VICENTE T. TAN, VICTAN & COMPANY, INC., TRANSWORLD INVESTMENT CORPORATION, FIRST INTERNATIONAL INVESTMENT COMPANY, INC., FAR EAST PETROLEUM & MINERALS CORPORATION, AND PHILCONTR…

Tan versus Central Bank of the Philippines

The Case

This is a petition for review of a Court of Appeals decision in an action for reconveyance of shares of stock with damages and a restraining order. Vicente Tan and the corporations he controlled sued the Central Bank of the Philippines and other defendants to recover the controlling shareholdings in Continental Bank that they say were fraudulently taken from them, and to recover damages for the closure of that bank. The case matters because it fixes the prescriptive periods for recovering movable property, including shares of stock, and because it refuses to treat the entire martial law period as a single fortuitous event that suspended prescription.

Procedural History

The complaint was filed in the trial court, which denied the Central Bank's motion to dismiss. The trial court held that an action based on an implied or constructive trust prescribes in ten years, that the shares were allegedly taken in 1977, and that the ten-year period had not yet lapsed. It also found that the plaintiffs were not guilty of laches and that the complaint stated a cause of action. The Central Bank moved for reconsideration, arguing that prescription and laches were raised against the claim for damages while absence of a cause of action was raised against the claim for reconveyance. The trial court denied reconsideration, so the Central Bank went up to the Court of Appeals on certiorari. The Court of Appeals reversed, holding that the action had prescribed under Section 29 of the Central Bank Act and, in any event, under Article 1146 of the Civil Code, and that the complaint stated no cause of action for reconveyance against the Central Bank because the Central Bank was not one of the assignees of the shares. The petitioners then came to the Supreme Court by petition for review.

Facts

On June 15, 1974, Vicente Tan was arrested by military authorities under an Arrest, Search and Seizure Order based on criminal charges of irregular transactions at Continental Bank. At the time he was neither a director nor an officer of the bank. Three vice-presidents of the bank were also arrested, but the chairman of the board and the president were not, and they continued to run the bank. Fearing a bank run, the bank's officers asked for an emergency loan. The Monetary Board approved it on June 21, 1974, subject to verification of the bank's assets. On June 24, 1974, the Director of the Department of Commercial and Savings Banks reported that the bank's liabilities exceeded its assets by 67.260 million pesos, that it was insolvent, and that its continuance in business would involve probable loss to depositors and creditors. The Central Bank then ordered the bank closed and designated a receiver. A final report on August 12, 1974 affirmed the insolvency but suggested that the bank might reorganize under new management with fresh funds.

While still under military detention, Tan executed agreements in February, May, and July of 1977 transferring and assigning 359,615 shares of stock in Continental Bank, along with other properties of his and his affiliate firms, to Executive Consultants, Inc., Orobel Property Management, Inc., and Antolum International Trading Corporation. The consideration was the assignees' assumption of the liabilities and obligations of Tan and his companies. The assignees rehabilitated the bank, and Tan wrote the Central Bank in July 1977 certifying that he and his corporations had no objection to the reopening and rehabilitation of the bank under its new name, International Corporate Bank, or Interbank. Interbank reopened in 1977 and operated as a banking institution, with controlling ownership changing hands over the next decade.

On January 13, 1987, more than twelve years after the closure, the plaintiffs filed this action for reconveyance of the shares with damages and a restraining order. The Central Bank moved to dismiss on the grounds of prescription, laches, and failure to state a cause of action.

Issues

• Whether or not the action for damages against the Central Bank is barred by prescription under Section 29 of Republic Act Number 265, the Central Bank Act.
• Whether or not, assuming the action is not barred under the Central Bank Act, the action for damages is barred by prescription under Article 1146 of the Civil Code.
• Whether or not the complaint states a cause of action against the Central Bank for the reconveyance of the petitioners' shareholdings in the former Continental Bank under the doctrine of constructive trust.

Applicable Provisions

Section 29 of Republic Act Number 265, the Central Bank Act, provides in part:

At any time within ten days after the Monetary Board has taken charge of the assets of any banking institution, such institution may apply to the court of First Instance for an order requiring the Monetary Board to show cause why its designated official should not be enjoined from continuing such charge of its assets, and the court may direct the Board to refrain from further proceedings and to surrender charge of its assets.

This provision governs the ten-day period to challenge the Monetary Board's taking charge of a bank's assets, and the Court holds it does not bar the petitioners' action.

Article 1146 of the Civil Code provides:

ART. 1146. The following actions must be instituted within four years: (1) Upon an inquiry to the rights of the plaintiff; (2) Upon a quasi-delict.

This fixes the four-year period for actions founded on tort, which the Court applies to actions against the Central Bank for tortious interference in closing and liquidating a bank.

Article 1140 of the Civil Code provides:

Art. 1140. Actions to recover movables shall prescribe eight years from the time the possession thereof is lost, unless the possessor has acquired the ownership by prescription for a less period, according to article 1132, and without prejudice to the provisions of articles 559, 1505, and 1133.

This is the governing rule for the reconveyance of shares of stock, which are movables.

Article 1132 of the Civil Code provides:

Art. 1132. The ownership of movables prescribes through uninterrupted possession for four years in good faith. The ownership of personal property also prescribes through uninterrupted possession for eight years, without need of any other condition. With regard to the right of the owner to recover personal property lost or of which he has been illegally deprived, as well as with respect to movables acquired in a public sale, fair, or market, or from a merchant's store the provisions of articles 559 and 1505 of this Code shall be observed.

This supplies the four-year and eight-year periods of acquisitive prescription that qualify Article 1140.

Article 1133 of the Civil Code provides:

Art. 1133. Movables possessed through a crime can never be acquired through prescription by the offender.

This denies the benefits of prescription to an offender and makes the action to recover the movable from him imprescriptible.

Article 1154 of the Civil Code provides:

ART. 1154. The period during which the obligee was prevented by a fortuitous event from enforcing his right is not reckoned against him.

This is the provision the petitioners invoke to argue that the martial law period tolled prescription.

Ruling

On the first issue, the Court rejects the Court of Appeals' reliance on Section 29 of the Central Bank Act. That statute speaks of enjoining the Monetary Board from taking charge of a bank's assets. Here the Monetary Board had long since relinquished possession, the bank had reopened under a new name and new management, and the petitioners were not asking for an injunction against the Board. Section 29 therefore does not bar the action.

On the second issue, the Court holds that if the complaint were one for tort, Article 1146 would apply and the four-year period would bar it, following the earlier ruling that an action against the Central Bank for tortious interference in closing and liquidating a bank prescribes in four years from the date of closure. But the Court reads the complaint as preeminently one for reconveyance of the shares, not for injury to the petitioners' rights, so it turns to the provisions on recovery of movables. Under Article 1140, read with Articles 1132 and 1133, the periods are four years if the possessor is in good faith, eight years in all other cases, and imprescriptible where the loss was due to a crime and the action is against the offender. The Court summarizes:

For purposes of extinctive prescription vis-a-vis movables, we therefore understand the periods to be: Four years, if the possessor is in good faith; Eight years in all other cases, except where the loss was due to a crime in which case, the offender can not acquire the movable by prescription, and an action to recover it from him is imprescriptible.

The petitioners had at most eight years from the loss of the shares in 1977, and they filed only in January 1987, so the action has prescribed. The Court refuses to apply the imprescriptibility of Article 1133 because the complaint was not brought on that theory and alleges only bad faith and abuse of right, not a criminal taking. On the tolling argument, the Court holds that the period from September 21, 1972 through February 25, 1986 cannot be declared a universal force majeure, since that would suspend all liabilities incurred during that period; claims must be taken on a case-to-case basis. On the third issue, the Court agrees that the complaint states no cause of action for reconveyance against the Central Bank, since the Central Bank was not one of the assignees of the shares and no reconveyance can be decreed against it.

Doctrine

An action to recover movable property, including shares of stock, prescribes under Article 1140 of the Civil Code: four years if the possessor is in good faith, and eight years in all other cases. Where the movable was lost through a crime, the offender can never acquire it by prescription and the action to recover it from him is imprescriptible, but this must be pleaded and supported, not merely inferred from allegations of bad faith. An action against the Central Bank for tortious interference in closing and liquidating a bank is one for tort and prescribes in four years under Article 1146. The martial law period is not, as a universal rule, a fortuitous event that tolls prescription under Article 1154; the claim must be evaluated case by case.

Disposition

The petition was denied and the decision of the Court of Appeals was affirmed, with the complaint dismissed for having prescribed and for failing to state a cause of action for reconveyance against the Central Bank.

Remember This

Memorize the rule that recovery of movables prescribes in four years in good faith and eight years in all other cases, and that the entire martial law period is not a blanket fortuitous event. Examiners use this case to test prescription of actions to recover shares of stock and the limits of Article 1154.