacion en pago, or
payment of loans with property
instead of cash, resulting to a
diminished future cumulative interest
x------------------------------------------------------------------------------------x income by the Bank and a decline in
  its liquidity position. (sic)
   
(d)               For knowingly
giving favorable treatment to the
DECISION Borrower Corporations in which some
  or most of them have
NACHURA, J.: interests, i.e. interlocking
  directors/officers thereof, interlocking
  ownerships. (sic)
   
  (e)                For employing
Before this Court are two petitions that originated from a their respective offices and functions
Complaint filed by Ana Maria A. Koruga (Koruga) before the as the Banks officers and directors, or
Regional Trial Court (RTC) of Makati City against the Board of omitting to perform their functions and
Directors of Banco Filipino and the Members of the Monetary duties, with negligence, unfaithfulness
Board of the Bangko Sentral ng Pilipinas (BSP) for violation of the or abuse of confidence of fiduciary
Corporation Code, for inspection of records of a corporation by a duty, misappropriated or misapplied
stockholder, for receivership, and for the creation of a or ratified by inaction the
management committee. misappropriation or
  misappropriations, of (sic)
G.R. No. 168332 almost P1.6 Billion Pesos (sic)
  constituting the Banks funds placed
The first is a Petition for Certiorari under Rule 65 of the under their trust and administration,
Rules of Court, docketed as G.R. No. 168332, praying for the by unlawfully releasing loans to the
annulment of the Court of Appeals (CA) Resolution [1] in CA-G.R. Borrower Corporations or refusing or
SP No. 88422 dated April 18, 2005 granting the prayer for a Writ of failing to impugn these, knowing
Preliminary Injunction of therein petitioners Teodoro O. Arcenas, before the loans were released or
Jr., Albert C. Aguirre, Cesar S. Paguio, and Francisco A. Rivera thereafter that the Banks cash
(Arcenas, et al.). resources would be dissipated
  thereby, to the prejudice of the
Koruga is a minority stockholder of Banco Filipino Petitioner, other Banco Filipino
Savings and Mortgage Bank. On August 20, 2003, she filed a depositors, and the public.
complaint before the Makati RTC which was raffled to Branch 138,  
presided over by Judge Sixto Marella, Jr.[2] Korugas complaint 10.2 Right of a stockholder to inspect
alleged: the records of a corporation (including financial
 statements) under Sections 74 and 75 of the
Code, as implemented by the Interim Rules;
(a)                Unlawful
refusal to allow the Petitioner from
inspecting or otherwise accessing the
corporate records of the bank despite
repeated demand in writing, where
she is a stockholder. (sic)
10.3 Receivership and Creation of a
Management Committee pursuant to:
 
(a)                Rule 59 of the
1997 Rules of Civil
Procedure (Rules);
 
(b)               Section 5.2 of
R.A. No. 8799;
 
(c)                Rule 1, Section
1(a)(1) of the Interim Rules;
 
(d)               Rule 1, Section
1(a)(2) of the Interim Rules;
 
(e)                Rule 7 of the
Interim Rules;
(f)                Rule 9 of the
Interim Rules; and
 
(g)               The General
Banking Law of 2000 and the New
Central Bank Act.[3]
 
 
On September 12, 2003, Arcenas, et al. filed their
Answer raising, among others, the trial courts lack of jurisdiction to
take cognizance of the case. They also filed a Manifestation and
Motion seeking the dismissal of the case on the following grounds:
(a) lack of jurisdiction over the subject matter; (b) lack of
jurisdiction over the persons of the defendants; (c) forum-
shopping; and (d) for being a nuisance/harassment suit. They then
moved that the trial court rule on their affirmative defenses,
dismiss the intra-corporate case, and set the case for preliminary
hearing.
 
In an Order dated October 18, 2004, the trial court
denied the Manifestation and Motion, ruling thus:
 
The result of the procedure sought by
defendants Arcenas, et al. (sic) is for the Court
to conduct a preliminary hearing on the
affirmative defenses raised by them in their
Answer. This [is] proscribed by the Interim
Rules of Procedure on Intracorporate (sic)
Controversies because when a preliminary
hearing is conducted it is as if a Motion to
Dismiss was filed (Rule 16, Section 6, 1997
Rules of Civil Procedure). A Motion to Dismiss
is a prohibited pleading under the Interim
Rules, for which reason, no favorable
consideration can be given to the Manifestation
and Motion of defendants, Arcenas, et al.
 
The Court finds no merit to (sic) the claim that
the instant case is a nuisance or harassment
suit.
 
WHEREFORE, the Court defers resolution of
the affirmative defenses raised by the
defendants Arcenas, et al.[4]
 
Arcenas, et al. moved for reconsideration[5] but, on
January 18, 2005, the RTC denied the motion.[6] This prompted
Arcenas, et al. to file before the CA a Petition for Certiorari and
Prohibition under Rule 65 of the Rules of Court with a prayer for
the issuance of a writ of preliminary injunction and a temporary
retraining order (TRO).[7]
 
On February 9, 2005, the CA issued a 60-day TRO
enjoining Judge Marella from conducting further proceedings in the
case.[8]
 
On February 22, 2005, the RTC issued a Notice of Pre-
trial[9] setting the case for pre-trial on June 2 and 9, 2005. Arcenas,
et al. filed a Manifestation and Motion[10]before the CA, reiterating
their application for a writ of preliminary injunction. Thus, on April
18, 2005, the CA issued the assailed Resolution, which reads in
part:
(C)onsidering that the Temporary Restraining
Order issued by this Court on February 9, 2005
expired on April 10, 2005, it is necessary that a
writ of preliminary injunction be issued in order
not to render ineffectual whatever final
resolution this Court may render in this case,
after the petitioners shall have posted a bond in
the amount of FIVE HUNDRED THOUSAND
(P500,000.00) PESOS.
 
SO ORDERED.[11]
 
 
Dissatisfied, Koruga filed this Petition for Certiorari under
Rule 65 of the Rules of Court. Koruga alleged that the CA
effectively gave due course to Arcenas, et al.s petition when it
issued a writ of preliminary injunction without factual or legal basis,
either in the April 18, 2005 Resolution itself or in the records of the
case. She prayed that this Court restrain the CA from
implementing the writ of preliminary injunction and, after due
proceedings, make the injunction against the assailed CA
Resolution permanent.[12]
 
In their Comment, Arcenas, et al. raised several
procedural and substantive issues. They alleged that the
Verification and Certification against Forum-Shopping attached to
the Petition was not executed in the manner prescribed by
Philippine law since, as admitted by Korugas counsel himself, the
same was only a facsimile.
 
They also averred that Koruga had admitted in the
Petition that she never asked for reconsideration of the CAs April
18, 2005 Resolution, contending that the Petition did not raise pure
questions of law as to constitute an exception to the requirement of
filing a Motion for Reconsideration before a Petition for Certiorari is
filed.
 
They, likewise, alleged that the Petition may have
already been rendered moot and academic by the July 20, 2005
CA Decision,[13] which denied their Petition, and held that the RTC
did not commit grave abuse of discretion in issuing the assailed
orders, and thus ordered the RTC to proceed with the trial of the
case.
 
Meanwhile, on March 13, 2006, this Court issued a
Resolution granting the prayer for a TRO and enjoining the
Presiding Judge of Makati RTC, Branch 138, from proceeding with
the hearing of the case upon the filing by Arcenas, et al. of
a P50,000.00 bond. Koruga filed a motion to lift the TRO, which
this Court denied on July 5, 2006.
 
On the other hand, respondents Dr. Conrado P. Banzon
and Gen. Ramon Montao also filed their Comment on Korugas
Petition, raising substantially the same arguments as Arcenas, et
al.
G.R. No. 169053
 
G.R. No. 169053 is a Petition for Review
on Certiorari under Rule 45 of the Rules of Court, with prayer for
the issuance of a TRO and a writ of preliminary injunction filed by
Arcenas, et al.
 
In their Petition, Arcenas, et al. asked the Court to set
aside the Decision[14] dated July 20, 2005 of the CA in CA-G.R. SP
No. 88422, which denied their petition, having found no grave
abuse of discretion on the part of the Makati RTC. The CA said
that the RTC Orders were interlocutory in nature and, thus, may be
assailed by certiorari or prohibition only when it is shown that the
court acted without or in excess of jurisdiction or with grave abuse
of discretion. It added that the Supreme Court frowns upon resort
to remedial measures against interlocutory orders.
 
Arcenas, et al. anchored their prayer on the following
grounds: that, in their Answer before the RTC, they had raised the
issue of failure of the court to acquire jurisdiction over them due to
improper service of summons; that the Koruga action is a nuisance
or harassment suit; that there is another case involving the same
parties for the same cause pending before the Monetary Board of
the BSP, and this constituted forum-shopping; and that jurisdiction
over the subject matter of the case is vested by law in the BSP.[15]
 
Arcenas, et al. assign the following errors:
 
I.                   THE COURT OF APPEALS, IN
FINDING NO GRAVE ABUSE OF
DISCRETION COMMITTED BY
PUBLIC RESPONDENT REGIONAL
TRIAL COURT OF MAKATI,
BRANCH 138, IN ISSUING THE
ASSAILED ORDERS, FAILED TO
CONSIDER AND MERELY
GLOSSED OVER THE MORE
TRANSCENDENT ISSUES OF THE
LACK OF JURISDICTION ON THE
PART OF SAID PUBLIC
RESPONDENT OVER THE
SUBJECT MATTER OF THE CASE
BEFORE IT, LITIS PENDENTIA AND
FORUM SHOPPING, AND THE
CASE BELOW BEING A NUISANCE
OR HARASSMENT SUIT, EITHER
ONE AND ALL OF WHICH
GOES/GO TO RENDER THE
ISSUANCE BY PUBLIC
RESPONDENT OF THE ASSAILED
ORDERS A GRAVE ABUSE OF
DISCRETION.
 
II.                THE FINDING OF THE COURT OF
APPEALS OF NO GRAVE ABUSE
OF DISCRETION COMMITTED BY
PUBLIC RESPONDENT REGIONAL
TRIAL COURT OF MAKATI,
BRANCH 138, IN ISSUING THE
ASSAILED ORDERS, IS NOT IN
ACCORD WITH LAW OR WITH THE
APPLICABLE DECISIONS OF THIS
HONORABLE COURT.[16]
 
Meanwhile, in a Manifestation and Motion filed on August
31, 2005, Koruga prayed for, among others, the consolidation of
her Petition with the Petition for Review on Certiorari under Rule
45 filed by Arcenas, et al., docketed as G.R. No. 169053. The
motion was granted by this Court in a Resolution dated September
26, 2005.
 
Our Ruling
 
Initially, we will discuss the procedural issue.
 
Arcenas, et al. argue that Korugas petition should be
dismissed for its defective Verification and Certification Against
Forum-Shopping, since only a facsimile of the same was attached
to the Petition. They also claim that the Verification and
Certification Against Forum-Shopping, allegedly executed
in Seattle, Washington, was not authenticated in the manner
prescribed by Philippine law and not certified by the Philippine
Consulate in the United States.
 
This contention deserves scant consideration.
 
On the last page of the Petition in G.R. No. 168332,
Korugas counsel executed an Undertaking, which reads as
follows:
 
In view of that fact that the Petitioner
is currently in the United States, undersigned
counsel is attaching a facsimile copy of the
Verification and Certification Against Forum-
Shopping duly signed by the Petitioner and
notarized by Stephanie N. Goggin, a Notary
Public for the Sate (sic) of Washington. Upon
arrival of the original copy of the Verification
and Certification as certified by the Office of the
Philippine Consul, the undersigned counsel
shall immediately provide duplicate copies
thereof to the Honorable Court.[17]
 
 
Thus, in a Compliance[18] filed with the Court on
September 5, 2005, petitioner submitted the original copy of the
duly notarized and authenticated Verification and Certification
Against Forum-Shopping she had executed.[19] This Court noted deal with banks and banking institutions, as depositors or
and considered the Compliance satisfactory in its Resolution dated otherwise, are protected. In this country, that task is delegated to
November 16, 2005. There is, therefore, no need to further belabor the BSP, which pursuant to its Charter, is authorized to administer
this issue. the monetary, banking, and credit system of the Philippines. It is
  further authorized to take the necessary steps against any banking
We now discuss the substantive issues in this case. institution if its continued operation would cause prejudice to its
  depositors, creditors and the general public as well.[23]
First, we resolve the prayer to nullify the CAs April 18,  
2005 Resolution. The law vests in the BSP the supervision over operations
We hold that the Petition in G.R. No. 168332 has and activities of banks. The New Central Bank Act provides:
become moot and academic. The writ of preliminary injunction  
being questioned had effectively been dissolved by the CAs July Section 25. Supervision and
20, 2005 Decision. The dispositive portion of the Decision reads in Examination. - The Bangko Sentral shall have
part: supervision over, and conduct periodic or
  special examinations of, banking institutions
The case is REMANDED to the and quasi-banks, including their subsidiaries
court a quo for further proceedings and to and affiliates engaged in allied activities.[24]
resolve with deliberate dispatch the intra-  
corporate controversies and determine whether  
there was actually a valid service of summons. Specifically, the BSPs supervisory and regulatory powers
If, after hearing, such service is found to have include:
been improper, then new summons should be  
served forthwith.[20] 4.1   The issuance of rules of conduct or the
  establishment of standards of
  operation for uniform application to all
Accordingly, there is no necessity to restrain the implementation of institutions or functions covered,
the writ of preliminary injunction issued by the CA on April 18, taking into consideration the
2005, since it no longer exists. distinctive character of the operations
  of institutions and the substantive
However, this Court finds that the CA erred in upholding similarities of specific functions to
the jurisdiction of, and remanding the case to, the RTC. which such rules, modes or standards
  are to be applied;
The resolution of these petitions rests mainly on the  
determination of one fundamental issue: Which body has 4.2   The conduct of examination to
jurisdiction over the Koruga Complaint, the RTC or the BSP? determine compliance with laws
  and regulations if the
We hold that it is the BSP that has jurisdiction over the circumstances so warrant as
case. determined by the Monetary Board;
   
A reexamination of the Complaint is in order. 4.3 Overseeing to ascertain that laws and
  Regulations are complied with;
Korugas Complaint charged defendants with violation of  
Sections 31 to 34 of the Corporation Code, prohibiting self-dealing 4.4   Regular investigation which shall
and conflict of interest of directors and officers; invoked her right to not be oftener than once a year
inspect the corporations records under Sections 74 and 75 of the from the last date of examination
Corporation Code; and prayed for Receivership and Creation of a to determine whether an
Management Committee, pursuant to Rule 59 of the Rules of Civil institution is conducting its
Procedure, the Securities Regulation Code, the Interim Rules of business on a safe or sound
Procedure Governing Intra-Corporate Controversies, the General basis: Provided, That
Banking Law of 2000, and the New Central Bank Act. She accused the deficiencies/irregularities found by
the directors and officers of Banco Filipino of engaging in unsafe, or discovered by an audit shall be
unsound, and fraudulent banking practices, more particularly, acts immediately addressed;
that violate the prohibition on self-dealing.  
  4.5   Inquiring into the solvency and liquidity
It is clear that the acts complained of pertain to the of the institution  (2-D); or
conduct of Banco Filipinos banking business. A bank, as defined in  
the General Banking Law,[21] refers to an entity engaged in the 4.6   Enforcing prompt corrective action.[25]
lending of funds obtained in the form of deposits. [22] The banking  
business is properly subject to reasonable regulation under the  
police power of the state because of its nature and relation to the Koruga alleges that the dispute in the trial court involves
fiscal affairs of the people and the revenues of the state. Banks are the manner with which the Directors (sic) have handled the Banks
affected with public interest because they receive funds from the affairs, specifically the fraudulent loans and dacion en
general public in the form of deposits. It is the Governments pago authorized by the Directors in favor of several dummy
responsibility to see to it that the financial interests of those who corporations known to have close ties and are indirectly controlled
by the Directors.[26] Her allegations, then, call for the examination of
the allegedly questionable loans. Whether these loans are covered
by the prohibition on self-dealing is a matter for the BSP to
determine. These are not ordinary intra-corporate matters; rather,
they involve banking activities which are, by law, regulated and
supervised by the BSP. As the Court has previously held:
 
It is well-settled in both law and
jurisprudence that the Central Monetary
Authority, through the Monetary Board, is
vested with exclusive authority to assess,
evaluate and determine the condition of any
bank, and finding such condition to be one of
insolvency, or that its continuance in business
would involve a probable loss to its depositors
or creditors, forbid bank or non-bank financial
institution to do business in the Philippines; and
shall designate an official of the BSP or other
competent person as receiver to immediately
take charge of its assets and liabilities.[27]
 
 
Correlatively, the General Banking Law of
2000 specifically deals with loans contracted by bank directors or
officers, thus:
 
SECTION 36. Restriction on Bank
Exposure to Directors, Officers,
Stockholders and Their Related
Interests. No director or officer of any bank
shall, directly or indirectly, for himself or as the
representative or agent of others, borrow from
such bank nor shall he become a guarantor,
indorser or surety for loans from such bank to
others, or in any manner be an obligor or incur
any contractual liability to the bank except with
the written approval of the majority of all the
directors of the bank, excluding the director
concerned: Provided, That such written
approval shall not be required for loans, other
credit accommodations and advances granted
to officers under a fringe benefit plan approved
by the Bangko Sentral. The required approval
shall be entered upon the records of the bank
and a copy of such entry shall be transmitted
forthwith to the appropriate supervising and
examining department of the Bangko Sentral.
 
Dealings of a bank with any of its
directors, officers or stockholders and their
related interests shall be upon terms not less
favorable to the bank than those offered to
others.
 
After due notice to the board of
directors of the bank, the office of any bank
director or officer who violates the provisions of
this Section may be declared vacant and the
director or officer shall be subject to the penal
provisions of the New Central Bank Act.
 
The Monetary Board may regulate
the amount of loans, credit
accommodations and guarantees that may
be extended, directly or indirectly, by a bank
to its directors, officers, stockholders and
their related interests, as well as
investments of such bank in enterprises
owned or controlled by said directors,
officers, stockholders and their related
interests. However, the outstanding loans,
credit accommodations and guarantees which a
bank may extend to each of its stockholders,
directors, or officers and their related interests,
shall be limited to an amount equivalent to their
respective unencumbered deposits and book
value of their paid-in capital contribution in the
bank: Provided, however, That loans, credit
accommodations and guarantees secured by
assets considered as non-risk by the Monetary
Board shall be excluded from such limit:
Provided, further, That loans, credit
accommodations and advances to officers in
the form of fringe benefits granted in
accordance with rules as may be prescribed by
the Monetary Board shall not be subject to the
individual limit.
 
The Monetary Board shall define the
term related interests.
 
The limit on loans, credit
accommodations and guarantees prescribed
herein shall not apply to loans, credit
accommodations and guarantees extended by
a cooperative bank to its cooperative
shareholders.[28]
 
 
Furthermore, the authority to determine whether a bank
is conducting business in an unsafe or unsound manner is also
vested in the Monetary Board. The General Banking Law of
2000 provides:
 
SECTION 56. Conducting Business
in an Unsafe or Unsound Manner. In
determining whether a particular act or
omission, which is not otherwise prohibited by
any law, rule or regulation affecting banks,
quasi-banks or trust entities, may be deemed
as conducting business in an unsafe or
unsound manner for purposes of this Section,
the Monetary Board shall consider any of the
following circumstances:
 
56.1. The act or omission has
resulted or may result in
material loss or damage, or
abnormal risk or danger to
the safety, stability, liquidity
or solvency of the institution;
 
56.2. The act or omission has
resulted or may result in
material loss or damage or
abnormal risk to the
institution's depositors,
creditors, investors,
 stockholders or to the
Bangko Sentral or to the
public in general;
56.3. The act or omission has caused
any undue injury, or has
given any unwarranted
benefits, advantage or
preference to the bank or
any party in the discharge
by the director or officer of
his duties and
responsibilities through
manifest partiality, evident
bad faith or gross
inexcusable negligence; or
 
56.4. The act or omission involves
entering into any contract or
transaction manifestly and
grossly disadvantageous to
the bank, quasi-bank or trust
entity, whether or not the
director or officer profited or
will profit thereby.
 
Whenever a bank, quasi-bank or trust
entity persists in conducting its business in an
unsafe or unsound manner, the Monetary
Board may, without prejudice to the
administrative sanctions provided in Section 37
of the New Central Bank Act, take action under
Section 30 of the same Act and/or immediately
exclude the erring bank from clearing, the
provisions of law to the contrary
notwithstanding.
 
 
Finally, the New Central Bank Act grants the Monetary
Board the power to impose administrative sanctions on the erring
bank:
 
Section 37. Administrative Sanctions
on Banks and Quasi-banks. - Without prejudice
to the criminal sanctions against the culpable
persons provided in Sections 34, 35, and 36 of
this Act, the Monetary Board may, at its
discretion, impose upon any bank or quasi-
bank, their directors and/or officers, for any
willful violation of its charter or by-laws, willful
delay in the submission of reports or
publications thereof as required by law, rules
and regulations; any refusal to permit
examination into the affairs of the institution;
any willful making of a false or misleading
statement to the Board or the appropriate
supervising and examining department or its
examiners; any willful failure or refusal to
comply with, or violation of, any banking law or
any order, instruction or regulation issued by
the Monetary Board, or any order, instruction or
ruling by the Governor; or any commission of
irregularities, and/or conducting business in
an unsafe or unsound manner as may be
determined by the Monetary Board, the
following administrative sanctions, whenever
applicable:
(a) fines in amounts as may be
determined by the Monetary Board to
be appropriate, but in no case to
exceed Thirty thousand pesos
(P30,000) a day for each violation,
taking into consideration the attendant
circumstances, such as the nature
and gravity of the violation or
irregularity and the size of the bank or
quasi-bank;
 
(b) suspension of rediscounting
privileges or access to Bangko
Sentral credit facilities;
 
(c) suspension of lending or foreign
exchange operations or authority to
accept new deposits or make new
investments;
 
(d) suspension of interbank clearing
privileges; and/or
 
(e) revocation of quasi-banking
license.
 
Resignation or termination from office
shall not exempt such director or officer from
administrative or criminal sanctions.
 
The Monetary Board may, whenever
warranted by circumstances, preventively
suspend any director or officer of a bank or
quasi-bank pending an investigation: Provided,
That should the case be not finally decided by
the Bangko Sentral within a period of one
hundred twenty (120) days after the date of
suspension, said director or officer shall be
reinstated in his position: Provided, further,
That when the delay in the disposition of the
case is due to the fault, negligence or petition of
the director or officer, the period of delay shall
not be counted in computing the period of
suspension herein provided.
 
The above administrative sanctions
need not be applied in the order of their
severity.
 
Whether or not there is an
administrative proceeding, if the institution
and/or the directors and/or officers concerned
continue with or otherwise persist in the
commission of the indicated practice or
violation, the Monetary Board may issue an
order requiring the institution and/or the
directors and/or officers concerned to cease
and desist from the indicated practice or
violation, and may further order that immediate
action be taken to correct the conditions
 resulting from such practice or violation. The
cease and desist order shall be immediately
effective upon service on the respondents.
 
The respondents shall be afforded an
opportunity to defend their action in a hearing
before the Monetary Board or any committee
chaired by any Monetary Board member
created for the purpose, upon request made by
the respondents within five (5) days from their
receipt of the order. If no such hearing is
requested within said period, the order shall be
final. If a hearing is conducted, all issues shall
be determined on the basis of records, after
which the Monetary Board may either
reconsider or make final its order.
 
The Governor is hereby authorized, at
his discretion, to impose upon banking
institutions, for any failure to comply with the
requirements of law, Monetary Board
regulations and policies, and/or instructions
issued by the Monetary Board or by the
Governor, fines not in excess of Ten thousand
pesos (P10,000) a day for each violation, the
imposition of which shall be final and executory
until reversed, modified or lifted by the
Monetary Board on appeal.[29]
Koruga also accused Arcenas, et al. of violation of the
Corporation Codes provisions on self-dealing and conflict of
interest. She invoked Section 31 of the Corporation Code, which
defines the liability of directors, trustees, or officers of a
corporation for, among others, acquiring any personal or pecuniary
interest in conflict with their duty as directors or trustees, and
Section 32, which prescribes the conditions under which a contract
of the corporation with one or more of its directors or trustees the
so-called self-dealing directors[30] would be valid. She also alleged
that Banco Filipinos directors violated Sections 33 and 34 in
approving the loans of corporations with interlocking
ownerships, i.e., owned, directed, or managed by close associates
of Albert C. Aguirre.
Sections 31 to 34 of the Corporation Code provide:
 
 
Section 31. Liability of directors,
trustees or officers. - Directors or trustees who
wilfully and knowingly vote for or assent to
patently unlawful acts of the corporation or who
are guilty of gross negligence or bad faith in
directing the affairs of the corporation or
acquire any personal or pecuniary interest in
conflict with their duty as such directors or
trustees shall be liable jointly and severally for
all damages resulting therefrom suffered by the
corporation, its stockholders or members and
other persons.
When a director, trustee or officer
attempts to acquire or acquires, in violation of
his duty, any interest adverse to the corporation
in respect of any matter which has been
reposed in him in confidence, as to which
equity imposes a disability upon him to deal in
his own behalf, he shall be liable as a trustee
for the corporation and must account for the
profits which otherwise would have accrued to
the corporation.
 
Section 32. Dealings of directors,
trustees or officers with the corporation. - A
contract of the corporation with one or more of
its directors or trustees or officers is voidable, at
the option of such corporation, unless all the
following conditions are present:
 
1. That the presence of such director
or trustee in the board meeting in which the
contract was approved was not necessary to
constitute a quorum for such meeting;
 
2. That the vote of such director or
trustee was not necessary for the approval of
the contract;
 
3. That the contract is fair and
reasonable under the circumstances; and
4. That in case of an officer, the
contract has been previously authorized by the
board of directors.
Where any of the first two conditions
set forth in the preceding paragraph is absent,
in the case of a contract with a director or
trustee, such contract may be ratified by the
vote of the stockholders representing at least
two-thirds (2/3) of the outstanding capital stock
or of at least two-thirds (2/3) of the members in
a meeting called for the purpose: Provided,
That full disclosure of the adverse interest of
the directors or trustees involved is made at
such meeting: Provided, however, That the
contract is fair and reasonable under the
circumstances.
Section 33. Contracts between
corporations with interlocking directors. -
Except in cases of fraud, and provided the
contract is fair and reasonable under the
circumstances, a contract between two or more
corporations having interlocking directors shall
not be invalidated on that ground alone:
Provided, That if the interest of the interlocking
director in one corporation is substantial and his
interest in the other corporation or corporations
is merely nominal, he shall be subject to the
provisions of the preceding section insofar as
the latter corporation or corporations are
concerned.
 
Stockholdings exceeding twenty
(20%) percent of the outstanding capital stock
shall be considered substantial for purposes of
interlocking directors.
   be terminated should the Monetary Board, on
Section 34. Disloyalty of a director. - the basis of the report of the conservator or of
Where a director, by virtue of his office, its own findings, determine that the continuance
acquires for himself a business opportunity in business of the institution would involve
which should belong to the corporation, thereby probable loss to its depositors or creditors, in
obtaining profits to the prejudice of such which case the provisions of Section 30 shall
corporation, he must account to the latter for all apply.
such profits by refunding the same, unless his  
act has been ratified by a vote of the Section 30. Proceedings in
stockholders owning or representing at least Receivership and Liquidation. - Whenever,
two-thirds (2/3) of the outstanding capital stock. upon report of the head of the supervising or
This provision shall be applicable, examining department, the Monetary Board
notwithstanding the fact that the director risked finds that a bank or quasi-bank:
his own funds in the venture.  
  (a) is unable to pay its
  liabilities as they become
Korugas invocation of the provisions of the Corporation due in the ordinary course of
Code is misplaced. In an earlier case with similar antecedents, we business: Provided, That
ruled that: this shall not include inability
  to pay caused by
The Corporation Code, however, is a general extraordinary demands
law applying to all types of corporations, while induced by financial panic in
the New Central Bank Act regulates specifically the banking community;
banks and other financial institutions, including  
the dissolution and liquidation thereof. As (b) has insufficient realizable
between a general and special law, the latter assets, as determined by
shall prevail generalia specialibus non the Bangko Sentral, to meet
derogant.[31] its liabilities; or
   
  (c) cannot continue in
Consequently, it is not the Interim Rules of Procedure on business without involving
Intra-Corporate Controversies,[32] or Rule 59 of the Rules of Civil probable losses to its
Procedure on Receivership, that would apply to this case. Instead, depositors or creditors; or
Sections 29 and 30 of the New Central Bank Act should be  
followed, viz.: (d) has willfully violated a
  cease and desist order
Section 29. Appointment of under Section 37 that has
Conservator. - Whenever, on the basis of a become final, involving acts
report submitted by the appropriate supervising or transactions which
or examining department, the Monetary Board amount to fraud or a
finds that a bank or a quasi-bank is in a state of dissipation of the assets of
continuing inability or unwillingness to maintain the institution; in which
a condition of liquidity deemed adequate to cases, the Monetary Board
protect the interest of depositors and creditors, may summarily and
the Monetary Board may appoint a conservator without need for prior
with such powers as the Monetary Board shall hearing forbid the
deem necessary to take charge of the assets, institution from doing
liabilities, and the management thereof, business in the
reorganize the management, collect all monies Philippines and designate
and debts due said institution, and exercise all the Philippine Deposit
powers necessary to restore its viability. The Insurance Corporation as
conservator shall report and be responsible to receiver of the banking
the Monetary Board and shall have the power institution.
to overrule or revoke the actions of the previous  
management and board of directors of the bank xxxx
or quasi-bank.       
  The actions of the Monetary Board
xxxx taken under this section or under Section 29
  of this Act shall be final and executory, and
The Monetary Board shall terminate may not be restrained or set aside by the
the conservatorship when it is satisfied that the court except on petition for certiorari on the
institution can continue to operate on its own ground that the action taken was in excess
and the conservatorship is no longer of jurisdiction or with such grave abuse of
necessary. The conservatorship shall likewise discretion as to amount to lack or excess of
 jurisdiction. The petition for certiorari may only
be filed by the stockholders of record
representing the majority of the capital stock
within ten (10) days from receipt by the board of
directors of the institution of the order directing
receivership, liquidation or conservatorship.
     
The designation of a conservator
under Section 29 of this Act or the
appointment of a receiver under this section
shall be vested exclusively with the
Monetary Board. Furthermore, the designation
of a conservator is not a precondition to the
designation of a receiver.[33]
On the strength of these provisions, it is the Monetary
Board that exercises exclusive jurisdiction over proceedings for
receivership of banks.
 
Crystal clear in Section 30 is the provision that says the
appointment of a receiver under this section shall be vested
exclusively with the Monetary Board. The term exclusively
connotes that only the Monetary Board can resolve the issue of
whether a bank is to be placed under receivership and, upon an
affirmative finding, it also has authority to appoint a receiver. This
is further affirmed by the fact that the law allows the Monetary
Board to take action summarily and without need for prior hearing.
 
And, as a clincher, the law explicitly provides that actions
of the Monetary Board taken under this section or under Section
29 of this Act shall be final and executory, and may not be
restrained or set aside by the court except on a petition
for certiorari on the ground that the action taken was in excess of
jurisdiction or with such grave abuse of discretion as to amount to
lack or excess of jurisdiction.
From the foregoing disquisition, there is no doubt that the
RTC has no jurisdiction to hear and decide a suit that seeks to
place Banco Filipino under receivership.
 
Koruga herself recognizes the BSPs power over the
allegedly unlawful acts of Banco Filipinos directors. The records of
this case bear out that Koruga, through her legal counsel, wrote
the Monetary Board[34] on April 21, 2003 to bring to its attention the
acts she had enumerated in her complaint before the RTC. The
letter reads in part:
 
Banco Filipino and the current
members of its Board of Directors should be
placed under investigation for violations of
banking laws, the commission of irregularities,
and for conducting business in an unsafe or
unsound manner. They should likewise be
placed under preventive suspension by virtue of
the powers granted to the Monetary Board
under Section 37 of the Central Bank Act.
These blatant violations of banking laws should
not go by without penalty. They have put Banco
Filipino, its depositors and stockholders, and
the entire banking system (sic) in jeopardy.
 
xxxx
 
We urge you to look into the matter in
your capacity as regulators. Our clients, a
minority stockholders, (sic) and many
depositors of Banco Filipino are prejudiced by a
failure to regulate, and taxpayers are prejudiced
by accommodations granted by the BSP to
Banco Filipino[35]
 
In a letter dated May 6, 2003, BSP Supervision and
Examination Department III Director Candon B. Guerrero referred
Korugas letter to Arcenas for comment. [36] On June 6, 2003, Banco
Filipinos then Executive Vice President and Corporate Secretary
Francisco A. Rivera submitted the banks comments essentially
arguing that Korugas accusations lacked legal and factual bases.
[37]
On the other hand, the BSP, in its Answer before the
RTC, said that it had been looking into Banco Filipinos
activities. An October 2002 Report of Examination (ROE) prepared
by the Supervision and Examination Department (SED) noted
certain dacion payments, out-of-the-ordinary expenses, among
other dealings. On July 24, 2003, the Monetary Board passed
Resolution No. 1034 furnishing Banco Filipino a copy of the ROE
with instructions for the bank to file its comment or explanation
within 30 to 90 days under threat of being fined or of being
subjected to other remedial actions. The ROE, the BSP said,
covers substantially the same matters raised in Korugas
complaint. At the time of the filing of Korugas complaint on August
20, 2003, the period for Banco Filipino to submit its explanation
had not yet expired.[38]
 
Thus, the courts jurisdiction could only have been
invoked after the Monetary Board had taken action on the matter
and only on the ground that the action taken was in excess of
jurisdiction or with such grave abuse of discretion as to amount to
lack or excess of jurisdiction.
Finally, there is one other reason why Korugas complaint
before the RTC cannot prosper. Given her own admission and the
same is likewise supported by evidence that she is merely a
minority stockholder of Banco Filipino, she would not have the
standing to question the Monetary Boards action. Section 30 of the
New Central Bank Act provides:
 
The petition for certiorari may only be filed by
the stockholders of record representing the
majority of the capital stock within ten (10) days
from receipt by the board of directors of the
institution of the order directing receivership,
liquidation or conservatorship.
 
 
All the foregoing discussion yields the inevitable
conclusion that the CA erred in upholding the jurisdiction of, and
remanding the case to, the RTC. Given that the RTC does not
have jurisdiction over the subject matter of the case, its refusal to
dismiss the case on that ground amounted to grave abuse of
discretion.
 
WHEREFORE, the foregoing premises considered, the
Petition in G.R. No. 168332 is DISMISSED, while the Petition in
G.R. No. 169053 is GRANTED. The Decision of the Court of
Appeals dated July 20, 2005 in CA-G.R. SP No. 88422 is
hereby SET ASIDE. The Temporary Restraining Order issued by
this Court on March 13, 2006 is made PERMANENT.
Consequently, Civil Case No. 03-985, pending before
the Regional Trial Court of Makati City, is DISMISSED.
 
SO ORDERED.