PACIFIC BANKING CORPORATION EMPLOYEES ORGANIZATION, PAULA S.

PAUG, and its

officers and members, petitioners, vs. THE HONORABLE COURT OF APPEALS and VITALIANO N.
NAÑAGAS II, as Liquidator of Pacific Banking Corporation, respondents.
G.R. No. 109373 March 20, 1995

THE PRESIDENT OF THE PHILIPPINE DEPOSIT INSURANCE CORPORATION, as Liquidator of the

Pacific Banking Corporation, petitioner, vs. COURT OF APPEALS, HON. JUDGE REGINO T.
VERIDIANO II, DEPUTY SHERIFF RAMON ENRIQUEZ and ANG ENG JOO, ANG KEONG LAN and
E.J ANG INT'L. LTD., represented by their Attorney-in-fact, GONZALO C. SY, respondents.
G.R. No. 112991 March 20, 1995

Liquidation.

Facts:

Proceedings in the CB and the RTC

Petitioners Pacific Banking Corporation (PaBC) was placed under receivership by the Central Bank of the
Philippines pursuant to Resolution No. 699 of its Monetary Board. A few months later, it was placed under
liquidation 1 and a Liquidator was appointed. 2

The Central Bank filed with the Regional Trial Court of Manila Branch 31, a petition entitled “Petition for
Assistance in the Liquidation of Pacific Banking Corporation.”3 The petition was approved, after which
creditors filed their claims with the court.

Later a new Liquidator, Vitaliano N. Nañagas, 4 President of the Philippine Deposit Insurance Corporation
(PDIC), was appointed by the Central Bank.

The Pacific Banking Corporation Employees Organization (Union for short), petitioner in G.R. No. 109373,
filed a complaint-in-intervention seeking payment of holiday pay, 13th month pay differential, salary
increase differential, Christmas bonus, and cash equivalent of Sick Leave Benefit due its members as
employees of PaBC. The trial court ordered payment of the principal claims of the Union.

The Liquidator received a copy of the order on September 16, 1991. On October 16, 1991, he filed a
Motion for Reconsideration and Clarification of the order. In his order of December 6, 1991, the judge
modified his September 13, 1991 6 but in effect denied the Liquidator's motion for reconsideration. This
order was received by the Liquidator on December 9, 1991. The following day, December 10, 1991, he
filed a Notice of Appeal and a Motion for Additional Time to Submit Record on Appeal. On December 23,
1991, another Notice of Appeal was filed by the Office of the Solicitor General in behalf of Nañagas.

In his order of February 10, 1992, respondent judge disallowed the Liquidator's Notice of Appeal on the
ground that it was late, i.e., more than 15 days after receipt of the decision. The judge declared his
September 13, 1991 order and subsequent orders to be final and executory and denied reconsideration.
On March 27, 1992, he granted the Union's Motion for issuance of a writ of Execution.

Ang Keong Lan and E.J. Ang Int'l., private respondents in G.R. No. 112991, likewise filed claims for the
payment of investment in the PaBC allegedly in the form of shares of stocks amounting to
US$2,531,632.18. The shares of stocks, consisting of 154,462 common shares, constituted 11% of the
total subscribed capital stock of the PaBC. They alleged that their claim constituted foreign exchange
capital investment entitled to preference in payment under the Foreign Investments Law.

In his order dated September 11, 1992, respondent judge of the RTC directed the Liquidator to pay
private respondents the total amount of their claim as preferred creditors.
The Liquidator received the order on September 16, 1992. On September 30, 1992 he moved for
reconsideration, but his motion was denied by the court on October 2, 1992. He received the order
denying his Motion for Reconsideration on October 5, 1992. On October 14, 1992 he filed a Notice of
Appeal from the orders of September 16, 1992 and October 2, 1992. As in the case of the Union,
however, the judge ordered the Notice of Appeal stricken off the record on the ground that it had been
filed without authority of the Central Bank and beyond 15 days. In his order of October 28, 1992, the
judge directed the execution of his September 11, 1992 order granting the Stockholders/ Investors' claim.

Proceedings in the Court of Appeals

The Liquidator filed separate Petitions for Certiorari, Prohibition and Mandamus in the Court of Appeals to
set aside the orders of the trial court denying his appeal from the orders granting the claims of Union and
of the Stockholders/Investors. The two Divisions of the Court of Appeals, to which the cases were
separately raffled, rendered conflicting rulings.

In its decision of November 17, 1992 in CA-G.R. SP No. 27751 (now G.R. No. 09373) the Fifth Division 8
held in the case of the Union that the proceeding before the trial court was a special proceeding and,
therefore, the period for appealing from any decision or final order rendered therein is 30 days. Since the
notice of appeal of the Liquidator was filed on the 30th day of his receipt of the decision granting the
Union's claims, the appeal was brought on time. The Fifth Division, therefore, set aside the orders of the
lower court and directed the latter to give due course to the appeal of the Liquidator and set the Record
on Appeal he had filed for hearing.

On the other hand, on December 16, 1993, the Fourteenth Division 9 ruled in CA-G.R. SP No. 29351
(now G.R. No. 112991) in the case of the Stockholders/Investors that a liquidation proceeding is an
ordinary action. Therefore, the period for appealing from any decision or final order rendered therein is 15
days and that since the Liquidator's appeal notice was filed on the 23rd day of his receipt of the order
appealed from, deducting the period during which his motion for reconsideration was pending, the notice
of appeal was filed late. Accordingly, the Fourteenth Division dismissed the Liquidator's petition.

Present Proceedings

The Union and the Liquidator then separately filed petitions before this Court.

Issue:
Whether a petition for liquidation under §29 of Rep. Act No. 265, otherwise known as the Central Bank
Act, is a special proceeding or an ordinary civil action.

Ruling:
As stated in the beginning, the principal question in these cases is whether a petition for liquidation under
§29 of Rep. Act No. 265 is in the nature of a special proceeding. If it is, then the period of appeal is 30
days and the party appealing must, in addition to a notice of appeal, file with the trial court a record on
appeal in order to perfect his appeal. Otherwise, if a liquidation proceeding is an ordinary action, the
period of appeal is 15 days from notice of the decision or final order appealed from.

BP Blg. 129 provides:

§39. Appeals. — The period for appeal from final orders, resolutions, awards, judgments, or decisions of
any court in all cases shall be fifteen (15) days counted from the notice of the final order, resolution,
award, judgment or decision appealed from: Provided, however, that in habeas corpus cases the period
for appeal shall be forty-eight (48) hours from the notice of the judgment appealed from.

No record on appeal shall be required to take an appeal. In lieu thereof, the entire record shall be
transmitted with all the pages prominently numbered consecutively, together with an index of the contents
thereof.
This section shall not apply in appeals in special proceedings and in other cases wherein multiple appeals
are allowed under applicable provisions of the Rules of Court.

The Interim Rules and Guidelines to implement BP Blg. 129 provides:

19. Period of Appeals. —
(a) All appeals, except in habeas corpus cases and in the cases referred to in paragraph (b) hereof, must
be taken within fifteen (15) days from notice of the judgment, order, resolution or award appealed from.
(b) In appeals in special proceedings in accordance with Rule 109 of the Rules of Court and other cases
wherein multiple appeals are allowed, the period of appeals shall be thirty (30) days, a record on appeal
being required.

The Fourteenth Division of the Court of Appeals held that the proceeding is an ordinary action similar to
an action for interpleader under Rule 63. 10 The Fourteenth Division stated:
The petition filed is akin to an interpleader under Rule 63 of the Rules of Court where there are conflicting
claimants or several claims upon the same subject matter, a person who claims no interest thereon may
file an action for interpleader to compel the claimants to “interplead” and litigate their several claims
among themselves. (Section I Rule 63).

An interpleader is in the category of a special civil action under Rule 62 which, like an ordinary action,
may be appealed only within fifteen (15) days from notice of the judgment or order appealed from. Under
Rule 62, the preceding rules covering ordinary civil actions which are not inconsistent with or may serve
to supplement the provisions of the rule relating to such civil actions are applicable to special civil actions.
This embraces Rule 41 covering appeals from the regional trial court to the Court of Appeals.
×××
Thus, under Section 1 Rule 2 of the Rules of Court, an action is defined as “an ordinary suit in a court of
justice by which one party prosecutes another for the enforcement or protection of a right or the
prevention or redress of a wrong.” On the other hand, Section 2 of the same Rule states that “every other
remedy including one to establish the status or right of a party or a particular fact shall be by special
proceeding.”

To our mind, from the aforequoted definitions of an action and a special proceeding, the petition for
assistance of the court in the liquidation of an asset of a bank is not “one to establish the status or right of
a party or a particular fact.” Contrary to the submission of the petitioner, the petition is not intended to
establish the fact of insolvency of the bank. The insolvency of the bank had already been previously
determined by the Central Bank in accordance with Section 9 of the CB Act before the petition was filed.
All that needs to be done is to liquidate the assets of the bank and thus the assistance of the respondent
court is sought for that purpose.

It should be pointed out that this petition filed is not among the cases categorized as a special proceeding
under Section 1, Rule 72 of the Rules of Court, nor among the special proceedings that may be appealed
under Section 1, Rule 109 of the Rules.

We disagree with the foregoing view of the Fourteenth Division. Rule 2 of the Rules of Court provide:
§1. Action defined. — Action means an ordinary suit in a court of justice, by which the party prosecutes
another for the enforcement or protection of a right, or the prevention or redress of a wrong.
§2. Special Proceeding Distinguished. — Every other remedy, including one to establish the status or
right of a party or a particular fact, shall be by special proceeding.

Elucidating the crucial distinction between an ordinary action and a special proceeding, Chief Justice
Moran states:
Action is the act by which one sues another in a court of justice for the enforcement or protection of a
right, or the prevention or redress of a wrong while special proceeding is the act by which one seeks to
establish the status or right of a party, or a particular fact. Hence, action is distinguished from special
proceeding in that the former is a formal demand of a right by one against another, while the latter is but a
petition for a declaration of a status, right or fact. Where a party litigant seeks to recover property from
another, his remedy is to file an action. Where his purpose is to seek the appointment of a guardian for an
insane, his remedy is a special proceeding to establish the fact or status of insanity calling for an
appointment of guardianship.

Considering this distinction, a petition for liquidation of an insolvent corporation should be classified a
special proceeding and not an ordinary action. Such petition does not seek the enforcement or protection
of a right nor the prevention or redress of a wrong against a party. It does not pray for affirmative relief for
injury arising from a party's wrongful act or omission nor state a cause of action that can be enforced
against any person.

What it seeks is merely a declaration by the trial court of the corporation's insolvency so that its creditors
may be able to file their claims in the settlement of the corporation's debts and obligations. Put in another
way, the petition only seeks a declaration of the corporation's debts and obligations. Put in another way,
the petition only seeks a declaration of the corporation's state of insolvency and the concomitant right of
creditors and the order of payment of their claims in the disposition of the corporation's assets.

Contrary to the rulings of the Fourteenth Division, liquidation proceedings do not resemble petitions for
interpleader. For one, an action for interpleader involves claims on a subject matter against a person who
has no interest therein. 12 This is not the case in a liquidation proceeding where the Liquidator, as
representative of the corporation, takes charge of its assets and liabilities for the benefit of the creditors.
13 He is thus charged with insuring that the assets of the corporation are paid only to rightful claimants
and in the order of payment provided by law.

Rather, a liquidation proceeding resembles the proceeding for the settlement of state of deceased
persons under Rules 73 to 91 of the Rules of Court. The two have a common purpose: the determination
of all the assets and the payment of all the debts and liabilities of the insolvent corporation or the estate.
The Liquidator and the administrator or executor are both charged with the assets for the benefit of the
claimants. In both instances, the liability of the corporation and the estate is not disputed. The court's
concern is with the declaration of creditors and their rights and the determination of their order of
payment.

Furthermore, as in the settlement of estates, multiple appeals are allowed in proceedings for liquidation of
an insolvent corporation. As the Fifth Division of the Court of Appeals, quoting the Liquidator, correctly
noted:
A liquidation proceeding is a single proceeding which consists of a number of cases properly classified as
“claims.” It is basically a two-phased proceeding. The first phase is concerned with the approval and
disapproval of claims. Upon the approval of the petition seeking the assistance of the proper court in the
liquidation of a close entity, all money claims against the bank are required to be filed with the liquidation
court. This phase may end with the declaration by the liquidation court that the claim is not proper or
without basis. On the other hand, it may also end with the liquidation court allowing the claim. In the latter
case, the claim shall be classified whether it is ordinary or preferred, and thereafter included Liquidator. In
either case, the order allowing or disallowing a particular claim is final order, and may be appealed by the
party aggrieved thereby.

The second phase involves the approval by the Court of the distribution plan prepared by the duly
appointed liquidator. The distribution plan specifies in detail the total amount available for distribution to
creditors whose claim were earlier allowed. The Order finally disposes of the issue of how much property
is available for disposal. Moreover, it ushers in the final phase of the liquidation proceeding — payment of
all allowed claims in accordance with the order of legal priority and the approved distribution plan.
Verily, the import of the final character of an Order of allowance or disallowance of a particular claim
cannot be overemphasized. It is the operative fact that constitutes a liquidation proceeding a “case where
multiple appeals are allowed by law.” The issuance of an Order which, by its nature, affects only the
particular claims involved, and which may assume finality if no appeal is made therefrom, ipso facto
creates a situation where multiple appeals are allowed.

A liquidation proceeding is commenced by the filing of a single petition by the Solicitor General with a
court of competent jurisdiction entitled, “Petition for Assistance in the Liquidation of e.g., Pacific Banking
Corporation. All claims against the insolvent are required to be filed with the liquidation court. Although
the claims are litigated in the same proceeding, the treatment is individual. Each claim is heard
separately. And the Order issued relative to a particular claim applies only to said claim, leaving the other
claims unaffected, as each claim is considered separate and distinct from the others. Obviously, in the
event that an appeal from an Order allowing or disallowing a particular claim is made, only said claim is
affected, leaving the others to proceed with their ordinary course. In such case, the original records of the
proceeding are not elevated to the appellate court. They remain with the liquidation court. In lieu of the
original record, a record of appeal is instead required to be prepared and transmitted to the appellate
court.

Inevitably, multiple appeals are allowed in liquidation proceedings. Consequently, a record on appeal is
necessary in each and every appeal made. Hence, the period to appeal therefrom should be thirty (30)
days, a record on appeal being required. (Record pp. 162-164).

In G.R. No. 112991 (the case of the Stockholders/Investors), the Liquidator's notice of appeal was filed on
time, having been filed on the 23rd day of receipt of the order granting the claims of the
Stockholders/Investors. However, the Liquidator did not file a record on appeal with the result that he
failed to perfect his appeal. As already stated a record on appeal is required under the Interim Rules and
Guidelines in special proceedings and for cases where multiple appeals are allowed. The reason for this
is that the several claims are actually separate ones and a decision or final order with respect to any claim
can be appealed. Necessarily the original record on appeal must remain in the trial court where other
claims may still be pending.

Because of the Liquidator's failure to perfect his appeal, the order granting the claims of the
Stockholders/Investors became final. Consequently, the Fourteenth Division's decision dismissing the
Liquidator's Petition for Certiorari, Prohibition and Mandamus must be affirmed albeit for a different
reason.
On the other hand, in G.R. No. 109373 (case of the Labor Union), we find that the Fifth Division correctly
granted the Liquidator's Petition for Certiorari, Prohibition and Mandamus. As already noted, the
Liquidator filed a notice of appeal and a motion for extension to file a record on appeal on December 10,
1991, i.e., within 30 days of his receipt of the order granting the Union's claim. Without waiting for the
resolution of his motion for extension, he filed on December 20, 1991 within the extension sought a record
on appeal. Respondent judge thus erred in disallowing the notice on appeal and denying the Liquidator's
motion for extension to file a record on appeal.

The Fifth Division of the Court of Appeals correctly granted the Liquidator's Petition for Certiorari,
Prohibition and Mandamus and its decision should, therefore, be affirmed.

Second. In G.R. No. 109373, The Union claims that under §29 of Rep. Act No. 265, the court merely
assists in adjudicating the claims of creditors, preserves the assets of the institution, and implements the
liquidation plan approved by the Monetary Board and that, therefore, as representative of the Monetary
Board, the Liquidator cannot question the order of the court or appeal from it. It contends that since the
Monetary Board had previously admitted PaBC's liability to the laborers by in fact setting aside the
amount of P112,234,292.44 for the payment of their claims, there was nothing else for the Liquidator to
do except to comply with the order of the court.

The Union's contention is untenable. In liquidation proceedings, the function of the trial court is not limited
to assisting in the implementation of the orders of the Monetary Board. Under the same section (§29) of
the law invoked by the Union, the court has authority to set aside the decision of the Monetary Board “if
there is a convincing proof that the action is plainly arbitrary and made in bad faith.” As this Court held in
Rural Bank of Buhi, Inc. v. Court of Appeals:

There is no question, that the action of the monetary Board in this regard may be subject to judicial
review. Thus, it has been held that the Court's may interfere with the Central Bank's exercise of discretion
in determining whether or not a distressed bank shall be supported or liquidated. Discretion has its limits
and has never been held to include arbitrariness, discrimination or bad faith (Ramos v. Central Bank of
the Philippines, 41 SCRA 567 [1971]).
In truth, the Liquidator is the representative not only of the Central Bank but also of the insolvent bank.
Under §§28A-29 of Rep. Act No. 265 he acts in behalf of the bank “personally or through counsel as he
may retain, in all actions or proceedings or against the corporation” and he has authority “to do whatever
may be necessary for these purposes.” This authority includes the power to appeal from the decisions or
final orders of the court which he believes to be contrary to the interest of the bank.
Finally the Union contends that the notice of appeal and motion for extension of time to file the record on
appeal filed in behalf of the Central Bank was not filed by the office of the Solicitor General as counsel for
the Central Bank. This contention has no merit. On October 22, 1992, as Assistant Solicitor General
Cecilio O. Estoesta informed the trial court in March 27, 1992, the OSG had previously authorized lawyers
of the PDIC to prepare and sign pleadings in the case. 16 Conformably thereto the Notice of Appeal and
the Motion for Additional Time to submit Record on Appeal filed were jointly signed by Solicitor Reynaldo
I. Saludares in behalf of the OSG and by lawyers of the PDIC.

WHEREFORE, in G.R. No. 109373 and G.R. No 112991, the decisions appealed from are AFFIRMED.