Case Summary (G.R. No. 230221)
Factual Background
On August 15, 1980, Dewey Dee, Donald Dee, Emmanuel Cu, Michael Barreto, and Angelito Lagos executed, as pledgors, a deed of pledge in favor of Ayala Investment & Development Corporation (AIDC). The pledge covered all their shares of stock in Producers Bank of the Philippines. Under the deed, the pledgors delivered to AIDC, including its successors and assigns, their rights, title, and interest over the Producers Bank shares as security for the full payment of Continental Manufacturing Corporation’s obligation of P4,500,000.00.
On January 13, 1981, AIDC notified Producers Bank—through its corporate secretary—of the pledge and requested that the pledge be recorded in its books. Producers Bank refused to record the pledge, reasoning that the shares in question were not registered in the names of the persons indicated in the deed. When AIDC inquired into this refusal, Producers Bank replied that it had unilaterally appropriated all shareholdings of the pledgees in its favor.
Non-Payment, Auction Sale, and Appropriation of the Shares
On January 23, 1981, AIDC declared Continental Manufacturing Corporation’s total obligation of P4,500,000.00 due and demandable as of January 28, 1981, and informed the pledgors that non-payment would lead AIDC to cause the sale of the pledged shares at public auction. When the obligation remained unpaid on January 28, 1981, AIDC proceeded with a public auction held on January 29, 1981, at 10:00 a.m. No bidders appeared at that time, and the auction was adjourned. After proper notice to the debtor and the pledgors, a second public auction was held on February 5, 1981, again at 10:00 a.m., at AIDC’s principal office in Makati. Again, no bidders appeared. Consequently, AIDC appropriated the pledged shares.
AIDC then executed an acquittance of the pledgors’ obligation. After acquiring all the shares of stock of Dewey Dee, Donald Dee, Emmanuel Cu, Michael Barretto, and Angelito Lagos on February 8, 1981, AIDC requested Producers Bank to cancel the certificates of stock registered in the pledgors’ names and to issue new certificates in the name of AIDC for a total of 42,176 shares.
Refusal to Issue New Certificates and SEC Proceedings
Producers Bank, through its corporate secretary, refused to issue the corresponding stock certificates in AIDC’s name. Because of this refusal, on February 13, 1981, AIDC filed with the Securities and Exchange Commission (SEC) a “Petition for the Issuance of Certificates of Stock.” The SEC ordered Producers Bank to cancel the existing certificates of stock and to issue new certificates to AIDC upon presentation of the old certificates.
However, on September 2, 1987, the Court of Appeals set aside the SEC decision on the ground that the SEC had no jurisdiction and that the action should be filed in regular courts. On January 24, 1988, the Supreme Court affirmed the Court of Appeals decision.
Merger and Filing of the RTC Complaint for Specific Performance and Damages
Meanwhile, on August 1, 1985, Bank of the Philippine Islands (BPI) acquired all the assets and liabilities of AIDC through a merger, with BPI as the surviving corporation. On February 9, 1989, BPI, as AIDC’s successor-in-interest, filed in the Regional Trial Court, Makati, a complaint for specific performance and damages against petitioners.
On May 9, 1989, petitioners moved to dismiss, asserting two grounds: first, that BPI’s cause of action was barred by the statute of limitations; and second, that the complaint stated no cause of action. On January 15, 1991, the trial court issued an order dismissing the complaint, stating that the grounds in the motion to dismiss appeared meritorious and well-founded, but without explaining why.
Trial Court Ruling
The trial court’s dismissal order effectively terminated the case at that stage. The order relied on the stated grounds in petitioners’ motion but did not provide substantive reasoning in support of the dismissal.
Proceedings Before the Court of Appeals and Issues on Petition
BPI appealed to the Court of Appeals. On February 29, 1996, the Court of Appeals reversed the trial court’s ruling and ordered the case remanded for further proceedings. Petitioners then filed this petition in the Supreme Court.
The issue raised centered on whether petitioners’ complaint filed with the trial court was barred by prescription of action. The Court of Appeals had held that BPI’s cause of action had not prescribed.
The Parties’ Contentions
In seeking dismissal, petitioners argued, in substance, that BPI’s action was time-barred and, alternatively, that the complaint failed to state a cause of action. BPI, in turn, maintained that its claim was timely and that the cause of action derived from a written instrument, thus carrying the appropriate prescriptive period.
Legal Basis and Reasoning on Prescription
The Supreme Court held that the nature of an action depended on the allegations in the complaint. In this case, the complaint alleged facts constituting a cause of action based on a written contract, namely, the deed of pledge. The Court therefore applied the ten-year prescriptive period for actions upon a written contract, citing Article 1144, Civil Code.
The Court treated the pledge as executed in August 1980. It then measured the timing of BPI’s suit against the applicable period. BPI commenced the suit in 1989, which it found to be before the ten-year prescriptive period expired. The Court thus concluded that petitioners could not su
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Case Syllabus (G.R. No. 230221)
- The petitioners were Producers Bank of the Philippines, Antonio M. Perry, and Tristan Catindig.
- The respondents were Bank of the Philippine Islands (BPI) and the Court of Appeals.
- The controversy arose from a dispute over the refusal of a bank to register a deed of pledge and to issue replacement share certificates after foreclosure and acquisition of the pledged shares.
- The case reached the Supreme Court as an appeal from the Court of Appeals decision reversing the trial court’s dismissal and remanding the case for further proceedings.
Parties and Procedural Posture
- BPI, as successor-in-interest of AIDC, filed a complaint for specific performance and damages against the petitioners in the Regional Trial Court, Makati.
- The petitioners sought dismissal on the grounds that the action was barred by prescription and that the complaint stated no cause of action.
- The trial court granted dismissal through an order stating that the grounds in the motion to dismiss were meritorious and well-founded, without further explanation.
- On appeal, the Court of Appeals reversed and remanded the case to the trial court for further proceedings.
- The petitioners elevated the matter to the Supreme Court, raising the single issue of whether the complaint was barred by prescription.
Key Factual Allegations
- On August 15, 1980, Dewey Dee, Donald Dee, Emmanuel Cu, Michael Barreto, and Angelito Lagos executed a deed of pledge in favor of Ayala Investment & Development Corporation (AIDC) covering their shares of stock in Producers Bank of the Philippines.
- The pledged shares were delivered to AIDC to secure the obligation of Continental Manufacturing Corporation in the amount of P4,500,000.00.
- On January 13, 1981, AIDC notified Producers Bank of the pledge and requested that the pledge be recorded in the bank’s books.
- Producers Bank refused to record the pledge because the shares were not registered in the names of the persons indicated in the pledge.
- When AIDC inquired about the refusal, Producers Bank replied that it had unilaterally appropriated all shareholdings of the pledgees in its favor.
- On January 23, 1981, AIDC declared the secured obligation due and demandable on January 28, 1981 and warned of sale of the pledged shares at public auction upon nonpayment.
- On January 28, 1981, after nonpayment, AIDC proceeded with the first public auction sale on January 29, 1981 at 10:00 a.m., but no bidders appeared.
- The first auction sale was adjourned, and a second auction sale was scheduled on February 5, 1981 at 10:00 a.m., again with no bidders appearing.
- With no bidders at the second sale, AIDC appropriated all the shares pledged in its favor and executed an acquittance of the pledgors’ obligation.
- After acquisition of all pledged shares, AIDC requested Producers Bank to cancel the original certificates and issue new certificates in AIDC’s name for a total of 42,176 shares.
- Producers Bank refused to issue the new certificates despite AIDC’s request.
- Because of the refusal, AIDC filed with the Securities and Exchange Commission (SEC) a petition for issuance of certificates of stock.
- The SEC ordered Producers Bank to cancel the old certificates and issue new ones upon presentation of the certificates.
- The Court of Appeals later set aside the SEC decision on the ground that the SEC had no jurisdiction, and the action had to be filed with the regular courts.
- The Supreme Court affirmed the Court of Appeals decision on January 24, 1988