I. SHORT TITLE: RURAL BANK OF STA. CATALINA, INC. v.

LAND BANK OF
THE PHILIPPINES

II. FULL TITLE: RURAL BANK OF STA. CATALINA, INC., represented by The
Philippine Deposit Insurance Corporation, in its capacity as Liquidator versus LAND BANK
OF THE PHILIPPINES - G.R. No. 148019, July 26, 2004, Callejo Sr., J

III. TOPIC: The New Central Bank Act - Monetary Board - Liquidation

IV. STATEMENT OF FACTS:

In September 1996, the respondent, Land Bank of the Philippines, filed a complaint against
the petitioner, Sta. Catalina Rural Bank, Inc., in the RTC Vigan, Ilocos Sur for the collection
of the sum of P2,809,280.25, capitalized and accrued interests, penalties and surcharges, and
for such other equitable reliefs. The trial court, in Jan. 1997, declared the petitioner bank in
default for its failure to file its answer to the complaint. Despite its receipt of the copy of the
said order, the petitioner bank failed to file a motion to set aside the order of default. The
respondent bank, thereafter, adduced testimonial and documentary evidence wherein it was
corroborated by two witnesses that the petitioner and respondent entered into a Rediscounting
Line Agreement. On different dates, petitioner made availments which amounted to a total of
P2,946,057.50, with a principal balance of P2,809,280.25. The aggregate amount of its
outstand liability, which includes the unpaid principal, capitalized interest, accrued interest
and accrued penalty is P5,781,991.39 as of July 23, 1997

In the meantime, on Jan 14 1998, the Monetary Board approved the placement of the
petitioner bank’s assets under receivership. The Philippine Deposit Insurance Corporation
(PDIC) was designated as receiver (conservator) of the petitioner, and the latter was
prohibited from doing business in the Philippines. Unaware of the action of the Central Bank,
the trial court, in April 1998, rendered judgment by default against the petitioner bank
ordering the bank to pay its obligation to respondent LBP plus interests and damages.

V. STATEMENT OF THE CASE:

The petitioner, through the PDIC, appealed the decision to the CA. The petitioner bank
claimed that since it was placed under receivership and prohibited from doing business in the
Philippines it should no longer be held liable for interests and penalties on its account to the
respondent bank. However, CA rendered judgment affirming the decision of the RTC. The
CA ruled that having failed to file a motion for reconsideration of the trial court's order
declaring it in default before such court rendered judgment, compounded by its failure to do
so in the CCA, the petitioner bank was precluded from invoking in the appellate court the
placement of its assets and affairs under receivership on Jan 14, 1998, and its exemption from
liability for interests and penalties on its account with the respondent bank after the said date.

VI. ISSUE:
Whether or not petitioner bank is liable for interests and penalties on its account with the
respondent after its assets and affairs were placed under receivership by the Central Bank of
the Philippines, and was prohibited from doing business.

VII. RULING:
A defending party declared in default loses his standing in court and his right to adduce
evidence and to present his defense. He, however, has the right to appeal from the judgment
by default and assail said judgment on the ground, inter alia, that the amount of the judgment
is excessive or is different in kind from that prayed for, or that the plaintiff failed to prove the
material allegations of his complaint, or that the decision is contrary to law. Such party
declared in default is proscribed from seeking a modification or reversal of the assailed
decision on the basis of the evidence submitted by him in the Court of Appeals, for if it were
otherwise, he would thereby be allowed to regain his right to adduce evidence, a right which
he lost in the trial court when he was declared in default, and which he failed to have vacated.
In this case, the petitioner sought the modification of the decision of the trial court based on
the evidence submitted by it only in the Court of Appeals.

Petitioner was served with a copy of summons and the complaint, but failed to file its answer
thereto. It also failed to file a verified motion to set aside the Order of default dated January
23, 1997 despite its receipt of a copy thereof. We note that the trial court rendered judgment
only on April 7, 1998 or more than a year after the issuance of the default order; yet, the
petitioner failed to file any verified motion to set aside the said order before the rendition of
the judgment of default. The PDIC was designated by the Central Bank of the Philippines as
receiver (conservator) as early as January 14, 1998, and in the course of its management of
the petitioner bank's affairs, it should have known of the pendency of the case against the
latter in the trial court. Moreover, the petitioner, through the PDIC, received a copy of the
decision of the trial court on June 2, 1998, but did not bother filing a motion for partial
reconsideration, under Rule 37 of the Rules of Court, appending thereto the orders of the
Monetary Board or a motion to set aside the order of default. Instead, the petitioner appealed
the decision, and even failed to assign as an error the default order of the trial court. The
petitioner is, thus, barred from relying on the orders of the Monetary Board of the Central
Bank of the Philippines placing its assets and affairs under receivership and ordering its
liquidation.

VIII. DISPOSITIVE PORTION:

IN LIGHT OF ALL THE FOREGOING, the petition is DENIED due course. The Decision
of the Court of Appeals in CA-G.R. CV No. 62511 is AFFIRMED. No costs.