Title
La Union Electric Cooperative, Inc. vs. Yaranon
Case
G.R. No. 87001
Decision Date
Dec 4, 1989
LUELCO challenged NEA's authority over its management and bank transactions, alleging constitutional violations. The Supreme Court upheld NEA's statutory powers, ruling LUELCO lacked standing and failed to prove direct injury.
checks
withdrawals
disbursements
A

Case Summary (G.R. No. 16486)

Factual Background

LUELCO was an electric cooperative organized and subsisting under P.D. 269, as amended. It deposited funds with FEBTC, where withdrawals and disbursements required proper signatories under LUELCO resolutions and NEA directives.

The record showed that LUELCO Board Resolution No. 33-02-88 dated February 20, 1988 provided that the General Manager could sign checks or disbursements up to P5,000, but amounts beyond that limit required countersignatures by both the President and the Secretary-Treasurer of the board, and that transactions were to be paid in a single check payment whether the amount was more or less than P5,000. On March 20, 1988, the board adopted Board Resolution No. 53-03-88, which declared that all checks and disbursements in any amount should bear both the signatures of the Acting General Manager and the President of the Board of Directors of LUELCO, effective immediately.

However, on April 8, 1988, NEA, through Luis O. Cerrafon, NEA Director for Cooperatives Development, modified Board Resolution No. 33-02-88. NEA limited authorization to P3,000.00 only for single disbursement or withdrawal, and for amounts beyond that, required countersignature by either the cooperative President or Treasurer. The interpleader alleged conflicting insistence: LUELCO maintained that the bank should follow Board Resolution No. 53-03-88 because LUELCO owned the deposited funds; NEA maintained that its directive reflected NEA’s takeover/control arrangement under P.D. 269 as amended, and that the board resolution had been disapproved, thus it should govern transactions between LUELCO and the bank.

Initiation of the Interpleader Action

Faced with incompatible claims over proper signatories, FEBTC filed an interpleader action in the RTC. The purpose was to determine who had the right to enforce proper withdrawal and disbursement authority over LUELCO’s deposits with the bank. FEBTC’s action necessarily placed the issue before the court: whether the bank should honor the LUELCO board’s resolutions or NEA’s April 8, 1988 directive consistent with NEA’s asserted powers over the cooperative’s management.

Positions of the Parties in the RTC

LUELCO’s amended answer challenged NEA’s authority under P.D. 269, as amended by P.D. 1645. It contended that NEA’s power violated the Bill of Rights, amounted to an arbitrary and confiscatory exercise of power, violated due process, and destroyed or infringed the cooperative’s autonomous character. LUELCO also sought damages because it was compelled to litigate.

NEA countered that: first, the management of LUELCO was vested in its board but subject to NEA supervision and control, with NEA entitled to be represented and to participate in board meetings and to approve policies and resolutions, pursuant to Section 24 of P.D. 269 as amended; second, NEA was empowered under Section 10 to issue orders, rules, and regulations affecting electric cooperatives and supervised entities; and third, under Section 5(a), NEA could designate an acting general manager and/or project supervisor for a cooperative, prescribe the functions of such officer, and provide that these powers were not nullified, altered, or diminished by any board policy or resolution.

NEA asserted that it had taken direct control and supervision by designating Eufemio C. Genovia on February 5, 1988 as Acting General Manager and Project Supervisor, with functions that included review and approval/disapproval of board resolutions and policies, and authority to sign/countersign checks and other banking transactions. NEA further argued that, as a result of its control and supervision, the LUELCO President and Chairman were not the proper representatives in the petition and that the board’s adoption of Board Resolution No. 53-03-88 was adopted only to neutralize the acting general manager’s authority and to prevent execution of rehabilitation programs. NEA also maintained that the board resolution had not been approved by the acting general manager, and therefore lacked validity. NEA maintained that Resolution No. 33-02-88 as amended by NEA was valid and controlling for banking transactions with FEBTC. In connection with this refusal to honor LUELCO’s position, NEA filed a counterclaim for damages.

Findings of the RTC (Undisputed Facts and Governing Transaction Ruling)

The RTC found several matters to be undisputed. It recognized that the deposited funds belonged to LUELCO, and that NEA exercised supervision and control over cooperatives organized under P.D. 269. It also found that NEA was expressly authorized to designate an acting general manager and/or project supervisor and that the powers of such officer were not nullified, altered, or diminished by cooperative board policies or resolutions, consistent with Section 5(a) of P.D. 269 as amended by P.D. 1645.

On the signature rules, the RTC accepted that Board Resolution No. 33-02-88 authorized the general manager to sign checks or disbursements up to P5,000, with larger amounts requiring countersignatures by the cooperative President and Secretary-Treasurer. It also accepted that Board Resolution No. 53-03-88 required both the acting general manager and the President to sign all checks and disbursements. It further found that NEA, through its April 8, 1988 communication, modified the policy by limiting authorization to P3,000.00 for single disbursements or withdrawals and requiring countersignature by either the President or Treasurer for amounts beyond P3,000.00. The RTC also noted the petition’s allegation that Board Resolution No. 53-03-88 was disapproved by NEA through its acting general manager/project supervisor.

Applying these findings, the RTC ruled in its January 13, 1989 decision that FEBTC was bound to follow NEA’s April 8, 1988 communication. It held that the acting general manager designated by NEA was authorized to sign checks of withdrawals or disbursements only up to P3,000.00, and that any amount beyond P3,000.00 required countersignature by either the President or Treasurer of LUELCO. The RTC dismissed the counterclaim and crossclaim and made no pronouncement as to costs. On February 10, 1989, it denied reconsideration for lack of merit.

The Issues Raised in the Petition

LUELCO elevated the dispute to the RTC through a petition for extraordinary remedies. It raised multiple issues grounded on alleged constitutional infirmities of P.D. 269 as amended by P.D. 1645, and asserted that NEA’s enforcement through the April 8, 1988 directive unlawfully limited the cooperative’s autonomy and management. LUELCO also challenged whether the RTC unjustifiably rejected its constitutional objections on the supposed lack of standing of the cooperative officers to raise constitutional issues. Finally, it questioned whether the decree could constitutionally obliterate the cooperative’s autonomous character under the guise of NEA’s supervisory powers over electric cooperatives and borrowers.

Constitutional Challenge and Threshold Requirement of Direct Injury

In dismissing the petition, the Court approved the RTC’s reasoning on constitutionality. The Court invoked the settled principle that a party raising a constitutional question must show a direct injury or invasion of constitutional rights arising from the operation or enforcement of the challenged law. The Court held that LUELCO failed to demonstrate such direct injury.

The RTC and the Court treated as admitted that NEA had taken over the management of the cooperative. The Court then drew a distinction between a change of management and a takeover of the cooperative’s business, property, and assets. The Court reasoned that the NEA directive limiting check signing to P3,000.00 and requiring countersignature above that limit showed that LUELCO funds remained the cooperative’s funds and had not been converted into NEA funds. On that basis, the Court concluded that LUELCO had not established that the decree, as amended, caused direct injury or an invasion of constitutional rights sufficient to warrant judicial invalidation.

Presumption of Constitutionality and Judicial Restraint

The Court also relied on constitutional adjudication principles. It explained that the judiciary avoids constitutional questions where other grounds can support the resolution, reflecting the separation of powers and respect for legislative and executive acts. It reiterated the presumption of constitutionality and the maxim that, in case of doubt, the law should be sustained. The Court further emphasized that courts do not pass upon the wisdom, justice, or ex

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