Banco Filipino Savings and Mortgage Bank vs.

Central Bank
G.R. No. 70054, December 11, 1991
Pendency of the case did not diminish the powers and authority of the
designated liquidator to effectuate and carry on the administration of the
bank. In the instant case, the basic standards of substantial due process
were not observed.
Facts:

Top Management Programs Corporation and Pilar Development Corporation

are corporations engaged in the business of developing residential subdivisions.

Top Management and Pilar Development obtained several loans from Banco Filipino
all secured by real estate mortgage in their various properties in Cavite.
The Monetary Board by Ramon Tiaoqui, Special Assistant to the Governor and Head,
SES Department III submitted a report finding that the bank is insolvent and
recommending the appointment of a receiver.

The Monetary Board, based on the

Tiaoqui report, issued a resolution finding Banco Filipino insolvent and placing it
under receivership. Subsequently, the Monetary Board issued another resolution
placing the bank under liquidation and designated a liquidator. By virtue of her
authority as liquidator, Valenzuela appointed the law firm of Sycip, Salazar, et al. to
represent Banco Filipino in all litigations.
Banco Filipino filed the petition for certiorari questioning the validity of the
resolutions issued by the Monetary Board authorizing the receivership and
liquidation of Banco Filipino.A temporary restraining order was issued enjoining the
respondents from executing further acts of liquidation of the bank. However, acts
and other transactions pertaining to normal operations of a bank are not enjoined.
Subsequently, Top Management and Pilar Development failed to pay their loans on
the due date. Hence, the law firm of Sycip, Salazar, et al. acting as counsel for
Banco Filipino under authority of the liquidator, applied for extra-judicial foreclosure
of the mortgage over Top Management and Pilar Developments properties. Thus,
the Ex-Officio Sheriff of the Regional Trial Court of Cavite issued a notice of extrajudicial foreclosure sale of the properties. Top Management and Pilar Development
filed 2 separate petitions for injunction and prohibition with the respondent
appellate court seeking to enjoin the Regional Trial Court of Cavite, the ex-officio
sheriff of said court and Sycip, Salazar, et al. from proceeding with foreclosure sale
which were subsequently dismissed by the court. Hence this petition

Issue:

1) Whether or not the liquidator has the authority to prosecute as well as to

defend suits and to foreclose mortgages for and behalf of the bank while the issue
on the validity of the receivership and liquidation is still pending resolution.
2) Whether or not the closure of the bank based on the Tiaoqui report is
correct.
Held:
1) Whether or not the liquidator has the authority to prosecute as well as to defend
suits and to foreclose mortgages for and behalf of the bank while the issue on the
validity of the receivership and liquidation is still pending resolution.
Section 29 of the Republic Act No. 265, as amended known as the Central Bank
Act, provides that when a bank is forbidden to do business in the Philippines and
placed under receivership, the person designated as receiver shall immediately
take charge of the banks assets and liabilities, as expeditiously as possible, collect
and gather all the assets and administer the same for the benefit of its creditors,
and represent the bank personally or through counsel as he may retain in all
actions or proceedings for or against the institution, exercising all the powers
necessary for these purposes including, but not limited to, bringing and foreclosing
mortgages in the name of the bank. If the Monetary Board shall later determine and
confirm that banking institution is insolvent or cannot resume business safety to
depositors, creditors and the general public, it shall, public interest requires, order
its liquidation and appoint a liquidator who shall take over and continue the
functions of receiver previously appointed by Monetary Board. The liquid for may, in
the name of the bank and with the assistance counsel as he may retain, institute
such actions as may necessary in the appropriate court to collect and recover a
counts and assets of such institution or defend any action ft against the institution.
Pendency of the case did not diminish the powers and authority of the designated
liquidator to effectuate and carry on the administration of the bank. The Court did
not prohibit however acts a as receiving collectibles and receivables or paying off
credits claims and other transactions pertaining to normal operate of a bank. There
is no doubt that the prosecution of suits collection and the foreclosure of mortgages

against debtors the bank by the liquidator are among the usual and ordinary
transactions pertaining to the administration of a bank.
2) Whether or not the closure of the bank based on the Tiaoqui report is correct.
Clearly, Tiaoqui based his report on an incomplete examination of petitioner bank
and outrightly concluded therein that the latters financial status was one of
insolvency or illiquidity. In the instant case, the basic standards of substantial due
process were not observed. Time and again, We have held in several cases, that the
procedure of administrative tribunals must satisfy the fundamentals of fair play and
that their judgment should express a well-supported conclusion.The test of
insolvency laid down in Section 29 of the Central Bank Act is measured by
determining whether the realizable assets of a bank are leas than its liabilities.
Hence, a bank is solvent if the fair cash value of all its assets, realizable within a
reasonable time by a reasonable prudent person, would equal or exceed its total
liabilities exclusive of stock liability; but if such fair cash value so realizable is not
sufficient to pay such liabilities within a reasonable time, the bank is insolvent.
Examination appraises the soundness of the institutions assets, the quality and
character of management and determines the institutions compliance with laws,
rules and regulations. Audit is a detailed inspection of the institutions books,
accounts, vouchers, ledgers, etc. to determine the recording of all assets and
liabilities. Hence, examination concerns itself with review and appraisal, while audit
concerns itself with verification.