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It is not disputed that the petitioner Bank was under a conservator placed by the

Central Bank of the Philippines during the time that the negotiation and perfection of
the contract of sale took place. Petitioners energetically contended that the
conservator has the power to revoke or overrule actions of the management or the
board of directors of a bank, under Section 28-A of Republic Act No. 265 (otherwise
known as the Central Bank Act) as follows:
Whenever, on the basis of a report submitted by the appropriate supervising or examining
department, the Monetary Board finds that a bank or a non-bank financial intermediary
performing quasi - banking functions is in a state of continuing inability or unwillingness to
maintain a state of liquidity deemed adequate to protect the interest of depositors and creditors,
the Monetary Board may appoint a conservator to take charge of the assets, liabilities, and the
management of that institution, collect all monies and debts due said institution and exercise all
powers necessary to preserve the assets of the institution, reorganize the management thereof,
and restore its viability. He shall have the power to overrule or revoke the actions of the
previous management and board of directors of the bank or non-bank financial intermediary
performing quasi-banking functions, any provision of law to the contrary notwithstanding, and
such other powers as the Monetary Board shall deem necessary.
In the first place, this issue of the Conservators alleged authority to revoke or
repudiate the perfected contract of sale was raised for the first time in this Petition - as
this was not litigated in the trial court or Court of Appeals. As already stated earlier,
issues not raised and/or ventilated in the trial court, let alone in the Court of Appeals,
cannot be raised for the first time on appeal as it would be offensive to the basic rules
of fair play, justice and due process.[43]
In the second place, there is absolutely no evidence that the Conservator, at the
time the contract was perfected, actually repudiated or overruled said contract of sale.
The Banks acting conservator at the time, Rodolfo Romey, never objected to the sale
of the property to Demetria and Janolo. What petitioners are really referring to is the
letter of Conservator Encarnacion, who took over from Romey after the sale was
perfected on September 30, 1987 (Annex V, petition) which unilaterally repudiated not the contract - but the authority of Rivera to make a binding offer - and which
unarguably came months after the perfection of the contract. Said letter dated May 12,
1988 is reproduced hereunder:
In the third place, while admittedly, the Central Bank law gives vast and farreaching powers to the conservator of a bank, it must be pointed out that such powers
must be related to the (preservation of) the assets of the bank, (the reorganization of)
the management thereof and (the restoration of) its viability. Such powers, enormous
and extensive as they are, cannot extend to the post-facto repudiation of perfected

transactions, otherwise they would infringe against the non-impairment clause of the
Constitution. If the legislature itself cannot revoke an existing valid contract, how can it
delegate such non-existent powers to the conservator under Section 28-A of said law?
Obviously, therefore, Section 28-A merely gives the conservator power to
revoke contracts that are, under existing law, deemed to be defective - i.e., void,
voidable, unenforceable or rescissible. Hence, the conservator merely takes the place
of a banks board of directors. What the said board cannot do - such as repudiating a
contract validly entered into under the doctrine of implied authority - the conservator
cannot do either. Ineluctably, his power is not unilateral and he cannot simply
repudiate valid obligations of the Bank. His authority would be only to bring court
actions to assail such contracts - as he has already done so in the instant case. A
contrary understanding of the law would simply not be permitted by the Constitution.
Neither by common sense. To rule otherwise would be to enable a failing bank to
become solvent, at the expense of third parties, by simply getting the conservator to
unilaterally revoke all previous dealings which had one way or another come to be
considered unfavorable to the Bank, yielding nothing to perfected contractual rights
nor vested interests of the third parties who had dealt with the Bank.
RURAL BANK OF BUHI, INC., and HONORABLE JUDGE CARLOS R.
BUENVIAJE, petitioners,
vs.
HONORABLE COURT OF APPEALS, CENTRAL BANK OF THE PHILIPPINES and
CONSOLACION ODRA,
I. Petitioner Rural Bank's position is to the effect that due process was not observed
by the Monetary Board before said bank was placed under receivership. Said Rural
Bank claimed that it was not given the chance to deny and disprove such claim of
insolvency and/or any other ground which the Monetary Board used in justification of
its action.
Relative thereto, the provision of Republic Act No. 265 on the proceedings upon
insolvency reads:
SEC. 29. Proceedings upon insolvency.— Whenever, upon
examination by the head of the appropriate supervising and
examining department or his examiners or agents into the
condition of any banking institution, it shall be disclosed that the
condition of the same is one of insolvency, or that its continuance
in business would involve probable loss to its depositors or
creditors, it shall be the duty of the department head concerned

forthwith, in writing, to inform the Monetary Board of the facts, and
the Board may, upon finding the statements of the department
head to be true, forbid the institution to do business in the
Philippines and shall designate an official of the Central Bank, or
a person of recognized competence in banking, as receiver to
immediately take charge of its assets and liabilities, as
expeditiously as possible collect and gather all the assets and
administer the same for the benefit of its creditors, exercising all
the powers necessary for these purposes including, but not
limited to, bringing suits and foreclosing mortgages in the name of
the banking institution.
The Monetary Board shall thereupon determine within sixty days
whether the institution may be recognized or otherwise placed in
such a condition so that it may be permitted to resume business
with safety to its depositors and creditors and the general public
and shall prescribe the conditions under which such redemption
of business shall take place as the time for fulfillment of such
conditions. In such case, the expenses and fees in the collection
and administration of the assets of the institution shall be
determined by the Board and shall be paid to the Central Bank
out of the assets of such banking institution.
If the Monetary Board shall determine and confirm within the said
period that the banking institution is insolvent or cannot resume
business with safety to its depositors, creditors and the general
public, it shall, if the public interest requires, order its liquidation,
indicate the manner of its liquidation and approve a liquidation
plan. The Central Bank shall, by the Solicitor General, file a
petition in the Court of First Instance reciting the proceedings
which have been taken and praying the assistance of the court in
the liquidation of the banking institution. The Court shall have
jurisdiction in the same proceedings to adjudicate disputed claims
against the bank and enforce individual liabilities of the
stockholders and do all that is necessary to preserve the assets of
the banking institution and to implement the liquidation plan
approved by the Monetary Board. The Monetary Board shall
designate an official of the Central Bank or a person of
recognized competence in banking, as liquidator who shall take
over the functions of the receiver previously appointed by the
Monetary Board under this Section. The liquidator shall, with all
convenient speed, convert the assets of the banking institution to
money or sell, assign or otherwise dispose of the same to

creditors and other parties for the purpose of paying the debts of
such bank and he may, in the name of the banking institution,
institute such actions as may be necessary in the appropriate
court to collect and recover accounts and assets of the banking
institution.
The provisions of any law to the contrary notwithstanding the
actions of the Monetary Board under this Section and the second
paragraph of Section 34 of this Act shall be final and executory,
and can be set aside by the court only if there is convincing proof
that the action is plainly arbitrary and made in bad faith. No
restraining order or injunction shall be issued by the court
enjoining the Central Bank from implementing its actions under
this Section and the second paragraph of Section 34 of this Act,
unless there is convincing proof that the action of the Monetary
Board is plainly arbitrary and made in bad faith and the petitioner
or plaintiff files with the clerk or judge of the court in which the
action is pending a bond executed in favor of the Central Bank, in
an amount to be fixed by the court. The restraining order or
injunction shall be refused or, if granted, shall be dissolved upon
filing by the Central Bank of a bond, which shall be in the form of
cash or Central Bank cashier's check, in an amount twice the
amount of the bond of the petitioner, or plaintiff conditioned that it
will pay the damages which the petitioner or plaintiff may suffer by
the refusal or the dissolution of the injunction. The provisions of
Rule 58 of the New Rules of Court insofar as they are applicable
and not inconsistent with the provisions of this Section shall
govern the issuance and dissolution of the restraining order or
injunction contemplated in this Section.
Insolvency, under this Act, shall be understood to mean the
inability of a banking institution to pay its liabilities as they fall due
in the usual and ordinary course of business: Provided, however,
that this shall not include the inability to pay of an otherwise noninsolvent bank caused by extraordinary demands induced by
financial panic commonly evidenced by a run on the banks in the
banking community.
The appointment of a conservator under Section 28-A of this Act
or the appointment of receiver under this Section shall be vested
exclusively with the Monetary Board, the provision of any law,
general or special, to the contrary not withstanding.

It will be observed from the foregoing provision of law, that there is no requirement
whether express or implied, that a hearing be first conducted before a banking
institution may be placed under receivership. On the contrary, the law is explicit as to
the conditions prerequisite to the action of the Monetary Board to forbid the institution
to do business in the Philippines and to appoint a receiver to immediately take charge
of the bank's assets and liabilities. They are: (a) an examination made by the
examining department of the Central Bank; (b) report by said department to the
Monetary Board; and (c) prima facie showing that the bank is in a condition of
insolvency or so situated that its continuance in business would involve probable loss
to its depositors or creditors.
Supportive of this theory is the ruling of this Court, which established the authority of
the Central Bank under the foregoing circumstances, which reads:

Petitioner further argues, that there is also that constitutional guarantee that no
property shall be taken without due process of law, so that Section 29, R.A. 265, as
amended, could not have intended to disregard and do away with such constitutional
requirement when it conferred upon the Monetary Board the power to place Rural
Banks under receivership (Rollo, p. 333).
The contention is without merit. It has long been established and recognized in this
jurisdiction that the closure and liquidation of a bank may be considered as an
exercise of police power. Such exercise may, however, be subject to judicial inquiry
and could be set aside if found to be capricious, discriminatory, whimsical, arbitrary,
unjust or a denial of the due process and equal protection clauses of the Constitution
(Central Bank vs. Court of Appeals, 106 SCRA 155 [1981]).

First, to forbid the institution to do business and appoint a receiver
therefor; and

The evident implication of the law, therefore, is that the appointment of a receiver may
be made by the Monetary Board without notice and hearing but its action is subject to
judicial inquiry to insure the protection of the banking institution. Stated otherwise, due
process does not necessarily require a prior hearing; a hearing or an opportunity to be
heard may be subsequent to the closure. One can just imagine the dire consequences
of a prior hearing: bank runs would be the order of the day, resulting in panic and
hysteria. In the process, fortunes may be wiped out, and disillusionment will run the
gamut of the entire banking community.

Second, to determine, within 60 days, whether or not:

In Mendiola vs. Court of Appeals, (106 SCRA 130), the Supreme Court held:

As will be noted, whenever it shall appear prima facie that a
banking institution is in "a condition of insolvency" or so situated
"that its continuance in business would involved probable loss to
its depositors or creditors," the Monetary Board has authority:

1) the institution may be reorganized and
rehabilitated to such an extent as to be
permitted to resume business with safety to
depositors, creditors and the general public;
or
2) it is indeed insolvent or cannot resume
business with safety to depositors, creditors
and the general public, and public interest
requires that it be liquidated.
In this latter case (i.e., the bank can no longer resume business with safety to
depositors, creditors and the public, etc.) its liquidation will be ordered and a liquidator
appointed by the Monetary Board. The Central Bank shall thereafter file a petition in
the Regional Trial Court praying for the Court's assistance in the liquidation of the
bank." ... (Salud vs. Central Bank, 143 SCRA 590 [1986]).

The pivotal issue raised by petitioner is whether or not the
appointment of a receiver by the Court of First Instance on
January 14, 1969 was in order.
Respondent Court correctly stated that the appointment of a
receiver pendente lite is a matter principally addressed to and
resting largely on the sound discretion of the court to which the
application is made. This Tribunal has so held in a number of
cases. However, receivership being admittedly a harsh remedy, it
should be granted with extreme caution. Sound reasons for
receivership must appear of record, and there should be a clear
showing of a necessity therefor. Before granting the remedy, the
court is advised to consider the consequence or effects thereof in
order to avoid irreparable injustice or injury to others who are
entitled to as much consideration as those seeking it.
xxx xxx xxx

This is not to say that a hearing is an indispensable requirement
for the appointment of a receiver. As petitioner correctly contends
in his first assignment of error, courts may appoint receivers
without prior presentation of evidence and solely on the basis of
the averments of the pleadings. Rule 59 of the Revised Rules of
Court allows the appointment of a receiver upon an ex parte
application.
There is no question that the action of the Monetary Board in this regard may be
subject to judicial review. Thus, it has been held that the courts may interfere with the
Central Bank's exercise of discretion in determining whether or not a distressed bank
shall be supported or liquidated. Discretion has its limits and has never been held to
include arbitrariness, discrimination or bad faith (Ramos vs. Central Bank of the
Philippines, 41 SCRA 567 [1971]).
It has likewise been held that resolutions of the Monetary Board under Section 29 of
the Central Bank Act, such as: forbidding bank institutions to do business on account
of a "condition of insolvency" or because its continuance in business would involve
probable loss to depositors or creditors; or appointing a receiver to take charge of the
bank's assets and liabilities, or determining whether the bank may be rehabilitated or
should be liquidated and appointing a liquidator for that purpose, are under the law
"final and executory" and may be set aside only on one ground, that is "if there is
convincing proof that the action is plainly arbitrary and made in bad faith" (Salud vs.
Central Bank, supra).

was no trial on the merits. Based on the pleadings filed, the Court merely acted on the
Central Bank's Motion to Dismiss and Supplemental Motion to Dismiss, denying both
for lack of sufficient merit. Evidently, the trial court merely acted on an incident and
has not as yet inquired, as mandated by Section 29 of the Central Bank Act, into the
merits of the claim that the Monetary Board's action is plainly arbitrary and made in
bad faith. It has not appreciated certain facts which would render the remedy of
liquidation proper and rehabilitation improper, involving as it does an examination of
the probative value of the evidence presented by the parties properly belonging to the
trial court and not properly cognizable on appeal (Central Bank vs. Court of
Appeals, supra, p. 156).
Still further, without a hearing held for both parties to substantiate their allegations in
their respective pleadings, there is lacking that "convincing proof" prerequisite to justify
the temporary restraining order (mandatory injunction) issued by the trial court in its
Order of March 9, 1982.
G.R. No. 76118 March 30, 1993
THE CENTRAL BANK OF THE PHILIPPINES and RAMON V. TIAOQUI, petitioners,
vs.
COURT OF APPEALS and TRIUMPH SAVINGS BANK, respondents.
Sycip, Salazar, Hernandez & Gatmaitan for petitioners.

There is no dispute that under the above-quoted Section 29 of the Central Bank Act,
the Regional Trial Court has jurisdiction to adjudicate the question of whether or not
the action of the Monetary Board directing the dissolution of the subject Rural Bank is
attended by arbitrariness and bad faith. Such position has been sustained by this
Court in Salud vs. Central Bank of the Philippines (supra).

Quisumbing, Torres & Evangelista for Triumph Savings Bank.

In the same case, the Court ruled further that a banking institution's claim that a
resolution of the Monetary Board under Section 29 of the Central Bank Act should be
set aside as plainly arbitrary and made in bad faith, may be asserted as an affirmative
defense (Sections 1 and 4[b], Rule 6, Rules of Court) or a counterclaim (Section 6,
Rule 6; Section 2, Rule 72 of the Rules of Court) in the proceedings for assistance in
liquidation or as a cause of action in a separate and distinct action where the latter
was filed ahead of the petition for assistance in liquidation (ibid; Central Bank vs.
Court of Appeals, 106 SCRA 143 [1981]).

May a Monetary Board resolution placing a private bank under receivership be
annulled on the ground of lack of prior notice and hearing?

III. It will be noted that in the issuance of the Order of the Court of First Instance of
Camarines Sur, Branch VII, Iriga City, dated March 9, 1982 (Rollo, pp. 72-77), there

BELLOSILLO, J.:

This petition seeks review of the decision of the Court of Appeals in CA G.R. S.P. No.
07867 entitled "The Central Bank of the Philippines and Ramon V. Tiaoqui vs. Hon.
Jose C. de Guzman and Triumph Savings Bank," promulgated 26 September 1986,
which affirmed the twin orders of the Regional Trial Court of Quezon City issued 11
November 1985 1 denying herein petitioners' motion to dismiss Civil Case No. Q45139, and directing petitioner Ramon V. Tiaoqui to restore the private management
of Triumph Savings Bank (TSB) to its elected board of directors and officers, subject to
Central Bank comptrollership. 2

The antecedent facts: Based on examination reports submitted by the Supervision
and Examination Sector (SES), Department II, of the Central Bank (CB) "that the
financial condition of TSB is one of insolvency and its continuance in business would
involve probable loss to its depositors and creditors," 3 the Monetary Board (MB)
issued on 31 May 1985 Resolution No. 596 ordering the closure of TSB, forbidding it
from doing business in the Philippines, placing it under receivership, and appointing
Ramon V. Tiaoqui as receiver. Tiaoqui assumed office on 3 June 1985. 4

Since the orders of the trial court rendered moot the petition for certiorari then pending
before this Court, Central Bank and Tiaoqui moved on 2 December 1985 for the
dismissal of G.R. No. 71465 which We granted on 18 December 1985. 8

On 11 June 1985, TSB filed a complaint with the Regional Trial Court of Quezon City,
docketed as Civil Case No. Q-45139, against Central Bank and Ramon V. Tiaoqui to
annul MB Resolution No. 596, with prayer for injunction, challenging in the process the
constitutionality of Sec. 29 of R.A. 269, otherwise known as "The Central Bank Act,"
as amended, insofar as it authorizes the Central Bank to take over a banking
institution even if it is not charged with violation of any law or regulation, much less
found guilty thereof. 5

Petitioners' motion to dismiss was premised on two grounds,
namely, that the complaint failed to state a cause of action and
that the Triumph Savings Bank was without capacity to sue
except through its appointed receiver.

On 1 July 1985, the trial court temporarily restrained petitioners from implementing MB
Resolution No. 596 "until further orders", thus prompting them to move for the quashal
of the restraining order (TRO) on the ground that it did not comply with said Sec.
29, i.e., that TSB failed to show convincing proof of arbitrariness and bad faith on the
part of petitioners;' and, that TSB failed to post the requisite bond in favor of Central
Bank.
On 19 July 1985, acting on the motion to quash the restraining order, the trial court
granted the relief sought and denied the application of TSB for injunction. Thereafter,
Triumph Savings Bank filed with Us a petition for certiorariunder Rule 65 of the Rules
of Court 6 dated 25 July 1985 seeking to enjoin the continued implementation of the
questioned MB resolution.
Meanwhile, on 9 August 1985; Central Bank and Ramon Tiaoqui filed a motion to
dismiss the complaint before the RTC for failure to state a cause of action, i.e., it did
not allege ultimate facts showing that the action was plainly arbitrary and made in bad
faith, which are the only grounds for the annulment of Monetary Board resolutions
placing a bank under conservatorship, and that TSB was without legal capacity to sue
except through its receiver. 7
On 9 September 1985, TSB filed an urgent motion in the RTC to direct receiver
Ramon V. Tiaoqui to restore TSB to its private management. On 11 November 1985,
the RTC in separate orders denied petitioners' motion to dismiss and ordered receiver
Tiaoqui to restore the management of TSB to its elected board of directors and
officers, subject to CB comptrollership.

Instead of proceeding to trial, petitioners elevated the twin orders of the RTC to the
Court of Appeals on a petition for certiorari and prohibition under Rule 65. 9 On 26
September 1986, the appellate court, upheld the orders of the trial court thus —

Concerning the first ground, petitioners themselves admit that the
Monetary Board resolution placing the Triumph Savings Bank
under the receivership of the officials of the Central Bank was
done without prior hearing, that is, without first hearing the side of
the bank. They further admit that said resolution can be the
subject of judicial review and may be set aside should it be found
that the same was issued with arbitrariness and in bad faith.
The charge of lack of due process in the complaint may be taken
as constitutive of allegations of arbitrariness and bad faith. This is
not of course to be taken as meaning that there must be previous
hearing before the Monetary Board may exercise its powers
under Section 29 of its Charter. Rather, judicial review of such
action not being foreclosed, it would be best should private
respondent be given the chance to show and prove arbitrariness
and bad faith in the issuance of the questioned resolution,
especially so in the light of the statement of private respondent
that neither the bank itself nor its officials were even informed of
any charge of violating banking laws.
In regard to lack of capacity to sue on the part of Triumph Savings
Bank, we view such argument as being specious, for if we get the
drift of petitioners' argument, they mean to convey the impression
that only the CB appointed receiver himself may question the CB
resolution appointing him as such. This may be asking for the
impossible, for it cannot be expected that the master, the CB, will
allow the receiver it has appointed to question that very
appointment. Should the argument of petitioners be given
circulation, then judicial review of actions of the CB would be

14 Petitioners further argue that the legislative intent of Sec. 07867 be set aside. and (3) in holding that the owners and former officers of an insolvent bank may still act or sue in the name and corporate capacity of such bank. the legislature could not have intended to authorize "no prior notice and hearing" in the closure of the bank and at the same time allow a suit to annul it on the basis of absence thereof. the bank's management should be restored to its board of directors and officers. 13 On the questioned restoration order. Under Sec. 29 of R. through the Monetary Board. Petitioners allege that the Court of Appeals erred — The first issue raised before Us is whether absence of prior notice and hearing may be considered acts of arbitrariness and bad faith sufficient to annul a Monetary Board resolution enjoining a bank from doing business and placing it under receivership. 17 We held that a previous hearing is nowhere required in Sec. said action only being in line and congruent to the action of the Supreme Court in the Banco Filipino Case (G. and finding such condition to be one of insolvency. The fourth paragraph.00. Dans. 265. v. as in the case at bar. or that its continuance in business would involve probable loss to its depositors or creditors. according to respondents. 635) and Eastern Telecom Corp.O. 29 does not contemplate prior notice and hearing before a bank may be directed to stop operations and placed under receivership. CIR (69 Phil. allege inter alia that in the Banco Filipino case. . 29 nor does the constitutional requirement of due process demand that the correctness of the Monetary Board's . and that the civil case pending before the RTC of Quezon City. 29 of R. 16 which was then in effect at the time the action was commenced. Arca [1965].A. 15 the Central Bank. evaluate and determine the condition of any bank. 11 The respondents. forbid the bank or non-bank financial institution to do business in the Philippines. (137 SCRA 628) which requires that prior notice and hearing be afforded to all parties in administrative proceedings. filed this petition under Rule 45 of the Rules of Court praying that the decision of the Court of Appeals in CA-G. having the required expertise and specialized competence to do so. SP No.R. Central Bank and its appointed receiver. Jr. 596 was adopted without TSB being previously notified and heard. No. capricious. Since MB Resolution No. Otherwise stated.000. despotic. allegations of arbitrariness and bad faith". Plainly. 265 that prior notice and hearing in cases involving bank closures should not be required since in all probability a hearing would not only cause unnecessary delay but also provide bank "insiders" and stockholders the opportunity to further dissipate the bank's resources.effectively checked and foreclosed to the very bank officials who may feel.R. 4 (now par. 12 We held that CB violated the rule on administrative due process laid down in Ang Tibay vs. 5. or arbitrary in its issuance. allows the filing of a case to set aside the actions of the Monetary Board which are tainted with arbitrariness and bad faith. and shall designate an official of the CB or other competent person as receiver to immediately take charge of its assets and liabilities. it is unmistakable that the assailed actions should precede the filing of the case. 289) provides for the filing of a case within ten (10) days after the receiver takes charge of the assets of the bank. and even destroy evidence of fraud or irregularity in the bank's operations to the prejudice of its depositors and creditors. Ramon V. the same is void for Contrary to the notion of private respondent. 265 "may be taken as . Sec. On 15 October 1986. vs. as amended by E. this Court must say that it finds nothing whimsical. Tiaoqui. 29 of R. xxx xxx xxx (2) in holding that the "charge of lack of due process" for "want of prior hearing" in a complaint to annul a Monetary Board receivership resolution under Sec. on the other hand. Q-45139. 29 is to repose in the Monetary Board exclusive power to determine the existence of statutory grounds for the closure and liquidation of banks. is absence of prior notice and hearing constitutive of acts of arbitrariness and bad faith? (1) in affirming that an insolvent bank that had been summarily closed by the Monetary Board should be restored to its private management supposedly because such summary closure was "arbitrary and in bad faith" and a denial of "due process". but subject to the Central Bank comptrollership. 10 Petitioners claim that it is the essence of Sec. Inc. is vested with exclusive authority to assess.A. want of due process. that the CB action ousting them from the bank deserves to be set aside. consequently. Civil Case No. In the early case of Rural Bank of Lucena. create liabilities for the bank up to the insured amount of P40. be dismissed. even after it had been ordered closed and placed under receivership. 70054) where management of the bank was restored to its duly elected directors and officers. When par.A.

29 does not altogether divest a bank or a non-bank financial institution placed under receivership of the opportunity to be heard and present evidence on arbitrariness and bad faith because within ten (10) days from the date the receiver takes charge of the assets of the bank. v. Art. This "close now and hear later" scheme is grounded on practical and legal considerations to prevent unwarranted dissipation of the bank's assets and as a valid exercise of police power to protect the depositors. We stressed in Central Bank of the Philippines v. Court of Appeals. creditors. Respondent TSB did in fact avail of this remedy by filing a complaint with the RTC of Quezon City on the 8th day following the takeover by the receiver of the bank's assets on 3 June 1985. that task is delegated to the Central Bank which. Art. In Rural Bank of Buhi. the banking business is properly subject to reasonable regulation under the police power of the state because of its nature and relation to the fiscal affairs of the people and the revenues of the state (9 CJS 32). . fortunes may be wiped out and disillusionment will run the gamut of the entire banking community. banking and credit. One can just imagine the dire consequences of a prior hearing: bank runs would be the order of the day. the Central Bank is tasked with providing policy direction in the areas of money. In the process. XV. Therefore. public faith in the banking system is certain to deteriorate to the prejudice of the national economy itself. We would be subscribing to a situation where the procedural rights invoked by private respondent would take precedence over the substantive interests of depositors. . . 265. this Court held that: It may be emphasized that Sec. resulting in panic and hysteria. not to mention the losses suffered by the bank depositors.A. . In this country. 1987 Constitution). v. . it shall have supervision over the operations of banks (Sec. It is enough that a subsequent judicial review be provided. Due to the nature of their transactions and functions.A. 14. creditors and stockholders over the assets of the bank. 265 does not require a previous hearing before the Monetary Board can implement its resolution closing a bank. Court of Appeals 20 that — . the CB is further authorized to take the necessary steps against any banking institution if its continued operation would cause prejudice to its depositors. Inc. It is the duty of the Central Bank in such an event to step in and salvage the remaining resources of the bank so that they may not continue to be dissipated or plundered by those entrusted with their management.. 183 SCRA 360 [1990]). a hearing or an opportunity to be heard may be subsequent to the closure. [u]nless adequate and determined efforts are taken by the government against distressed and mismanaged banks. corollarily. 18 We reiterated that Sec. creditors and the general public as well. Banks are affected with public interest because they receive funds from the general public in the form of deposits. Under both the 1973 and 1987 Constitutions. The government cannot simply cross its arms while the assets of a bank are being depleted through mismanagement or irregularities. 19 We stated that — . as amended). a fiduciary relationship is created between the banking institutions and their depositors. are protected. Inc. who all deserve the protection of the government. It is then the Government's responsibility to see to it that the financial interests of those who deal with the banks and banking institutions. them (Simex International [Manila].resolution to stop operation and proceed to liquidation be first adjudged before making the resolution effective. Under its charter. due process does not necessarily require a prior hearing. pursuant to its Charter (R. since its action is subject to judicial scrutiny as provided by law. . 20. and Sec. as depositors or otherwise. 29 of R. Section 29 of R. resort to judicial review may be had by filing an appropriate pleading with the court. Even in Banco Filipino. 265 should be viewed in this light. This power has been expressly recognized by this Court. otherwise. creditors. is authorized to administer the monetary.A. stockholders and the general public. banks are under the obligation to treat with meticulous care and utmost fidelity the accounts of those who have reposed their trust and confidence in . XII. . and stockholders. 1973 Constitution. Court of Appeals. banking and credit system of the Philippines. Philippine Veterans Banks (189 SCRA 14 [1990]. In Philippine Veterans Bank Employees Union-NUBE v.

and the general public. the status quo shall be maintained. will allow the receiver it has appointed to question that very appointment.A. For instance. the bank shall continue to be under receivership. the resolution may be properly nullified and the receivership lifted as the trial court may determine. As regards the second ground. not because of the absence of prior notice and hearing. They are: (a) an examination made by the examining department of the Central Bank. it is likewise intended to protect and safeguard the rights and interests of the stockholders.e. Court of Appeals. perhaps it could have merely ordered its reorganization or rehabilitation. Aurellano and Tiaoqui Reports contained unfounded assumptions and deductions which did not reflect the true financial condition of the bank. In sum. to rule that only the receiver may bring suit in behalf of the bank is. appeal to procedural due process cannot just outweigh the evil sought to be prevented. the Valenzuela. It is presumed that such a resolution is directed principally against acts of said Directors and officers which place the bank in a state of continuing inability to maintain a condition of liquidity adequate to protect the interest of depositors and creditors. abuse of discretion and bad faith in the closure of Banco Filipino by the Monetary Board." Consequently. . "asking for the impossible. Indirectly. the bank itself. an MB resolution placing a bank under receivership. 29 of R. We ruled in Banco Filipino that the closure of the bank was arbitrary and attendant with grave abuse of discretion. Furthermore. Clearly. this is not the case before Us. But. . creditors and stockholders. on the basis thereof.. 22 In Central Bank v. 21 and reiterate Our pronouncement therein that — . a matter long settled in this jurisdiction. 265 is a sound legislation promulgated in accordance with the Constitution in the exercise of police power of the state. Once again We refer to Rural Bank of Buhi. what is being raised as arbitrary by private respondent is the denial of prior notice and hearing by the Monetary Board. the bank is given full opportunity to prove arbitrariness and bad faith in placing the bank under receivership. in which event. Department II. or conservatorship for that matter. We rule that Sec. the CB. there was in that case a manifest arbitrariness. For here. . it did not reflect the total financial condition of Banco Filipino. the Monetary Board had no valid reason to liquidate the bank. At any rate. the subtraction of an uncertain amount as valuation reserve from the assets of the bank would merely result in its net worth or the unimpaired capital and surplus.Admittedly. the arbitrariness. . the mere filing of a case for receivership by the Central Bank can trigger a bank run and drain its assets in days or even hours leading to insolvency even if the bank be actually solvent. 23 We explained the purpose of the law — . the law is explicit as to the conditions prerequisite to the action of the Monetary Board to forbid the institution to do business in the Philippines and to appoint a receiver to immediately take charge of the bank's assets and liabilities. Consequently. The absence of prior notice and hearing cannot be deemed acts of arbitrariness and bad faith. As this Court found in that case. Common sense and public policy dictate then that the authority to decide on whether to contest the resolution should be lodged with the stockholders owning a majority of the shares for they are expected to be more objective in determining whether the resolution is plainly arbitrary and issued in bad faith. The heavy reliance of respondents on the Banco Filipino case is misplaced in view of factual circumstances therein which are not attendant in the present case. and the summary closure pales in comparison to the protection afforded public interest. Until such determination is made. for it cannot be expected that the master. to echo the respondent appellate court. Court of Appeals. and (c) prima facieshowing that its continuance in business would involve probable loss to its depositors or creditors.. the depositors. the absence of notice and hearing is not a valid ground to annul a Monetary Board resolution placing a bank under receivership. Inc. The procedure prescribed in Sec. only stockholders of a bank could file an action for annulment of a Monetary Board resolution placing the bank under receivership and prohibiting it from continuing operations. and not the arbitrariness which the conclusions of the Supervision and Examination Sector (SES). In other words. but that the Monetary Board had no sufficient basis to arrive at a sound conclusion of insolvency to justify the closure. the same reports showed that the total assets of Banco Filipino far exceeded its total liabilities. of the Central Bank were reached. i. 29 is truly designed to protect the interest of all concerned. if need be. bad faith and abuse of discretion were determined only after the bank was placed under conservatorship and evidence thereon was received by the trial court. i.e. Consequently. may only be annulled after a determination has been made by the trial court that its issuance was tainted with arbitrariness and bad faith. Thus. hence. in requiring that only the stockholders of record representing the majority of the capital stock may bring the action to set aside a resolution to place a bank under conservatorship is to ensure that it be not frustrated or defeated by the incumbent Board of Directors or officers who may immediately resort to court action to prevent its implementation or enforcement. v. . (b) report by said department to the Monetary Board.

and Quiason. never got the loan she was expecting. the case before the trial court should now take its natural course. petitioners. Padilla. 210-D-1 and Lot No. any party in interest could institute court proceedings to question a Monetary Board resolution placing a bank under receivership. Jr. Branch 39 of the Regional Trial Court (RTC) of Manila.: Do petitioners have a better right than private respondent Ildefonso Ong to purchase from the Philippine Veterans Bank (PVB) the two parcels of land described as Lot No. 85-32311. Jose Viudez told Miguela Villanueva to surrender the titles of said lots as collaterals. 3 The operative antecedent facts are set forth in the challenged decision as follows: The disputed lots were originally owned by the spouses Celestino Villanueva and Miguela Villanueva. SP No. Regalado. 87-42550 2 and Sp. The PVB told her that she can redeem the lots for the price of P110.. Proc. C.00. Subsequent attempts to contact Jose Viudez proved futile. took no part. 289. JJ. which she did but without the signature of her husband Celestino. Miguela Villanueva sought to repurchase the lots from the PVB after being informed that the lots were about to be sold at auction.. except insofar as it upholds the Order of the trial court of 11 November 1985 directing petitioner RAMON V. in connivance with one Andres Sebastian. ILDEFONSO C. and PHILIPPINE VETERANS BANK. Nocon. 596 of the Monetary Board was tainted with arbitrariness and bad faith and to decide the case accordingly.O. 210-D-2 situated at Muntinglupa. RICHARD R. 1 the Court of Appeals held for Ong. J. Narvasa. The implication is that before E. JJ. Let this case be remanded to the Regional Trial Court of Quezon City for further proceedings to determine whether the issuance of Resolution No. Bidin. COURT OF APPEALS. SO ORDERED. VILLANUEVA.. CENTRAL BANK OF THE PHILIPPINES. Negotiations for the repurchase of the lots nevertheless were stalled by the filing of liquidation proceedings against the PVB on August of 1985. It appeared upon inquiry from the Registry of Deeds that the original titles of these lots were canceled and new ones were issued to Jose Viudez.It is observed that the complaint in this case was filed on 11 June 1985 or two (2) years prior to 25 July 1987 when E. and MERCEDITA VILLANUEVA-TIRADOS. CV No. until Miguela Villanueva thereafter found out that new titles over the two (2) lots were already issued in the name of the PVB. the then Officer-in-Charge of the PVB branch in Makati if she could obtain a loan from said bank. Sometime in 1975. which is hereby SET ASIDE. No. however. DAVIDE. vs. Jr. until finally new titles were issued in the name of PNB [should be PVB] after the lots were foreclosed for failure to pay the loan granted in the name of Andres Sebastian. Consequently..416. Miguela Villanueva. while the trial court. concur. Campos. TIAOQUI to restore the management of TRIUMPH SAVINGS BANK to its elected Board of Directors and Officers. Cruz. which in turn were again canceled and new titles issued in favor of Andres Sebastian. Romero. VILLANUEVA. PREMISES considered. after the effectivity of E. the procedure stated therein should be followed and observed. to be effective sixty (60) days after its approval (Sec. Metro Manila. MIGUELA R. 07867 is AFFIRMED. However. And to further facilitate a bigger loan.J. Viudez. respectively? This is the principal legal issue raised in this petition. Feliciano and Melo. 289. JR.O . acquired by the latter during her husband's sojourn in the United States since 1968. 5).R. 289 was issued. Davide.R. since the instant complaint was filed by parties representing themselves to be officers of respondent Bank (Officer-in-Charge and Vice President).O. containing an area of 529 and 300 square meters. . Miguela Villanueva sought the help of one Jose Viudez. Griño-Aquino. ONG. swayed Miguela Villanueva to execute a deed of sale covering the two (2) disputed lots. 35890. respondents. the Decision of the Court of Appeals in CA-G. In its decision of 27 January 1994 in CA-G. ruled for the petitioners in its joint decision of 31 October 1991 in Civil Case No..

85-32311 and assigned to Branch 39 of the said court. Miguela Villanueva and her children filed their claims with the Liquidation court. On 26 May 1987.00 representing the balance of the purchase price of the litigated lots. Hence. Among the conditions imposed by PVB is that: "The purchase price shall be P110. Afterwards.00. a petition for liquidation was filed with the RTC of Manila. now under the control of CB. sent a letter to CB demanding for the latter to execute the corresponding deed of conveyance in favor of appellant. 8 Miguela sent her sealed bid of P110. under liquidation pursuant to MB Resolution No.000. while appellant was still abroad.000.000. appellant formally informed CB of his desire to pay the subject balance provided the bank should execute in his favor the corresponding deed of conveyance. plaintiff-appellant through his counsel. No. the following additional or amplificatory facts are established: The efforts of Miguela Villanueva to reacquire the property began on 8 June 1983 when she offered to purchase the lots for P60. To back-up plaintiff-appellant's offer he deposited the sum of P10. 13 On 15 June 1989. 334 dated 3 April 1985 and later. (Appellant's Brief. plaintiff-appellant offered to purchase two pieces of Land that had been acquired by PVB through foreclosure. The letter was not answered. 10901-84. the presiding judge of Branch 47 ordered the transfer of the case to Branch 39.00 with a 20% downpayment and the balance payable in five years on a quarterly amortization basis. Upon learning that the PVB had been placed under liquidation.000. 6 Miguela Villanueva increased her bid to P70. On 26 May 1987. which was docketed as Sp. Plaintiff-appellant sent follow-up Letters that went unheeded. 11 Ong's demand for a deed of conveyance having gone unheeded.00) payable in cash within fifteen (15) days from receipt of approval of the offer." In mid-April 1985. 5 Her offer not having been accepted. PVB approved his subject offer under Board Resolution No. 612 dated 7 June 1985. then Presiding Judge Enrique B.000. On 17 September 1987. the liquidation court. appellant's payment for the balance of the subject properties were accepted by CB under Official Receipt #0816. 3-4). It was only at this time that she disclosed to the bank her private transactions with Jose Viudez. 12 It was raffled to Branch 47 thereof. 9 The PVB was placed under receivership pursuant to Monetary Board (MB) Resolution No. 7 After this and her subsequent offers were rejected.000. On 16 April 1985. He immediately verified the status of his offer with the PVB.00. where he was informed that the same had already been approved. Inting issued an order allowing the purchase of the two lots at the price of P150. the last of which was on 21 May 1987.00 pursuant to the written advice of the vice president of the PVB. CB did not bother to answer the same.00 (Less deposit of P10.417. he filed on 23 October 1987 with the RTC of Manila an action for specific performance against the Central Bank.000. Proc.Plaintiff-appellant [Ong] on the other hand expounds on his claim over the disputed lots in this manner: In October 1984. pp. 15 . In 23 November 1984.00. 4 From the pleadings. 10 An employee of the PVB received the amount conditioned upon approval by the Central Bank liquidator. Ong tendered the sum of P100. 14 The Central Bank liquidator of the PVB moved for the reconsideration of the order asserting that it is contrary to law as the disposal of the lots should be made through public auction. the instant case. appellant returned to the country. While appellant's action for specific performance against CB was pending.

in view of the death of her husband. the CIS officer recommended the filing of a complaint for estafa through falsification of public documents against Jose Viudez and Andres Sebastian. 115631 and 115632 in the name of the PVB. Ordering the Register of Deeds of Makati which has jurisdiction over the two parcels of land in question to re-instate in his land records. Miguela Villanueva filed her claim with the liquidation court. As to Miguela's claim. Setting aside the order of this court issued on June 15. 4. of the 2. respectively which are now covered by TCT No.416. Dismissing the claim of Ildefonso Ong over the two parcels of land originally covered by TCT No. that she is the lawful and registered owner of the subject lots which were mortgaged in favor of the PVB thru the falsification committed by Jose Viudez. Camp Crame. in collusion with Andres Sebastian. the purchase price should be the PVB's claim as of 29 August 1984 when it considered the sealed bids. and for reasons of equity. and that she reported the matter to the PC/INP Criminal Investigation Service Command. among others. 1975 and all transactions and related documents executed thereafter referring to the two lots covered by the above stated titles as null and void.. She then asked that the lots be excluded from the assets of the PVB and be conveyed back to her. It further held that by reason of estoppel. herein petitioners Mercedita Villanueva-Tirados and Richard Villanueva. She averred. i. 87-42550 entitled "Ildefonso Ong vs. the trial court allowed her to purchase the lots if only to restore their status as conjugal properties.e.. the said right was no longer enforceable. 16 Later. she amended her claim to include her children. though only with respect to her undivided one-half (1/2) conjugal share in the disputed lots and her one-third (1/3) hereditary share in the estate of her husband. she offered to purchase the property from the bank. 17 On 31 October 1991. The dispositive portion of the decision of the trial court reads as follows: WHEREFORE. TCT No. as he failed to exercise it within the prescribed 15-day period. Central Bank Phils. the trial court rendered judgment 18 holding that while the board resolution approving Ong's offer may have created in his favor a vested right which may be enforced against the PVB at the time or against the liquidator after the bank was placed under liquidation proceedings. et al.20. Nevertheless. which should be borne by Miguela Villanueva alone. P110. that upon discovering this fraudulent transaction. judgment is hereby rendered as follows: 1. and after investigation. the manager of the PVB Makati Branch. 438073 and 366364 in the names of Miguela Villanueva and Celestino Villanueva. the transactions having been perpetrated by a responsible officer of the PVB.On 26 July 1989.. the PVB should not be allowed to charge interest on the price of the lots. 438073 in the name of Miguela Villanueva and TCT No. hence. 366364 in the name of Celestino Villanueva who were the registered owners . 3. Declaring the Deed of Absolute Sale bearing the signature of Miguela Villanueva and the falsified signature of Celestino [sic] Viudez under date May 6. 1989 under the caption Civil Case No. the court ruled that the principle of estoppel bars her from questioning the transaction with Viudez and the subsequent transactions because she was a co-participant thereto.

It went further to suggest that the Central Bank was in estoppel because it accepted Ong's late-payment of the balance. for which reason he could not have known when to reckon the 15-day period prescribed under its resolution. 1984. the assailed decision is hereby REVERSED and SET ASIDE. 21 Cost against Ildefonso Ong and the PVB. indeed confusing. the Court of Appeals stated: The conclusion reached by the lower court favorable to Miguela Villanueva is. The appeal was docketed as CA-G.416. the Court of Appeals reversed the decision of the trial court and ruled as follows: Subsequently. Would not estoppel defeat the claim of the party estopped? If so. and a new one entered ordering the disputed-lots be awarded in favor of plaintiffappellant Ildefonso Ong upon defendant-appellee Central Bank's execution of the corresponding deed of sale in his favor. and 5. 26 The petitioners did not object to the substitution. 35890.R. SO ORDERED. yet it ordered the reconveyance of the disputed lots to Miguela Villanueva as the victorious party upon her payment of P110. Ordering the Liquidator to reconvey the two lots described in TCT No. which in fact must be so. 27 . While the lower court's decision declared Miguela Villanueva as estopped from recovering her proportionate share and interest in the two (2) disputed lots for being a "co-participant" in the fraudulent scheme perpetrated by Jose Viudez and Andres Sebastian — a factual finding which We conform to and which Miguela Villanueva does not controvert in this appeal by not filing her appellee's brief. As to the petitioners' claim. which is the real party in interest. Miguela Villanueva in connection with the bidding where she had participated and conducted by the PVB on August 29. 25 WHEREFORE. the Court of Appeals declared that Ong's failure to pay the balance within the prescribed period was excusable because the PVB neither notified him of the approval of his bid nor answered his letters manifesting his readiness to pay the balance. would it not then be absurd or even defiant for the lower court to finally entitle Miguela Villanueva to the disputed lots after having been precluded from assailing their subsequent conveyance in favor of Jose Viudez by reason of her own negligence and/or complicity therein? The intended punitive effect of estoppel would merely be a dud if this Court leaves the lower court's conclusion unrectified. In support thereof.20) Pesos without interest and less the amount deposited by the claimant. 19 Their motion for reconsideration petition for review on certiorari. and to cancel all subsequent titles emanating therefrom. In its decision of 27 January 1994.thereof.416.20. the PVB declared that it submits to the jurisdiction of this Court and that it has no objection to its inclusion as a party respondent in this case in lieu of the Central Bank. 24 22 having been denied. 20 In its Manifestation and Entry of Appearance. It then prayed that it be dropped from this case or at least be substituted by the PVB. CV No. 23 the petitioners filed this Only Ong appealed the decision to the Court of Appeals. as aptly pointed out by plaintiff-appellant. 115631 and 115632 and executing the corresponding deed of conveyance of the said lots upon the payment of One Hundred Ten Thousand Four Hundred Sixteen and 20/100 (P110. the respondent Central Bank apprised this Court that the PVB was no longer under receivership or liquidation and that the PVB has been back in operation since 3 August 1992. premises considered.

pose a legal obstacle to his claim of a better right and deny support to the conclusion of the Court of Appeals. upon examination by the head of the appropriate supervising or examining department or his examiners or agents into the condition of any bank or non-bank financial intermediary performing quasi-banking functions. in writing. and the receiver appointed was directed to "immediately take charge of its assets and liabilities. 31 Thus. the appointment of a receiver operates to suspend the authority of the bank and of its directors and officers over its property and effects. insanity.00 being lower than the starting price of P110. . exercising all the powers necessary for these purposes. such authority being reposed in the receiver. It must be recalled that the PVB was placed under receivership pursuant to the MB Resolution of 3 April 1985 after a finding that it was insolvent.00 being less than the required 10% of the bid price. the petitioners maintain that Ong is a disqualified bidder. The Board may. or insolvency of either party before acceptance is conveyed. Ong submits that his offer. Proceedings upon insolvency. an offer becomes ineffective upon the death. and in this respect. . and that its continuance in business would involve probable loss to its depositors and creditors." Under Article 1323 of the Civil Code. as expeditiously as possible collect and gather all the assets and administer the same for the benefit of its creditors. upon finding the statements of the department head to be true. The PVB was then prohibited from doing business in the Philippines. as the same is payable in cash. provides thus: Sec. forbid the institution to do business in the Philippines and designate an official of the Central Bank or a person of recognized competence in banking or finance as receiver to immediately take charge of its assets and liabilities. and could not operate profitably. however. hence.00. and that he has a legal right to compel the PVB or its liquidator to execute the corresponding deed of conveyance. . in its Comment dated 10 October 1994. that Ong failed to pay the balance of the price within the 15-day period from notice of the approval of his bid. 30 It has been said that where upon the insolvency of a bank a receiver therefor is appointed. and that his offer of payment is ineffective since it was conditioned on PVB's execution of the deed of absolute sale in his favor. There is no doubt that the approval of Ong's offer constitutes an acceptance. xxx xxx xxx The assets of an institution under receivership or liquidation shall be deemed in custodia legis in the hands of the receiver or liquidator and shall.000.00 and his deposit of P10. it shall be disclosed that the condition of the same is one of insolvency." 28 In support of their contention that the Court of Appeals gravely erred in holding that Ong is better entitled to purchase the disputed lots. or that its continuance in business would involve probable loss to its depositors or creditors. as amended. the PVB stated that it "submits to and shall abide by whatever judgment this Honorable Supreme Tribunal may announce as to whom said lands may be awarded without any touch of preference in favor of one or the other party litigant in the instant case. is much better.000. Ong did not receive any notice of the approval of his offer. civil interdiction. to inform the Monetary Board of the facts. the receivership is equivalent to an injunction to restrain the bank officers from intermeddling with the property of the bank in any way. The reason for this is that: [T]he contract is not perfected except by the concurrence of two wills which exist and continue until the moment that they occur. . that his payment could not be said to have been made after the expiration of the 15-day period because this period has not even started to run. On the other hand. illiquid. his bid of P110. shall be the duty of the department head concerned forthwith. though lower than Miguela ViIlanueva's bid by P417. there being no notice yet of the approval of his offer. It was only sometime in mid-April 1985 when he returned from the United States and inquired about the status of his bid that he came to know of the approval. 29 The peculiar circumstances in this case. exercising all the powers necessary for these purposes. — Whenever.Later. from the moment of such receivership or . the assets of the bank pass beyond its control into the possession and control of the receiver whose duty it is to administer the assets for the benefit of the creditors of the bank. the effect of which is to perfect the contract of sale upon notice thereof to Ong. as expeditiously as possible collect and gather all the assets and administer the same for the benefit of its creditors . The contract is not yet perfected at any time before acceptance is conveyed. 32 Section 29 of the Central Bank Act. .417. 29. the disappearance of either party or his loss of capacity before perfection prevents the contractual tie from being formed. while Villanueva's bid is payable in installment.

. In a nutshell. but not limited to. AURELLANO and RAMON V. he cannot invoke the resolution of the bank approving his bid as basis for his alleged right to buy the disputed properties. as explained in Sec. No pronouncement as to costs. creditors and the general public. J. bringing and foreclosing mortgages in the name of the bank. order its liquidation and appoint a liquidator who shall take over and continue the functions of receiver previously appointed by Monetary Board.. especially in relation to its property. FERNANDEZ. SO ORDERED. the insolvency of a bank and the consequent appointment of a receiver restrict the bank's capacity to act. in the name of the bank and with the assistance counsel as he may retain. The liquid for may. When the issue on the validity of the closure and receivership of Banco Filipino bank was raised in G. the person designated as receiver shall immediately take charge of the bank's assets and liabilities.liquidation. assignment or disposition of the s to creditors and other parties for the purpose of paying debts of such institution. as well as the petitioners. ARNULFO B. 1985 and issued a restraining order to respondents Monetary Board and Central Bank. exercising all the powers necessary for these purposes including. The decision of Branch 39 of the Regional Trial Court of Manila of 31 October 1991 in Civil Case No. BANCO FILIPINO SAVINGS AND MORTGAGE BANK. CENTRAL BANK OF THE PHILIPPINES. subject to the approval of CB liquidator. and hence. 87-42550 and Sp. it shall. Nor may the acceptance by an employee of the PVB of Ong's payment of P100. Section 29 of the Republic Act No. Quiason. levy. No. 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 . THE MONETARY BOARD. and represent the bank personally or through counsel as he may retain in all actions or proceedings for or against the institution. 70054. Bellosillo and Kapunan. We enjoined me further acts of liquidation. 85-32311 is hereby REINSTATED. vs. Corollarily. as amended known as the Central Bank Act. CARLOTA P. is on leave.000. Ong's offer to purchase the subject lots became ineffective because the PVB became insolvent before the bank's acceptance of the offer came to his knowledge. Respondent Philippine Veterans Bank is further directed to return to private respondent Ildefonso C. 29 of the Central Bank Act are those which constitute the conversion of the assets of the banking institution to money or the sale. We 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. JOSE B. the instant petition is GRANTED and the challenged decision of the Court of Appeals of 27 January 1994 in CA-G. pendency of the case did not diminish the powers and authority of the designated liquidator to effectuate and carry on the a ministration of the bank.000. 33 This payment was disapproved on the ground that the subject property was already in custodia legis. which thus became final as to them for their failure to appeal. the PVB and the Central Bank. 34 The Court of Appeals therefore erred when it held that Ong had a better right than the petitioners to the purchase of the disputed lots.R.00 benefit him since the receipt of the payment was made subject to the approval by the Central Bank liquidator of the PVB thus: Payment for the purchase price of the former property of Andres Sebastian per approved BR No.R. VALENZUELA. Such acts of liquidation. Considering then that only Ong appealed the decision of the trial court. 265. are deemed to have fully and unqualifiedly accepted the judgment. Ong the amount of P100.00. petitioner. attachment. JJ. be exemp from any order of garnishment. concur. as expeditiously as possible. CV No. the purported contract of sale between them did not reach the stage of perfection. public interest requires. No. Hence. 10902-84 dated 11/13/84. respondents. 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. WHEREFORE. Proc. collect and gather all the assets and administer the same for the benefit of its creditors. TIAOQUI. disposable only by public auction and subject to the approval of the liquidation court. Applying Article 1323 of the Civil Code. provides that when a bank is forbidden to do business in the Philippines and placed under receivership. or execution. Padilla. 35890 is hereby SET ASIDE. In fact when We adopted a resolute on August 25. If the Monetary Board shall later determine and confirm that banking institution is insolvent or cannot resume business safety to depositors.

upon finding the statements of the department head to be true. But when there is a grave abuse of discretion which is equivalent to a capricious and whimsical exercise of judgment or where the power is exercised in an arbitrary or despotic manner. August 31. It is a well-recognized principle that administrative and discretionary functions may not be interfered with by the courts. The Board may. The law applicable in the determination of these issues is Section 29 of Republic Act No. L-26990.pertaining to the administration of a bank.R. due to the aforestated reasons. through these petitions. — Whenever. The mere duty of the comptroller is to supervise counts and finances undertaken by the liquidator and to d mine the propriety of the latter's expenditures incurred behalf of the bank. the Central Bank cannot be compelled to fulfill financial transactions entered into by Banco Filipino when the operations of the latter were suspended by reason of its closure. their did Our order in the same resolution dated August 25. Coupled with this task is the duty of this Court not only to strike down acts which violate constitutional protections or to nullify administrative decisions contrary to legal mandates but also to prevent acts in excess of authority or jurisdiction. .R. 68878. In general. and findings of fact. 1970. the liquidator by himself or through counsel has the authority to bring actions for foreclosure of mortgages executed by debtors in favor of the bank. exercising all the powers necessary for these purposes including. 265. like the Central Bank of the Philippines and the Monetary Board. No. Nos. 34 SCRA 751) The jurisdiction of this Court is called upon. the liquidator is empowered under the law to continue the functions of receiver is preserving and keeping intact the assets of the bank in substitution of its former management.R. it shall be the duty of the department head concerned forthwith. These powers and functions of the liquidator in directing the operations of the bank in place of the former management or former officials of the bank include the retaining of counsel of his choice in actions and proceedings for purposes of administration. 1985 for the designation by the Central Bank of a comptroller Banco Filipino alter the powers and functions. Nos. which was ordered by respondent Monetary Board on January 25. is null and void. This is generally true with respect to acts involving the exercise of judgment or discretion. 29 of the Central Bank Act. as receiver to immediately take charge of its assets and liabilities. to inform the Monetary Board of the facts.R. Sr. in G. In G. forbid the institution to do business in the Philippines and designate an official of the Central Bank or a person of recognized competence in banking or finance. 78767 and 78894 impressed with merit. of the liquid insofar as the management of the assets of the bank is concerned. 81303. and to prevent the dissipation of its assets to the detriment of the creditors of the bank. upon examination by the head of the appropriate supervising or examining department or his examiners or agents into the condition of any bank or non-bank financial intermediary performing quasi-banking functions. v. also known as the Central Bank Act. 78766 and 90473. in G. 70054. to undertake the delicate task of ascertaining whether or not an administrative agency of the government. Proceedings upon insolvency. courts have no supervising power over the proceedings and actions of the administrative departments of the government. We cannot uphold the legality of its closure and thus. No. then there is a justification for the courts to set aside the administrative determination reached (Lim. but not limited to. 81304. Similarly. Clearly. it shall be disclosed that the condition of the same is one of insolvency. Notwithstanding this. as well as to correct manifest abuses of discretion committed by the officer or tribunal involved. and represent the bank personally or through counsel as he may retain in all actions or proceedings for or against the institution. bringing and foreclosing mortgages in the name of the bank or non-bank financial intermediary performing quasibanking functions. or that its continuance in business would involve probable loss to its depositors or creditors. 1985. The Monetary Board shall thereupon determine within sixty days whether the institution may be reorganized or otherwise placed in such a condition so that it may be permitted to resume business with safety to its depositors and creditors and the general public and shall prescribe the conditions under which such resumption of business shall take place as well as the time for fulfillment of such conditions. The Central Bank possesses those powers and functions only as provided for in Sec. the expenses and fees in the collection and administration of the assets of the institution shall be determined by the Board and shall be paid to the Central Bank out of the assets of such institution. the liquidator is likewise authorized to resist or defend suits instituted against the bank by debtors and creditors of the bank and by other private persons. in writing. We hold that the closure and receivership of petitioner bank. find the petitions in G. which provides: SEC. as amended. as expeditiously as possible collect and gather all the assets and administer the same for the benefit's of its creditors. 77255-58. once again. While We recognize the actual closure of Banco Filipino and the consequent legal effects thereof on its operations. 29. has committed grave abuse of discretion or has acted without or in excess of jurisdiction in issuing the assailed order. Secretary of Agriculture and Natural Resources. In such case.

in an amount twice the amount of the bond of th petitioner or plaintiff conditioned that it will pay the damages which the petitioner or plaintiff may suffer by the refusal or the dissolution of the injunction. The liquidator designated as hereunder provided shall. as liquidator who shall take over and continue the functions of the receiver previously appointed by the Monetary Board under this Section. . order its liquidation. assign or otherwise dispose of the same to creditors and other parties for the purpose of paying the debts of such institution and he may. convert the assets of the banking institutions or non-bank financial intermediary performing quasi-banking function to money or sell. when warranted. in case of conservatorship or liquidation. involve disposition of any or all assets in consideration for the assumption of equivalent liabilities. order its liquidation. xxx xxx xxx Based on the aforequoted provision. If the Monetary Board shall determine and confirm within sixty (60) days that the bank is insolvent or can no longer resume business with safety to its depositors. No restraining order or injunction shall be issued by an court enjoining the Central Bank from implementing its actions under this Section and the second paragraph of Section 34 of this Act in th absence of any convincing proof that the action of the Monetary Board is plainly arbitrary and made in bad faith and the petitioner or plaintiff files a bond. That after having reasonably established all claims against the institution. creditors. The provisions of any law to the contrary notwithstanding. effect partial payments of such claims for assets of the institution in accordance with their legal priority. shall be dissolved upon filing by the Central Bank of a bond. That the same is raised in an appropriate pleading filed by the stockholders of record representing the majority of th capital stock within ten (10) days from the date the receiver take charge of the assets and liabilities of the bank or non-bank financial intermediary performing quasibanking functions or. institute such actions as may be necessary in the appropriate court to collect and recover accounts and assets of such institution or defend any action filed against the institution: Provided. in an amount be fixed by the court. indicate the manner of its liquidation and approve a liquidation plan which may. it shall. with all convenient speed. The restraining order or injunction shall be refused or. The provisions of Rule 58 of the New Rules of Court insofar as they are applicable and not inconsistent with the provision of this Section shall govern the issuance and dissolution of the re straining order or injunction contemplated in this Section. the Monetary Board may order the cessation of operations of a bank in the Philippine and place it under receivership upon a finding of insolvency or when its continuance in business would involve probable loss its depositors or creditors. it shall. an the second paragraph of Section 34 of this Act shall be final an executory. The Monetary Board shall designate an official of the Central bank or a person of recognized competence in banking or finance. if granted. Section 28-A. in the name of the bank or non-bank financial intermediary performing quasi-banking functions and with the assistance of counsel as he may retain. be exempt from any order of garnishment. file a petition in the regional trial court reciting the proceedings which have been taken and praying the assistance of the court in the liquidation of such institutions. The assets of an institution under receivership or liquidation shall be deemed in custodia legis in the hands of the receiver or liquidator and shall from the moment of such receivership or liquidation. The court shall have jurisdiction in the same proceedings to assist in the adjudication of the disputed claims against the bank or non-bank financial intermediary performing quasi-banking functions and in the enforcement of individual liabilities of the stockholders and do all that is necessary to preserve the assets of such institutions and to implement the liquidation plan approved by the Monetary Board. with the approval of the court. by the Solicitor General. the actions of the Monetary Board under this Section. that the action is plainly arbitrary and made in bad faith: Provided. which shall be in the form of cash or Central Bank cashier's check. and can be set aside by a court only if there is convince proof.If the Monetary Board shall determine and confirm within the said period that the bank or non-bank financial intermediary performing quasi-banking functions is insolvent or cannot resume business with safety to its depositors. However. the liquidator may. attachment. creditors and the general public. if public interest will be served. and the general public. executed in favor of the Central Bank. after hearing. orexecution. if the public interest requires. levy. within ten (10) days from receipt of notice by the said majority stockholders of said bank or non-bank financial intermediary of the order of its placement under conservatorship o liquidation. The liquidator shall.

which disclosed that the examination of the petitioner bank as to its financial condition as of July 31. On December 17.R. (pp. Tiaoqui Report. These shall be submitted to you in due time (p. Tiaoqui Report). Tiaoqui based his report on an incomplete examination of petitioner bank and outrightly concluded therein that the latter's financial status was one of insolvency or illiquidity.4 million pursuant to the examination. the Monetary Board shall find the statements of the department head to be true. Anent the first requirement. 1984 was not yet completed or finished on December 17. the following are the mandatory requirements to be complied with before a bank found to be insolvent is ordered closed and forbidden to do business in the Philippines: Firstly. 1. Nos. thirdly. revealed that the finding of insolvency of petitioner was based on the partial list of exceptions and findings on the regular examination of the bank as of July 31. This provision is also known as valuation reserves which was set up or . that capital adjustments. He arrived at the said conclusion from the following facts: that as of July 31. 6.956 million. secondly. . 58-59. This Court shall likewise take into consideration the findings contained in the reports of the two commissioners who were appointed by this Court to hold the referral hearings. of the facts. that the biggest adjustment which contributed to the deficit is the provision for estimated losses on accounts classified as doubtful and loss which was computed at P600. There is no question that under Section 29 of the Central Bank Act. and in ordering its closure on January 25. other findings/ observations are still being summarized including the classification of loans and other risk assets. wiped out the capital accounts and placed the bank with a capital deficiency amounting to P334. Please be informed that we have not yet officially terminated our examination (tentatively scheduled last December 7. 1984. Queried in the impact of these clean loans. 1984. III. it shall be disclosed in the examination that the condition of the bank is one of insolvency. Aurellano and Tiaoqui Report. submitted on January 23. We will focus Our study and discussion however on the Tiaoqui Report and the Valenzuela. Rollo. Tiaoqui Report) This was attached to the letter dated December 17. The discussion centered on the substantial exposure of the bank to the various entities which would have a relationship with the bank.. 1985. 1984. The letter reads: In connection with the regular examination of your institution a of July 31. namely the report by Judge Manuel Cosico submitted February 20. Aurellano and Tiaoqui Report and the supporting documents made as bases by the supporters of their conclusions contained in their respective reports. What transpired and what was agreed upon during the conference was explained in the Tiaoqui report.. 1988 and the report submitted by Justice Consuelo Santiago on January 28. 70054. on the bank solvency Mr. emphasis ours). As We have stated in Our resolution dated August 3. and the Valenzuela. 810. I. Rollo. we are submitting herewith a partial list of our exceptions/findings for your comments. 1991. and the unhealth financial status of these firms in which the bank was additionally exposed through new funds or refinancing accommodation including accrued interest. 1989. this list of exceptions and finding was submitted to the petitioner bank (p.Specifically. It is worthy to note that a conference was held on January 21. of examiner-in-charge Dionisio Domingo of SES Department II of the Central Bank to Teodoro Arcenas. and lastly. however. Vol. total capital accounts consisting of paid-in capital and other capital accounts such as surplus. the manner by which some bank funds were made indirectly available to several entities within the group. 1984 when the Central Bank submitted the partial list of findings of examination to th petitioner bank. 1984) and that we are still awaiting for the unsubmitted replies to our previous letters requests. the Tiaoqui report. 1984. an examination shall be conducted by the head of the appropriate supervising or examining department or his examiners or agents into the condition of the bank. 78767 and 78894 is whether or not the Central Bank and the Monetary Board acted arbitrarily and in bad faith in finding and thereafter concluding that petitioner bank is insolvent.8 million. 1985 at the Central Bank between the officials of the latter an of petitioner bank. Dizon (BF Executive Vice President) intimated that. president of petitione bank. Vol. the basic question to be resolved in G. The former recommended the closure and receivership of petitioner bank while the latter report made the recommendation to eventually place the petitioner bank under liquidation. the department head concerned shall inform the Monetary Board in writing. or that its continuance in business would involve probable loss to its depositors or creditors. 1984 conducted by the Supervision and Examination Sector II of the Central Bank of the PhilippinesCentral Bank (p. emphasis ours) Clearly. collectively these corporations have large undeveloped real estate properties in the suburbs which can be made answerable for the unsecured loans a well as the Central Bank's credit accommodations. 1985. A formal reply of the bank would still be forthcoming. the documents pertinent to the resolution of these petitions are the Teodoro Report. surplus reserves and undivided profits aggregated P351. Moreover.

discriminatory. before these can be considered in the financial condition of the bank. 7. 69 Phil. that he believed.deducted against the capital accounts of the bank in arriving at the latter's financial condition. Records further show that the examination of petitioner bank was officially terminated only when Central Bank Examination-charge Dionisio Domingo submitted his final report of examination on March 4. 1985. whimsical.R. 1985 (pp. p. as in fact it is stated in his report. banking and credit system of the country and that its powers and functions shall be exercised by the Monetary Board pursuant to Rep.1985. 3313-3314. 1988. Court of Appeals. the power and authority of the Monetary Board to close banks and liquidate them thereafter when public interest so requires is an exercise of the police power of the state. October 15. Tiaoqui report. Court of Industrial Relations. G. L-50031-32. It is hard to understand how a period of four days after the conference could be a reasonable opportunity for a bank to undertake a responsive and corrective action on the partial list of findings of the examiner-in-charge. June 20. unjust or is tantamount to a denial of due process and equal protection clauses of the Constitution (Central Bank v. this Court laid down several cardinal primary rights which must be respected in a proceeding before an administrative body. there was still a need to discuss the recommended valuation reserves of petitioner bank and. consistent with standard examination procedure. In the instant case. Rollo). 59. No. p. 29 of the CB Act as a mandatory requirement was not completely and fully complied with. however. It is evident from the foregoing circumstances that the examination contemplated in Sec. that he (Tiaoqui) however prepared his report despite the absence of such reply. 1981. In the celebrated case of Ang Tibay v. and a copy of the summary of the findings/violations should be furnished the institution examined so that corrective action may be taken by them as soon as possible (Manual of Examination Procedures. 65642. known as the Central Bank Act. Dionisio Domingo which covered 70%-80% of the bank's loan portfolio. Consequently. General Instruction. 61689. I) In his testimony in the second referral hearing before Justice Santiago. Despite the existence of the partial list of findings in the examination of the bank. did not wait anymore for a discussion of the recommended valuation reserves and instead prepared his report two days after January 21. 29 of RA 265 does not require a previous hearing before the Monetary Board implements the closure of a bank. there were still highly significant items to be weighed and determined such as the matter of valuation reserves. Tiaoqui however admits the insufficiency and unreliability of the findings of the examiner as to the setting up of recommended valuation reserves from the assets of petitioner bank. Act No.162 SCRA 288). 635. Rural Bank v. G. It would be a drastic move to conclude prematurely that a bank is insolvent if the basis for such conclusion is lacking and insufficient. that despite the meeting on January 21. Court of Appeals. IAC. as to the requirement of notice and hearing. Fortunato Dizon (BF's Executive Vice President) said that as regards the unsecured loans granted to various corporations. (p. said corporations had large undeveloped real estate properties which could be answerable for the said unsecured loans and that a reply from BF was forthcoming. Police power. especially if doubt exists as to whether such bases or findings faithfully represent the real financial status of the bank. for which the bank would in turn reply. Vol.R. Sec. 106 SCRA 143). However. arbitrary. 1985. Notwithstanding the foregoing. should a pre-closing conference led by the examiner-in-charge be held with the officers/representatives of the institution on the findings/exception. he met with officers of petitioner bank to discuss the advanced findings and exceptions made by Mr. since its action is subject to judicial scrutiny as provided for under the same law (Rural Bank of Bato v. may not be done arbitratrily or unreasonably and could be set aside if it is either capricious. that he however. the basic standards of substantial due process were not observed. Time and again. the examination has not been officially terminated. Also. 1985 barely four days after a conference with the latter on the examiners' partial findings on its financial position is also violative of what was provided in the CB Manual of Examination Procedures. that the procedure of administrative tribunals must satisfy the fundamentals of fair play and that their judgment should express a well-supported conclusion. 14). July 27. We have held in several cases. The actuation of the Monetary Board in closing petitioner bank on January 25. He stated: The recommended valuation reserves as bases for determining the financial status of the bank would need to be discussed with the bank. that at that meeting. We recognize the fact that it is the responsibility of the Central Bank of the Philippines to administer the monetary. 1984. Said manual provides that only after the examination is concluded. Nos. Tiaoqui testified that on January 21. administrative due process does not mean that the other important principles may be dispensed with. Rollo. 265. namely: the decision of the administrative body must have something to support itself and the evidence must be .

In the case of loan accounts. citing Sec. p. On the other hand. fixed assets and other property owned or acquired and other miscellaneous assets. or loans the ultimate collection of which is doubtful and in which a substantial loss is probable but not yet definitely ascertainable as to extent. and will be construed as conferring those powers which are expressly imposed or necessarily implied (Floyd Mechem. 8. the contention of the Central Bank that a bank's true financial condition is synonymous with the terms "unimpaired capital and surplus. 265 before a bank may be closed is that the examination should disclose that the condition of the bank is one of insolvency. Objections to Santiago report). Treatise on the Law of Public Offices and Officers. valuation reserves of one hundred percent (100%) of the accounts should be recommended to be set up (p. valuation reserves of fifty per cent (50%) of the accounts should be recommended to be set up. There is no doubt that the Central Bank Act vests authority upon the Central Bank and Monetary Board to take charge and administer the monetary and banking system of the country and this authority includes the power to examine and determine the financial condition of banks for purposes provided for by law. The following terms shall be held to be synonymous and interchangeable: . surplus and undivided profits. surplus. f. 29 of the Central Bank Act provides that insolvency under the Act. 3-C).substantial. The foregoing criteria used by respondents in determining the financial condition of the bank is based on Section 5 of RA 337. 970." As to the concept of whether the bank is solvent or not. The amount of loans. For loans classified as loss. Central Bank examiners must recommend valuation reserves. there can be no clearer explanation of the concept of insolvency than what the law itself states. If valuation reserves would be deducted from these items. liabilities are composed of demand deposits. Substantial evidence is more than a mere scintilla. other . Hence." which terms shall mean for the purposes of this Act. it is clear from the law that a solvent bank is one in which its assets exceed its liabilities." Hence. 5. the statement of assets and liabilities is used in balance sheets. Harris. the conclusion arrived at by the respondent Board that the petitioner bank is in an illiquid financial position on January 23. In this case. Sec. where the decision is merely based upon pieces of documentary evidence that are not sufficiently substantial and probative for the purpose and conclusion they are presented. the manual provides that: 1. On the other hand. Unimpaired Capital and Surplus. and undivided profits net of such valuation reserves as may be required by the Central Bank. Secondly. But express grants of power to public officers should be subjected to a strict interpretation. 126 Kan. surplus and unretained earnings. loans. The format enumerates the items which will compose the assets and liabilities of a bank. nature and changes in the assets and liabilities. manager's and certified checks. surplus reserves. or loans regarded by the examiner as absolutely uncollectible or worthless. the respondents contend that under the Central Bank Manual of Examination Procedures. 267 p.. It is a basic accounting principle that assets are composed of liabilities and capital. due to head office. supra).. Banks use statements of condition to reflect the amounts. branches. (Manual of Examination Procedures. Firstly. The term "assets" includes capital and surplus" (Exley v. 5 of RA 337 is misplaced. the term "capital" includes common and preferred stock. the total of the "unimpaired paid-in capital. discounts and advances. 5 of RA 337 but not the total financial condition of the bank. 973. It means such relevant evidence as a reasonable mind might accept as adequate to support a conclusion (Ang Tibay vs. In the case at bar. to which practically all the questioned valuation reserves refer. R. as to justify its closure on January 25. 302). Report of Examination on Department of Commercial and Savings Banks. Assets include cash and those due from banks. The second requirement provided in Section 29. 1985 cannot be given weight and finality as the report itself admits the inadequacy of its basis to support its conclusion.. 1985. 335). "Combined capital accounts. discounts and advances to be stated in the statement of condition as provided for in the manual is computed after deducting valuation reserves when deemed necessary. time and savings deposits. when warranted. known as the General Banking Act which states: Sec. the standard of fairness mandated in the due process clause is not met. and agencies. CIR. to be set up or deducted against the corresponding asset account to determine the bank's true condition or net worth. such as for the purpose of closure on the ground of insolvency stated in Section 29 of the Central Bank Act.A. For doubtful loans. The Central Bank Manual of Examination Procedures provides a format or checklist of a statement of condition to be used by examiners as guide in the examination of banks. borrowings. shall be understood to mean that "the realizable assets of a bank or a non-bank financial intermediary performing quasi-banking functions as determined by the Central Bank are insufficient to meet its liabilities. p. the result would merely be the networth or the unimpaired capital and surplus of the bank applying Sec." "combined capital accounts" and net worth after deducting valuation reserves from the capital. 2. cashier's." and "Net worth.

p. 302.947. 194 N. the date of the closure of the bank. to determine the recording of all assets and liabilities. rules and regulations. There can be no basis therefore for both the conclusion of insolvency and for the decision of the respondent Board to close petitioner bank and place it under receivership. the consolidated statement of condition thereof as of the aforesaid date shown in the Valenzuela. is not in the position to determine how much cash or market value shall be assigned to each of the assets and liabilities of the bank to determine their total realizable value.4 if the 612. (Gillian v. Objections to Santiago report). 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. vouchers. Hence. are based however.981. the statement of condition which contains a provision for recommended valuation reserves should not be used as the ultimate basis to determine the solvency of an institution for the purpose of termination of its operations. 9.2 million. Since.282. the quality and character of management and determines the institution's compliance with laws. take a look at the figures presented by the Tiaoqui Report in concluding insolvency as of July 31. while audit concerns itself with verification (CB Manual of Examination Procedures.. 29 of the Central Bank Act. 661). The Tiaoqui report dated January 23.2 million allotted to valuation reserves will not be deducted from the assets. 5). etc. Further.1 million will not exceed the total assets which will amount to P5.liabilities and deferred credits (Manual of Examination Procedure. and this account is also referred to as valuation reserve (p. the networth shown in the statement is in no sense an indication of the amount that might be realized if the bank or company were to be liquidated immediately (Prentice Hall Encyclopedic Dictionary of Business Finance. p.2 million after deducting from the assets valuation reserves of P612. the bank is insolvent. as author of the report recommending the closure of petitioner bank admits that the valuation reserves should still be discussed with the petitioner bank in compliance with standard examination procedure. would be totally unjust and unfair. 1984 and at the figures presented by the CB authorized deputy receiver and by the Valenzuela. Even the CB Manual of Examination Procedures does not confine examination of a bank solely with the determination of the books of the bank. 1984. The latter is part of auditing which should not be confused with examination.836. p. examination concerns itself with review and appraisal.559. respondents used its books which undoubtedly are not reflective of the actual cash or fair market value of its assets. Mo. 1985. ledgers. 1985. Examination appraises the soundness of the institution's assets. This Court however. Tiaoqui himself. indicates that total liabilities of 4. General Instructions.282. 8. on the assumption that the bank or company will continue in business indefinitely. Audit is a detailed inspection of the institution's books. CB examiners must recommend valuation reserves.540. 363.117).W. Hence. The proper determination of these matters by using the actual cash value criteria belongs to the field of fact-finding expertise of the Central Bank and the Monetary Board. and therefore.540. Objections to Santiago report). states that total liabilities of P5. 207 Ind. accounts.1985. We will however. Hence. but if such fair cash value so realizable is not sufficient to pay such liabilities within a reasonable time. In arriving at the computation of realizable assets of petitioner bank. realizable within a reasonable time by a reasonable prudent person. Aurellano and Tiaoqui report to finally recommend the liquidation of petitioner bank instead of its rehabilitation. This is not the proper procedure contemplated in Sec. Harris. 970. the insolvency of a bank occurs when the actual cash market value of its assets is insufficient to pay its liabilities. based on respondents' submissions. as We have explained in our previous discussion that valuation reserves can not be legally deducted as there was no truthful and complete evaluation thereof as admitted by the Tiaoqui report itself. 2n 115.15. Aurellano and Tiaoqui report on the receivership of petitioner bank. Aurellano and Tiaoqui Report which recommended the liquidation of the bank by reason of insolvency as o January 25.996. Likewise. Notwithstanding the fact that the figures arrived at by the respondent Board as to assets and liabilities do not truly indicate their realizable value as they were merely based on book value. App. which was based on partial examination findings on the bank's condition as of July 31. then an adjustment of the figures win show that the liabilities of P5. a bank is solvent if the fair cash value of all its assets. dated March 19. 48). State.84 million does not exceed the total assets of 4. 267 p. 9). Respondents acknowledge that under the said CB manual.22 even exceeds total liabilities amounting to P4.126 Kan. for the Monetary Board to unilaterally deduct an uncertain amount as valuation reserves from the assets of a bank and to conclude therefrom without sufficient basis that the bank is insolvent. Concerning the financial position of the bank as of January 25. 360. The amounts stated in the balance sheets or statements of condition including the computation of valuation reserves when justified. the allowance for probable losses on loans and discounts represents the amount set up against current operations to provide for possible losses arising from non-collection of loans and advances. 1985. Clearly.53 million.when warranted. . Llewellyn. would equal or exceed its total liabilities exclusive of stock liability. not considering capital stock and surplus which are not liabilities for such purpose (Exley v. 1985 prepared by the Central Bank Authorized Deputy Receiver Artemio Cruz shows that total assets amounting to P4.981.834. the consolidated statement of condition of petitioner bank as of January 25. 70 S. Alexander v.E. there was no valid reason for the Valenzuela. 973. Stated in other words. to be set up against the corresponding asset account (p.522.1 million exceeds total assets of P4. Based on the foregoing.

1984. August 3. the debtor institution may not expand the total volume of its loans or investments without the prior authorization of the Monetary Board. 26. Here. 35 dated July 27. or events which. that this has any material bearing on the validity of the closure. Rollo. While such advances are outstanding. 3316. Section 34 of the RA 265. the reopening of Banco Filipino would require additional credit resources from the Central Bank as well as an independent management acceptable to the Central Bank. however. The Central Bank may.B. 1984. however. Emphasis ours). 1984 up to January 25. WHEREAS.B. further. That the Monetary Board has ascertained that the bank is not insolvent and has clearly realizable assets to secure the advances. the Central Bank may grant banking institutions extraordinary advances secured by any assets which are defined as acceptable by by a concurrent vote of at least five members of the Monetary Board. the closure by Banco Filipino Savings and Mortgage Bank of its Banking offices on its own initiative has worked serious hardships on its depositors and has affected confidence levels in the banking system resulting in a feeling of apprehension among depositors and unnecessary deposit withdrawals. The second situation on the other hand. Finally.. During the period from July 27. the Central Bank is charged with the function of administering the banking system. 1990. Provided. A perusal of the foregoing "Whereas" clauses unmistakably show that the clear reason for the decision to grant the emergency loan to petitioner bank was that the latter was suffering from financial distress and severe bank "run" as a result of which it closed on . p. provides for a situation where the Central Bank grants a loan to a bank with uncertain financial condition but not insolvent. likewise grant advances to banking institutions. 1985. IX. in her testimony during the second referral hearing. which may eventually threaten and gravely prejudice the stability of the banking system. even during normal periods. . unsafe and fraudulent banking practices but the alleged insolvency position of the bank (TSN. Vol.. This paved the way for the reopening of the bank on August 1.. On emergency loans and advances. it is the desire of the Central Bank to rapidly diffuse the uncertainty that presently exists. (M. Provided. the following are the reasons of the Central Bank in approving the resolution granting the P3 billion loan to petitioner bank and the latter's reopening after a brief self-imposed banking holiday: WHEREAS. Carlota Valenzuela. . Section 90 of RA 265 provides two types of emergency loans that can be granted by the Central Bank to a financially distressed bank: Sec. another circumstance which point to the solvency of petitioner bank is the granting by the Monetary Board in favor of the former a credit line in the amount of P3 billion along with the placing of petitioner bank under conservatorship by virtue of M. Min. 3387. Vol.. CB Deputy Governor. unsound and fraudulent banking practices by the granting of huge unsecured loans to several subsidiaries and related companies. suspended or removed for any participation in unsafe and unsound banking practices. at its discretion. p. Resolution No. though foreseeable. As alleged by the respondents. testified that the reason for petitioner bank's closure was not unsound. could not be prevented by the bank concerned." There was no showing whatsoever that the bank had persisted in committing unlawful banking practices and that the respondent Board had attempted to take effective action on the bank's alleged activities. That a concurrent vote of at least five members of the Monetary Board is obtained. 90. 1984 cited in Respondents' Objections to Santiago Report. (Emphasis ours) The first paragraph of the aforequoted provision contemplates a situation where the whole banking community is confronted with financial and economic crisis giving rise to serious and widespread confusion among the public. WHEREAS. p. when petitioner bank was under conservatorship no official of the bank was ever prosecuted. We do not see. Central Bank Act empowers the Monetary Board to take action under Section 29 of the Central Bank Act when a bank "persists in carrying on its business in an unlawful or unsafe manner.We take note of the exhaustive study and findings of the Cosico report on the petitioner bank's having engaged in unsafe. the emergency or financial confusion involves the whole banking community and not one bank or institution only. In periods of emergency or of imminent financial panic which directly threaten monetary and banking stability. No. In fact. and neither was the entire management of the bank replaced or substituted. WHEREAS. 955 dated July 27. 1984 after a self-imposed bank holiday on July 23. for the purpose of assisting a bank in a precarious financial condition or under serious financial pressures brought about by unforeseen events. VIII). Rollo.

excluding the Overseas Bank of Manila (hereinafter termed the OBM) from clearing with the Central Bank. In view of the foregoing premises. damages and injuries to the depositors.B. J. which could not have occurred if the petitioner bank was not solvent. (b) That the said resolutions are prejudicial to the national interest and against public policy. 25. p.R.July 23. CENTRAL BANK OF THE PHILIPPINES. E. which was required by Central Bank's duty to maintain the stability of the banking system and the preservation of public confidence in it (Ramos v. adopted on 1 August 1968. that was ordered implemented on 31 July 1968 (Annex "11"). RAMOS. petitioners.. SUSANA B. as they would erode confidence in the banking system and undermine the integrity and stability thereof. not only as regards petitioner bank. for respondent Bank. No. Rollo. J. the following appears: . Nothing therein shows that an extraordinary emergency situation exists affecting most banks. L-29352 October 4. Francisco Carreon. No. adopted on 30 July 1968. No. REYES. This Court thereby finds that the grant of the said emergency loan was intended from the beginning to fall under the second paragraph of Section 90 of the Central Bank Act. 1971. the Central Bank and the Monetary Board should exercise strict supervision over Banco Filipino. We believe that the closure of the petitioner bank was arbitrary and committed with grave abuse of discretion. For one thing.: This is a petition for Certiorari. would constitute deprivation of property likewise without due process of law. October 4. JOSEFA RAMOS DE LA RAMA. Section 29 of the Central Bank provides that a closed bank may be reorganized or otherwise placed in such a condition that it may be permitted to resume business with safety to its depositors. JR. Evangelista. Antonio and F. Jr. it may reflect on the Central Bank's own viability. and TEOFILO TANJUATCO. 1290. Office of the Solicitor General Felix Q. 1984 and that the release of the said amount is in accordance with the Central Bank's full support to meet Banco Filipino's depositors' withdrawal requirements (Excerpts of minutes of meeting on MB Min. L-29352. and Resolution No. Prohibition and Mandamus with prayer for the issuance of a writ of preliminary injunction to restrain respondent Central Bank of the Philippines (hereinafter designated as the CB) from enforcing and implementing the Monetary Board Resolution No.. contrary to the purpose and spirit of the Central Bank Act. creditors and the general public. vs. Feliciano C. RAMOS. G. Central Bank. RAMOS. ANTONIO B. and will amount to impairment of the obligations of contract. But there are alternatives to permanent closure and liquidation to safeguard those interests as well as those of the general public for the failure of Banco Filipino or any bank for that matter may be viewed as an irreversible decline of the country's entire banking system and ultimately. (d) That said resolutions were promulgated without due process of law. Regalado. 35. Vol.L. VICTORIA RAMOS TANJUATCO. HORACIO DE LA RAMA. creditors and stockholders of the OBM. the fact that petitioner bank was suffering from serious financial problems should not automatically lead to its liquidation. RAMOS. Clara CruzEspritu & Iñigo B. which was implemented on 2 August 1968 (Annex "13"). EMERITO B. IX). FILOMENA RAMOS LEDESMA. respondent. The herein petition is based on the following grounds: (a) That the aforesaid resolutions were not legally issued and were promulgated by respondent CB through the Monetary Board in excess of jurisdiction and with grave abuse of discretion. speedy and adequate remedy in the ordinary course of law. granting authority to the OBM Board of Directors to suspend operations thereof. RODOLFO RAMOS. Where notwithstanding knowledge of the irregularities and unsafe banking practices allegedly committed by the petitioner bank. 41 SCRA 565). 1263. Tumale and Araneta. We are aware of the Central Bank's concern for the safety of Banco Filipino's depositors as well as its creditors including itself which had granted substantial financial assistance up to the time of the latter's closure. the Central Bank even granted financial support to the latter and placed it under conservatorship. (c) That said resolutions have caused and will cause further irreparable losses. They should take all the necessary steps not violative of the laws that will fully secure the repayment of the total financial assistance that the Central Bank had already granted or would grant in the future. 1971 EMERITO M. Mendoza & Papa for petitioners. such actuation means that petitioner bank could still be saved from its financial distress by adequate aid and management reform. Granting in gratia argumenti that the closure was based on justified grounds to protect the public. From the pleadings and annexes. and (e) That there is no appeal nor any plain.

on account of its continuous adverse clearing balances. Sr. in accordance with existing Central Bank regulations. 1967. in essence. and on 30 October 1967 Governor Castillo of the CB wrote again (Petition.3 million exclusive of accumulated interest. but had been suspended by respondent from clearing with the CB and from lending operations for various violations of the banking laws and implementing regulations. is not a voting trust agreement as desired by the Monetary Board and reiterated in its Resolution No. we described to Mr. The upshot of these conferences appears from the correspondence exchanged between the CB and the OBM. the Governor of the Central Bank. On 23 October 1967. On 2 May 1967. stood at P22. to submit a listing of his properties and to mortgage or assign the same to the Central Bank to cover the overdraft balance therewith of the Overseas Bank of Manila. Ramos. the Central Bank could also announce that it is ready to support the Philippine National Bank in order to allay the fears of depositors and creditors. Accounting Department of this Bank. Among other things. 2015 dated 16 October 1967. which by 1968 amounted to several millions. wrote a letter (Petition.. Annex "G" ): I wish to refer to the conference had between your goodself and the members of the Monetary Board at Malacañang of 16 October 1967. in an instrument similar to the one executed by stockholders of the Republic Bank in favor of the Philippine National Bank. the Central Bank will proceed in accordance with the existing policy under which he and other stockholders representing a majority will have to sign a trusteeship agreement with the Philippine National Bank pursuant to which the Overseas Bank will be managed by the Philippine National Bank. (2) To require the stockholders of the Overseas Bank of Manila to subscribe to an appropriate voting trust agreement so that the Central Bank may be able to effect a complete reorganization and/or transfer the management of the bank to a nominee of the Monetary Board. Further conference ensued. The OBM was opened for business on 6 January 1964 with authorized capital of P30 million.. Ramos at length the circumstances which led to the present precarious conditions of the bank. the Deputy Governor. I informed Mr. you handed the legal Counsel your own draft of a "Trust Agreement" which. the Legal Counsel of this Bank submitted to you a draft of such "Voting Trust Agreement" desired by the Monetary Board. which Mr. Petitioners charged that the OBM became financially distressed because of this suspension and the deprivation by the CB of all the usual credit facilities and accommodations accorded to the other banks. on 25 October 1967. and the undersigned. Emerito Ramos. having the following terms (Petition. In the conference. Petitioner Ramos and the OBM management finally met with respondent CB on the necessity and urgency of rehabilitating the OBM through the extension of necessary financial assistance. The alleged exactions of onerous fines and penalties by respondent was likewise blamed for the aggravated situation. together with the balance of your past due emergency loan with the Central Bank amounting to P10. In view of the OBM stockholders' reluctance to execute the Voting Trust suggested. and of the immediate necessity of putting up additional capital in the amount of at least P3 million. Ramos promised to put up when he last appeared before the Monetary Board. . on that date. the Monetary Board adopted Resolution No. Ramos that if his bank is thrown out of clearing. Annex "B") stating: This is with reference to the conference had between Mr. Andres Castillo. Chairman of your Board.The OBM is a commercial banking corporation duly organized and existing under the laws of the Philippines with principal office at Rosario Street. the Acting Superintendent of Banks. However. and the Officer-in-Charge.3 million. By April. Manila. Sr. Emerito M. of which the substantial majority of stock is owned by you and your family and corporations controlled by you. as a measure to stave off liquidation. having in mind the overdrawing in your deposit account with the Central Bank which. relative to the financial condition and state of affairs of the Overseas Bank of Manila. upon instructions of the Monetary Board. Petitioners are the majority and controlling stockholders thereof. the principal stockholder of the Overseas Bank of Manila. 2020 dated 20 October 1967 and confirmed on 24 October 1967. If the PNB takes over management in such eventuality. a voting trust agreement should be executed by you and your family and the corporations controlled by you in favor of the Superintendent of Banks. last Friday evening on the present very precarious condition of the Overseas. We stressed the imminent danger of the bank's being thrown out of clearing. For its deficiencies it was made subject to penalties of 12% interest on overdrawings and 36% per annum on reserve deficiencies. Annex "F"): (1) To require Mr. decided that. the Monetary Board. P10 million subscribed and P8 million thereof paid. the financial situation of the OBM had caused mounting concern in the CB.

the pertinent portions of which read: ".007. But as early as 25 September 1967. to exercise all such powers and discharge all such functions as inherently pertain to the cestui que trust as owners. dated 17 October 1967. methods. etc. It is also requested that the execution of the mortgages on the properties you offered as security for the obligations of the Overseas Bank of Manila to the Central Bank be finalized. standards. with the listing of Ramos properties worth 100 million. The Trustee entered into the agreement pursuant to the authority given by respondent's Monetary Board under M. petitioners contending that they are worth over 141 million. of which over P43 million were time deposits. creditors and stockholders that this trust agreement should be entered into by them for the rehabilitation. It is provided further that if.5 . had not been incorporated in the Bank's books nor reported to the Board of Directors. The cestui que trust hound themselves." (Emphasis supplied) (b) Term. on 20 November 1967. similarly terminable within such further period at the discretion of the Monetary Board.. it was added. the same had been written off when around 31 July 1967 the Ramoses conveyed to the OBM properties worth P54. 4 And as to the loans to the Ramos family and firms." and ". systems. and/or for the sound management of a banking institution. at the expiration of the three-year period the purposes for which the trust has been constituted have not as yet been fully achieved. (c) Powers and authority. and the Central Bank Legal Counsel. 2017. calling for application of Section 29 of the Central Bank Act and liquidation of OBM. Martin Oliva. B. reorganize its operation policies. staffing pattern. it is requested that the voting trust agreement prepared by the Legal Counsel of this Bank be now signed by you and other members of your family and by the proper officials of the corporations which are stockholders of the bank and which are controlled by you and your family. the Superintendent of Banks reported that the condition of the OBM was one of insolvency. (3) improve. The salient features of the said Voting Trust Agreement are the following: (a) Objectives. 3 Petitioners contend that these transactions were recorded in subsidiary ledger accounts that were linked to the general ledger accounts of the Bank under the so-called EMRACO and COFICO accounts. Annex "H"): In line with the conference this morning between your goodself and the undersigned. to pay the trustee during the life of the trust an annual honorarium subject to certain conditions. (5) safeguard the interests of depositors. Finally. the Acting Superintendent of Banks.This was followed up by another letter of 8 November 1967 (Petition. but the Trustee at its option. the abovenamed stockholders of the Overseas Bank of Manila believe that it is for and/or the interest and benefit of the bank depositors. organization. personnel. the Deputy Governor. modify. Petitioners likewise conveyed by way of mortgage to the CB all their private properties and holdings to secure the obligations of the OBM to the CB. On 27 October 1967. and the shares of stock belonging to you and your family in your corporations and enterprises be endorsed in favor of the Central Bank and delivered to us as soon as possible. and your manifestation of readiness to abide by the decisions of the Monetary Board on all matters involving the Overseas Bank of Manila. the petitioners herein executed the Voting Trust Agreement prepared by attorneys of the CB (Petition.096 million.. The life of the trust shall be for three (3) years from 20 November 1967. The trustee is given all and full authority. the trust agreement shall be considered automatically extended for such period to be determined by the Monetary Board. a new possibility emerged to recapitalize the OBM in 100 million. TRUSTEE has likewise signified his willingness to accept such trust in pursuance of the objectives above-mentioned.. However. at usurious rates of interest. 1967 upon instructions of President Martin Oliva. (d) Consideration. (4) hold and vote on the shares of stocks transferred to him as trustee. and finally incorporated in OBM's regular books in September. creditors and stockholders. It was explained 2 that the OBM management had resorted to these unrecorded transactions because the suspension of its lending activities after 14 months of operation reduced OBM to virtual inactivity. Annexes "B" and "C"). Oliva's letter prompted a further investigation of OBM records by the CB examiners that revealed allegedly unrecorded deposits and transactions (which is disputed by Petitioners) amounting to 48. normalization and stabilization of the Overseas Bank of Manila.211 as of 13 September 1967 (reduced to P35 million when petition was filed). may relinquish the trust upon approval of the Monetary Board. diversion of deposits to accounts controlled by certain OBM officials (so-called COFICO and EMRACO accounts) and loans to the Ramos family and firms controlled by them. Annex "A") with petitioners as Cestuis Que Trust 1 and respondent CB's Superintendent of Banks as the Trustee. Mr. (2) vote its directors and choose the officers and employees. had written to the Superintendent of Banks that transactions worth around P48 million. and it had to agree to pay high premiums or interests on such deposits because this high costs is comparatively cheaper than the Central Bank's interests on overdrawings at the rate of 12% per annum and a penalty of 36% per annum on reserve deficiencies. Resolution No. but there is no agreement as to the value of these properties. and (6) in general. but the CB appraised them at around 67 million (Petition. among others. who had become president of OBM only since 13 March 1967. The objectives are stated in the "Whereas Clauses". structure. subject to the limitations set forth in the law and other conditions in the contract to: (1) direct the management of the affairs and accounts and properties of the OBM...

the Central Bank governor wrote to the petitioner. the CB Monetary Board adopted Resolution No." Eight months of indecision has made depositors lose faith and as a result. If the valuation of the P100 million (net of encumbrances to the parties other than the CB and TOBM) to the properties is true. the CB announced that only P10 million were available as emergency loan to OBM and requested the management of the latter (appointed under the Voting Trust Agreement to replace the old Board elected by the stockholders) to project how it could help bail out OBM. Thus. To be able to breakdown in operations. In a memorandum submitted to Governor Calalang 12 days later.. the extremely distressed financial condition of TOBM will continue to prevail. because — as a general proposition. 8 and if "massive financing cannot be given to enable the bank to expand its risk assets. Republic Act 265. 22 July." He concluded that: . the Superintendent of Banks suggested the following alternatives: (1) The OBM be required to acquire the properties in payment for frozen or bad loans or for unaccountable funds. and then mortgage the properties to CB for emergency advances. This caused. 23 July 1968. On 14 June 1968. "At that time". "C" and "S") in November. Mr. we are faced with more court suits and withdrawals than ever before and more obligations have matured. 1333. quoted previously). Three days later. concluding — It is pointed out here that with the P10 million loan from the CB. then the new "possibility" may be briefly stated thus: A Recapitalization of the Overseas Bank of Manila on the amount of P100 million will save the bank. Annexes "G" and "H". and can absorb the losses in bad debts. reiterating the need for the OBM stockholders to execute a voting trust agreement "to stave of liquidation". As already noted. new directors and officers drafted from the CB itself. as heretofore stated. under Section 29 of the Central Bank Act. or substantially true. 7 The next day. and thus ultimately give adequate protection to depositors and creditors. Oliva. Martin R. but certain further losses to its depositors and other creditors and may have further adverse effects on the banking system. He reminded the CB Governor about the OBM management's request on 6 January 1968 for a P20 million loan to enable OBM to get on its feet. he said. "the aid we are recommending. if its "capital structure cannot be strengthened to meet the requirements of Section 22 of RA 337". giving a list of the Ramos properties worth P100 million (?). On 5 December 1967. therefore. Mr. In the same memorandum report. implementation of this resolution was restrained by this Court. The bank's continuance in business under its present extremely precarious financial condition. a radically different possibility has emerged. placing the cost of such funds at 1½ %. At best.. will involve not merely probable.9 million. and for CB to extend loans to OBM depending on the needs. requiring the execution of the Voting Trust Agreement by the OBM stockholders and of the mortgage of their properties to secure OBM obligations to the Central Bank and the endorsement of the shares of stock held by them in their corporations and enterprises (Petition. 30 October 1967.5 thousand assuming that the loans to be extended have a high turnover rate and a 100% repayment ratio. However. Petitioners duly complied (Annexes "A". without the necessary capital injection and financial aid. considering the need for liquid funds. with the P10 million CB loan. subject of course to corroborative quantification — such a magnitude of capital can make good the bad loans as well as the funds that cannot be legitimately accounted for. President of the Overseas Bank of Manila. properly used. he said the loss of "psychological advantage" initially gained by PNB's take over of the OBM management. submitted a "Projected Cash Flow Statement" 6. 1967.2. Emerito Ramos. the PNB and DBP were elected and installed and they took over the management and control of the Overseas bank. on 13 August 1968. ordering the Superintendent of Banks to proceed to the liquidation of the OBM. Thereafter. Orosa unburdened himself and deployed CB for hemming and hawing. the P10 million loan will enable TOBM to resume limited lending operations on a highly selected basis and diminish its estimated loss by some P492. which letter was followed by another of 8 November 1967. the Superintendent of Banks recommended to the Monetary Board that OBM be liquidated under Section 29. the annual loss has been estimated to be P8. would have staved off panic and restored some confidence. Orosa. with the letter dated October 26. or (2) The owners be required to mortgage the properties to the CB directly. 1967 of Mr. OBM president. . TOBM needs loanable funds estimated at P196 million. can provide it with funds for viable operations.

and the Court. which the OBM does not have — in fact it had overdrawn its reserve account with the CB beyond the maximum fixed by law. which amounted to a directive for the liquidation of the OBM. (c) Whether or not CB Resolutions Nos. 1333. And that in violation of its obligations. 1333. normalization and stabilization" of the OBM. Rep. The CB is not a party to the Voting Trust agreement. However. if jurisdiction was . Implementation of the resolution was. 1290 and 1333 were adopted in abuse of discretion. in accordance with the provisions itself of Section 29 of the Central Bank Act. without violating Section 90 of the Central Bank Act since neither OBM nor its stockholders could put up additional capital and additional collaterals to secure CB's future advances. an action must be filed in the Court of First Instance of Manila by the Bank itself. By resolution of this Court. 1333 (Annex "12". requires a bank as a condition to such participation to keep deposit reserves. imposing reciprocal obligations for valuable consideration. This argument must be rejected. Answer) forbidding the OBM from doing business and instructing the Superintendent of Banks to take charge of the Bank's assets and to take action under Section 29 of the Central Bank Act (Republic Act 265). upon petitioners' motion. Republic Act No. on 13 August 1968. that even as this Honorable Court had ample jurisdiction over the said petition. Several petitions for intervention were denied by the Court. CB in its answer cited specific instances of OBM's "unusual and irregular transactions" discovered by examiners or "revealed by OBM officials themselves". Act 265. By way of affirmative defenses. and not by petitioning stockholders. They further ]claim that the said agreement is not only bilateral.. xxx xxx xxx 1. Justifying Resolutions 1263 and 1290.Petitioners aver that no adequate financial assistance was granted to the OBM after the execution of the Voting Trust Agreement. it cannot give more loans to the latter than that already given to it as of 30 July 1968. adopted the questioned resolutions. the CB. 4. already had required the Central Bank to answer the petition on 12 August 1962. pages 3-5. as follows: "We respectfully maintain. without notice to or hearing the petitioners. CB averred that: (b) Whether or not the CB had agreed to rehabilitate. and that under said agreement the obligation of the CB was to act and work for the "rehabilitation. is legally demandable. No bank has an absolute right to take part in inter-bank clearing.". 1263. normalize and stabilize OBM.. 1968. as well as a duty specifically enjoined and imposed by law. after the main petition had already been filed and given due course. 2. The issues involved appear to be: (a) Whether or not this Supreme Court has jurisdiction to restrain the implementation of CB Resolution No. Assuming that CB is obliged to rehabilitate OBM.. reading: 3. paragraph 3.. The CB stand is that to assail Resolution 1333 of the Monetary Board ordering the liquidation of the Overseas Bank." violative of its alleged commitment to rehabilitate the overseas Bank. under which said resolution was promulgated. and the court may direct the Board to refrain from further proceedings and to surrender charge of its assets. is that the situation has changed entirely because of the approval of Res. Republic Act 265. and therefore cannot be compelled to implement it. restrained by the Court on 14 August 1968. 1333 on August 13. 1263 and 1290 of the Monetary Board as "patent acts of liquidation. assailing Resolutions Nos. allegedly in view of the provisions of Section 29. 1333 on 13 August 1968 this Court had already taken cognizance of the petition herein. At any time within ten days after the Monetary Board has taken charge of the assets of any banking institution. any action based on the approval and implementation of the third resolution. but was also entered into by respondent CB in the performance of its duties under the law. 265. The point . The latter resolution is clearly an act in pursuance of the policy outlined in the previous resolutions (1263 and 1290) enjoined by this Court. On the first issue of jurisdiction. prior to the adoption of Resolution No. for it overlooks the fact that before the Central Bank adopted said Resolution No. It would be illegal and contrary to public interest to construe the voting trust agreement as imposing upon CB the duty to rescue OBM at all cost. such institution may apply to the Court of First Instance for an order requiring the Monetary Board to show cause why it should not be enjoined from continuing such charge of its assets. Res. the respondent Central Bank defines its position in its Rejoinder Memorandum. "after eight months of delay". 1333 on 13 August 1968 comes already within the exclusive original jurisdiction of the Court of First Instance. This resolution has made the two previous questioned resolutions academic and the main petition pointless. through the extension of adequate and necessary financial assistance to stave off liquidation. Hence. in fact. the CB adopted Resolution No.. the respondents were required to answer the petition and set for hearing the petition for a writ of injunction. because Section 100.

. City of Manila. after such jurisdiction had been acquired. this Court quoted with approval the rule that: .. The plea that the Overseas Bank is not a party to the case at bar need not give concern. appears to be no more than a deliberate effort to evade the jurisdiction of this Court. as in this case. litigations. and are qualified to represent its interests. By the modern authorities. Justice Conrado V. 10 There is no denying that creditors. or to prevent the use of the strong arm of the law in an oppressive or vindictive manner. In People vs. In Bay View vs. 18 SCRA 953). Nor would it serve the interest of justice to dismiss the case at this stage and let a new petition be filed in another court. effort wasted. Manila Hotel Worker's Union (L21803.. 964). where. although they are of such a character as would have prevented jurisdiction from attaching in the first instance. leaves no doubt that the CB did agree and commit itself to the continued operation of. On the second issue. be closed or allowed to continue operating at the exclusive discretion of respondent Central Bank. The petitioners are the controlling stockholders of that Bank.. the respondent CB. and the writ is granted. in relation to the antecedent facts. the Court should be deprived thereof by the subsequent adoption of Resolution 1333. As early as 2 May 1967. or a multiplicity of actions. considered together with the terms of the Voting Trust Agreement. 306-307. The time to be lost. the jurisdiction of a court depends upon the state of facts existing at the time it is invoked. (41 Phil. particularly because the latter. will not operate to oust jurisdiction already attached. On Previous occasions. the OBM. (Pet. and they can hardly be expected to resist the plans and actions of respondent Central Bank (CB). an extraordinary situation existed. 17 December 1966).. Annex "F"). there is no cogent reason why. thus: . and among the earlier decisions.. Annex "B") (Emphasis supplied) CB Resolution No. this Court. saying: To draw a tenuous jurisdictional line is to undermine stability in . as respondents contend. depositors and the banking community are all interested in a quick determination whether the Overseas Bank may. Pegarum. with the only difference that instead of the Philippine National Bank. there was no exception to that rule. and if the jurisdiction once attaches to the person and subject matter of the litigation. 23 SCRA 948. and to bring about the orderly administration of justice. caused then Governor Castillo to advise petitioners that — he and other stockholders representing a majority will have to sign a trusteeship agreement with the Philippine National Bank pursuant to which the Overseas Bank will be managed by the Philippine National Bank. where it is necessary for the orderly administration of justice. In legal effect. confirmed the quoted memorandum by requiring the stockholders of OBM to subscribe to an appropriate trust agreement. L-26361. the subsequent happening of events. (Cas. so that a judgment may be enforced for or against it. whether or not the respondent CB agreed to rehabilitate the OBM. anxiety augmented. that as a general rule. and have the case thrown back to the Court of First Instance. in addition to requiring a mortgage or assignment of petitioners' personal properties to CB.. This is particularly true considering that the present management of the OBM (Overseas Bank of Manila) is at present composed of respondent's nominees. although it is not impleaded by name in the suits (V.. This rule coincides with well-established principles of American law 9 to the same effect. and rehabilitation of.. this Court has overruled the defense of jurisdiction in the interest of public welfare and for the advanced agreement of public policy. 29 May 1968. Fernandez. Of which petitioner are the majority stockholders. it is believed that a review of the letters from the CB to the petitioners (hereinbefore quoted). under the circumstances. that was the decision of this court in Kwong Sing vs.. and is more or less in the sound legal discretion of the court and is intended to prevent the unlawful and oppressive exercise of legal authority. 2015 of 16 October 1967 (Petition. Albert vs. additional expense incurred — these are considerations which weigh heavily against split jurisdiction. Indeed it is more in keeping with orderly administration of justice that all the causes of action here be cognizable and heard by only one court. through its Monetary Board. pursuant to the Trust Agreement. cit. If the PNB takes over management in such eventuality. the trust would be executed in favor of the CB as trustee . It is true. Court of First Instance. through Mr. The basic guidelines in the exercise of this Court's original jurisdiction to issue prerogative writs were expressed inDimayuga vs.. an exception is sometimes made. 43 Phil.already acquired ito delve into the validity of Resolutions 1263 and 1290 (and this the Central Bank admits). 103) The writ of prohibition is somewhat sui generis. Sanchez. pointed out the evils attending split jurisdictions.. the Central Bank could also announce that it is ready to support the Philippine National Bank in order to allay the fears of depositors and creditors. A piece meal resort to one Court and another gives rise to multiplicity of suits. a court of equity will not restrain the authorities of either a state or municipality from the enforcement of a criminal law. .

through the voting of the shares conveyed to the trustee. the same is necessarily implied. 2d. and the idea has been expressed that such action or forbearance would reasonably have been expected by the promissor... since it was the latter that had from the very beginning insisted upon such voting trust being executed. a voting trust agreement should be executed by you and your family and the corporations controlled by you in favor of the Superintendent of Banks. 115 ALR. the Superintendent of Banks. even though without consideration. In this respect. Annex "F. Even more. but CB subsequently caused its own team of nominees to take over the direction and management of the OBM. the reliance by the promisee is generally evidenced by action or forbearance on his part. Annex "G." (Annex "B"). Annex "G") (Emphasis supplied) The reference to the case of the Republic Bank clarifies the purpose and scope of the demand for a voting trust agreement "as a measure to stave off liquidation". the record plainly shows that the CB made express representations to petitioners herein that it would support the OBM. subject to the instructions of the Monetary Board at all times. 265. 2015. For the Superintendent of Banks was an officer of the CB. the CB had advanced funds. if it was intended that the promise should be relied upon and in fact it was relied upon. the voting trust agreement that was finally executed (Annex "A"). and that the Superintendent of Banks as .. Even in the absence of contract. normalize and stabilize a distressed bank.. in a manner similar to what the CB had previously done with the Republic Bank (Portion.. in consideration of the execution of the voting trust agreement by the petitioner stockholders of OBM. and attempted to turn back the shares covered .. 28 Am. and (b) mortgage or assign their properties to the Central Bank to cover the overdraft balance of OBM. Bearing in mind that the communications. and the well-known rule that ambiguities therein are to be construed against the party that caused them. 157)." Petition). the CB had agreed to announce its readiness to support the new management "in order to allay the fears of depositors and creditors. The petitioners having complied with these conditions and parted with value to the profit of the CB (which thus acquired additional security for its own advances). While no express terms in the documents refer to the provision of funds by CB for the purpose. Jur.) Disingenuously. the CB gave notice that it would not extend or renew the voting trust. that: . The doctrine of "promissory estoppel" is by no means new. Annex "A. and which was admittedly prepared by the Legal Counsel of the Central Bank. Not only that. Ed. Jur. But as already pointed out this proposition is unacceptable since the trust could have no private interest in the matters. in August. that when the Republic Bank previously became distressed.. the chief of its Department of Supervision and Examination of all banking institutions operating in the country. depositors and other creditors. in an instrument similar to the one executed by stockholders of the Republic Bank in favor of the Philippine National Bank (Petition. The broad general rule to the effect that a promise to do or not to do something in the future does not work an estoppel must be qualified. Mere omission by the promisee to do whatever the promisor promised to do has been held insufficient "forbearance" to give rise to a promissory estoppel. and of the mortgage or assignment of their personal properties to the CB (Res." had been prepared by the CB. and if a refusal to enforce it would be virtually to sanction the perpetration of fraud or would result in other injustice. 656-657. and avoid its liquidation if the petitioners would execute (a) the Voting Trust Agreement turning over the management of OBM to the CB or its nominees. for it is well-known. although the name has been adopted only in comparatively recent years. as a measure to stave off liquidation. . on 30 October 1967. the CB pleaded that the Voting Trust agreement was binding only upon the trustee. According to that doctrine. 16 October 1967. and to stave off liquidation" by providing adequate funds for "the rehabilitation. Accordingly." ante). normalization and stabilization of the Overseas Bank of Manila. the CB governor once more wrote to Ramos that the Monetary Board — decided that. the CB may not now renege on its representations and liquidate the OBM. Jur.to enable it to reorganize and transfer management to a nominee of the Monetary Board. cit. pursuant to Section 25 of the CB charter. to rehabilitate it and allow it to resume operating. for in no other way could it rehabilitate. his commitments were undeniably those of the Central Bank itself. since there are numerous cases in which an estoppel has been predicated on promises or assurances as to future conduct. 1970. the above named stockholders of the Overseas Bank of Manila believe that it is for and/or interest and benefit of the bank depositors." Two weeks later. 11 the record becomes clear that. and it is not credible that he should have understand that he was entering into the trust agreement in his personal capacity. Note. normalization and stabilization" of the OBM. Annexes "B" and "G. to the detriment of its stockholders." as well as the voting trust agreement. under the rule of promissory estoppel (19 Am. and stockholders. Trustee has likewise signified his willingness to accept such trust in pursuance of the objectivesabove mentioned. recited in its preamble as an objective of the voting trust agreement. after a conference at Malacañang. an estoppel may arise from the making of a promise. creditors. pages 657-658. (19 Am. and it is not denied. loc. No. Republic Act No.. (Emphasis supplied) While the trust agreement on its face creates obligations only for the Superintendent of Banks as trustee. that this trust agreement should be entered into by them for the rehabilitation.

dated 22 July 1968 (Petitioner's Reply Memorandum. How did the CB subsequently treat its commitments? After execution of the Voting Trust Agreement. Last July 10. the Philippine National Bank and the Development Bank of the Philippines. P10 million will not save the Bank. On January 16." Record. properly used. we have used that advantage to full extent: the advantage has faded. however. (5) Any other strings that may be attached. the CB elected and installed new directors and officers drafted from the Central Bank itself. and repudiating its original disclaimer thereof. (3) What is the rate of interest to be charged on the fresh advances. (4) What are the conditions to be meted out regarding leeway and operations of TOBM. the original of which is in your possession. we wrote the Superintendent of Banks complying with his request to render a projection of what we can do with P10 million. (1) What is the real policy of the Central Bank regarding the future of TOBM. BACKGROUND We are faced with both internal and external problems that are daily increasing in difficulty. on 20 November 1967. If we are requested to make a projection which we believe is a reasonable request. .by it to the petitioners. Even under the most liberal conditions that we can imagine. 1967. pages 526-527). would have staved off panic and restored some confidence. Nevertheless. (6) What is the policy of Central Banking regarding unrecorded time deposits. the present management should be made privy to the following: A selected PNB team formally took over the management of the Overseas Bank of Manila on December 7. Orosa as bank president. On 6 January 1968. not aware whether this proposed P10 million will be the start of a series of advances nor as to how much ultimately the Central Bank will be willing to finance the rehabilitation. There is a great leeway with what we can do with P10 million depending on the conditions which will accompany its grant. The new team assumed the management and control of the OBM and elected Augusto E. The entrance of the PNB team actually was a great initial psychological advantage. How this request for aid was treated appears in a memorandum to the new CB governor. We are. we recommended that the balance of the unpaid capital stock of P11 million be fully paid and P20 million be advanced by the Central Bank to enable the Bank to resume normal operations. 1968. All these points will greatly affect any projection. we gathered from the books of account that the Bank faced obligations to be immediately met amounting to about P30 million as against liquid assets of more than P12 million or an immediate cash requirement of about P17 million. Orosa stated: MEMORANDUM TO: Governor Alfonso Calalang SUBJECT: POSITION PAPER OF THE OVERSEAS BANK OF MANILA PRESENT POSITION Eight months of indecision has made depositors lose faith and as a result. 1968 we completed a report on the financial standing of the Bank. Mr. We are made to understand that an advance of P19 million has been approved for the Bank and that an initial release of P10 million is under study. thereby recognizing the obligations under the agreement as its own. (2) What is the policy of the Central Bank regarding present rates of interest and penalties on prevailing deficiencies. the new management requested for a thirty million peso loan to enable the OBM to get on its feet. Annex "X. our feeling was that at that time the aid we are recommending. we are faced with more court suits and withdrawals than ever before and more obligations have matured. In that report. and this is a very important point. At that time.

The Supreme Court expounded the import of these legal provisions in Abelarde vs. The deception practiced by the Central Bank. Proceedings upon insolvency. No.e. the CB disregarded its representations and promises to rehabilitate and normalize the financial condition of OBM. without taking positive steps to normalize OBM as it had agreed to do. the CB was holding petitioners' mortgages on their private properties worth at least P67 million in 1967 by the CB's own appraisal. according to their nature. for almost six months. And all the while CB knew that the situation of the OBM was deteriorating daily. It is obvious from this memorandum that far from heeding the request of its own team for an advance of P30 million (or P17 million in cash) to enable the OBM to resume normal operations. to inform the Monetary Board of the facts. it shall. Martin Oliva. or notifying petitioners that it desired to rescind its contract. That the PNB management team be withdrawn from TOBM. and other irregularities. And yet all this while. one third of the requirements estimated necessary by its own representatives). 12 In fact. and the Board. upon order of the Monetary Board and under the supervision of the The CB excuses itself by pleading that the OBM officers had resorted to non-recording of time deposits in the Bank's books and diverting such deposits to accounting controlled by certain bank officials. providing that — We are constrained to agree with petitioners that the conduct of the CB from and after January. upright and straightforward observance of plighted undertakings. upon finding the statements of the Superintendent to be true. CB authorized (and virtually directed) its nominee Board of Directors to suspend operations (Resol. 29. 1968. On 30 July 1968. it excluded the OBM from clearing with the CB (Resol. much less rehabilitate. not only on petitioners but on its own management team. however. the CB directed its Superintendent of Banks to proceed to liquidate OBM (Resol. considering the continual rise in real estate values. 1315.REQUEST: court and with all convenient speed. 1333) under Section 29 of Republic Act No. ART. it shall be disclosed that the condition of the same is one of insolvency. usage and law. 265 (Central Bank Charter). by the Solicitor General. on 29 September 1967. upon examination by the Superintendent or his examiners or agents into the condition of any banking institution. reveals a calculated attempt to evade rehabilitating OBM despite its promises. (Emphasis supplied) SEC. . who had no hand in such irregularities and who informed the Superintendent of Banks that time deposits worth P43. thereby gaining for it what amounts to an illegal preference. without even offering to discharge the mortgages. given by petitioners in consideration for its promises. and which apparently CB never intended to give. nor even announcing its support of its own management team or disclosing its policy regarding the future of OBM.29 had not been carried in the books and had not been reported to the OBM directors. What is more aggravating is that by the ordered liquidation. 344. Obligations arising from contracts have the force of law between the contracting parties andshould be complied with in good faith. in writing. (the CB finally adopted the resolutions now attacked by herein petitioner stockholders. To cap it all. or that its continuance in business would involve probable loss to its depositors or creditors. Petitioners claimed they were worth P100 million which can not be very far from the truth. This amount was naturally considered insufficient to normalize. was in violation of Articles 1159 and 1315 of the Civil Code of the Philippines: ART. stating: If the Monetary Board shall determine that the banking institution cannot resume business with safety to its creditors. On 1 August 1968. and thirteen days thereafter (13 August 1968). — Whenever. Mr. the OBM.009. Lopez. 1290). Not content with procrastinating for 6 months. CB advised that only P10 million were to be made available (i. 74 Phil. shall forthwith forbid the institution to do business in the Philippines and shall take charge of its assets and proceeds according to law. No. may be in keeping with good faith. the CB had already ordered its examiners to investigate the Bank's records and determine the parties Cleverness should never take the place of the loyal.188.. convert the assets of the banking institution to money. and kept even its own management team largely in the dark as to what to expect. file a petition in the Court of First Instance reciting the proceedings which have been taken and praying the assistance and supervision of the court in the liquidation of the affairs of the same. Contracts are perfected by mere consent. it shall be the duty of the Superintendent forthwith. or bringing action in court for the purpose. It is well to note. that these "unrecorded" deposits were revealed to the CB as early as 25 September 1967 by the then President of the OBM. as it had previously done with the Republic Bank. 0n 14 June. The Superintendent shall thereafter. depositors and other creditors would have to share in the assets of the OBM. with penalties at 3% per month continually accumulating. No. while the CB's own credits for advances were secured by the new mortgages it had obtained from the petitioners. 1263) the contingency that the Voting Trust and the mortgage of the petitioners' private properties were to guard against. 1159. depositors and stockholders awaited the promised aid that never came. while its creditors. 348. and from that moment the parties are bound not only to the fulfillment of what has been expressly stipulated but also to all the consequences which. the Central Bank did nothing to support the OBM between 6 January to 14 June.

1290 and 1333 should be annulled and set aside for having been adopted in abuse of discretion. The respondent CB cites American cases to the effect that the courts can not interfere with CB's discretion in determining whether or not a distressed bank should be supported or liquidated. it would be erroneous to assume that such capital would have to reach P130 million. Kalalo. and are not a lawful excuse for its refusal to comply with its commitments. in justice and equity. 16 This amount tallies with Mr. if error it be. And never having attempted to comply. Such period should. the CB did not withdraw its promised support. G. however.334 million in order to break even in its operations" was estimated by the Superintendent of Banks at no more than P40. after six months of inaction on the part of the CB. Resty R. Both petitioner and private respondent accepted the synthesized factual backdrop formulated by respondent court. with its commitments and promises. there are included a total of P16. More concretely. JJ) barring petitioner from foreclosing the subject realty on account of prescription. 17 There is no showing that these amounts were beyond the capacity of CB to make. Costs against respondent Central Bank of the Philippines. respondents. Respondent CB likewise urges in its defense that the rehabilitation of the OBM has become impossible. Batiller. does it appear that the CB engaged to support the distressed bank in exchange for control of its management and additional mortgages in its favor. Discretion has its limits and has never been held to include arbitrariness.R. being contrary thereto. No. In none of the cases cited. 13 Notwithstanding knowledge of these irregularities. and further. 1968. the ten million increase in advance capital requirements between January and July of 1968 can not be blamed on the petitioners herein. in the computations by the CB examiners. CB Resolutions Nos. Augusto Orosa (the President of OBM elected by the CB nominees under the Voting Trust) that the Bank's loanable funds had to be expanded to P136 million to break even. Consequently. J. Furthermore. vs. Finally. For had the CB furnished the original aid of 30 million asked by the Orosa team early in January. of respondent Court of Appeals which petitioner seeks to rectify via the petitioner forcertiorari before us refers to respondent court's major conclusion arrived at in CA-G. the writs prayed for in the petition are hereby granted. to wit: . Such attitude imports that. and ordering liquidation of said bank) are hereby annulled and set aside. WHEREFORE.R. the respondent CB is duty bound to comply in good faith with such promises. therefore. for reasons of its own. the restored confidence would have stimulated new deposits. or that it would have to be advanced all at once. 1968 would have saved OBM. 1993 PROVIDENT SAVINGS BANK. refused to disclose the latter amounts despite requests from the court). the respondent CB is precluded to invoke the expiration of the period specified for the duration of its obligations under the Voting Trust Agreement. without positive action on its part to comply with its previous commitments. 97218 May 17. It thus becomes apparent that most of the difficulties invoked now by the CB are of its own making. while the stabilization of the OBM required injections of capital. Dayrit. the irregularities disclosed were not to be blamed on the OBM itself or its depositors and creditors. and the OBM allowed to resume operations with CB support. the actual amount needed to be loaned to the OBM for capital requirements "to support the necessary expansion in risk assets of P126. Former SPECIAL EIGHTH DIVISION and WILSON CHUA. in its opinion. which was required by CB's duty to maintain the stability of the banking system and the preservation of public confidence in it. 21312 (Javellana (P).730 million. promises and representations in good faith. and to desist from taking action in violation thereof. 14 It is to be borne in mind. but on the officials responsible. MELO. and respondent Central Bank's resolutions Nos. CV No. 1263. be deemed to start running from and after the CB begins due performance of its commitments. COURT OF APPEALS. however. discrimination or bad faith. and. 1968. Villanueva for private respondent. Certainly. even in July. that these reports were made in July.994 million for estimatedlosses. and said respondent Central Bank of the Philippines is directed to comply with it obligations under the Voting Trust Agreement. Orosa's estimate that an advance of P30 million in January. as is well-known. and was not of their own making.responsible. interests and penalties 15 that did not represent amounts to be disbursed. equivalent to excess of jurisdiction. 1968. and insisted on the execution of the Voting Trust Agreement on 20 November 1967. 1263. We conclude that having induced the petitioners to part with additional security in reliance upon its (CB's) promises and commitments to avert liquidation and to support. petitioner. that the OBM could still be saved by adequate aid and management reform. the authorities cited are not in point. and points out to the reports of the Superintendent of Banks and of Mr. become in turn a source of loanable funds. normalize and rehabilitate the OBM.: The error. 18 nor is it proved that they exceeded the amounts supplied for the rehabilitation of the Republic Bank (the CB. which. after six months of CB dilly-dallying. insisting that the period during which it was placed under receivership by the Central Bank is akin to a caso fortuito and should not thus be reckoned against it. Petitioner begs to differ. A. Bilog & Associates for petitioner. nor even to begin compliance. Gonzales. 1290 and 1333 (that prohibit the Overseas Bank of Manila to participate in clearing. direct the suspension of its operations.

(Exh. Guarin in the amount of P591.00 payable on or before 20 June 1967.. and requesting for defendant-appellant's conformity to the assignment and expressing his willingness to pay for the obligation of Mr. and the other was the account of L. as well and defendant-appellant's letter to Mr. The established fact are: On 16 February 1967. Lorenzo K. plaintiff-appellant wrote defendant-appellant saying that the mortgaged property of the Guarins had been offered to him as payment of the judgment he obtained against the Guarins in Civil Case No. plaintiff-appellant informed defendantappellant that as a result of the judgment in Civil Case No. Guarin wrote defendantappellant stating that he was ready and willing to pay his obligation in the total amount of P591. but that the mortgaged title could not be released to him even after the payment of the obligation of P591.. Guarin (Guarins) obtained a loan from defendantappellant in the amount of P62. the Guarins and plaintiff-appellant executed a Deed of Absolute Sale With Assumption of Mortgaged whereby the Guarins sold the mortgaged property to Guarins sold the appellant for the sum of P250.088. as evidenced by the Deed of Sale enclosed for guidance and information of defendant-appellant. informed plaintiffappellant that his request could be granted if he would settle the obligation of L. on 11 August 1986. "Wilson Chua vs. 5) In reply. Guarin may make payment at its office in Makati. On 10 February 1986. (3) pay plaintiffappellant P20. 177014. 2) Defendant-appellant replied on 27 February 1986 that Lorenzo K. which directed plaintiff-appellant to pay defendant-appellant the personal obligation of the spouses Guarin to defendant-appellant in the amount of P62. (Exh. otherwise. C and D).This an appeal by both plaintiff and defendant from the decision of the Regional Trial Court of the National Capital Judicial 29 September 1988. Q47645. (Exhs.(Exh.500.088..27 (Attachment to Exh. Guarin in his personal capacity and as president of the corporation. Metro Manila. 1). 4) On 10 July 1986. 6) On 3 August 1987. the mortgaged property had been sold to him by the Guarins. (4) pay the costs of suit.80. in Civil Case No. Guarin".80. and. penalties. (2) return to surrender to plaintiff-appellant. One was account of Lorenzo K. and bank charges due thereon.088. the latter's Owner's Duplicate of Title No. Inc. 2) On 26 February 1986. counsel for plaintiff-appellant addressed a letter to defendant-appellant informing that plaintiff-appellant had purchased the mortgaged property from the Guarin's and requesting that the owner's copy of TCT No.K. (Exh. In September. to defendant-appellant which was undertaken by Lorenzo K. Guarin Manufacturing Co. Guarin Manufacturing Co. He requested that he be allowed to pay the loan secured by the mortgaged. B).00 and plaintiff-appellant undertook to assume the mortgaged obligation of the Guarins with defendant-appellant which as of 15 February 1985 amounted to P591.80 as it also served as security for the indebtedness of L. Guarin in favor of defendant bank on 16 February 1967. 3) On 20 May 1986. Inc. together with the interest. Guarin.000. assured he and his wife had every intention of paying their obligation and requesting for a recomputation of their account and a postponement of the foreclosure sale.80 as recomputed by defendant-appellant whenever defendant-appellant was already to receive the payment and inquiring as to when his mortgaged title would be available for him to pick up.000. Guarin Manufacturing Co. Lorenzo K. Inc.00. 177014. Q-47465 entitled. Guarin dated 27 February 1986. (Exh. the Guarins received a Statement of Account from defendant-appellant showing two outstanding accounts as of 15 February 1986.00 as and for attorney's fees. and ordering defendant-appellant thereafter to: (1) release the real estate mortgage executed by the spouses Lorenzo K. As security for the loan. (Exh. defendant-appellant was placed under receivership by the Central Bank of the Philippines until 27 July 1981 when the receivership was set aside by the Honorable Supreme Court. On 11 December 1984..Y. they executed a real estate mortgage in favor of defendant-appellant over a parcel of land covered by TCT No. 1972. 177014 in the possession of defendant-appellant be released to him so that he can register the sale and have the title to the property transferred . in reply to the letter of latter's counsel informing that the mortgaged property would be sold at public auction on 27 December 1984.. he would be constrained to bring the matter to court. Guarin and Liwayway J.088. Guarin and Liwayway J. in the amount of P6. (Exh. On 5 August 1986. Lorenzo K.380. the spouses Lorenzo K.K. Guarin so that the title could be released by defendant-appellant. defendant-appellant. 977-NW.287. as successor-in-interest of the spouses Guarin.500.

125) that the appointment of a receiver does not dissolve the corporation nor does it interfere with the exercise of its corporate rights. (Exh. respondent court reversed the decision of the trial court insofar as it ordered Wilson Chua to pay the sum of P591.) Concerning the challenge posed by Provident Saving Bank against the personality of Wilson Chua to initiate the action to compel the release of the real estate mortgage and the delivery of the owner's duplicate copy of the certificate of title. the latter's owner's duplicate of TCT No. But respondent court was unperturbed. . 35-37. But this principles is. As a result of these observations. as mortgagee. Rollo. applicable to a situation where there is no restraint imposed on the corporation. as successor-in-interest of the Guarins. posterior to the change of obligors. Respondent court did not also heed the suggestion of the petitioner bank to interpret Wilson Chua's assumption of the mortgage on July 10. the bank filed a motion for reconsideration and a motion for new trial premised on newly discovered evidence relative to a statement of account unearthed by the bank's liaison officer from the loose folders on October 18. 1972 from transacting business until this Court affirmed on July 27. respondent court noted that Wilson Chua can be considered a real-property-in-interest because he is the successor-in-interest of the Guarins who is naturally entitled to the realty as against the so-called right of Provident Savings Bank. Following the unfavorable judgment. said respondent court. the petitioner at bar. and June 20. informed defendant-appellant that it had lost whatever right or action had against the Guarins because of prescription.80 to the bank and affirmed the other dispositions made the court of origin (p. respondent court gave a negative response on account of the absence of proof to indicate that the bank was precluded from collecting indebtedness while it was under receivership from September. 1972 through Monetary Board Resolution No. petitioner is vested with the usual attributes and powers of a corporation under Section 36 of the Corporation Code (Vitug. p. 1972 until July 20.. the date the mortgage matured. the term was construed by Justice Laurel to refer to: . 475). Thus. Inc. so speak. Mangaliman. The prerogative of a bank to foreclose is implicit from and is even necessary to enforce collection of secured debts under Section . during the period when it was enjoined by the Central Bank on September 15. vs. 1990 ed. The question which immediately crops up is whether a foreclose proceeding falls within the purview of the phrase "doing business". 45. which intervened between June 20. Philippine Law Dictionary. 177014. Court of First Instance of Manila (51 Phil. . 1977 the last day within which petitioner could have foreclosed the mortgage. and attorney's fees of P50.) Withal. et al. Hence. vs.00 as actual and/or consequential damages. there was no legal interruption of the prescriptive period to speak of.750. of course.088.in his name. Pandect of Commercial Law and Jurisprudence. . Rollo). Consistent with its theory premised on fuerza major. Commentaries and Jurisprudence on the Philippine Commercial Laws. a continuity of commercial dealings and arrangements. . and contemplates to that extent. (p. which act was construed as equivalent to consent. . observing that the vital piece of document could have been located in the course of trial had the slightest degree of prudence been exercised. p. 549 [1928].. moral damages as may be proved during the trial. Second ed. 524 [1941]. emphasis supplied. exemplary damages as may be reasonably assessed by the court. p.000. 1967. 1766 until 1981 when the decision in Central Bank vs. To the question of whether petitioner can still foreclose the subject realty. The matter of novation in the form of substitution of the debtor without corresponding acquiesence of the mortgagee was viewed by respondent court to be legally inconsequential due to the demeanor of the mortgagee-bank in requiring Wilson Chua to pay the indebtedness of Lorenzo Guarin. We are not unaware of the rule laid down in Teal Motor Co. 42. we believe that a foreclose is deemed embraced by the phrase "doing business" as a preparatory measure to acquiring or holding property for petitioner as a saving bank under Section 34 of the General Banking Act. the exercise of some of the words or the normally incident to. Court of Appeals (supra. (Exh. 528. petitioner insists that it can not be blamed for not lifting a finger. Martin.1981 the decision of the Court of Appeals annulling the proscription against petitioner in Central Bank vs. (pp. 1990 which it believed to be of legal significance to the case.. Like any other banking institution. F) On 21 August 1986. and (3) pay plaintiffappellant P2. considering that the statement of account sprouted the same day the liaison officer was advised to take an inventory of the records ( p.. judgment was rendered as stated in the opening paragraph hereof from which both parties appealed . 1986 Revised ed. Moreno. the purpose ands object of its organizations. (2) return or surrender to plaintiffappellant. 186).1981. 1972. In Mentholatum Co. After trial. Rollo).00. to foreclose the mortgage which had become stale through sheer lapse of time. He likewise. at p. unlike in the case at bar where petitioner Provident Savings Bank was specifically forbidden and immobilized from doing business in the Philippines on September 15. E) Defendant-appellant replied on 10 August 1987 stating the reasons why they could not comply with plaintiffappellant's demands. plaintiff-appellant filed a complaint against defendant-appellant to compel the latter to: (1) release the real estate mortgaged executed by the Guarins in favor of defendantappellant on 16 February 1967. et al. and in progressive prosecution of. 1986 as tantamount to an explicit acknowledgement that the obligation was outstanding and had not yet prescribed. 150) was rendered.00. Defendant-appellant answered the complaint thereof and setting up special and affirmative defenses. Court of Appeals (106 SCRA 143 [1981]. (72 Phil..

it will be entirely a new one. WHEREFORE. Comment. the receiver is liable to the bank for culpable or negligent failure to collect the assets of such bank and to safeguard said assets. DOMINIC ABAD. This concept should not be equated with suspension where the past period is included in the computation being added to the period after prescription is resumed (4 Tolentino. Sabina Abad. Cecilia Abad. for the value of 20 Golden Time Deposits belonging to respondents Jose Abad. When prescription is interrupted.889. the receiver of the bank is obliged to collect debts owing to the bank. THE HONORABLE COURT OF APPEALS and JOSE ABAD. all the benefits acquired so far from the possession cease and when prescription starts anew. or failure to act. respondents.36(11) and 45 of the Corporation Code. The consent of the petitioner to the substitution... 99 [1909]. 4 Tolentino. the evidence at hand does not buttress a finding along this line from the mere fact that petitioner supposedly did not question the substitution when the bank reacted to private respondent's offer to pay the loan (p. and Teodora Abad at the Manila Banking Corporation (MBC). 1987. Branch 30. was not served on MBC until Tuesday the following week. And this piece of document necessarily estops private respondent from setting up prescription vis-a-vis his unfounded supposition that acknowledgment of the debt is of no moment because the right of the petitioner to foreclose had long prescribed in 1977 (p.. 1987. It would follow that the bank is bound by the acts. or on May 26. Having arrived at the conclusion that the foreclosure is part of bank's business activity which could not have been pursued by the receiver then because of the circumstances discussed in the Central Bank case. At the same time. Bidin. was thus erroneously appreciated. Indeed. When a bank is prohibited to do business by the Central Bank and a receiver is appointed for such bank.[3] . petitioner. Petition. 1997. 1986 that private respondent be allowed to pay the loan secured by the mortgage as the result of the Deed of Sale executed by the Guarins in his favor on July 10. the Court simply rejected the objections of certain creditors to the report of a receiver. that bank would not be able to do new business. the period of ten years within which to foreclose under Article 1142 of the New Civil Code began to run again and.[1] On May 22. What exacerbates the situation is the letter of private respondent requesting petitioner on August 6. TEODORA ABAD. 1991 of respondent court are hereby set aside and another one entered dismissing Wilson Chua's complaint. as statutory insurer. finding petitioner Philippine Deposit Insurance Corporation (PDIC) liable. a Friday. JOSEPHINE JOSIE BEATA ABAD-ORLINA. and Romero. DECISION CARPIO-MORALES. Feliciano. The decision dated August 31. J. 204 [1939]. however. However.115. 1986 (pp. 19 and 58. PHILIPPINE DEPOSIT INSURANCE CORPORATION. 50). we need not discuss the other issues raised in the petition. until the directive of the board was nullified in 1981. we are thus convinced that the prescriptive period was legally interrupted by fuerza mayor in 1972 on account on the prohibition imposed by the Monetary Board against petitioner from transacting business. Rama. concurs in the result. 39. of the receiver. Davide. CECILIA ABAD. Contrary to respondent court's prescription of the existence of novation. 7. vs. 1986 to compel petitioner to release the mortgage carried with it the mistaken notion that petitioner's own suit foreclosure had prescribed. 36-37. What seems to have escaped respondent court's attention was the condition imposed by the petitioner that it will grant private respondent's request if the latter will also shoulder the obligation incurred by Lorenzo Guarin in his capacity as president of the corporation (p. issued Resolution 505[2] prohibiting MBC to do business in the Philippines. the period during which the obligee was prevented by a caso fortuito from enforcing his right is not reckoned against him (Article 1154. PIO ABAD. J. concur. supra at p. New Civil Code. This is not to ignore The Philippine Trust Co. this written communication is synonymous to an express acknowledgment of the obligation and had the effect of interrupting the prescription for the second time (Article 1155. when the designated Receiver took over. and take steps to prevent dissipation of such assets.37. p. Prior to May 22. Dominic Abad. 71 certificates of time deposits denominated as Golden Time Deposits (GTD) with an aggregate face value of P1. and in connection therewith.. Rollo). and placing its assets and affairs under receivership. 1990. The receiver must assemble the assets and pay the obligation of the bank under receivership. now Bangko Sentral ng Pilipinas. New Civil Code).. for in that case. In point of law. therefore. pp. i. The Resolution. 1990 ed. in conjunction with Section 29 of the General Banking Act (6 Fletcher. the Monetary Board (MB) of the Central Bank of the Philippines. Pio Abad. the the receiver of the bank is obliged to collect pre-existing debts due to the bank. SABINA ABAD. Agbayani. Commentaries and Jurisprudence on the Civil Code of the Philippines. the action filed on August 21. 206.: The present petition for review assails the decision of the Court of Appeals affirming that of the Regional Trial Court of Iloilo City. LEONOR ABAD. when the closure of was set aside in 1981. vs. Commentaries and Jurisprudence on the Commercial Laws of the Philippines. Rollo). 14 Phil. Rollo). 18-19). Jr. to grant new loans or to accept new deposits.. Accordingly. respondents had. individually or jointly with each other. 13. Iloilo Branch. No special pronouncement is made to costs. as creditor. objections that the receiver did not report the collection made before the beginning of his receivership. p. 325). With the conclusions reached.e. that is. the petition is hereby GRANTED. HSBC (67 Phil. which debts form part of the assets of the bank. Rollo). 1991 ed. Osmeña vs. Leonor Abad.96. JJ. pp. Josephine Josie Beata Abad-Orlina. to foreclose mortgages securing debts. Consequently. including the resolution dated February 6.

judgment is hereby rendered: 5. . withheld payment of the 17 remaining claims after Washington Solidum.[10] In their Answer filed on October 24. and xxx On May 25.[8]The pertinent portions of the report stated: 1.[9] xxx Because of the report. SO ORDERED. . In its supplement to the petition. as amended.000. it filed a petition for declaratory relief against respondents with the Regional Trial Court (RTC) of Iloilo City.m. hence. 1991 and Amended Answer [11] filed on January 9. the other 8 having been paid already by TMBC-Iloilo on May 25. should there be any. 3591. PDIC paid respondents the value of 3 claims in the total amount of P120. the Iloilo Branch was found to have recorded an unusually heavy movements in terms of volume and amount for all types of deposits and trust accounts. respondent Jose Abad was at the MBC at 9:00 a. by the assailed Decision of October 21. 3. 1992. . AS AMENDED. Ordering PDIC to pay legal interest on the remaining insured deposits of the Abads from February 11.A. On appeal. PDIC adds the following assignment of error: THE HONORABLE COURT OF APPEALS ERRED IN AFFIRMING THE HOLDING OF THE TRIAL COURT ORDERING PETITIONER TO PAY RESPONDENTS CLAIMS FOR PAYMENT OF INSURED DEPOSITS FOR THE REASON THAT AN ACTION FOR DECLARATORY RELIEF DOES NOT ESSENTIALLY ENTAIL AN EXECUTORY PROCESS AS THE ONLY RELIEF THAT SHOULD HAVE BEEN GRANTED BY THE TRIAL COURT IS A DECLARATION OF THE RIGHTS AND DUTIES OF PETITIONER UNDER R. . 1987. Declaring PDIC. It accordingly disposed as follows: WHEREFORE.000.[5] Respondents thereafter filed their claims with the PDIC for the payment of the remaining 20 insured GTDs. subject to liquidation when this case shall have been finally decide. Thus.A.000. 1987 as deposits or deposit liabilities of the bank as the term is defined under Section 3 (f) of R. on August 30. the Court of Appeals.00. 1988. 1994. . 3591. affirmed the trial courts decision except as to the award of legal interest which it deleted. No. [14] Hence. submitted a report to the PDIC[7] that there was massive conversion and substitution of trust and deposit accounts on May 25. PDIC. 1991. for a judicial declaration determination of the insurability of respondents GTDs at MBC-Iloilo. 4. 1987 (Monday) or a day prior to the official announcement and take-over by CB of the assets and liabilities of The Manila Banking Corporation. 1988. Declaring the 28 GTDs of the Abads which were issued by the TMBC-Iloilo on May 25. the next banking day following the issuance of the MB Resolution. The intention was to maximize the availment of PDIC coverage limited to P40. xxx .On May 25. 1988 until they are fully paid. PDICs present Petition for Review which sets forth this lone assignment of error: THE HONORABLE COURT OF APPEALS ERRED IN AFFIRMING THE HOLDING OF THE TRIAL COURT THAT THE AMOUNT REPRESENTED IN THE FACES OF THE SO CALLED GOLDEN TIME DEPOSITS WERE INSURED DEPOSITS EVEN AS THEY WERE MERE DERIVATIVES OF RESPONDENTS PREVIOUS ACCOUNT BALANCES WHICH WERE PRE-TERMINATED/TERMINATED AT THE TIME THE MANILA BANKING CORPORATION WAS ALREADY IN SERIOUS FINANCIAL DISTRESS. 2.[12] In its Decision of February 22. 1992.000 by spreading out big accounts to as many certificates under various nominees. for the purpose of pre-terminating the 71 aforementioned GTDs and re-depositing the fund represented thereby into 28 new GTDs in denominations of P40. are liabilities of PDIC as statutory insurer. Deputy Receiver of MBC-Iloilo. and the amounts it may have paid the Abads pursuant to the Order of this Court dated September 8. 1992. premises considered. . respondents set up a counterclaim against PDIC whereby they asked for payment of their insured deposits. Jose Abad pre-terminated 8 and withdrew the value thereof in the total amount of P320.[4] Of the 28 new GTDs. liable to the Abads for the value of the remaining 20 GTDs. 1987 at MBC-Iloilo.00 or less under the names of herein respondents individually or jointly with each other. Ordering PDIC to pay the Abads the value of said 20 GTDs less the value of 3 GTDs it paid on February 11.[6] On February 11. . Ordering PDIC to pay immediately the Abads the balance of its admitted liability as contained in the aforesaid Order of September 8. 1996. PDIC entertained serious reservation in recognizing respondents GTDs as deposit liabilities of MBC-Iloilo.00. PARTICULARLY SECTION 3(F) THEREOF AS CONSIDERED AGAINST THE SURROUNDING CIRCUMSTANCES OF THE MATTER IN ISSUE SOUGHT TO BE CONSTRUED WITHOUT PREJUDICE TO OTHER MATTERS . [13] Branch 30 of the Iloilo RTC declared the 20 GTDs of respondents to be deposit liabilities of MBC. however. It appears that the impending receivership of TMBC was somehow already known to many depositors on account of the massive withdrawals paid on this day which practically wiped out the branchs entire cash position. 1987. being the statutory insurer of bank deposits. .

therefore. it cannot be made liable for deposits subject thereof. [26] Petitioner additionally submits that the issue of determining the amount of deposit insurance due respondents was never tried on the merits since the trial dwelt only on the determination of the viability or validity of the deposits and no evidence on record sustains the holding that the amount of deposit due respondents had been finally determined. Petitioner concludes that since no cash was given by respondents and none was received by MBC when the new GTDs were transacted. MBC and its clients could be given the benefit of the doubt that they were not aware that the MB resolution had been passed. it had only P2. 1987. [18] Hence. In its second assignment of error. they were not validly transacted in the usual course of business and no liability for deposit insurance was created.g.841. 1987. Stated otherwise.THAT NEED TO BE CONSIDERED BY PETITIONER IN THE PROCESSING OF RESPONDENTS CLAIMS. petitioner faults respondents for availing of the statutory limits of the PDIC law.90 cash on hand more than double the outstanding balance of respondents 71 GTDs at the start of the banking day on May 25. presupposing that. when the 20 GTDs were made. For the outstanding balance of respondents 71 GTDs in MBC prior to May 26.115. at the start of banking operations on March 25. which is generally governed by Rules 1 to 56 of the Rules of Court. 1987 bank transactions were so massive.15 as earlier mentioned was re-deposited by respondents under 28 new GTDs.711. and disillusionment will run the gamut of the entire banking community. The MB resolution could not thus have nullified respondents transactions which occurred prior to May 26. irregular.841.[16] Being of the firm conviction that. he and his co-respondents somehow knew of the impending closure . of that day. all transactions subsequent to such date were not done in the usual course of business. 1987. MBC had P2. it cannot be raised for the first time in the petition at bar.[28] Finally. 1987..90 cash on hand and at the end of the day it was left with P27. 1987 [22] in the amount of P1. petitioner continues.[25] Now. A special civil action is after all not essentially different from an ordinary civil action. (Underlining supplied). due process does not necessarily require a prior hearing. therefore. Petitioner further posits that there was no consideration for the 20 GTDs subject of respondents claim. a petition for declaratory relief does not essentially entail an executory process. While the MB issued Resolution 505 on May 22. except that the former deals with a special subject matter which makes necessary some special regulation.[20] The evident implication of the law.m.81 consisting mostly of mutilated bills and coins. hence. resulting in panic and hysteria.711.[24] Without doubt. Admittedly. 1987. As such. even if respondents had wanted to convert the face amounts of the GTDs to cash. petitioner posits that the trial court erred in ordering it to pay the balance of the deposit insurance to respondents. Petitioner theorizes that after MBC had exhausted its cash and could no longer sustain further withdrawal transactions. however. thus.889.[23]this Court finds that the 28 new GTDs were deposited in the usual course of business of MBC.[15] PDIC (hereafter petitioner) is liable only for deposits received by a bank in the usual course of business. based on the conduct of respondent Jose Abad on March 25. is that the appointment of a receiver may be made by the Monetary Board without notice and hearing but its action is subject to judicial inquiry to insure the protection of the banking institution. Petitioner points that as MBC was prohibited from doing further business by MB Resolution 505 as of May 22. MBC had been experiencing liquidity problems. that prohibits a counterclaim from being set-up in the same action. 1987. MBC could not have complied with it. petitioner essentially seeks a judicial declaration that such transactions were not made in the usual course of business and. Under its charter. 1987. Since respondent Jose Abad was at MBC soon after it opened at 9:00 a. In support of this submission. deed or contract subject of the complaint. But the identity between their fundamental nature is such that the same rules governing ordinary civil suits may and do apply to special civil actions if not inconsistent with or if they may serve to supplement the provisions of the peculiar rules governing special civil actions. and the only relief that should have been granted by the trial court is a declaration of the parties rights and duties. it instead issued new GTDs as payment for the pre-terminated GTDs of respondents to make sure that all the newly-issued GTDs have face amounts which are within the statutory coverage of deposit insurance.[19] Petitioners position does not persuade. One can just imagine the dire consequences of a prior hearing: bank runs would be the order of the day. a copy thereof was served on MBC only on May 26. maintaining that the instant petition stemmed from a petition for declaratory relief which does not essentially entail an executory process. a hearing or an opportunity to be heard may be subsequent to the closure. as the reported May 25.805.[17] That no actual money in bills and/or coins was handed by respondents to MBC does not mean that the transactions on the new GTDs did not involve money and that there was no consideration therefor. no order of payment may arise from the case as this is beyond the office of declaratory relief proceedings. there was no consideration therefor and. hence. e.[27] This issue was not raised in the court a quo. [21] Petitioner having failed to overcome the presumption that the ordinary course of business was followed. given the necessity of confidentiality of placing a banking institution under receivership. In the process. petitioner should not presume that MBC had no cash to cover the new GTDs of respondents and conclude that there was no consideration for said GTDs. Mere conjectures that MBC had actual knowledge of its impending closure do not suffice. There is nothing in its nature. there is nothing in thee nature of a special civil action for declaratory relief that proscribes the filing of a counterclaim based on the same transaction. it states that prior to March 25. fortunes may be wiped out. however. 1987.

Cruz (or Angelita) were the named signatories for the said accounts.of MBC. and VILLARAMA. Chairperson. In fact.. she had occasion to examine the PNB statements of account of [FFCCI] for the months of February to August 1995 and she noticed the deductions ofP9. WHEREFORE. 1995 for P9. applications for cashiers and managers [checks] bearing Felipes [signature] were presented to and both approved by the PNB. JJ. F.. and the June 26.. This Petition for Review on Certiorari seeks to reverse and set aside the Court of Appeals January 31. 97-84010.versus - LEONARDO-DE CASTRO. [FFCCI] requested PNB to credit back and restore to its account the value of the checks. 2006 Resolution[3] denying petitioners motion for reconsideration. 0219-0502-458-6 with [petitioner Philippine National Bank] (hereinafter PNB) at its Timog Avenue Branch. PNB averred lack of cause of action.00 and P3.31. No.500. the greater proportion of the loss shall be borne by the bank.000.R.950. C. INC. JR. Its President Felipe Cruz (or Felipe) and Secretary-Treasurer Angelita A. It alleged that it exercised due diligence in handling the account of [FFCCI]. Felipe on March 18. (Chairman). PNB refused. who confirmed the regularity of the . 2006 Decision[1] in CA-G. and seeks to disqualify him from availing the benefits under the law. the accountant of [FFCCI]. 2004 Decision[2] of the Regional Trial Court of Manila City. 0219830-146 and dollar savings account No.260. where the banks negligence is the proximate cause of the loss and the depositor is guilty of contributory negligence. CV No. G.31 payable to one Paul Bautista. BERSAMIN. the assailed decision of the Court of Appeals is hereby AFFIRMED. The applications for managers check have passed through the standard bank procedures and it was only after finding no infirmity that these were given due course.[29] Good faith is presumed. The antecedents are aptly summarized by the appellate court: Present: CORONA. CRUZ and CO. Panganiban. PHILIPPINE NATIONAL BANK. Promulgated: Respondent.: As between a bank and its depositor. 2011 x-----------------------------------------------------------x DECISION DEL CASTILLO.J. which modified the January 30. 1995 for P3.950. When Angelita returned to the country. Sandoval-Gutierrez.F.500.. The first was on March 27.. Sangalang and the other one was on April 24.R. 81349. Inc.00 payable to a certain Gene B. Puno. While they were thus out of the country. 173259 Factual Antecedents Petitioner. 1995 until June 10. In its traverse. concur.260.] (hereinafter FFCCI) opened savings/current or so-called combo account No.000. and thus constrained [FFCCI] filed the instant suit for damages against the PNB and its own accountant Aurea Caparas (or Caparas). The amounts of these checks were then debited by the PNB against the combo account of [FFCCI]. Claiming that these were unauthorized and fraudulently made. petitioner failed to overcome since it offered mere presumptions as evidence of bad faith. 1995 and returned ahead on May 9. 1995. and Corona. July 25. Cruz & Co. DEL CASTILLO. This. . Petitioner ascribes bad faith to respondent Jose Abad in transacting the questioned deposits.F. J. SO ORDERED. it was no less than Caparas. In its complaint. Branch 46 in Civil Case No. 1995 while Angelita followed him on March 29. it is alleged that [respondent F. The said signatories on separate but coeval dates left for and returned from the Unites States of America.

negligent in not calling or addition.31 representing the amounts debited against plaintiffs account. [8] the appellate court allocated the damages on a 60-40 ratio with the bigger share to be borne by PNB. the CA rendered the assailed Decision affirming with modification the Decision of the trial court. that. FFCCI failed to timely examine its monthly statement of account and report the discrepancy to personally verifying from the authorized signatories the legitimacy of the subject withdrawals considering PNB within a reasonable period of time to prevent or recover the loss. For this reason. FFCCI filed its petition for review on certiorari which was docketed as G. 2006. Pursuant to the rulings in Philippine Bank of Commerce v. viz: WHEREFORE.[5] From this decision. the appealed Decision is AFFIRMED with the MODIFICATION that [PNB] shall pay [FFCCI] only 60% of the actual damages awarded by the trial court while the remaining 40% shall be borne by [FFCCI]. and that FFCCI was negligent in not immediately informing PNB of the fraud. the Court ruled that FFCCI essentially raises questions of fact which are. Cruz and Company. with interest at the legal rate computed from the filing of the complaint plus costs of suit. not reviewable . ( FFCCI) was guilty of negligence in On January 31. the trial court found that PNB was. WHEREFORE. FFCCI waived the The appellate court ruled that PNB was negligent in not properly verifying the genuineness of the signatures two-signature requirement in transactions involving the subject combo account so much so that Philippine appearing on the two applications for managers check as evidenced by the lack of the signature of the bank National Bank (PNB) could not be faulted for honoring the applications for managers check even if only the verifier thereon. both FFCCI and PNB sought review before this Court.[6] clothing Aurea Caparas (Caparas) with authority to make decisions on and dispositions of its account which paved the way for the fraudulent transactions perpetrated by Caparas. that they were in huge amounts.[9] On March 7. IT IS SO ORDERED. the Court issued a Resolution[10] denying said petition. likewise. In denying the aforesaid petition. Inc. In On the other hand. 2006.transaction. Court of debits from FFCCIs combo account. FFCCIs contributory negligence.[4] Regional Trial Courts Ruling The trial court ruled that F.On June 13. Nonetheless. PNB had the last clear chance to prevent the unauthorized thus. the forgery would have been detected.500. Had this procedure been followed. PNB should bear the whole loss Appeals[7] and The Consolidated Bank & Trust Corporation v. No. the Court of Appeals Ruling Court issued another Resolution[11] denying FFCCIs motion for reconsideration. Thus. in practice. The delay of [FFCCI] in picking up and going over the bank statements was the proximate cause of its self-proclaimed injury. Court of Appeals. signature of Felipe Cruz appeared thereon. judgment is hereby rendered ordering defendant [PNB] to pay plaintiff [FFCCI] P13. 2007. Had [FFCCI] been conscientious in this regard. On August 17. the alleged chicanery would have been detected early on and Caparas effectively prevented from absconding with its millions. It prayed for the dismissal of the complaint.F. the appellate court found FFCCI guilty of contributory negligence because it clothed its accountant/bookkeeper Caparas with apparent authority to transact business with PNB. as a rule. 173278. SO ORDERED.210. 2007. mitigated the banks liability.R.

173278. as to 40% thereof) arising from the managers check. we find none applicable to the present case. then branch cashier. PNB did not present the account analyst to Preliminarily. this case. Court of Appeals. suffice to establish that the signature verification process was duly followed. [12] do not bear the signature of the bank verifier.500. thus.e. It posits that the testimonies of Geronimo Gallego Our Ruling (Gallego). Gallego admitted that PNBs employees rulings in Philippine Bank of Commerce v. Fourth. we resolved with finality [13] that FFCCI is guilty of explain his or her failure to sign the box for signature and balance verification of the subject applications for contributory negligence. testified. Thus. PNB is guilty of First.[17] Second. PNB filed its petition for review on certiorari which is the subject matter of with those found in the signature cards of FFCCIs authorized signatories on file with the bank. Third. We are not persuaded. oral testimony is not as reliable as documentary evidence. thus. PNB concedes the absence[16] of the subject signature but argues that the same was the result of inadvertence.[15] Guzman. San Diego. casting doubt as to whether he or she did indeed verify the signatures thereon. the principal duty to determine the genuineness of the signature devolved upon the account analyst. then the branch manager of PNB Timog Branch.[18] However. negligence. PNB contends that it was not negligent in verifying the genuineness of the signatures appearing on the subject applications for managers check. making it liable for the greater part of the loss (i. PNBs own witness.. Issue While there are exceptions to this rule. thus. then NBI senior document examiner. Emmanuel Corporation v. The case before us is. It claims that it followed the standard operating procedure in the verification process and that four bank officers examined the signatures and found the same to be similar On July 13. Court of Appeals [14] and The Consolidated Bank & Trust received training on detecting forgeries from the National Bureau of Investigation. in G. We affirm the ruling of the CA. and Stella San Diego (San Diego). PNB failed to make the proper verification because the applications for the managers check Whether the Court of Appeals seriously erred when it found PNB guilty of negligence. 2006. making it partly liable for the loss (i. thus. No.under a Rule 45 petition. limited to we cannot fault the appellate court for not giving weight to the testimonies of Gallego and San Diego PNBs alleged negligence in the subject transactions which the appellate court found to be the proximate considering that the latter are naturally interested in exculpating themselves from any liability arising from cause of the loss. unauthorized withdrawal of P13.R. [19] However.. the appellate court correctly mitigated PNBs liability. PNB raises factual issues which are generally not proper for review under a Rule 45 petition. and that FFCCI was guilty of contributory negligence. that the forged signatures in .e.31 from its combo account. that FFCCI failed to show that its case fell within the established exceptions to this rule. as to 60% thereof) pursuant to our the failure to detect the forgeries in the subject transactions. testified that in the verification process.210. As correctly found by the appellate court. as an expert witness.

forwarded. [22] Thus. Court of Appeals[24] and The Consolidated Bank & Trust Corporation v. specifically. merchandise and/or commodities is to be undertaken by. Wherefore. 173278. [23] In the case at bar. commodities. dollars representing the full value of the goods. respondent-appellee. Court of Appeals. No. The January 31. merchandise and/or commodities may be shipped. 20 on time. forwarded. Thus. or to any foreign branch or agency of such exporter which are not covered by a draft or drafts drawn in U. and/or the collection of such bills or the proceeds of sale of such goods. In Philippine Bank of Commerce v. RESOLUTION Given the foregoing. Costs against petitioner. [21] A higher degree of diligence is The motion raises two important issues: (1) that petitioner can not be held to have been estopped by his failure to protest against the enforcement of Circular No. 2006 Resolution of the Court of Appeals in CA-G. and a general license is hereby granted such banks to handle bills and shipping documents arising from the transportation of goods. As we have often ruled. and/or merchandise from the Philippines to foreign countries.: was negligent in the handling of FFCCIs combo account. for the purpose of these regulations.[20] G. On the first issue. a bank which is incorporated or licensed to do business in the Philippines. the degree of responsibility. or entrusted to. merchandise and/or commodities being or to be shipped. of Appellee). the petition is DENIED. the appellate court properly adjudged PNB to bear the greater part of the loss consistent with these rulings. imposed on banks relative to the handling of their affairs than that of an ordinary business enterprise. SO ORDERED. 20 is unconstitutional. 1964 BACOLOD MURCIA MILLING CO. or sent abroad. 2. No. vs. formerly known as E.R. petitioner-appellant. with respect to PNBs failure to detect the forgeries in the subject applications for managers check which could have prevented the loss. 1äwphï1.R. PNBs negligence is the proximate cause of the loss while the issue as to FFCCIs contributory negligence has been settled with finality in G. 81349 are AFFIRMED. the record discloses that on December 16. CENTRAL BANK OF THE PHILIPPINES. L-12610 July 16. INC. care and trustworthiness expected of their officials and employees is far greater than those of ordinary officers and employees in other enterprises. J. [25] where the banks negligence is the proximate cause of the loss and the depositor is guilty of contributory negligence. .. we allocated the damages between the bank and the depositor on a 60-40 ratio. xxx xxx All Commercial banks incorporated and/or licensed to do business in the Philippines are hereby designated agents of the Central Bank of the Philippines. the banking business is impressed with public trust.the subject applications for managers check contained noticeable and significant differences from the genuine signatures of FFCCIs authorized signatories and that the forgeries should have been detected or observed by a trained signature verifier of any bank.. merchandise and/or commodities in accordance with these regulations. 2006 Decision and June 26.S. CV No. We apply the same ruling in this case considering that. the parties respectfully pray that the foregoing stipulation of facts be admitted and approved by this Honorable Court. 1949 Export Regulations (Annex 1-B to Reply Memo. as shown above. PNB failed to meet the high standard of diligence required by the circumstances to prevent the fraud. Form No. or sent direct to the exporter's head office and/or agents abroad.R. without prejudice to the parties adducing other evidence to prove their case not covered by this stipulation of facts. and (2) that the injunction should issue on the ground that Circular No.ñët xxx WHEREFORE. C. was promulgated with the following provisions: Without a specific license from the Central Bank no goods. and unless the collection of the proceeds of sale of such goods. we find no reversible error in the findings of the appellate court that PNB LABRADOR.

vs. TAPIA. as it is hereby. If the petitioner had really protested the enforcement of Circular No. along with other monetary. petitioner herein had secured its export license for the sugar shipped with the accompanying drafts drawn in U.. concur. The Monetary Board shall fix the margin at such rate as it may deem necessary to effectively curtail any excessive demand upon the international reserve. Paredes and Makalintal. the motion for reconsideration filed by the petitioner should be. the monetary authorities shall take steps for the adoption of a four-year program of gradual decontrol. Bengzon. it should have refused to secure the license with the draft mentioned. Record. therefore.ñët The above law was implemented by Circular No. 1äwphï1. That judgment affirmed in toto the decision of the Court of First Instance of Manila. 1964 until the whole amount shall have been fully paid. in respect of all sales of foreign exchange by the Central Bank and its authorized agent banks. credit and fiscal measures to stabilize the economy.. especially the paragraphs quoted above. reading thus: WHEREFORE. dollars by the Central Bank came after the shipment had been made under the conditions specified in the license issued by the Central Bank accompanying the corresponding draft and subject to the export regulations already mentioned. WHEREFORE.G. It was for this reason that after denying originally the herein petition. judgment is hereby rendered in favor of the plaintiff against the herein defendant ordering the latter (1) to pay plaintiff the sum of P100.L. petitioners. etc.R. 1981 THE OVERSEAS BANK OF MANILA. We. the parties respectfully pray that the foregoing stipulation of facts be admitted and approved by this Honorable Court... In implementing the provisions of this Act. (Page 22. Reyes.B. BARREDO.00 representing the value of its time deposit together with interest thereon at 4-1/2 % per annum from November 9. The Overseas Bank of Manila and the denial of the motion for reconsideration thereof. with the authority granted to the commercial banks to collect the dollars for the Central Bank. .Consonant with the above regulations. dollars representing the value of the whole sugar.000. The provisions of any law to the contrary notwithstanding when and as long as the Central Bank of the Philippines subjects all transactions in gold and foreign exchange to licensing in accordance with the provisions of section seventy-four of Republic Act Numbered Two hundred sixty-five.) Actually. In accordance with paragraph 2 above quoted. No. COURT OF APPEALS and TONY D. especially with the first paragraph quoted. 1962 (58 O. (2) to pay attomey's fees in the amount of P1. 20. Tapia. therefore. We found it proper to give the same due course after petitioner filed a forceful and well-reasoned second motion for reconsideration. and to pay costs. in Civil Case No. So that the petitioner herein was well aware that it was exporting its sugar subject to the conditions set forth in the said regulations. find no merit in the first ground of the motion for reconsideration. the Central Bank. Petition for review of the decision of the Court of Appeals in CA-G. which margin shall not be changed oftener than once a year except upon the recommendation of the National Economic Council and the approval of the President. moot and it is unnecessary for Us to pass upon the same.R. Wherefore. vs. 44766R. No. Concepcion. 133 of the Central Bank dated January 21. for collection of money. Tony D. shall have authority to establish a uniform margin of not more than forty per cent over the banks' selling rates stipulated by the Monetary Board under section seventy-nine of Republic Act Numbered Two hundred sixty-five. Branch IV. it is Our considered opinion that the matter has long become moot.00 it appearing that defendant's unjust and malicious refusal to pay has compelled plaintiff to litigate and secure services of counsel. which provides in part: SECTION 1. 20 is. J. and Regala. L-49353 June 11. 882). 2609.000. this case is simple enough but of undoubtedly great interest and grave importance to the banking community.S. the drafts accompanying the sugar were. as per regulations. denied. the power of the Central Bank to commandeer the dollars earned by exporters was superseded by the provisions of the said Act. entrusted to the Commercial bank "for the collection of the proceeds of the sale" of the sugar. C.J. 69876. took no part.: With respect to the second ground. in his capacity as Attorney-in-Fact of ENRIQUETA MICHEL DE CHAMPOURCIN respondents. JJ. The issue to prohibit the enforcement of said Circular No. without prejudice to the parties adducing other evidence to prove their case not covered by this stipulation of facts. JJ. G. Bautista Angelo.S. J. p. The supposed protest made by the petitioner herein against the collection of the proceeds of the sale in U. Under Republic Act No.

TOBM was excluded by the Central Bank under Monetary Board Resolution No. In the meantime. "A"). (a) the suspension of operations of TOBM by the Central Bank likewise suspends payment of accrued interest. 1978. Resolution dated Nov. creditors and the public interest. 1964 until the whole amount shall have been fully paid: Not satisfied. 1971.000.) It must be noted that the said resolutions of the Central Bank were held by this Honorable Supreme Court to have been "adopted in abuse of discretion equivalent to excess of jurisdiction" (Ramos vs. instituted the present action in the Court of First Instance of Manila against petitioner. to pay plaintiff the sum of P100. TOBM interposed an appeal.00 representing the value of its time deposit together with interest thereon at 41/2% per annum from November 9. Central Bank. and the . 1978.Rehabilitation. annulled and set aside by the Supreme Court in its decision in Ramos vs. (C. the rehabilitation. Appendix 'B'. in his capacity as attorneyin-fact of ENRIQUETA MICHEL DE CHAMPOURCIN (TAPIA). October 23. among other things. p.000. After trial. its operations were suspended under Central Bank Resolution No. Central Bank. Phase 1. especially paragraph 3. 1978. These Resolutions were. to enforce collection of the proceeds of a time deposit for which TOBM had issued a certificate for P100. TAPIA. the motion for reconsideration is granted.000. judgment is hereby rendered in favor of the plaintiff against the herein defendant ordering the latter (1) to pay plaintiff the sum of P100. 1972. Pursuant thereto. which. In the decision it rendered in the instant case.In petitioner's counsel's "Statement of the Case and of Matters Involved". however.00 representing the value of its time deposit together with interest thereon at 41/2% per annum until the whole amount shall have been fully paid. certain developments took place with respect to TOBM which were taken note of by the Court of Appeals in its resolution dated November 3. it was completely forbidden by the Central Bank in its Resolution No. (C. 1968. XVII. The Court of Appeals. Decision. 1333 to do business preparatory to its forcible liquidation. the trial court rendered judgment for TAPIA the dispositive portion of which reads: WHEREFORE. that on August 1. issued its resolution (Appendix 'B' hereto dated November 3. (id. during the pendency of this case. as aforeseen. acting on the motion for reconsideration. WHEREFORE. and (b) respondent Court's judgment must conform to the program of rehabilitation of TOBM approved by this Supreme Court. p. 41 SCRA 565). is that the CB resolution suspending TOBM's business operations had actually been implemented starting 2 August 1968. and that as of this writing TOBM has yet to resume operations in accordance with the aforesaid program of rehabilitation approved by this Honorable Supreme Court. orders TOBM.A. both TOBM and the Central Bank submitted a Program of Rehabilitation of TOBM which was approved by the Supreme Court in its Resolution in L29353. subparagraph 4. Appendix "A".00. TOBM moved respondent Court of Appeals to reconsider its judgment on two grounds. 1968. the execution of the decision in question should be made in accordance with the provision thereof. however. 1968. 1290.) before it was annulled. To assure maximum protection to its depositors. The Overseas Bank of Manila (TOBM). and that on August 13. 3. V) the Court of Appeals affirmed in toto the trial court's judgment. promulgated October 4. Equally noteworthy. normalization and stabilization thereof was also ordered by the Supreme Court in its resolution dated February 24. declaring In as much as a Program of Rehabilitation of the TOBM has been approved by the Supreme Court as above-mentioned. it is stated that: Private respondent TONY D.A. thus: This Court took note of the fact that on July 31. 1974 (60 SCRA 278). with an interest rate of 4-1/2 % per annum (Exh. L-29350. namely. 1263 from inter-bank clearing.

00 which has been long overdue. The mere suspension of its operation which was temporary could not excuse the appellant from complying with its obligation. 1978. 1964 ordered by the lower court as wen as this Court upon the appellant is in accordance with the agreement embodied in the certificate of deposit. The effect of the suspension and declared insolvency of a bank is to make its deposits due and actionable and a depositor then is entitled to interest on his deposits from the date of such suspension (10 Am. The suspension of its operations in 1968 was merely temporary. However. This is not the situation prevailing in the case at bar. actually it reiterates its affirmance of the trial court's judgment in toto and rejects TOBM's prayer to be declared exempt from liability for interest on the deposit during the suspension of its business operations by the Central Bank. L29352 dated October 23. 1974 (60 SCRA 278) especially paragraph 3. while the resolution purports to grant TOBM's motion for reconsideration. 1978. 3. NCC). while the resolution also purports to declare that the execution of the judgment of the trial court should be in . issued by the bank in favor of the appellee.' Moreover. for the conversion of their deposits and claims into bills payable under plans mutually acceptable to the parties concerned. the execution of the judgment is further subject to any subsequent development or charge that will be taken and considered by the Supreme Court and/or Central Bank in the premises. there could be no justifiable reason to suspend the payment of the accrued interests on the appellee's time deposit of P100. The cases cited by the appellant in its motion has no application in this case for these refer to instances where the bank has been declared insolvent. the management of which was taken over by the Central Bank to protect its depositors and creditors. declaring: Appellant TOBM has not been declared insolvent. Exhibit "A". so as to read as follows: WHEREFORE. 389). in the event that said program of rehabilitation is revoked or failed to materialize. Appendix "B" hereof).R. singly or collectively. with the end in view that payments of all deposits and claims against OBM may be made after a period three (3) years from date of suspension of normal banking operations. XX.dispositive portion of the decision. (pp. Thus. 1159. The payment of interest thereon at 4-1/2% per annum from November 9. No. 2d. Phase 1. Jr.000. p. dated September 19. Subparagraph 4. the judgment appealed from is hereby affirmed in toto but the execution thereof should be in accordance with the provision of the Program of Rehabilitation of TOBM as approved by the Supreme Court in its resolution in G. Its assets and properties were intact including its various investments. Rehabilitation. is hereby amended. Such agreement is the law between the parties and it should be complied with (Art. Court of Appeals' Resolution dated Nov. Hence. to quote: 34 Petitioners shall effect an agreement with OBM's depositors and creditors. regarding the payments of deposits and claims against the Overseas Bank of Manila.

this court.00 for the period that its business operations were suspended by the Central Bank. 1964 until the whole amount shall have been fully paid despite the suspension of operations and closing of the Bank by the Monetary Board on August 1. (Pages 1-2) Briefly then" the general and main issue submitted for Our resolution is: When a bank is excluded by the Central Bank from inter-bank clearing. under a formula approved by the Court.. Private respondent admits though that in cases of actual liquidation of a bank. claimants and appellees. 10). the same being in consonance with the records of the case. Apparently. To begin with. the factual cessation having been ordered by the Central Bank.000. et al. 1968. Tan Tiong Tick. but due to usually difficult and lengthy procedures and transactions directed towards such end.accordance with the Program of Rehabilitation of TOBM as approved by the Supreme Court. and that which they may earn from the. from legal liquidation. through Justice Imperial. its obligation. 65 Phil.00 representing the value of its time deposit together with interest thereon at 4-1/2% per annum from November 9.R. this is negated by its aforesaid reaffirmance in toto of the trial court's judgment. not different. No. contractual in nature. he insists that since technically the bank was not placed under liquidation because of the decision of the Supreme Court. we shall focus our discussion on the subject of accrued interests as raised by the petitioner in its Assignment of Errors. 43682. vs. 1968. Our task is narrowed down to the resolution of the legal problem of whether or not. the petitioner should be required to pay the accrued interest. claimant and appellant. In re Liquidation of the Mercantile Bank of China. We respectfully submit that under the facts of the case. et al. (60 SCRA 276) and the process of such rehabilitation. it may be added that although private respondent does not dispute that there was complete paralization of the bank from August 13. C. the Supreme Court temporarily restrains the mentioned Central Bank's orders and ultimately renders a decision nullifying the same. As to the first class. it is justifiable for it not to pay interest of the nature here in dispute. the only issue in this case is whether or not the Petitioner is exempt from the payment of interest on the private respondent's time deposit of P100. we wish to call the attention of this Honorable Tribunal that the only ground upon which the present petition is predicated reads as follows: The suspension of operations of the Overseas Bank of Manila on August 1.000. The court held that the appellant is not entitled to charge interest on the amounts of his claims. Upon this point a distinction must be made between the interest which the deposits should earn from their existence until the bank ceased to operate. normalization and stabilization is considerably delayed. p. in its effects. we hold that it should be paid because such interest has been earned in the ordinary course of the bank's business and before the latter has been declared in a . of payment of the deposits. which holds TOBM totally liable to TAPIA. American Apothecaries. 395. 1968 and August 13. held the following: 4. to pay him interest may not be deemed excused and should be enforced. and a day later further suspended from operation. and this is the object of the second assignment of error.000. this Court held: As to the second assignment of error. in G. private respondent's brief begins thus: Herein respondents respectfully beg leave of Court to adopt as their own the Statement of the Case and of Matters Involved in the petitioner's Brief. respectively (Petition. is a person who has deposited money in said bank before the Central Bank's orders were issued. thru no fault of the bank. stoppage of the operations of a bank by a legal order of liquidation may be equated with actual cessation of the bank's operation. and thirteen days afterwards completely forbidden by the same (Central Bank) to do business preparatory to its forcible liquidation. On the other hand. but subsequently. Thus. vs. (41 SCRA 565) with subsequent directives for the rehabilitation. time the bank's operations were stopped until the date. for purposes of the payment of the interest here in question. 1968 by the Monetary Board likewise suspends payment of accrued interest contrary to the decision of this Honorable Court affirming in toto the decision of the Court of First Instance ordering defendant-appellant to pay plaintiffappellee the sum of P100. factually speaking. entitled to the payment of interest on his deposit that accrues during all the period from the bank's factual closure to its actual reopening for normal business? To make this statement of the issue more complete. normalization and stabilization thereof. American Apothecaries. And since the payment of the principal time deposit of P100.00 by the petitioner to the private respondent is no longer at issue. In the case of Chinese Grocer's Association.

Thus. for it "to seek practical solutions in all good faith for such rehabilitation. the bank being authorized by law to make use of the deposits. R. No. whereas here. We hold it is a matter of simple equity that it be treated as such. Moreover. but the execution thereof should be in accordance with the provision of the Program of Rehabilitation of TOBM as approved by the Supreme Court in its resolution in G. the order of the Central Bank of August 13. 1974. Whatever be the juridical significance of the subsequent action of the Supreme Court. that it is utterly unfair to award private respondent his prayer for payment of interest on his deposit during the period that petitioner bank was not allowed by the Central Bank to operate. private respondent overlooks the fact that as noted in the very resolution of the Court of Appeals of November 3. as it is now of public knowledge. that what enables a bank to pay stipulated interest on money deposited with it is that thru the other aspects of its operation it is able to generate funds to cover the payment of such interest. And it can be said that all who deposit money in banks are aware of such a simple economic proposition. In the aforementioned resolution of the Court of Appeals of November 3. engage in international transactions. so as to read as follows: WHEREFORE." Pursuant to said resolution. precisely because. with the station stated. normalization and stabilization was placed by the resolution of the Supreme Court of February 24. we hold that the said interest should not be paid. it may be presumed that it bound itself to pay interest to the depositors as in fact it paid interest prior to the dates of the said claims. 1978. 1974 (60 SCRA 278) especially paragraph 3. it revised the dispositive portion of its original decision in the following manner: WHEREFORE. The Court of Appeals considered this ruling inapplicable to the instant case. said Court could not but take into account that petitioner's manner or mode of rehabilitation. steps were continuously taken along that direction. be legally denominated as "force majeure". the judgment appealed from is hereby affirmed in toto. The Central Bank. We disagree. for the conversion of their deposits and claims into bills payable under plans mutually acceptable to the parties concerned. the said Apothecaries case had in fact in contemplation a valid order of liquidation of the bank concerned. What is more. 1978. Conventional wisdom dictates this inexorable fair and just conclusion. . with another name and another management has been allowed to reopen. 1978 granting petitioner's motion for reconsideration. and the dispositive portion of the decision dated September 19.state of liquidation. acquire foreclosed mortgaged properties or their proceeds and generally engage in other banking and financing activities from which it can derive income. which We take judicial notice of. Rehabilitation to quote: 34 Petitioners shall effect an agreement with OBM's depositors and creditors. is hereby amended. the bank had no alternative under the law than to obey the orders of the Central Bank. strictly speaking. after mature deliberation. sub-paragraph 4. We consider it of trivial consequence that the stoppage of the bank's operation by the Central Bank has been subsequently declared illegal by the Supreme Court. it is inconceivable how it can carry on as a depository obligated to pay stipulated interest. and. In other words. It is Our considered view. it should be deemed read into every contract of deposit with a bank that the obligation to pay interest on the deposit ceases the moment the operation of the bank is completely suspended by the duly constituted authority. it is the legal reason for cessation of operations. for before the Court's order. the Central Bank. as maintained by private respondent. it was only this year 1981. As to the interest which may be charged from the date the bank ceased to do business because it was declared in a state of liquidation. continued to refuse to allow it to operate until the program approved by the Court could materialize. singly or collectively. after October 23. the motion for reconsideration is granted. 1972 in the hands of the Central Bank. that matters and is decisive insofar as his right to the continued payment of the interest on his deposit during the period of cessation is concerned. But that approval did not yet put petitioner back on its feet. 1976. Unless a bank can lend money. L-29352 dated October 23. Consequently. It is a matter of common knowledge. not the actual cessation thereof. the stubborn fact remained that the petitioner was totally crippled from then on from earning the income needed to meet its obligations to its depositors. In the light of the peculiar circumstances of this particular case. to invest the same in its business and other operations. Phase 1. as far as private respondent is concerned. that petitioner. evidently in accordance with law. If such a situation cannot. as contended by private respondent. 1968 completely forbidding herein petitioner to do business preparatory to its liquidation was first restrained and then nullified by this Supreme Court. a "Program of Rehabilitation of TOBM (herein petitioner)" was submitted to this Court and We approved said program only on October 23.

which providesinter alia that: 3. it would be. In justice and equity. Record.with the end in view that payments of all deposits and claims against OBM may be made after a period of three (3) years from date of resumption of normal banking operations. A program of paying depositors and creditors has been accepted singly or collectively by all such depositors and creditors. as a . We may add for the guidance of those who might be concerned.(1) xxx xxx xxx PHASE II NORMALIZATION AND STABILIZATION This phase shall be undertaken only when all the conditions for rehabilitation of OBM as speciffied in Phase I have been fulfilled and/or complied with by petitioners. while the Appellate Court resolved to "grant" petitioner's motion for reconsideration. modified in effect by the decision as well as the approval of a formula of rehabilitation by this Court. it still maintained its judgment affirming in toto the decision of the trial court. with the end in view that payments of all deposits and claims against OBM may be made after a period of three (3) years from date of resumption of normal banking operation. including Government instrumentalities and the Philippine National Bank. 283-285. singly or collectively. upon recommendation of the Director. not to mention the interest thereon. having been subjected to what the Supreme Court has found to be an unfortunate express or abuse by the Central Bank of the exercise of its authority under the law. in effect. applicable or followed in respect to all other obligations of petitioner which could not be paid during the period of its actual complete closure. in the event that said program of rehabilitation is revoked or failed to materialize. albeit it made the execution thereof subject to the conditions aforequoted. .8 hereof have been resolved either judicially or extrajudicially. it would be in a position to pay in full even at least the deposits themselves. the execution of the judgment is further subject to any subsequent development or change that will be taken and considered by the Supreme Court and/or Central Bank in the premises. petitioner could not be contented with such modification. should be. If the Central Bank authorities or the Supreme Court had in mind the payment also of interest on such deposits. however. for the conversion of their deposits and claims into bills payable under plans mutually acceptable to the parties concerned. It has reduced its loans/accounts receivable by at least 75% of the aggregate amount outstanding as of the start of the rehabilitation phase. in addition to standard conditions prevailing in normal banking institutions: 1. 60 SCRA. OBM may be allowed to resume normal banking operations only when. the complete factual suspension of petitioner's operation as a bank disabled it to commit itself to the payment of such interest. Naturally. But it is almost vain to expect that within the forseeable future.) Nowhere in the above program is there anything indicating that depositors are entitled to interest. may deem proper to extend OBM.7 herein shall continue to function for as long as OBM has not been allowed to resume normal banking operations.4. Hopefully. for the reversal of the foregoing resolution of the Court of Appeals which left it with the obligation to pal the interest private respondent is demanding. (Pp. Paragraph 3. Parenthetically. and so that unnecessary litigations may be avoided from further clogging the dockets of the courts.4 of the same refers to deposits exclusively. Banking operations and transactions which OBM may be allowed to perform shall be in accordance with such authority as the Monetary Board.' However. to put it tritely "squeezing blood out of turnip" for Us to grant private respondent's demand. Department of Commercial & Savings Banks. It is understandable why nothing of that sort was required. The issues relative to penalties and interests mentioned in paragraph 3. hence the present petition before Us asking. Petitioners shall effect an agreement with OBM's depositors and creditors. 2. (Pp. the same formula that exempts petitioner from the payment of interest to its depositors during the whole period of factual stoppage of its operations by orders of the Central Bank. regarding the payments of deposits and claims against the Ovarseas Bank of Manila. that in the light of the considerations expounded in the above opinion. The Comptroller-designate and the committee-of-three mentioned in paragraph 2. as if it were legally possible for the Court of Appeals to ignore or modify the "Program of Rehabilitation" approved by this Court.Matter of consistency. As We have explained earlier.) Peculiarly. petitioner may be able to resume operations and recover its standing as a normal bank. either of those authorities would have required clear language to such effect be included in the program. 3. 33-34.

PREMISES CONSIDERED.2 Hence. C. vs. The Organization has three (3) classes of "members. except (c) honorary members. from further searching the premises and properties and from taking custody of the various documents and papers of the petitioner corporation.respondents.000. as well as to answer numerous inquiries from the public. 1962.00. upon the petitioner filing an injunction bond in the amount of P3. so made by the board of trustees. "by receiving deposits of money for deposit. judgment is hereby rendered modifying the decision of the Court of Appeals under review in the sense that the judgment of the trial court requiring petitioner to pay interest on private respondent's deposit from August 13. the main purpose of which. dated February 14. Republic Act No.00. 1967 CENTRAL BANK OF THE PHILIPPINES. the dispositive part of which reads: WHEREFORE. we issued. on April 23. alleging that "after close observation and personal investigation. Bolinao. No costs. a writ of preliminary injunction restraining and prohibiting respondents herein from enforcing the order above quoted. THE HONORABLE JUDGE JESUS P. 1974. 1963. petitioner. Evangelista and Mariano Abaya for petitioner. the Governor of the Bank directed the coordination of "the investigation and gathering of evidence on the activities of the savings and loan associations which are operating contrary to law." to them. Their activities and operations are not supervised by the Superintendent of Banks and persons dealing with such institutions do so at their risk. the Bank caused to be published in the newspapers the following: ANNOUNCEMENT To correct any wrong impression which recent newspaper reports on "savings and loan associations" may have created in the minds of the public and other interested parties. No. restraining the respondents. 1962. and to extend financial assistance in the form of loans. the Central Bank of the Philippines wishes to announce that all "savings and loan associations" now in operation and other organizations using different corporate names. Inc. but engaged in operations similar in nature to said "associations" HAVE NEVER BEEN AUTHORIZED BY THE MONETARY BOARD OF THE CENTRAL BANK OF THE PHILIPPINES TO ACCEPT DEPOSIT OF FUNDS FROM THE PUBLIC NOR TO ENGAGE IN THE BANKING BUSINESS NOR TO PERFORM ANY BANKING ACTIVITY OR FUNCTION IN THE PHILIPPINES." Soon thereafter. Natalio M. Balboa. it is Our judgment that he secure payment thereof by negotiating with petitioner in accordance with the terms of the Rehabilitation Program of TOBM approved by this Court on October 23. and that with regard to his deposit of P100. falling within the purview of the Central Bank Act. and ordering the respondent Central Bank and/or its co-respondents to return to the petitioner within five (5) days from service on respondents of the writ of preventive and/or mandatory injunction. MORFE and FIRST MUTUAL SAVING AND LOAN ORGANIZATION.J. all the books. according to its Articles of Incorporation. safekeeping or . or on May 18. 2 of the General Banking Act.. .: This is an original action for certiorari. documents. among its members. Such institutions violate Section. 2745 Rizal Avenue. the First Mutual Savings and Loan Organization.R. CONCEPCION. Bolinao and Associates for respondents. (b) participating members — with "no right to vote or be voted for" — to which category all other members belong. 1962. 337. is "to encourage . prestige or help extended in the propagation" of the objectives of the Organization — without any pecuniary expenses on the part of said honorary members. and implement savings and thrift On February 14. on August 14. on April 1 and 3. with preliminary injunction. a member of the intelligence division of the Bank filed with the Municipal Court of Manila a verified application for a search warrant against the Organization. their agents or representatives."1 namely: (a) founder members — who originally joined the organization and have signed the preincorporation papers — with the exclusive right to vote and be voted for . CENTRAL BANK OF THE PHILIPPINES Moreover. — "at the exclusive discretion" thereof — due to "assistance. F. honor.000. securities or obligations of any kind" without authority from the Monetary Board." because said Organization is illegally engaged in banking activities. — hereinafter referred to as the Organization — is a registered non-stock corporation. 1962. 1961. and petitioner is declared free from any liability therefor. Halili. . prohibition and injunction. The main respondent in this case. 1968 up to the reopening for normal operations of petitioner is reversed.ñët Upon the filing of the petition herein and of the requisite bond. L-20119 June 30. should they engage in the "lending of funds obtained from the public through the receipts of deposits or the sale of bonds. the premises at No. let a writ of preliminary preventive and/or mandatory injunction issue. and papers so far seized from the petitioner pursuant to the aforesaid search warrant. disbursement. Manila" — in which the offices of the Organization were housed — "are being used unlawfully. G. against an order of the Court of First Instance of Manila. E.1äwphï1. whether in its main office or in any of its branches. the legal department of the Central Bank of the Philippines — hereinafter referred to as the Bank — rendered an opinion to the effect that the Organization and others of similar nature are banking institutions. INC.

1962. as follows: I.3 are kept in said premises. 337. and "being used or intended to be used in the commission of a felony. without having first complied with the provisions of Republic Act No. there being "good and sufficient reasons to believe" upon examination. papers. which are the subject of the offense . as Annex A thereof. and the seizure of the foregoing articles. Brochures Etc. or effects enumerated in a list attached to said application.otherwise or transacts the business of a savings and mortgage bank and/or building and loan association . issued the warrant above referred to. BOOKS OF FINAL ENTRY (1) General Ledger (2) Individual Deposits and Loans Ledgers (3) Other Subsidiary Ledgers III. papers or effects are described in the aforementioned Annex A. 337" and that the articles. of a detective of the Manila Police Department and said intelligence officer of the Bank — that the Organization has under its control. as Judge of the said municipal court."4 Said articles. OTHERS (1) Articles of Incorporation (2) By-Laws (3) Prospectus. the aforementioned articles. Roman Cancino. in the address given. . BOOKS OF ORIGINAL ENTRY (1) General Journal (2) Columnar Journal or Cash Book (a) Cash Receipts Journal or Cash Receipt Book (b) Cash Disbursements Journal or Cash Disbursement Book II. on May 18. FINANCIAL STATEMENTS (1) Income and Expenses Statements (2) Balance Sheet or Statement of Assets and Liabilities V.5 commanding the search of the aforesaid premises at No. Hon. Manila. (4) And other documents and articles which are being used or intended to be used in unauthorized banking activities and operations contrary to law. . to wit: violation of Sections 2 and 6 of Republic Act No. 2745 Rizal Avenue. under oath. Upon the filing of said application. OTHER ACCOUNTING RECORDS (1) Application for Membership (2) Signature Card (3) Deposit Slip (4) Passbook Slip (5) Withdrawal Slip (6) Tellers Daily Deposit Report (7) Application for Loan Credit Statement (8) Credit Report (9) Solicitor's Report (10) Promissory Note (11) I n d o r s e m e n t (12) Co-makers' Statements (13) Chattel Mortgage Contracts (14) Real Estate Mortgage Contracts (15) Trial Balance (16) Minutes Book — Board of Directors IV.

that a writ of preliminary mandatory injunction be forthwith issuedex parte. which underlies the people's faith in and adherence to the Rule of Law and the democratic principle in this part of the World. on July 2. however. To authorize and seize all the records listed in Annex A to said application for search warrant. then concluded that said deponent ". without jurisdiction and/or in excess of jurisdiction" because: (a) "said search warrant is a roving commission general in its terms ." against said municipal court. on the petition for said injunction." The Organization. as ramparts of justice and liberty and deserves the greatest encouragement and warmest commendation. applied for a warrant to search and seize only books" or records: covering the specific purportedly illegal banking transactions of the petitioner with specific persons who are the supposed victims of said illegal banking transactions according to his knowledge. in line with the function of courts. who issued the warrant. or on the same date. alleging that respondent Judge had acted with grave abuse of discretion and in excess of his jurisdiction in issuing the order in question. a writ of preliminary injunction be issued ex parte restraining the aforementioned search and seizure. . in much the same way as the question whether or not "probable cause" exists is one which must be decided in the light of the conditions obtaining in given situations. the search warrant in question. Jesus P. in the alternative. was predicated upon the theory that the Organization was illegally engaged in banking — by receiving money for deposit. 1962. the municipal court had acted "with grave abuse of discretion. not purely abstract or imaginary evils. safekeeping or otherwise. Within the period stated in said order." and." If this term is used to denote a party whose interests have been actually injured. it cannot be gainsaid the Constitutional injunction against unreasonable searches and seizures seeks to forestall. an original action for "certiorari. distinct and different . of the kind contemplated in the contested action of the officers of the Bank. the order complained of. certainly. Upon the other hand." The concern thus shown by respondent judge for the civil liberty involved is. respondent. . permits the unreasonable search and seizure of documents which have no relation whatsoever to any specific criminal act . Referring particularly to the one at bar. prayed that. then the assumption is not necessarily justified. After due hearing. . the failure of the witness to mention particular individuals does not necessarily prove that he had no personal knowledge of specific illegal transactions of the Organization. a condition dependent upon the circumstances surrounding each case. in the very nature of things. in issuing the same. without reference to specific alleged victims of the purported illegal banking transactions. through the following process of reasoning: the deposition given in support of the application for a search warrant states that the deponent personally knows that the premises of the Organization. Forthwith. at No. if the acts complained of have been partially performed.A. . the Sheriff of Manila. . The line of reasoning of respondent Judge might. as well as potential. for the witness might be acquainted with specific transactions. unreasonableness is. prohibition. as well as the immediate return to the Organization of the documents and papers so far seized under. with writ of preliminary injunction and/or writ of preliminary mandatory injunction. the Bank moved for a reconsideration thereof. amounting to lack of jurisdiction or excess of jurisdiction. we are not aware of any rule limiting the use of warrants to papers or effects which cannot be secured otherwise." and (c) "no court in the Philippines has any jurisdiction to try a criminal case against a corporation . or transacting the business of a savings and mortgage bank and/or building and loan association. the Manila Police Department. . 337. would not justify the conclusion that said municipal Judge had committed a grave abuse of discretion. on the credibility of said statement. and that the order complained of assumes that the Organization had violated sections 2 and 6 of said Act. It lives up to the highest traditions of the Philippine Bench. could have. No. At the same time.adverted to above or intended to be used as means for the commission of said off offense. 2745 Rizal Avenue. seizures in question to be unreasonable. likewise. that the deponent " knows specific banking transactions of the petitioner with specific persons.. perhaps.6 Yet respondent Judge found the searches and. and its officers with a roving commission or fishing expedition for evidence which could be discovered by normal intelligence operations or inspections (not seizure) of books and records pursuant to Section 4 of Republic Act No 337 . Obviously. . . the aforementioned order would seem to assume that an illegal banking transaction. Respondent judge deduce. in causing the aforementioned search to be made and the articles above listed to be seized. to annul the aforementioned search warrant. .. or. even if the names of the individuals concerned were unknown to him. but specific and concrete ones. . and the Bank. against Judge Morfe and the Organization. ordering the preservation of the status quo of the parties. the Organization commenced Civil Case No. upon the ground that. . it is not clear from the order complained of whether respondent Judge opined that the above mentioned statement of the deponent — to the effect that the Organization was engaged in the transactions mentioned in his deposition — deserved of credence or not. from this premise. must always connote the existence of a "victim. pending hearing of the case on the merits. it should be noted that the action taken by the Bank." (b) "the use of the word 'and others' in the search warrant . which was denied on August 7. Manila. issued. the present action. . Indeed. Morfe. The law requiring compliance with certain requirements before anybody can engage in banking obviously seeks to protect the public against actual. a mere disagreement with Judge Cancino. disbursement. who presided over the branch of the Court of First Instance of Manila to which said Case No. be justified if the acts imputed to the Organization consisted of isolated transactions.7 were being used unlawfully for banking and purposes. Judge. Accordingly. Similarly. At the outset. would be to harass the petitioner. Hon. 50409 had been assigned. injury. the Bank commenced. if he really knew of actual violation of the law. 50409 of the Court of First Instance of Manila. 1962. in the Supreme Court. — without first complying with the provisions of R. Again.

JJ. is "to extend financial assistance. open to the "public" for deposit accounts. accordingly. The principal issue raised by the Organization is predicated upon the theory that the aforementioned transactions of the Organization do not amount to " banking. in effect. Dizon. their "privileges and benefits." as the term is used in Republic Act No. Wherefore. concur." and that the depositors thereof are designated as "members. made permanent. and the funds so raised may be lent by the Organization. This situation is fraught. before the transactions in question could be undertaken. even a cursory examination of said documents will readily show that anybody can be a depositor and thus be a "participating member. being limited to those which the board of trustees may. 1962. is not the situation confronting us. upon which the action of the Bank is based. that such funds are referred to — in the Articles of Incorporation and the Bylaws — as their "savings.from the type of business in which it is generally engaged. with the very dangers or evils which Republic Act No. J. the Organization is. . Indeed. In such case. the "membership" of the "participating members" is purely nominal in nature." but. Moreover. 33).P." and "participating members" are expressly denied the right to vote or be voted for. Court of First Instance (64 Phil. that the Organization does not seriously contest the main facts. precisely. that the Municipal Judge did not commit a grave abuse of discretion in finding that there was probable cause that the Organization had violated Sections 2 and 6 of the aforesaid law and in issuing the warrant in question.L. determine from time to time. took no part. The records suggest clearly that the transactions objected to by the Bank constitute the general pattern of the business of the Organization. It is so ordered. Inc. Such." with funds deposited by them.. with costs against respondent First Mutual Savings and Loan Organization. and the writ of preliminary mandatory injunction issued in compliance therewith are hereby annulled." if any. It is interesting to note. Sanchez and Castro. Bengzon. 1962. 337 seeks to forestall. in the light of the circumstance obtaining in this case.. and in line with Alverez vs. however. so that the search and seizure be limited to the records pertinent thereto." In other words. the order of respondent Judge dated July 2.. As a consequence.B. Makalintal. to its members. Zaldivar. the search and seizure complained of have not been proven to be unreasonable. it may be necessary to specify or identify the parties involved in said isolated transactions. however. Reyes. J. also. the main purpose thereof. by exacting compliance with the requirements of said Act. accordingly. and that. in the form of loans. 337. according to its By-laws. It is true. We are satisfied. in its discretion. the power to so dispose of said funds is placed under the exclusive authority of the "founder members.. J. and the writ of preliminary injunction issued by this Court on August 14.