EN BANC The record discloses that on November 29, 1960 Carlos Telosa obtained a

loan from the Rural Bank of Lucena Inc. and as a security thereof, he
G.R. No. L-56168 December 22, 1988 mortgaged a parcel of land located at Bo. Amugeria, Malunay, Quezon
with an area of 50,000 square meters. This parcel of land was registered
in the name of the spouses Carlos Telosa & Rufina Telosa.
CARLOTA P. VALENZUELA, in her capacity as Superintendent of
Banks and Authorized Representative of the CENTRAL BANK OF
THE PHILIPPINES in the Liquidation of the RURAL BANK OF Several months thereafter, the Rural Bank of Lucena became a distressed
LUCENA, INC., petitioner, bank. In a letter dated June 16, 1961 the Acting Governor of the Central
vs. Bank apprised the stockholders of the Lucena Bank that the Monetary
HONORABLE COURT OF APPEALS, RUFINA TELOSA, DOLORES Board in its Resolution No. 928 which was approved on June 13, 1961
TELOSA, FE TELOSA, ESTELITA TELOSA, MANUEL TELOSA, found that its officers, directors and employees had committed certain
ROMULO TELOSA, and Minors ALFARO TELOSA, NESTOR TELOSA anomalies or had resorted to unsound banking practices which were
and MARIO TELOSA, as represented by RUFINA prejudicial to the government, its depositors and creditors.
TELOSA, respondents.
The Monetary Board later on decided to liquidate the Lucena Bank. To
Alfredo L. Bautista, Marcelino de Leon and Jaime M. Cabiles for petitioner. implement the resolution of the Monetary Board for the said bank's
liquidation, the Central Bank pursuant to Section 29 of its charter and on
the assumption that the Lucena bank was insolvent, filed with the Court of
Vitaliano N. Aguirre for respondents.
First Instance of Manila a petition dated March 27,1962 for assistance and
supervision in the liquidation of the Lucena Bank. The case was docketed
as Civil Case No. 50019 and assigned to Branch 1 thereof.

PARAS, J.: Acting on that petition, the Court of First Instance of Manila issued an
order dated March 28, 1963, directing the Lucena Bank to turn over its
Invoking the provisions of Article 24 of the New Civil Code which states:
assets to the Central Bank's authorized representative.

In all contractual, property or other relations, when one of

The Monetary Board in its resolution No. 426 dated April 2, 1963
the parties is at a disadvantage on account of his moral
designated the Superintendent of Banks Carlota P. Valenzuela or her duly
dependence, ignorance, indigence, mental weakness,
authorized representative to take charge of the assets of the Lucena bank.
tender age or other handicap, the Court must be vigilant
for his protection.
The Board in its resolution of November 27, 1963 ordered the
Superintendent of Banks to convert the assets of the Lucena bank to
the heirs of Carlos Telosa, a fisherman and farmer with a very limited
money.
education, initiated a complaint before the Court of First Instance of
Quezon seeking the nullification of the real estate mortgage executed by
Carlos Telosa in favor of the Rural Bank of Lucena and/or its reformation Among the accounts of the Lucena bank inventoried by the Central Bank's
to state the real intention of the parties. The case was docketed as Civil representative was the account of Carlos Telosa in the principal amount of
Case No. 7545. P5,000.00. A demand letter was thus sent to Carlos Telosa on August 27,
1965 by the Central Bank examiner Agapito S. Fajardo. Because Carlos
Telosa knew that his obligation to the rural bank was only P300.00 not
P5,000.00, he executed an affidavit dated January 24,1966 (Exh. "D") Meanwhile, as there was no restraining order issued, the foreclosure sale
protesting the demand. took place as scheduled on April 20, 1972, with the Rural Bank of Lucena,
Inc., as the lone and highest bidder in the auction sale for which an award
On January 4,1966 Carlos Telosa paid the amount of P400.00 as was made in its favor The certificate of sale was thereafter issued to it and
evidenced by Official Receipt of the Rural Bank (Exh. "F"). Carlos Telosa the same was registered with the Registry of Deeds on September 11,
claimed this amount represented the principal and interest with a 1972.
remaining balance of P 11.25 which was paid by Dolores Telosa on April
18, 1972 as shown by official receipt of the rural bank (Exh. "G"). On May 4, 1972, the plaintiffs filed their amended complaint, this time
against Carlota P. Valenzuela in her capacity as Superintendent of Banks
Meanwhile, Carlos Telosa died on January 13,1968. and authorized representative of the Central Bank in the liquidation of the
Rural Bank of Lucena, Inc., as sole defendant. In addition to the prayers in
their original complaint, plaintiffs prayed in their amended complaint that
Claiming that the payments made did not fully satisfy the whole amount
the extra-judicial foreclosure sale be annulled.
due because the record still showed a balance of P9,032.22 including
interest as of February 29, 1972, Napoleon R. Cruz, then authorized
deputy of the Central Bank assigned at the Lucena bank, petitioned the Defendant (now petitioner) moved to dismiss the amended complaint on
Deputy Provincial Sheriff of Quezon to extra-judicially foreclose the two (2) grounds: (1) that the trial court has no jurisdiction over the subject
mortgage and sell the collateral at public auction. The foreclosure sale was matter of the action as the Rural Bank of Lucena, Inc., is in the process of
scheduled on April 20, 1972. liquidation in the Court of First Instance of Manila and (2) that the plaintiffs
have no cause of action against the defendant. The motion to dismiss was
denied. Thereafter, defendant filed her answer. In addition to the two
To restrain the sheriff of Quezon from proceeding with the sale, a
grounds relied upon in the motion to dismiss, she set up the defenses of
complaint was filed on April 18, 1972, by the widow and children (now
the validity of the loan documents, reflecting in all respects the correct
private respondents) of Carlos Telosa, before the Court of First Instance of
amount (P5,000.00) which Carlos Telosa obtained from the Rural Bank of
Quezon, against the Rural Bank of Lucena Inc. The plaintiffs prayed for a
Lucena, Inc. and that the plaintiffs' cause of action had already prescribed.
judgment declaring the contract of mortgage executed by Carlos Telosa in
favor of the Rural Bank of Lucena, Inc. null and void and of no further force
and effect and/or that the said contract be reformed to state the true After trial, the court a quo rendered its decision in favor of the plaintiffs, the
intention and agreement of the parties with a prayer for the issuance of dispositive portion of which reads as for lows —
writ of preliminary injunction to stop the sheriff of Quezon from proceeding
with the extra-judicial foreclosure scheduled on April 20, 1972. It was the WHEREFORE, judgment is hereby rendered in favor of
contention of the plaintiffs (now private respondents) that the amount of the plaintiffs and against the defendant:
the loan obtained by Carlos Telosa was only P300.00 and that the same
had already been fully paid. 1. Ordering the reformation of Exhibit 3-CBP so as to
make it reflect a mortgage over one-half of the property
Finding that the complaint filed was not sufficient in form and substance covered by Tax Declaration No. 2156, to secure a loan by
and that the proper parties were not impleaded, Judge Delia P. Medina of Carlos Telosa in the amount of P300.00 and also to reflect
the Court of First Instance of Quezon, Branch 1, issued an Order on April the civil status of Carlos Telosa as "married," to be signed
18, 1972 directing the plaintiffs within five (5) days from notice, to amend by the plaintiffs, as heirs of Carlos Telosa, for and in his
their complaint in order that all proper parties may be impleaded. behalf;
 2. Setting aside as illegal and void the extrajudicial On the issue of jurisdiction, this Court ruled in the case of Hernandez vs.
foreclosure sale of the property covered by Tax Rural Bank of Lucena, Inc. (G.R. No. L-29791, January 10, 1978, 81
Declaration No. 2156, conducted by the Deputy Provincial SCRA 75) that if there is a judicial liquidation of an insolvent bank, all
Sheriff on April 20, 1972; claims against the bank should be filed in the liquidation proceeding.

3. Ordering the defendant to deliver to the plaintiffs the The fact that the insolvent bank is forbidden to do
property covered by Tax Declaration No. 2156, if said business, that its assets are turned over to the
defendant has caused the taking of possession thereof by superintendent of Banks, as a receiver, for conversion into
virtue of the extrajudicial foreclosure; and cash, and that its liquidation is undertaken with judicial
intervention means that, as far as lawful and practicable,
4. Ordering the defendant to pay the plaintiffs from the all claims against the insolvent bank should be filed in the
assets of the Rural Bank of Lucena, Inc., the amount of liquidation proceeding. The judicial liquidation is intended
P2,000.00 as moral damages, P1,500.00 as attorney's to prevent multiplicity of actions against the insolvent
fees and P900.00, as litigation expenses. bank. The lawmaking body contemplated that for
convenience only one court, if possible, should pass upon
the claims against the insolvent bank and that the
With costs against the defendant.
liquidation court should assist the Superintendent of
Banks and control his operations. In the course of the
SO ORDERED. (Record on Appeal, pp. 344-346). liquidation, contentious cases might arise wherein a full-
dress hearing would be required and legal issues would
The above decision was appealed to the Court of Appeals and in its have to be resolved. Hence, it would be necessary in
decision   dated October 29,1980, said court affirmed the decision of the
1
justice to all concerned that a Court of First Instance
lower court in toto. Hence, the instant petition for review. should assist and supervise the liquidation and should act
as umpire and arbitrator in the allowance and
Petitioner contends that (a) a separate action involving the assets, disallowance of claims. The judicial liquidation is a
properties and record of an insolvent bank in the process of liquidation in pragmatic arrangement designed to establish due process
the Court of First Instance of Manila cannot be maintained in another and orderliness in the liquidation of the bank, to obviate
court; (b) a public instrument celebrated with all the requisites under the the proliferation of litigations and to avoid injustice and
safeguard of a notarial certificate is evidence of a high character and to arbitrariness. (81 SCRA 77)
overcome its recitals, it is incumbent upon the party challenging it to prove
his claim with clear, convincing and more than merely preponderant With the foregoing ruling, the more proper procedure would be to set aside
evidence; (c) respondent Rufina Telosa has no factual, valid and legal the decision rendered by the Court of First Instance of Quezon and
basis to ask for the reformation of the real estate mortgage contract, but consequently dismiss the case without prejudice to the right of the private
even assuming that she has, her cause of action to reform had already respondents to take up with the liquidation court, the Court of First
prescribed; (d) moral damages to warrant recovery, must be alleged in the Instance of Manila, the settlement of their mortgage obligation.
complaint and duly proved; (e) the reason for awarding attorney's fees and
litigation expenses must be stated in the decision and (f) there is no legal However, taking into consideration the circumstances of the case and in
and factual basis for the application of Article 24 of the New Civil Code in the interest of justice We are constrained to deviate from this procedure.
the instant case. To order the private respondents to refile and relitigate their case before
the liquidation court would be an exercise in futility. It would mean another Petitioner alleges that the trial court did not state in its decision why it was
several years of trial and additional expenses to private respondents who awarding attorney's fees. The allegation is not correct. A cursory reading
are admittedly living in poverty. Incidentally, the property in question is the of the decision would show that the reason for the award of attorney's fees
only property of private respondents. We have carefully reviewed the is contained in the decision, hereinbelow quoted:
records of the case and We are convinced as were the trial court and the
appellate court that the amount of loan actually obtained by the deceased As a second cause of action, plaintiffs assert that the
Telosa was only P300.00 and not the P5,000.00 as claimed by petitioner. mortgage contract in question was executed without the
This fact was established by the following evidence: knowledge and marital consent of the wife, plaintiff Rufina
Telosa, hence voidable, insofar as her conjugal share is
(a) Exhibit "E" the receipt signed by the deceased dated concerned. Plaintiffs further assess moral damages in the
December 2, 1960 showing the amount of loan to be only amount of P5,000.00, attorney's fees of P2,000.00 and
P300.00. litigation expenses of P75.00 per hearing of this case.
(Brief for private respondents-appellees, p. 44; Record on
(b) The oral testimony of Rufina Telosa, wife of the Appeal, p. 325).
deceased;
Clearly the circumstances show that the award of attorney's fees is proper
(c) The testimony of Ponciano Mendoza who was with the and just.
deceased at the time of the transactions and who
categorically testified that the amount of the loan was The decision also made findings that the bank acted fraudulently. It was
P300.00 in six P50.00 bills but that Carlos Telosa was the bank, represented by petitioner, thru its fraudulent acts which
made to sign blank forms by the bank. compelled private respondents to litigate and incur litigation expenses.

Needless to state in this regard this particular transaction was one of the Incidentally the ratification by the wife cures any defect the contract may
fraudulent and anomalous transactions involving the officers of the Rural have had.
Bank of Lucena, Inc. The latter took advantage of the very limited
education of Carlos Telosa. Petitioner further alleges that moral damages should not have been
granted because private respondents did not duly allege the same in the
The records further show that private respondents made payment in the complaint. The lower court granted the same because of private
amount of P400.00 on January 4, 1966 and P11.25 on April 18, 1972 to respondents' prayer for general relief which includes moral damages.
the Rural Bank of Lucena. This constituted full payment of the principal Private respondents had proven that they suffered mental anguish, serious
loan of P300.00 and the interest thereon. anxiety and moral shock as a consequence of the fraudulent act of the
Rural Bank of Lucena, Inc. This is expressly allowed by Art. 2217 of the
Anent the issue of prescription, suffice it to state that private respondents New Civil Code.
filed their complaint well within the ten (10) year prescriptive period to
bang an action for reformation of an instrument. After discovering the Going back to the issue of jurisdiction, it must be emphasized that at the
fraudulent transaction on March 14, 1972, private respondents allowed time the present action was instituted to enjoin the foreclosure of the real
only 14 days to pass before filing their complaint, estate mortgage under consideration, what must have prompted herein
private respondents to seek redress from the Court of First Instance of
Quezon was the authority of said court to exercise its injunctive relief. The
Court of First Instance having territorial jurisdiction of the acts sought to be
enjoined, the Court of First Instance of Quezon, must take cognizance of
the case.

Finally, even Our ruling in the cited Hernandez versus Rural Bank case
admits of exception. It says "as far as lawful and practicable all claims
against the insolvent bank should be filed in the liquidation proceeding."
This case should be one of them.

WHEREFORE, the petition is DENIED. The appealed decision of the

Court of Appeals is AFFIRMED.

SO ORDERED.

Fernan, C.J., Melencio-Herrera, Cruz, Feliciano, Gancayco, Padilla, Bidin,

Sarmiento, Cortes, Griño-Aquino, Medialdea and Regalado, JJ., concur.

Gutierrez, Jr., J., concur in the result.

Narvasa, J., is on leave.